Gregory Bos v. Board of Trustees

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GREGORY BOS, No. 13-15604

Appellant,

D.C. No.

v. 2:12-cv-02026-

MCE

BOARD OF TRUSTEES, in their

capacities as Trustees of the

Carpenters Health and Welfare Fund OPINION

of California; Carpenters Vacation-

Holiday Trust Fund for Northern

California; Carpenters Pension Trust

Fund for Northern California;

Carpenters Annuity Trust for

Northern California; Carpenters

Training Trust Fund for Northern

California; Northern California

Carpenters Regional Council,

Appellee.

Appeal from the United States District Court

for the Eastern District of California

Morrison C. England, Jr., Chief District Judge, Presiding

Argued and Submitted

May 14, 2015—San Francisco, California

Filed July 30, 2015

2 BOS V. BOARD OF TRUSTEES

Before: Diarmuid F. O’Scannlain and Sandra S. Ikuta,

Circuit Judges and Larry A. Burns,* District Judge.

Opinion by Judge O’Scannlain

SUMMARY**

Bankruptcy

Reversing the district court’s judgment affirming the

bankruptcy court, the panel held that a debt was not

nondischargeable as a debt incurred due to the Chapter 7

debtor’s fraud or defalcation while acting in a fiduciary

capacity.

Agreeing with the Sixth and Tenth Circuits, the panel held

that the debtor was not a “fiduciary” under 11 U.S.C.

§ 523(a)(4) when he failed to make contractually required

contributions to an employee benefits trust governed by the

Employee Retirement Income Security Act. The panel

declined to recognize an exception to the rule that unpaid

contributions by employers to employee benefit plans are not

plan assets, even though other courts had recognized an

exception when the plan document expressly defines the fund

to include future payments.

*

The Honorable Larry A. Burns, District Judge for the U.S. District

Court for the Southern District of California, sitting by designation.

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

BOS V. BOARD OF TRUSTEES 3

The panel reversed with instructions to remand to the

bankruptcy court with instructions to discharge the debt.

COUNSEL

Kristen Ditlevsen Renfro, Desmond, Nolan, Livaich &

Cunningham, Sacramento, California, argued the cause and,

along with J. Russell Cunningham, J. Luke Hendrix, and

Gabriel P. Herrera, filed the briefs for appellant.

Tracy L. Mainguy, Weinberg, Roger & Rosenfeld, Alameda,

California, argued the cause, and Christian L. Raisner, Emily

P. Rich, Jordan D. Mazur, and Jolene E. Kramer filed the

brief for the appellees.

OPINION

O’SCANNLAIN, Circuit Judge:

We must decide whether an employer’s contractual

requirement to contribute to an employee benefits trust fund

makes it a fiduciary of unpaid contributions.

I

Beginning in 2007, Gregory Bos was owner and president

of Bos Enterprises, Inc. (“BEI”). BEI was a member of the

Modular Installers Association, an employer association. As

president of BEI, Bos agreed that BEI would be bound by the

Carpenters’ Master Agreement, and several trust agreements.

The Carpenters’ Master Agreement required each

employer—including BEI—to contribute monthly payments

4 BOS V. BOARD OF TRUSTEES

based on hours of work to the trust funds (the “Funds”)1 for

the purpose of providing employee benefits. Each trust

agreement defined its respective fund as including “all

contributions required by the [Carpenters’ Master Agreement]

. . . to be made for the establishment and maintenance of the

[respective plan], and all interest, income and other returns of

any kind.” With the exception of the Health and Welfare

Fund Agreement, the trust agreements defined each fund to

include, as well, any other money received or held because of

or pursuant to the trust.

Neither party disputes that Bos personally had full control

over BEI’s finances, as well as authority to make payments

on behalf of BEI, whether to the Funds or to other creditors.

Thus, Bos was personally responsible for making the required

contributions to the Funds on behalf of BEI. In any event, he

struggled to make the payments required by the Carpenters’

Master Agreement. On March 9, 2009, Bos signed a

promissory note personally guaranteeing payment to the

Funds of $359,592.09—the amount he had failed to pay from

August 2008 through January 2009. Although he made one

payment in April 2009 of $30,824.99, he otherwise failed to

meet the payment obligations required by the promissory

note.

The Board of Trustees (“the Board”)—charged with

administering the Funds—subsequently filed a grievance

against Bos and BEI to recover the outstanding amount owed

to the Funds under the Carpenters’ Master Agreement. An

1

Specifically, each employer was required to contribute to five trust

funds—the Health and Welfare Fund, the Pension Fund, the Vacation and

Holiday Fund, the Training Fund, and the Annuity Fund.

BOS V. BOARD OF TRUSTEES 5

arbitrator granted the Board an award of $504,282.59 against

Bos, individually and as doing business as BEI, and BEI.

