SUPREME COURT : COUNTY OF CHAUTAUQUA

TRUSTEES OF THE NATIONAL AUTOMATIC

SPRINKLER INDUSTRY PENSION FUND,

WELFARE FUND, LOCAL 669 U.A. EDUCATION

FUND, AND SPRINKLER INDUSTRY SUPPLEMENT

PENSION FUND,

Plaintiffs,

-vs- Index #H-08090

DAVID SANDBERG;

CARLA SANDBERG BABCOCK;

FALARE SANDBERG; AND

BRUCE SANDBERG,

Defendants.

E. JOSEPH GIROUX, JR.

(William E. Grande, Esq.

of Counsel) for Plaintiffs

BECKSTROM & PLUMB

(John K. Plumb, Esq. of

Counsel) for Defendants

DECISION AND ORDER

GERACE, J.

Plaintiff's motion to amend the complaint is granted; its

motion for summary judgment is denied. Defendant's motion for summary judgment is denied in part; defendant's motion to amend answer is granted.

Plaintiff pension fund seeks to hold 4 individual defendants liable for employee contributions due the fund by the corporation in which the four defendants were shareholders.

Plaintiff asks leave to amend its complaint of 9/24/93 to

update the amounts demanded. It claims there is no prejudice

to defendants because it is not seeking to add a substantive

cause of action.

November, 1990, plaintiff took judgment against defendants for $5292.74 regarding late paid pension contributions for Sandberg employees. On 6/25/91, Sandberg filed for reorganization under Chapter 11 of the Bankruptcy Law. On 3/9/93 this was converted to a Chapter 7 proceeding.

The announcement of the conversion, Exhibit D of the petition, reads:

"At this time there appears to be no assets

available from which payment may be made to

unsecured creditors."

Plaintiff says that at that time they believed that

corporation would be unable to pay, so under BCL §630 it

notified each of the defendants they would personally be held

responsible.

Plaintiff wants to include post-judgment delinquencies; to correct paragraph 13 of the complaint to reflect the

principle amount of the judgment for liquidated damages due

on late paid contributions; to reflect the fact that in

September 1994, Plaintiff received $16,160.35 from U.S. Bankruptcy Court.

BCL §630 imposes individual liability on the ten largest

shareholders of a closely held corporation for benefits due

employees where the corporation fails to pay.

Defendants claim that this Court has no jurisdiction because Federal ERISA §514a preempts all state laws that "relate to any employee benefit plan" 29 USC 1144a.

There is a conflict between a decision of the Court of

Appeals, and, federal decisions. The lead case in New York, SASSO V. VACHRIS, 66 NY2d 1359 rejects the policy of preemption.

However, in INGERSOLL-RAND V MCCLENDON, 498 US 133, the

federal court rejected the standard set out in SASSO and the

cases (mostly federal) relied upon by the SASSO court have

been overruled.

This Court must make a decision therefore as to which

law it will apply. The federal cases subsequent to SASSO

have challenged its validity.

Unfortunately, the US Supreme Court sidestepped the issue in MCMAHON V. MCDOWELL; Justice White dissented

because he felt the Court should rule on if Sasso was still

valid law or not.

Justice White was correct; In the interest of justice and

judicial economy, the US Supreme Court should addressed that

question. Because of the Supreme Court's refusal to do so,

the litigants in this case face three choices, viz:

(1) spending an enormous amount of money to get the issue

back up the expensive and time consuming judicial ladder to

get a final answer, or (2) compromising, or, (3) accepting

the decision of this Court as final.

This is a sad commentary on the judicial system. Why should a Supreme Court Justice in the western corner of rural New York, with one overburdened law clerk, and roughly 900 motions a year, be forced to resolve an issue that was on the edge of the table of the US Supreme Court with its 9 justices and dozens of law clerks? Why should the parties be forced to the above three choices when the Court had an opportunity to settle the issue once and for all?

This Court recognizes there is long standing judicial policy in our country that courts should avoid deciding questions or issues or matters that not absolutely necessary to decide the case before the court, but, there is no excuse for the Supreme Court to have followed this policy in the MCMAHON case.

The U.S. Supreme Court was very much aware that decisions in federal and many other states have clearly rejected the

philosophy of SASSO; the Court should have known the issue would rise again.

