The U.S. Court of Appeals for the Second Circuit has upheld a decision dismissing with prejudice all 16 causes of action brought by the Division 1181 Amalgamated Transit Union – New York Employees Pension Fund (Fund) against the New York Department of Education (NYDOE) and several busing contractors. Plaintiff had alleged various claims under the Employee Retirement Income Security Act of 1974 (ERISA) and state law.

Partners Michael A. Kaplan and Andrew E. Graw and counsel Craig Dashiell represented Pride Transportation Services, Inc. and Quality Transportation Corp. in the case, Division 1181 Amalgamated Transit Union-New York Employees’ Pension Fund, and Its Board of Trustees v. New York City Department Of Education, Jofaz Transportation, Inc., Allied Transit Corp., Pride Transportation Services, Inc., Quality Transportation Corp.

Pride and Quality are school bus companies that entered into emergency contracts with the NYDOE in 2014 to provide transportation services to public school students after the companies that previously serviced those routes filed for bankruptcy. Both Pride and Quality are signatories to collective bargaining agreements with unions other than Division 1181. As part of their agreements with the NYDOE, Pride and Quality were required to hire unemployed bus drivers and attendants from master seniority lists. The Division 1181 Pension Fund took the position that these agreements also required Pride and Quality to pay it contributions on behalf of any person they hired from the master seniority lists who was ever previously a member of Division 1181.

After Pride and Quality rejected the Fund’s payment demands, the Fund sued them under ERISA and state law for delinquent contributions, for allegedly breaching fiduciary duties owed to Division 1181 by retaining monies rather than paying them to the Fund, and for allegedly engaging in prohibited transactions by refusing to make Division 1181’s requested payments.

In the trial court proceedings, the U.S. District Court for the Eastern District of New York rejected all of the Fund’s ERISA claims because the Fund had failed to establish the prerequisite for asserting a contribution claim under ERISAthat either Pride or Quality had an obligation to contribute to the Fund under a collective bargaining agreement or the Fund’s plan documents. Rather, the court found that Pride’s and Quality’s emergency contracts were simply private agreements between them and the New York Department of Education and that they did not meet the definition for a contribution obligation set forth in Division 1181’s plan documents. In the absence of an obligation to pay contributions, so, too, the Fund’s breach of fiduciary duty and prohibited transaction claims under ERISA failed because neither Pride nor Quality was ever in possession of, or dealt with, any assets of the Fund. The appellate court affirmed, in toto, the findings and decision of the Eastern District.

The case will have far-reaching consequences for the New York City school bus industry, as the basis of the Fund’s arguments, which relied on decades-old contractual provisions universally included in NYDOE bussing contracts, was firmly rejected by the Second Circuit.

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