20-378 (L) New York State Nurses Association Benefits Fund v. The Nyack Hospital

In the United States Court of Appeals For the Second Circuit ______________

August Term, 2020

(Argued: February 22, 2021 Decided: August 19, 2022)

Docket Nos. 20-378, 20-425 ______________

NEW YORK STATE NURSES ASSOCIATION BENEFITS FUND, THROUGH THE CHAIRPERSON OF THE BOARD OF TRUSTEES, DENNIS BUCHANAN, AND THE SECRETARY OF THE BOARD OF TRUSTEES, NANCY KALEDA,

Plaintiff–Appellant-Cross-Appellee,

–v.–

THE NYACK HOSPITAL,

Defendant-Appellee-Cross-Appellant. ______________

Before:

CARNEY and NARDINI, Circuit Judges, and LIMAN, District Judge. ∗ ______________

This case concerns the scope of the audit authority of a multi-employer employee benefit fund covered by the Employee Retirement Income Security Act (“ERISA”). The

∗ Judge Lewis J. Liman of the United States District Court for the Southern District of New York, sitting by designation. New York State Nurses Association Benefit Fund (the “Fund”) sought an audit of the Nyack Hospital’s (the “Hospital’s”) payroll and wage records. The Hospital objected, claiming that the Fund had the authority to inspect only the payroll records of employees the Hospital identified as members of the collective bargaining unit. The district court (Briccetti, J.) held that the Fund was entitled to the records of all persons the Hospital identified as registered nurses but not to the records of any other employees. We reverse in part and affirm in part. To the extent the district court granted the Hospital’s cross-motion for summary judgment and denied the Fund’s motion for summary judgment, we reverse. To the extent the district court granted the Fund’s motion for summary judgment and denied the Hospital’s cross-motion for summary judgment, we affirm. We hold that the audit sought by the Fund was authorized by the Trust Agreement, and that the Hospital did not present evidence that the audit constituted a breach of the Fund’s fiduciary duty under ERISA. Accordingly, the audit was within the scope of the Fund trustees’ authority under the Supreme Court’s decision in Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc.,

(1985). REVERSED IN PART AND AFFIRMED IN PART.

Judge Carney dissents in part in a separate opinion. ______________

JAY P. WARREN (Kyle P. Flaherty, on the brief), Bryan Cave Leighton Paisner LLP, New York, NY, for New York State Nurses Association Benefits Fund.

JOHN HOUSTON POPE (James S. Frank, on the brief) Epstein Becker & Green, New York, NY, for the Nyack Hospital.

______________

LIMAN, District Judge:

New York State Nurses Association Benefits Fund (the “Fund” or the “Plan”)

appeals from an order of the district court (Briccetti, J.), granting in part and denying in

part its motion for summary judgment and determining the scope of the payroll records

of Nyack Hospital (“Nyack” or the “Hospital”) to which the Fund was entitled in

2 connection with an audit of Nyack. The district court held that the Fund was entitled to

only the payroll records of persons identified by Nyack as potential Plan beneficiaries,

i.e., registered nurses (“RNs”), and not to the records of other employees to determine

whether they should have been classified as Plan beneficiaries. The Fund appeals,

arguing that the district court erred in narrowing the audit and holding that Nyack was

required under an agreement governing the Fund (defined herein as the Trust

Agreement) to provide only the payroll records of persons Nyack identified as RNs.

Nyack cross-appeals, arguing that the district court authorized an audit that was too

broad and that the Fund is entitled to audit only the records of those employees Nyack

has identified as members of the collective bargaining unit. For the following reasons,

the decision of the district court is AFFIRMED IN PART and REVERSED IN PART.

BACKGROUND

The following facts are taken from the summary judgment record and were

undisputed in the district court. They are taken as undisputed for purposes of this

appeal.