On February 28, 2011, Bos and his spouse filed a joint

petition for Chapter 7 bankruptcy. On May 27, 2011, the

Board filed a complaint against Bos and his spouse contesting

the dischargeability of the $504,282.59 debt. The Board

subsequently amended its complaint so as to dismiss Bos’s

spouse.

On July 12, 2012, the bankruptcy court entered judgment,

concluding that Bos had committed defalcation while acting

as a fiduciary of the Funds and that the $504,282.59 debt to

the Funds was therefore nondischargeable.2 On March 8,

2013, the district court affirmed the bankruptcy court on the

same grounds, and on March 12, 2013, the district court

entered an order to that effect. Bos timely appealed.3

II

Bos argues that the bankruptcy court and district court

erred in concluding that he was a “fiduciary” under 11 U.S.C.

§ 523(a)(4).

2

Specifically, the bankruptcy court found that Bos’s debt fell under

11 U.S.C. § 523(a)(4), which provides that debts incurred by a debtor due

to the debtor’s “fraud or defalcation while acting in a fiduciary capacity”

are nondischargeable in Chapter 7 bankruptcy proceedings. The

bankruptcy court also found, however, that Bos’s debt did not fall under

either 11 U.S.C. § 523(a)(2) or (a)(6), which deem nondischargeable those

debts incurred through the debtor’s fraud or willful and malicious injury.

On appeal, the parties do not challenge the 11 U.S.C. § 523(a)(2) or (a)(6)

determinations.

3

We have jurisdiction pursuant to 28 U.S.C. § 1291.

6 BOS V. BOARD OF TRUSTEES

A

Section 523(a)(4) of the Bankruptcy Code provides that

Chapter 7 debtors may not discharge debts incurred due to the

debtor’s “fraud or defalcation while acting in a fiduciary

capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4).

For a debt to be held nondischargeable under § 523(a)(4)’s

defalcation provision, the debtor must have been a fiduciary

prior to his commission of the fraud or defalcation. See

Blyler v. Hemmeter (In re Hemmeter), 242 F.3d 1186, 1190

(9th Cir. 2001). In other words, the act of wrongdoing that

created the debt cannot be the same act that gives rise to the

fiduciary relationship. Id.

If an individual is a fiduciary for purposes of the

Employee Retirement Income Security Act of 1974

(“ERISA”), Pub. L. No. 93-406, 88 Stat. 829 (codified as

amended in scattered sections of 29 U.S.C.), the individual is

also treated as a fiduciary for purposes of § 523(a)(4). See In

re Hemmeter, 242 F.3d at 1190. ERISA defines a fiduciary

as, inter alia, an individual who “exercises any discretionary

authority or discretionary control respecting management of

[a] plan or exercises any authority or control respecting

management or disposition of its assets.” 29 U.S.C.

§ 1002(21)(A)(I).

Both the bankruptcy court and the district court concluded

that Bos’s debt was nondischargeable under § 523(a)(4)

because he controlled money which was contractually

required to be paid to the Funds—pursuant to both the

Carpenters’ Master Agreement and the promissory note—and

therefore was a fiduciary for purposes of both ERISA and

§ 523(a)(4). Specifically, each concluded that because the

trust agreements defined the Funds as including contributions

BOS V. BOARD OF TRUSTEES 7

“required . . . to be made” to the Funds, the unpaid

contributions were plan assets. They then concluded that

because Bos, as president of BEI, personally had control over

BEI’s finances and the authority to make contributions to the

Funds, he personally exercised the requisite control over the

unpaid contributions to be deemed a fiduciary under ERISA,

and therefore under § 523(a)(4) as well.

B

We have consistently held that unpaid contributions by

employers to employee benefit funds are not plan assets. See

Cline v. Indus. Maint. Eng’g & Contracting Co., 200 F.3d

1223, 1234 (9th Cir. 2000). Several district courts within this

Circuit have recognized an exception to Cline, however,

when the plan document expressly defines the fund to include

future payments. See, e.g., Bd. of Trs. v. River View Constr.,

No. C-12-03514PJH(DMR), 2013 WL 2147418, at *6 (N.D.

Cal. Apr. 17, 2013) (concluding that when the plan document

defined the fund as including “all Contributions required . . .

to be made,” unpaid contributions were plan assets); Trs. of

the S. Cal. Pipe Trades Health & Welfare Tr. Fund v.

Temecula Mech., Inc., 438 F. Supp. 2d 1156, 1165 (C.D. Cal.

2006) (concluding that when the plan document defined the

fund as including money “due and owing to the Fund by the

Employers,” unpaid contributions were plan assets). These

courts have construed such language as imposing ERISA

fiduciary status upon an employer simply by virtue of its

control over unpaid contributions to the fund. See, e.g., River

View Constr., 2013 WL 2147418, at *6; Temecula, 438 F.

