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Rodrigues v. United Public Workers, AFL-CIO

Intermediate Court of Appeals of Hawaii

March 13, 2014

GARY W. RODRIGUES, Plaintiff-Appellant,
v.
UNITED PUBLIC WORKERS, AFSCME LOCAL 64 6, AFL-CIO, Defendant-Appellee, and JOHN DOES 1-2 5; DOE GOVERNMENTAL UNITS 1-5; DOE CORPORATIONS 1-5; AND DOE ASSOCIATIONS 1-5, Defendants

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO. 08-1-2538)

Eric A. Seitz, Lawrence I. Kawasaki, Ronald N.W. Kim, (Eric A. Seitz, Attorney at Law, a Law Corporation) for Plaintiff-Appellant.

James E.T. Koshiba and Charles A. Price (Koshiba Agena & Kubota) for Defendant-Appellee.

NAKAMURA, C.J., FOLEY AND REIFURTH, JJ.

OPINION

REIFURTH, J.

Plaintiff-Appellant Gary W. Rodrigues ("Rodrigues") appeals from (1) the October 7, 2 009 Order Denying Plaintiff's Motion for Partial Summary Judgment as to Liability of Defendant United Public Workers, AFSCME Local 646, AFL-CIO, Filed June 19, 2 009, and Granting Summary Judgment Against Plaintiff ("Summary Judgment Order"); (2) the November 30, 2009 Order Granting in Part Defendant's Motion for Attorneys' Fees and Costs, Filed October 13, 2009; and (3) the December 14, 2009 Final Judgment, entered in the Circuit Court of the First Circuit ("Circuit Court") .[1]

On March 31, 2008, in De Costa v. Rodrigues, Civ. No. 03-00598 DAE-LEK (the "District Court Case"), the United States District Court for the District of Hawaii ("U.S. District Court") entered judgment against Rodrigues in the amount of $850, 000.00 for breach of fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. In the instant action before the Circuit Court, Rodrigues, the former State Director of Defendant-Appellee United Public Workers, AFSCME Local 646, AFL-CIO ("UPW"), sought indemnification from UPW for the above-mentioned sum plus his attorneys' fees and costs incurred in defending the District Court Case. The Circuit Court granted summary judgment in favor of UPW on the grounds that ERISA preempted Rodrigues's indemnification claim.

On appeal, Rodrigues argues that the Circuit Court erred in holding that his indemnification claim was preempted under ERISA. We affirm.

I. Background

A. Complaint

On December 9, 2008, Rodrigues filed his Complaint for Indemnity ("Complaint") against UPW in the Circuit Court, alleging as follows:

At all times relevant to this case, Rodrigues was the State Director of UPW, a labor organization. In 1984, UPW "established a mutual aid trust to provide supplemental hospitalization benefits for its members known as the UPW Local 636 Mutual Aid 501(c) (9) Trust [("Trust")]" and agreed to provide administrative services to the Trust ("Agreement"). Under the terms of the Agreement, UPW, "through its State Director acting on its behalf, " agreed to administer the money payable to or by the Trust. Rodrigues provided administrative services to the Trust from 1984 until late 2002.

In June 1994, the trustees of the Trust ("Trustees") authorized the investment of Trust funds to be made through the Hewitt Company ("Hewitt Co."). As State Director, Rodrigues "processed all investments of [the] Trust funds through Hewitt [Co.] on behalf of the . . . Trust." Between late 1998 and late 1999, Hewitt Co. made a series of investments in Best Rescue Systems, Inc. ("Best Rescue") totaling $1.1 million.

On December 10, 1999, UPW's parent union, AFSCME, "recommended that the [Trust] demand repayment of all of its investments in Best Rescue"; accordingly, Rodrigues, on behalf of the Trust, demanded repayment. Best Rescue did not immediately comply. In January 2000, UPW, through AFSCME, "filed lawsuits against Best Rescue and Hewitt [Co.] on behalf of the . . . Trust and its members to collect the funds invested in Best Rescue." Hewitt Co.'s principal, Albert Hewitt ("Hewitt"), was later "convicted of criminal violations for his role in [the] Trust's investments in Best Rescue [.]" Best Rescue filed for bankruptcy.

