Contractor's Withdrawal Liability for Unpaid Pension Contributions Dischargeable in Bankruptcy

On behalf of Macdonald Fernandez LLP on Thursday, August 22, 2013.

In Carpenters Pension Trust Fund for Northern California v. Moxley, 13 C.D.O.S. 9503, No. 11-16133 (9th Cir. August 20, 2013), the United States Court of Appeals for the Ninth Circuit ruled that a construction contractor's withdrawal liability for unpaid pension fund contributions is dischargeable in bankruptcy.
Contractors who stop working under collective bargaining agreements but stay in business must continue to fund the amount necessary to ensure payment to vested pension beneficiaries under ERISA. 29 U.S.C. §§ 1381, 1391. In this case, Michael Moxley's obligations under a California carpenters multiemployer collective bargaining agreement lapsed but he continued in business without making pension contributions. He filed bankruptcy owing the pension fund more than $170,000, and the fund brought an adversary proceeding to except it's claim from Moxley's discharge under Bankruptcy Code Section 523(a)(4).
Section 523(a)(4) excepts from discharge "any debt . . . for fraud or defalcation while acting in a fiduciary capacity . . ." Although the pension fund is arguably a trust, the court determined that Moxley did not act in a fiduciary capacity with respect to the fund because, among other things: (1) he did not administer the fund; and (2) the unpaid funds did not become an asset of the pension fund.
Section 523(a)(4) issues frequently arise in contractor cases, and this opinion should provide a valuable tool in determining how pension obligations are treated.