I. The Parties’ Agreement

The Fund is a multiemployer fringe benefit fund governed by the Employee

Retirement Income Security Act of 1974,

, et seq. (“ERISA”). The Fund

provides health and welfare benefits to employees of hospitals that are parties to

collective bargaining agreements (“CBAs”) with the New York State Nurses Association

(“NYSNA”). The Fund is governed by the Second Amended and Restated Agreement

and Declaration of Trust Establishing the New York State Nurses Association Benefits

Fund (the “Trust Agreement”).

Nyack is a hospital serving the Rockland County area. It has approximately

1,400 full- and part-time employees. It is a party to a CBA with NYSNA that covers

3 certain of its employees and was signed on October 5, 2016. 1 The CBA “covers all full-

time, regular part-time and per diem registered professional nurses employed by

[Nyack], including every person lawfully authorized by permit to practice as a

registered professional nurse” with certain exclusions set forth in the CBA. A-150.

Three other unions also have CBAs with Nyack; these CBAs cover other groups of its

employees.

Several provisions of the CBA are relevant here. Section 9 of the CBA makes

regular full-time and part-time employees eligible for coverage under the Fund. Per

diem employees and temporary employees are not eligible for health benefits. 2 No

persons other than those represented by NYSNA are eligible for participation in the

Fund. Section 9 of the CBA also requires Nyack to “contribute to the [Fund] an annual

sum paid in monthly increments uniformly required by the Fund to provide health and

welfare benefits for covered employees.” Section 9.01(A)(4) of the CBA requires Nyack

to provide to the Fund trustees (the “Trustees”) “such documentation with respect to

the Employees covered by the . . . Fund as may reasonably be necessary to establish the

validity of claims made on the . . . Fund or the number of and identity of such

Employees for whom contributions were made during the term of this [CBA].” A-171.

The CBA also provides that (1) the Fund Trustees have “[t]he sole and exclusive

1On April 29 and April 30, 2014, NYSNA and Nyack entered into a Memorandum of Agreement (“MOA”) stipulating that, effective June 30, 2014, Nyack would begin making contributions to the Fund to provide health and welfare benefits for covered employees. A-65– A-66, A-301–A-308. The “Scope” provision of the MOA stated that the agreement covered “all full-time, regular part-time and per diem registered professional nurses employed by the Hospital, including every person lawfully authorized by permit to practice as a registered professional nurse and every person employed in a position which requires a registered professional nurse,” excluding “supervisory, managerial and administrative employees” and “all other employees employed by the Hospital” (the “Bargaining Unit”). A-150.

2 The CBA defines regular full-time, regular part-time, and per diem employees.

4 authority . . . to determine the benefits to be provided to . . . Fund participants and to

make changes thereto”; (2) the Fund “shall be held and administered under the terms

and provisions of the existing Trust Fund Agreement and any amendments thereof”;

and (3) nothing in the CBA is to be construed to be inconsistent with the provisions of

the Trust Agreement, “except as otherwise specified in the Acknowledgment of Trust

Agreement provided by the . . . Fund Trustees.” A-173.

The Trust Agreement sets forth the rights of the Trustees and certain

corresponding obligations of employers who are bound by it. Nyack agreed “to be

bound by the [Trust Agreement], as amended from time to time.” A-232. It did so in an

acknowledgment of Trust Agreement [A-171] (the “Acknowledgment”), which the CBA

required it to sign.

There are no qualifications or amendments to the Trust Agreement. Article V of

the Trust Agreement requires Nyack (like other Employers), to “contribute to the Fund

the amount required by the collective bargaining agreement” between NYSNA and

Nyack including Employee Contributions “consistent with the employee premium

option adopted by [Nyack] and [NYSNA] in bargaining.” A-119. The rate of

“Employer Contributions” is governed by the CBA.

The Trust Agreement gives the Trustees of the Fund broad authority. They have

discretion to interpret the terms of the Trust Agreement: “The Trustees shall have

power to construe the provisions of this Agreement and Declaration of Trust and the

terms used herein and any construction adopted by the Trustees in good faith shall be

binding upon [NYSNA], [Nyack], and the Employees and their families and

dependents.” A-113. The Trustees are authorized to “do all acts, whether or not

expressly authorized herein, which the Trustees may deem necessary or proper for the

protection of the property held hereunder” or “necessary to accomplish the general

5 objective of enabling the Employees to obtain welfare benefits in the most efficient and

economical manner.” A-114.