SASSO says that BCL §630 does not regulate the terms and

conditions of a welfare and pension plan as necessary under

ERISA and hence does not "relate to" the employee benefit

plan within the meaning of the federal statute.

Because the Supreme Court sidestepped the issue, and, the NY Court of Appeals has not reversed or modified SASSO, SASSO is still good law in NY State.

INGERSOLL-RAND clearly rejects the "purports to regulate plan terms and conditions" standard in SASSO. PILOT LIFE INS. C0 V DEDEAUX, 481 US 133 and TRAVELERS INS CO v CUOMO, 14 F3rd

708 question SASSO.

In MACKEY V LANIER COLLECTION AGENCY AND SERVICE, INC.,486 US 825, the Court said:

"Its deliberately expansive language was designed

to establish pension plan regulation as exclusively

a federal concern."..."A state law may 'relate to'

a benefit plan and thereby be preempted, even if

the law is not specifically designed to affect

such plans, or if the effect is only indirect."...

"Preemption is not precluded simply because a state

law is consistent with ERISA's substantive

requirements."

Furthermore, in TRAVELERS INC. CO V CUOMO, the Court

based on INGERSOLL-RAND, overruled REBALDO V CUOMO, 749 F2d

133 upon which SASSO relied. It said that REBALDO'S entire

analysis was poisoned by discredited belief that Erisa's

preemption clause was targeted only at state laws that

'purport to regulate plan terms and conditions.' See also

SMITH V DUNHAM-BUSH INC. 959 F2d 6.

All these cases have led to numerous subsequent

decisions of other state courts holding contrary to SASSO.

Courts in Pa, Mass, Calif, NJ, Texas, Ms, and Georgia have

all ruled contrary to SASSO by holding this type of situation

a federal question.

The defendants argue that in view of the Supreme Court

and other federal authority rulings that the NY Court of

Appeals would have no choice today but to overrule SASSO and

find that BCL §630 is pre-empted.

The Chautauqua County Supreme Court is not the NY Court of Appeals. Yet, there is little doubt that SASSO will be

overruled. But, as it is still the law in NY State,

and must be followed by the lower Courts.

It is not up to this Court to overrule SASSO. In fact, an

appeal from our case could be the one that leads to its

eventual overturning.

This Court does not agree with plaintiff's position that

INGERSOLL is distinguishable from SASSO. MCMAHON v McDOWELL,

794 F2d 100, the case where the Supreme Court chose not to

rule on the conflict between SASSO and the other cases cited,

was an 8-1 decision in which Justice White dissented because

he felt the Court should resolve that conflict. Justice White,

out of the nine alone understood the Court had a duty to

belly up to its responsibility. See at 479 US 971.

Plaintiff says if the U.S. Supreme Court did not disturb

SASSO, why should the New York State Supreme Court in

Chautauqua County? While the Court should have addressed

SASSO in McMAHON, it was not necessary for the Court to

do so to resolve the SASSO conflict to settle the particular

issues in McMAHON. They could sidestep the question; this

Court doesn't have that luxury, nor does it have that

inclination.

The motion to amend is granted; the motion for summary

judgment is denied because there are several other questions that must be addressed; other BCL issues must be dealt with.

All the Defendants have moved for summary judgment under CPLR §3212b on the following grounds:

1. Plaintiffs have failed to comply with the statutory time limits of the BCL,

2. The statutory notice provided by plaintiffs was insufficient, and

3. Liquidated damages are not within the scope of BCL §630.

BCL §639a and caselaw hold that an action to enforce a

judgment must commence within 90 days after return of an

unsatisfied execution upon a judgment. Both sides have

different interpretations of when the 90 days start to run.

Plaintiffs rely on GROSSMAN V SENDOR ET AL, 89 Misc.2d

952, aff'd as mod. 64 AD2d 561 as providing that this

requirement is satisfied once it is clear that the creditor

will be unable to obtain execution due to a bankruptcy

proceeding.

11 USC 362 provides for a stay when a corporation files

bankruptcy. However, the caselaw does not direct the courts

to disregard statutes of limitations when dealing with a

bankruptcy. Grossman assumes that the 90 days applies

notwithstanding the bankruptcy.

Defendant relies on IN RE NARGASSANS, 103 BR 446 which takes the opposite approach.