Supp. 2d at 1168–69.

We have not yet determined whether to recognize such an

exception to Cline. See Carpenters Pension Tr. Fund for N.

8 BOS V. BOARD OF TRUSTEES

Cal. v. Moxley, 734 F.3d 864, 869 (9th Cir. 2013) (expressly

declining to decide whether a plan document can classify

unpaid contributions as plan assets so as to impose fiduciary

status upon an employer). Moreover, the circuits that have

addressed the issue are split.

The Eleventh Circuit, for instance, recognized the

possibility of such an exception in ITPE Pension Fund v.

Hall. 334 F.3d 1011, 1016 (11th Cir. 2003). Notably, the

court there emphasized that the plan document defined the

fund as including receivable property, rather than mere

receivables, distinguishing between “a contractual or legal

claim for payment of the money due, in contrast to the actual

money due.” Id. at 1014 n.4. The court explained that if the

plan asset were merely a contractual right to payment, the

employer would have no authority over the asset so as to

establish a fiduciary relationship. Id. But because the plan

document defined the fund as including receivable property,

the court concluded that the unpaid contributions themselves

could become fund assets at the time of nonpayment, and the

employers—who had control over the money which they

were contractually obligated to pay to the fund—would

therefore be treated as fund fiduciaries by virtue of their

nonpayment. Id.

The Second Circuit has similarly construed a plan

document designating plan assets to include unpaid

contributions as establishing fiduciary status for an employer

who had authority to make such contributions. See

Bricklayers & Allied Craftworkers Local 2, Albany, N.Y.

Pension Fund v. Moulton Masonry & Constr., LLC, 779 F.3d

182, 189 (2d Cir. 2015); see also Rahm v. Halpin (In re

Halpin), 566 F.3d 286, 290 (2d Cir. 2009) (speculating that

a plan document could designate unpaid contributions as plan

BOS V. BOARD OF TRUSTEES 9

assets sufficient to establish fiduciary status for purposes of

§ 523(a)(4), but ultimately concluding that the document in

that case failed to do so).

C

Other circuits, however, have declined to apply such an

exception, particularly in the context of § 523(a)(4).

The Tenth Circuit, for instance, declined to apply the

exception in Navarre v. Luna (In re Luna), 406 F.3d 1192

(10th Cir. 2005).4 The Luna court first concluded that a plan

document could impose on an employer a contractual

obligation that would create some form of plan asset. Id. at

1198–201. Departing from the approach taken by the

Eleventh Circuit in Hall, however, the Luna court emphasized

that the ERISA definition of “asset” is determined by

reference to property law. Id. at 1199. “Under ordinary

notions of property rights, an ERISA plan does not have a

present interest in the unpaid contributions until they are

actually paid to the plan.” Id. Rather, “the plan holds a

future interest in the collection of the contractually-owed

contributions”; in other words, regardless of the language in

the plan document, the plan holds the contractual right to

collect the unpaid contributions—not the unpaid contributions

themselves. Id. at 1199–200; see also Restatement (First) of

Property ch. 1 intro. note (1936) (explaining that “property”

includes intangibles, such as a chose in action). Thus, the

proper question regarding control of the asset is not whether

4

Notably, unlike Hall and Moulton Masonry, In re Luna arose in the

context of a Chapter 7 bankruptcy proceeding, and addressed the specific

question of whether a debt arising from these unpaid amounts was

nondischargeable under 11 U.S.C. § 523(a)(4). 406 F.3d at 1197.

10 BOS V. BOARD OF TRUSTEES

the employer controlled the money that it was obligated to

pay to the plan, but rather whether the employer had control

over the contractual right to collect the unpaid contributions.

In re Luna, 406 F.3d at 1202–08. Because the employers in

Luna had no control over the contractual right to collect the

unpaid contributions—they simply had control over the

money itself—the court concluded that the employers were

not plan fiduciaries, and therefore the debt incurred by failing

to make contractually-required payments to the plan was

dischargeable regardless of § 523(a)(4). Id.

The Sixth Circuit has also declined to apply an exception

to the general rule that an employer cannot be an ERISA

fiduciary with respect to unpaid contributions. In Board of

Trustees of the Ohio Carpenters’ Pension Fund v. Bucci (In

re Bucci), 493 F.3d 635 (6th Cir. 2007), for instance, the

court declined to apply the exception in the § 523(a)(4)

context on the ground that, even if the plan document could

make the unpaid contribution itself a plan asset, such a

classification would impermissibly impose fiduciary status

based on the act of wrongdoing. Id. at 643; see also Sheet

Metal Local 98 Pension Fund v. Airtab, Inc., 482 F. App’x

67, 69–70 (6th Cir. 2012) (adopting the Luna court’s

reasoning to conclude that employers did not have sufficient

control over the plan’s claim for breach of contract to

establish ERISA fiduciary status). Thus, the Sixth Circuit has

determined that an employer cannot commit defalcation

under § 523(a)(4) simply by failing to make contractually-

required contributions, even if the plan defines the fund as

including future contributions.