Finally, what gives rise to this case is the Trust Agreement’s audit provision. The

Trust Agreement permits the Trustees to conduct an audit in connection with Employer

Contributions and Employee Contributions:

5. Report on Employer Contributions. The Employers shall make all reports on Employer Contributions and Employee Contributions required by the Trustees. The Trustees may, at such times and places as may be appropriate, have an audit made by independent certified public accountants of the payroll and wage records of any Employer in connection with the said Employer Contributions, Employee Contributions, and/or reports. A-121–A-122.

II. The Audit Request

In the district court, the Fund submitted the affidavit of its Chief Operating

Officer, Christopher Rosetti. Rosetti averred that the Trustees were required “to assure

the financial integrity of the fund” and that, as an officer of the Fund, he was

responsible for ensuring “that every eligible participant receives” all documents,

reports, and other communications mandated by ERISA. A-78–A-79. “[T]his

responsibility extends to every person eligible to participate in the Fund – not just those

people who are already actively participating in the Fund or who are being reported on

by the contributing employers.” A-79.

To help the Trustees discharge their fiduciary duties, the Fund—like other

multiemployer fringe benefit funds—engages in payroll auditing (also known as

compliance auditing). Payroll auditing is used to determine whether employers are

making the required contributions on behalf of all eligible participants in the Fund.

“[M]any multiemployer benefit funds rely on employer self-reporting – meaning, the

6 employers themselves report to the funds the extent of their own contribution

obligations to the fund.” A-80. The Fund and its Trustees “monitor this self-reporting

by periodically auditing the participating employers’ payroll and wage records to make

sure that the employers’ reporting [is] accurate and that all contributions [are] properly

remitted.”

According to Rosetti,

[t]he funds need to monitor the employers’ reports and contributions because, e.g., an employers’ [sic] failure to report all covered employees may prevent funds from notifying participants and beneficiaries of their rights under the fund, an employer’s failure to contribute for an eligible employee may negatively impact the financial integrity of the fund, and because the fund’s and the employers’ interests are not completely aligned (i.e., it would be advantageous for an employer to underreport the number of its covered employees because that would reduce the amount of contributions that the employer owes to the fund).

A-80.

Every year, the Fund’s accounting department selects six of the numerous

employers that employ Fund beneficiaries for a payroll audit. The auditors perform the

audit according to “agreed-upon procedures” (“AUP”), by which the Fund dictates the

scope of the audit and then works with the auditors to determine the sample size and

the procedures. A-79–A-80.

On May 12, 2016, the Fund sent a letter to Nyack notifying it that the Fund’s

auditors intended to review Nyack’s payroll and related data. The audit would be the

Fund’s first audit of Nyack, which had joined the Fund in 2014. On May 13, 2016, the

Fund emailed Nyack a set of AUPs with a request list, which asked for, among other

items, “the May 2015 payroll register(s) for [Nyack] (should be inclusive of all

employees, not just the NYSNA group),” “a detail listing of all employees hired during

the year ended December 31, 2015 (should be inclusive of all employees, not just the

NYSNA group),” “a detail listing of all employees terminated during the year ended

December 31, 2015 (should be inclusive of all employees, not just the NYSNA group),”

7 and personnel records for a sample of employees that included their job classification.

A-241.

On May 23, 2016, Nyack responded with the list of all active members in the

collective bargaining unit covered by the CBA with NYSNA but expressed reservations

about providing documents concerning employees who were not members of the

collective bargaining unit. The Fund replied that it needed the records of all employees

“in order to independently verify who the [NYSNA]-collectively bargained employees

are.” A-255. The Fund stated that “[o]therwise it is impossible for [the auditors to]

independently verify what has been represented” and that the request was “[s]tandard

for any audit performed by an independent audit firm.”