In November 2002, AFSCME suspended Rodrigues from his position as State Director and placed UPW under its administration.

On October 31, 2003, UPW filed a complaint in the District Court Case, seeking recovery from Rodrigues of all of the Trust's losses resulting from its investments in Best Rescue. Following a bench trial in March 2008, the U.S. District Court determined that Rodrigues was liable to the Trust in the amount of $850, 000.00 plus costs and fees for negligent breach of fiduciary duties.

Rodrigues alleged in the instant case that his liability to the Trust, as well as his attorneys' fees and costs in defending the District Court Case, "arose solely from acts and/or omissions [that he committed] in his capacity as agent of . . . UPW and/or were authorized and/or ratified by the trustees of the . . . Trust and/or . . . UPW." On that basis, Rodrigues claimed that he was entitled to indemnity from UPW for $850, 000.00 plus his attorneys' fees and costs incurred while defending the District Court Case.

B. Motion for Partial Summary Judgment

On June 19, 2009, Rodrigues filed a motion for partial summary judgment as to the liability of UPW ("Motion for Partial Summary Judgment"). Rodrigues attached several documents from the District Court Case, including the U.S. District Court's March 20, 2008 Findings of Fact and Conclusions of Law ("FOF/COL").

In the FOF/COL, the U.S. District Court explained that UPWs federal complaint had alleged Rodrigues's liability for breach of fiduciary duty in violation of 29 U.S.C. § 1104(a) (1) {A)[2] ("Count 1"), breach of fiduciary duty by a co-fiduciary pursuant to 29 U.S.C. § 1105[3] ("Count 2"), and engaging in prohibited transactions in violation of 29 U.S.C. § 1106(a)(1)(D)[4] ("Count 3"). The U.S. District Court found and concluded that the Trust was "an employee welfare plan governed by ERISA." It also found that Rodrigues was the Plan Administrator and, while not a Trustee, "was empowered by the [Trust] Board to act on their behalf with regard to investment of [Trust] funds, " and that "[the Board] relied upon his judgment." Having concluded that Rodrigues "exercised substantial discretionary authority and control of the management of [Trust] investments, assets and loan decisions[, ]" the U.S. District Court further concluded that Rodrigues was a fiduciary of the Trust pursuant to 29 U.S.C. § 1002(21) (A).[5]

Considering Count 1, the U.S. District Court concluded, in part, that Rodrigues:

clearly breached his fiduciary duties with respect to all other loans made to Best Rescue by failing to question Hewitt about the absence of long-term financing and repayment of half of the principal of the first loan, and instead continuing to blindly rely on Hewitt. Indeed, all subsequent Promissory Notes accepted by [Rodrigues] after the initial loan did not refer to long-term financing. [Rodrigues] continued to make further investment into Best Rescue without questioning the absence of the expected long-term financing or the failure of Best Rescue to repay half of the initial loan, as promised in the initial Promissory Note and Security Agreement. Such blind reliance on Hewitt in the face of clear red flags was not reasonably justified. . . . [Rodrigues] should have made an honest, objective effort to read the subsequent Promissory Notes, understand them, and question the areas that did not make sense. If after a careful review of the subsequent Promissory Notes and discussion with Hewitt, there were still uncertainties, [Rodrigues] should have had another expert or attorney review the investment to determine if further investment was warranted.

Thus, the U.S. District Court concluded that Rodrigues breached his fiduciary duties with respect to all loans to Best Rescue other than the initial loan and, therefore, was liable under 29 U.S.C. § 1104 for making an imprudent investment.

Considering Count 2, the U.S. District Court concluded, in part, that Rodrigues:

failed to conduct due diligence on Best Rescue at any time. [Rodrigues] also failed to make himself aware of Hewitt's loan origination fee. [Rodrigues] failed to have an attorney review the Security Agreement and Promissory Notes on [the Trust's] behalf. [Rodrigues] breached his fiduciary duties by relying whole-heartedly on Hewitt, failing to take the actions listed above, and failing to question the absence of long-term financing for Best Rescue prior to recommending and authorizing continued investment. All of these actions led to the imprudent investment, most of which could have been avoided, had [Rodrigues] ...

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