BOS V. BOARD OF TRUSTEES 11

D

We agree with the view taken by the Sixth and Tenth

Circuits. Indeed, it comports with the limited approach we

take in recognizing fiduciary status, particularly in the

§ 523(a)(4) context. See Cal-Micro, Inc. v. Cantrell (In re

Cantrell), 329 F.3d 1119, 1125 (9th Cir. 2003) (“[W]e have

adopted a narrow definition of ‘fiduciary’ for purposes of

§ 523(a)(4) . . . .”); see also Hall, 334 F.3d at 1015

(acknowledging that fiduciary status should not be imposed

unless the individual is “clearly aware of his status as a

fiduciary”).

Moreover, a typical employer5 never has sufficient control

over a plan asset to make it a fiduciary for purposes of

§ 523(a)(4). Specifically, even if a plan document could

convert an unpaid contribution into some type of plan asset,

and even if the language in either the trust agreements or the

promissory note here were sufficiently specific to do so, such

an “asset” could legally be classified in only one of three

ways.

First, as the Luna court explained, such asset could be

classified as the contractual right to collect payments once

they become due. 406 F.3d at 1199–200; see also

Restatement (Third) of Trusts § 40 cmt. b (2003) (noting that

trust property may include choses in action or claims against

third parties). In the case at bar, such a right could be

enforced either under the Carpenters’ Master Agreement or

5

The parties do not allege, nor is there evidence in the record to support

the notion, that Bos had any other interaction with the Funds that could

have given rise to a fiduciary relationship other than his failure to make

contractually-required contributions.

12 BOS V. BOARD OF TRUSTEES

the promissory note. In either event, however, an employer

with no authority over the management of the plan—such as

BEI here—has no control over enforcing such a right; rather,

as demonstrated by the existence of the present lawsuit

brought by the Board against Bos, the designated fund

administrator has the authority to enforce the contractual

right. Thus, because an employer would lack the requisite

control over such plan asset, it could not qualify as a fiduciary

for purposes of either ERISA or § 523(a)(4).

Second, as in Hall, such asset could be classified as the

unpaid past-due contributions. 334 F.3d at 1014. There,

however, the event that created the debt—the nonpayment of

the funds—was the same event that created the fiduciary

status, and thus, the debt would not fall under § 523(a)(4).

See In re Hemmeter, 242 F.3d at 1190.

Third, as the Board argues here, such asset could be

classified as amounts which the employer must eventually

contribute to the plan, but which are not yet due, thus

avoiding the problem of the act of wrongdoing creating the

fiduciary status. The classification logically fails, however,

as, until the time payment is due, the plan does not actually

possess the money, and in fact has no present right to it. See

Restatement (First) of Property § 153 (1936) (explaining that

an owner has a present interest in particular property only if

it may immediately exercise control over such property).

Thus, such asset is in fact more appropriately classified as the

contractual right to bring a claim against the employer for

delinquent payments if the payments are in fact never made.

Because, as discussed above, the typical employer—like

BEI—would have no control over such a right, the employer

would lack the requisite authority to be considered a fiduciary

under § 523(a)(4). Thus, even if the language in the trust

BOS V. BOARD OF TRUSTEES 13

agreements and the promissory note sufficed to turn unpaid

contributions into some form of plan asset, neither BEI nor

Bos ever had control over such asset prior to nonpayment.

Therefore, consistent with our general rule that unpaid

contributions to employee benefit funds are not plan assets,

see Cline, 200 F.3d at 1234, Bos did not engage in defalcation

for purposes of § 523(a)(4).6

III

Because Bos did not act as a fiduciary under 11 U.S.C.

§ 523(a)(4), and because the bankruptcy court and district

court expressly found that Bos’s debt did not fall under any

of the other nondischargeability exceptions put forth by the

Board, we reverse the district court’s judgment with

instructions to remand to the bankruptcy court with

instructions to discharge the debt. See, e.g., State Bar of Cal.

v. Taggart (In re Taggart), 249 F.3d 987, 994 (9th Cir. 2001),

superseded by statute on other grounds, Cal. Bus. & Prof.

Code § 6086.10(e).

REVE RS E D AND RE MANDED WITH

INSTRUCTIONS.

6

Because we conclude that Bos was not acting as a fiduciary for

purposes of § 523(a)(4), we need not address whether the bankruptcy court

and district court erred in failing to inquire whether Bos behaved with

“gross recklessness” in respect to his failure to make contractually-

required payments to the Funds. Bullock v. BankChampaign, N.A., 133 S.

Ct. 1754, 1757 (2013).