The Fund invoked its

authority under Article V of the Trust Agreement.

In subsequent emails, the Fund’s

Chief Operating Officer stated that “the payroll information requested and reviewed by

the auditors is not shared by them with us, or anyone else” and asked whether Nyack

would accept a confidentiality agreement from the auditors. A-260.

In August 2016, Nyack and the Fund’s auditor signed an engagement letter,

which specified “agreed-upon procedures” for the audit and stated: “This engagement

is solely to assist the Board of Trustees . . . of the Fund in evaluating the accuracy and

completeness of [Nyack’s] monthly contribution reports, including the extent of

compliance with the Fund contribution requirements in the collective bargaining

agreement between [Nyack] and [NYSNA].” A-265.

III. The Dispute

By email dated September 9, 2016, the auditor requested that Nyack provide:

(1) a list of employees who were hired in 2015; (2) a list of employees who were

terminated during 2015; (3) a job classification code for each department; (4) the

monthly payroll registers that would be selected for the sample; and (5) the employee

8 personnel files that would be selected for the sample (the “September 9, 2016 Request”).

By follow up email, the auditor asked whether a signed confidentiality agreement

would permit Nyack to provide the records for all employees. In response, Nyack

advised the auditor that it would “supply the payroll information for only the

employees covered under the NYSNA cba.” A-297.

In response, counsel for the Fund sent a letter to Nyack demanding that the

auditor be permitted to examine all of the necessary documents. Nyack replied that it

would allow the auditor to look at only the payroll records of Nyack employees who

were RNs and participants in the Fund.

IV. The Litigation

The Fund commenced this action against Nyack on March 15, 2017, alleging that

Nyack’s failure to comply with Article V of the Trust Agreement constituted a breach of

contract and a violation of ERISA and the Labor Management Relations Act of 1947,

, et seq., and seeking an order requiring Nyack to produce “all books and

records” necessary for it to perform the audit examination pursuant to the Trust

Agreement and ERISA, as well as monetary relief. A-29. The Fund alleged that,

without the requested payroll records, (1) it would not be able to determine the full

amount of unpaid contributions owed to the Fund by Nyack; (2) the employee-

beneficiaries of the Fund would suffer injury because the Fund would be required to

deny welfare benefits to employee-beneficiaries for whom required contributions had

not been made; and (3) the Fund would be required to provide to employees benefits

provided for under the Trust Agreement even if Nyack failed to make the required

contributions, thereby reducing the corpus of monies administered by the Fund and

endangering the rights of the employee-beneficiaries in the future. The Fund

additionally alleged that, in the event Nyack was found delinquent in its contributions,

9 the Fund would be entitled to: “(a) the contributions found delinquent for the period

January 1, 2015 through December 31, 2015; (b) liquidated damages of twenty percent

(20%) on all delinquent contributions; (c) interest at the rate of one and one-half percent

(1.5%) per month; (d) audit costs; (e) reasonable attorney’s fees, costs and expenses; (f)

along with such other legal and equitable relief as the Court deems appropriate.” A-26.

Nyack moved to dismiss, arguing that the Fund’s audit request was overbroad

and impermissible under the CBA. By opinion and order of April 30, 2018, the district

court denied the motion without prejudice. It held that Nyack had contractual

obligations both under the CBA and under the Trust Agreement, that the terms of the

Trust Agreement governed over those of the CBA where the two were inconsistent, that

the Trustee’s good-faith construction of the Trust Agreement was entitled to deference,

and that Nyack was “subject to audit at the Fund’s request, provided the Fund has

construed its authority in good faith.” A-37. The court then, however, stated that it was

“perplexed” as to the extent of the request “[i]n view of the scope provision of the 2013

CBA” and determined that “on the current record, [it could] not conclude the requested

audit [was] broader in scope than necessary to achieve its objective.” A-38 (internal

quotation marks and citation omitted). The district court did not address whether the

documents requested were within the terms of the Trust Agreement.