Defendants claim that any of three events could trigger

the 90 days:

1. a conversion to a Chapter 7 proceeding under

Bankruptcy Law,

2. notice of a conversion containing a no

asset notice or

3. a section 341 meeting.

Defendants claim that each of these three events took place March 9th, April 16th and May 6th, 1993 respectively.

Plaintiffs say they waited until a distribution was made

and it became obvious that there would not be enough assets

to cover the debits. This flies in the face of NARRGASSANS

but not GROSSMAN. Plaintiffs claim that after the 5/6/93

creditor's meeting, they periodically checked with the

bankruptcy trustee regarding an expected payout. In

September 1993, so they say, they made a good faith judgment

that payment in full was extremely unlikely.

This presents as similar to the conflict regarding

Erisa's control here. While one might assume that bankruptcy

law and bankruptcy court caselaw would control, Grossman is

the law in the State of New York. I can not see this Court

ignoring a NY court decision which would result in the

dismissal of a lawsuit. I would allow the suit to stand,

deny summary judgment on this point, and let a higher court

throw it out if they so choose should they decide that

federal law controls.

There is a further statutory limitation here. BCL

§630a contains the notice requirements which say notice must

be given "within 180 days after termination of such

services." The notices were sent on 5/7/93 which was within

180 days of the business closing but not within the

termination of "such services."

The same arguments as applied to the 90 day limitation

apply here. The parties rely on Grossman and Nargassans as

set forth above. Plaintiffs argue that notice was timely for

all delinquencies and that the last time payment was due for

services was in March of 1993 at which time the corporation

was already in bankruptcy. They claim the defendants'

interpretation of this rule would require that a plaintiff

would have to notice all shareholders every 180 days and that

this could not have been the statute's intention. Grossman,

in fact, says only one notice is necessary.

This Court must rely on GROSSMAN.

Next, defendants claim the statutory notices were

insufficient and defective as failing to apprise them of the

full extent of liability for which plaintiffs sought to hold

them responsible. The notices are attached as exhibits E-H

of plaintiff's original papers.

The only amount stated was the original $5292.74. The proposed amended complaint seeks $86,970.49. Obviously, this is a dramatic difference.

There appears to be little caselaw on this point. There is a question if plaintiffs knew the magnitude of the alleged delinquencies when the notice was sent.

Plaintiffs respond that the defendants had the responsibility to fill out the monthly reports on the plans and kept the records, not the plaintiff. Having that responsibility, defendants should have known the magnitude.

It will severely prejudice Plaintiff if the amount to be sued on is $5000 vs. $86,000. Of course, the reverse will similarly prejudice the defendants as well.

Plaintiffs have attached a copy of the proposed amended complaint which is good, but they have not offered a satisfactory excuse for failing to present the increased amount earlier, nor have they explained the passage of time by an affidavit by someone with first hand knowledge.

forth this sum sooner, explain the passage of time and do so

by an affidavit by one with first hand knowledge.

There is one case, POPE V HALLORAN, 76 AD2d 770, on

sufficiency of notice, but it is not really on point here.

As an exception to the general limited liability role for

shareholders, BCL §630 should be strictly construed in favor

of the shareholders. HERMAN V LEVANNE, 77 Misc2d 653.

The amendment to the extent of including additional interest accrued from the initial sum, but the Court grants summary judgment to the defendant on the increased sums.

Finally, there is the liquidated damages as wages issue.

There is no case on point. Defendants argue that the

liquidated damages are not money payable for services, but

due to a contractual provision that does not deal with

employee compensation.

Plaintiffs claim that BCL §630 does not only apply to wages but all debts. In any case, plaintiffs claim that since defendants did not litigate in the action involving the taking of the judgment, that they now can not dispute these amounts. They cite MATARAZZA V SEGALL, 153 Misc. 2d 176 which supports this position.

The liquidated damages claim is allowed.

That leaves as the remaining issue whether defendants

should be allowed to amend their answer. Since plaintiff is

going to be allowed to amend in certain respects, defendants may do so as well. Leave to amend is to be freely given upon such terms as may be just. SEDA v NYC HOUSING AUTHORITY, 181 AD2d 469.

THIS IS THE DECISION AND ORDER OF THE COURT. NO FURTHER ORDER IS NECESSARY.

Dated: August 7, 1995

Mayville, New York

JOSEPH GERACE

Justice of Supreme Court