Second Circuit Affirms Criminal Liability for Embezzling Union Fund Collection Rights Under ERISA

In United States of Am. v. Donal O’Sullivan, Padraig Naughton, Helen O’Sullivan, No. 23-7076-CR, 2025 WL 1823410 (2d Cir. July 2, 2025), the Second Circuit upheld the criminal convictions of three executives of a unionized construction company who engaged in a scheme to avoid making required contributions to union benefit funds. Among the affirmed charges were conspiracy and substantive violations of 18 U.S.C. § 664—embezzlement from employee benefit funds—a statute with deep connections to ERISA. The court’s ruling reinforces the notion that “plan assets” under Section 664 extend to the contractual right to collect unpaid contributions owed to benefit funds, even if those funds were never in the plan’s possession.

Donal O’Sullivan, founder of Navillus Contracting, along with his sister Helen O’Sullivan (payroll manager) and comptroller Padraig Naughton, orchestrated a six-year scheme to disguise payroll for employees performing covered work under collective bargaining agreements (CBAs). Rather than paying these employees directly through Navillus, they routed payroll through a third-party company, D.E.M. Consulting (doing business as Allied), which they created and controlled.

Despite these employees engaging in union-covered work, Navillus made no benefit contributions on their behalf. Worse still, Allied’s invoices masked the true nature of the arrangement, billing Navillus for “consulting” services instead of payroll. The government charged this as a deliberate attempt to avoid ERISA-mandated benefit contributions, culminating in convictions for embezzling plan assets.

On appeal, the defendants argued that their convictions under 18 U.S.C. § 664 should be overturned because the government failed to prove they embezzled actual “plan assets.” Specifically, they claimed that the “right to collect” unpaid contributions—although contractually owed under the CBAs—was not a tangible asset that could be converted or embezzled under federal criminal law. This argument was rooted in the idea that until contributions are actually paid, they do not become “plan assets” under ERISA, citing the civil bankruptcy decision In re Halpin, 566 F.3d 286 (2d Cir. 2009).

The Second Circuit firmly rejected this narrow interpretation. It held that while unpaid contributions may not be “plan assets” for civil enforcement purposes under ERISA, the “contractual right” of benefit plans to collect owed contributions is, in itself, an “asset” subject to criminal protection under § 664.

Drawing from its prior decision in United States v. LaBarbara, 129 F.3d 81 (2d Cir. 1997), the Court explained that conversion under § 664 includes “willful interference” with such collection rights. Here, the defendants’ conduct—creating a sham company to mask payroll and avoid contributions—constituted intentional interference with the funds’ rights to collect what they were owed. As such, the court upheld the jury’s conclusion that this was criminal conversion of an ERISA asset.

The Second Circuit’s decision is a resounding affirmation of the broad protections afforded to employee benefit plans under federal criminal law. For plan fiduciaries, participants, and unions, this ruling underscores that deliberate schemes to obstruct contributions—even before funds are received—can amount to felony embezzlement.