The parties then cross-moved for summary judgment. The Fund argued that,

under the terms of the Trust Agreement, its auditors were entitled to look at the payroll

records of all of Nyack’s employees. Nyack argued that the Fund was entitled to an

audit only of the payroll records of RNs who were part of the collective bargaining unit.

The district court granted in part and denied in part both parties’ motions for

summary judgment. N.Y. State Nurses Ass’n Benefits Fund v. Nyack Hosp.,

(S.D.N.Y. Sept. 27, 2019). The court observed that “when authorized

contractually or under common law, the right to audit is not unlimited—indeed,

10 trustees may not abuse that right.”

. It proceeded to hold that the Fund was not

entitled to records beyond those of persons whom Nyack identified to be RNs because

the Fund had “not presented evidence that its proposed audit of all of Nyack’s

employees, as opposed to just Nyack’s registered nurses, would further its two alleged

purposes: (i) to determine whether Nyack was accurately reporting the duties and

status of its employees, and thereby verify that all required contributions are being

made on behalf of covered employees; and (ii) to identify all plan participants and

beneficiaries and make them aware of their status and rights under the plan.”

.

The district court concluded that there is no evidence that (1) “an audit of all of Nyack’s

employees’ payroll records, as opposed to just registered nurses, would lead to the

discovery of unfunded liabilities”; and (2) “the payroll records of non-registered nurses

would allow the Fund to identify additional plan participants.”

At the same time, it

held that the records of all RNs were required to determine whether Nyack was

accurately reporting the membership of the class defined by the Fund’s terms because

the CBA contained several exceptions to the types of covered RNs. The court did not

identify any evidence presented by Nyack that the audit request represented an effort

by Fund Trustees to expand Fund coverage beyond the class defined in the Fund’s

terms, that it was an effort to acquire information about the employer to advance union

goals, that executing the audit would result in a waste of Fund assets, or that the audit

request was unrelated to legitimate Fund goals.

DISCUSSION

On appeal, both parties seek reversal in part of the district court’s decision. The

Fund maintains that the terms of the Trust Agreement entitle it to the records set forth

in the September 9, 2016 Request, including the payroll registers of all of Nyack’s

employees, plus more detailed samples of individual employee payroll records. Nyack

argues that the district court erred and that the Fund is entitled to audit the payroll

11 records only of those employees who are members of the collective bargaining unit. In

other words, the Fund argues that the audit is now too narrow, while Nyack argues that

it is still too broad. We agree with the Fund.

I. Standard of Review

The Court reviews a district court’s grant or denial of summary judgment de novo

“to determine whether genuine issues of material fact exist requiring a trial.” Morales v.

Quintel Ent., Inc.,

(2d Cir. 2001) (citation omitted); see also Chandok v.

Klessig,

(2d Cir. 2011). Summary judgment is appropriate if there are

no genuine issues of material fact and the moving party is entitled to judgment as a

matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett,

, 322–23 (1986).

Terms of a collective bargaining agreement are reviewed de novo. Marcic v. Reinauer

Transp. Cos.,

, 124 (2d Cir. 2005). “The interpretation of collective

bargaining agreements is governed by federal law; however, traditional contract

interpretation rules are applied if they are consistent with federal labor policies.”

Plumbers & Steamfitters Loc. No. 150 Pension Fund v. Vertex Constr. Co.,

,

1448 (11th Cir. 1991) (citing Int’l Union, United Auto., Aerospace, & Agric. Implement

Workers of Am. v. Yard-Man, Inc.,

(6th Cir. 1983)).

