STATE OF NEW YORK
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
-vs- Index #H-08090
CARLA SANDBERG BABCOCK;
FALARE SANDBERG; AND
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
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
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
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
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
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
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
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
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
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
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
Justice of Supreme Court