New York State Nurses Ass’n Benefits Fund Through Buchanan v. Nyack Hosp., No. 20-378, __F.4th__, 2022 WL 3569296 (2d Cir. Aug. 19, 2022) involves a dispute between an employer, Nyack Hospital, and the New York State Nurses Association Benefits Fund regarding the proper scope of the Fund’s audit of Nyack’s payroll records. The district court sided with Nyack and held that the Fund was only entitled to the payroll records of persons that Nyack identified as potential Plan beneficiaries, in this case registered nurses, and not to the records of other employees to determine whether they should have been classified as Plan beneficiaries. The Fund and Nyack cross-appealed—the Fund arguing that the district court’s authorized audit was too narrow and Nyack arguing that it was too broad. The Second Circuit sided with the Fund.
In coming to its decision, the Second Circuit applied the framework articulated in Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 105 S.Ct. 2833, 86 L.Ed.2d 447 (1985). The court must first assess whether the audit is within the scope of what is permitted under the Trust Agreement. Second, the court determines whether the party resisting the audit has offered evidence showing that the audit request was actually an effort by the Trustees to further some illegitimate purpose such as to expand Fund coverage beyond the class defined in the Fund’s terms or to acquire information about the employer to advance union goals, or whether the audit itself was a waste of resources and unrelated to legitimate Fund concerns.
The court found that the Fund’s audit was contractually authorized. It is undisputed that the objective of the audit was to determine that Nyack was making contributions for all covered employees. The court also found that the materials and information requested by the Fund fell within the meaning of “the payroll and wage records of any Employer” as set forth in the Trust Agreement. The inclusion of the definite article “the” connotes that the Trustees were entitled to the set of payroll and wage records and not some subset of those records. This interpretation is reinforced by comparing language in the Trust Agreement and the CBA. The Trust Agreement reflects the intent that the auditors receive the records that the auditors determine they need, at least in the absence of a breach of fiduciary duty. Lastly, the auditing power claimed by the Fund is consistent with the goal upon which the Fund rested its audit—to monitor the employers’ reporting of their contributions and to determine who was entitled to Fund benefits.
The court also found that the contractually authorized audit would not have violated the Fund’s fiduciary duties. Contrary to Nyack’s argument, it is not the Fund who bears the burden of proving that the audit’s scope is limited to prudent actions furthering the legitimate purposes of the plan. Rather, Nyack had the burden of proving that the requested audit would be a breach of the Fund Trustee’s fiduciary duties and it did not meet that burden. The purpose of the audit was to determine whether Nyack’s reports were accurate and that is a legitimate Fund concern. The Trustees are not limited by their fiduciary duty to review only what the employer represents as the payroll records of all registered nurses” to identify additional plan participants. The court rejected Nyack’s argument that the Fund is self-policing, that is, that employees would complain if they lost their coverage and non-eligible employees who are not enrolled cannot receive benefits. The court explained that the Trustees have independent fiduciary duties under ERISA to ensure Fund integrity and inform beneficiaries of their rights. This is an affirmative fiduciary obligation. The court also rejected Nyack’s argument that it should not be ordered to produce the requested information because the Trustees would illegitimately use the information to expand Fund coverage. There is no evidence that the auditor’s offer of a confidentiality agreement would have included a provision that would allow disclosure to the nurses’ association. The court held that, “in the absence of evidence presented by an employer of a breach of the duty of loyalty or the duty of care, benefits plans like the Fund are entitled to require participating employers to submit to contractually permitted audits.”
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