II. The Supreme Court’s Decision in Central States

The starting point for analyzing the scope of an ERISA-covered plan’s audit

authority is the Supreme Court’s decision in Central States, Southeast and Southwest Areas

Pension Fund v. Central Transport, Inc.,

(1985) (“Central States”). In Central

States, two multiemployer benefit plans providing health, welfare, and pension benefits

to employees performing work covered by collective bargaining agreements sought to

audit the records of certain employers who were parties to collective bargaining

agreements requiring them to make contributions to the plans. The benefit plans

12 argued that (1) because they relied principally on employer self-reporting to determine

the extent of an employer’s liability, they police “this self-reporting system by

conducting random audits of the records of participating employers”; and (2) the audit

was necessary “independently to determine the membership of the class entitled to

participate in the plans, and thus to verify that Central Transport was making all

required contributions.”

at 562–63. The employer argued that, because 60% of its

employees were not participants in either of the plans, the plans had no right to

examine any records of noncovered employees.

.

The Court started its analysis from the language of the trust agreement, which

authorized the trustees to “do all acts, whether or not expressly authorized . . ., which

[they] may deem necessary or proper for the protection of the property held [under the

trust agreement].”

(alterations in original). Further, the trust agreement

stipulated that: “The Trustees may, by their representatives, examine the pertinent

records of each Employer at the Employer’s place of business whenever such

examination is deemed necessary or advisable by the Trustees in connection with the

proper administration of the Trust.”

. The Court concluded that “the trustees’

right to conduct the audit in question would seem clear” under the terms of the trust

agreement.

.

The Central States Court also concluded that the trustees’ interpretation of the

trust agreement, insofar as it permitted them to review records of persons who were not

participants, was “entirely reasonable in light of ERISA’s policies.”

. “ERISA

clearly assumes that trustees will act to ensure that a plan receives all funds to which it

is entitled, so that those funds can be used on behalf of participants and beneficiaries,

and that trustees will take steps to identify all participants and beneficiaries, so that the

trustees can make them aware of their status and rights under the trust’s terms.”

at

571–72. The concerns offered by the plan “to justify its audit program” were consistent

13 with ERISA: “Both the concern for fully informing participants of their rights and status

under a plan and the concern for assuring the financial integrity of the plans by

determining the class of potential benefit claimants and holding employers to the full

and prompt fulfillment of their contribution obligations are proper and weighty within

the framework of ERISA.”

. 3

The Court did not stop there, however. It also stated that “trust documents

cannot excuse trustees from their duties under ERISA,”

, and it made clear that

a court should not enforce an audit request when the implementation of such a request

would breach the trustees’ duties of loyalty or prudence,

at 571 n.12. It noted that an

audit request “would be illegitimate under the standard of loyalty if it were actually an

effort by plan trustees to expand plan coverage beyond the class defined in the plans’

terms or to acquire information about the employers to advance union goals” and that

the audit might be “imprudent if it were clearly wasteful of plan assets or unrelated to

legitimate plan concerns.”

But the employer in Central States had “submitted no

evidence that [the] audit program’s actual goal was to expand the trust’s coverage

beyond that provided in the applicable collective-bargaining agreements or to acquire

information for union goals; nor did it submit any evidence that the audits were

unjustifiably costly.”

In the absence of such evidence, “whether the auditing power

claimed by Central States is consistent with ERISA must be analyzed in terms of the

3 The Court observed that ERISA requires benefit plans “to furnish all participants with various documents informing them of their rights and obligations under the plan, a task that would certainly include the duty of determining who is in fact a plan participant.”

(citation omitted); see also

(“Moreover, an employer has an incentive to underreport the number of employees covered, because such underreporting would reduce his liability to the plans.”) The Court also noted that “[t]he provisions of ERISA make clear that a benefit plan trustee is . . . subject to these responsibilities, not only as a result of the general fiduciary standards of loyalty and care, borrowed as they are from the common law, but also as a result of more specific trustee duties itemized in the Act.”

.

14 goal upon which Central States has rested its audit, that of policing [the employer’s

determination of eligible plan participants covered by the CBA to verify that the

employer was contributing all required amounts on behalf of all covered employees].”

As long as the plan’s goal was consistent with ERISA, the Court looked no further to

determine whether it was imprudent or a breach of the duty of loyalty.

III. Application of the Central States Framework

Central States thus requires this Court to analyze first the language of the Trust

Agreement to which both the Fund and Nyack are bound in order to determine

whether the audit is within the scope of what is permitted under the Trust Agreement.

Then, if the audit falls within the four corners of what is permitted, we turn to whether

the party resisting the audit has offered evidence that the audit request was actually an

effort by the Trustees to expand Fund coverage beyond the class defined in the Fund’s

terms or to acquire information about the employers to advance union goals, or

whether the audit itself was clearly wasteful of Fund assets or unrelated to legitimate

Fund concerns. Central States did not charge the district court with the responsibility to

comb through each document requested as part of a contractually authorized audit and

to determine whether that document was strictly necessary for the auditors to do their

jobs.

1. Whether the Audit Was Contractually Authorized

Under the Central States framework, the analysis here is straightforward, and

most of it is undisputed. To begin with, the Trust Agreement (by which Nyack agreed

to be bound) authorized the Trustees “at such times and places as may be appropriate,

[to] have an audit made by independent certified public accountants of the payroll and

wage records of any Employer in connection with the said Employer Contributions,

Employee Contributions, and/or reports.” A-122. There is no dispute that Nyack is an

15 “Employer” within the meaning of the Trust Agreement. There also is no dispute that

the audit was to be conducted by independent certified public accountants. Nor is there

any dispute that the proposed audit would have been “in connection with the said

Employer Contributions, Employee Contributions, and/or reports.” See Dkt. No. 60

¶¶ 7, 16, 28, 29. The “in connection with” language is read most naturally to refer to the

objective of the audit and not to qualify the payroll and wage records. Here, it is not

disputed that the objective of the audit was to determine that Nyack was making

contributions for all of the employees for whom contributions were required.

The only disputed legal question with respect to the Trust Agreement is whether

the materials requested fell within the meaning of “the payroll and wage records of any

Employer” as set forth in the Trust Agreement. The Court must assume the Trust

Agreement’s choice of words was advised. The language of the Trust Agreement is

phrased in broad terms, without any words of limitation. In describing the categories of

documents to which the Trustees are entitled, it uses the phrase “the payroll and wage

records” of the Employer, and not just “payroll and wage records” of the Employer; nor

does the language of the Trust Agreement limit the scope of the audit authority to some

subset of the payroll and wage records of the Employer. It very well might have done

so had the parties intended to give the Employer the authority to determine what

payroll and wage records were necessary, or had they intended to limit the documents

to which the Trustees were entitled in connection with an audit of the records of RNs.

The Trust Agreement elsewhere defines “Employees” as “all persons covered by a

collective bargaining agreement between an Employer and the [NYSNA],” i.e., the RNs

in the case of Nyack. A-102. The parties could have chosen to limit the documents to

which the Trustees were entitled to “the payroll and wage records of Employees.” They

chose not to do so, and it is not within the province of the Court to rewrite their

agreement for them. They chose instead to use the definite article “the,” connoting that

16 the Trustees were entitled, in connection with an audit of Employer or Employee

Contributions, to the set of payroll and wage records and not some subset of those

records. See Nielsen v. Preap,

(2019) (“[G]rammar and usage establish

that ‘the’ is ‘a function word . . . indicat[ing] that a following noun or noun equivalent is

definite or has been previously specified by context.’” (alteration in original) (quoting

Merriam-Webster’s Collegiate Dictionary 1294 (11th ed. 2005))); see also Noel Canning v.

N.L.R.B.,

(D.C. Cir. 2013) (“[T]he word ‘the’ . . . is a definite

article. . . . Unlike ‘a’ or ‘an,’ that definite article suggests specificity.”).

The interpretation is reinforced by comparing the language of Article V to

language used in the CBA, pursuant to which Nyack agreed to become obligated to the

Trust Agreement. In setting forth certain information required to be provided to the

Fund Trustees (without the requirement that it be part of an independent audit) the

CBA uses more limited language: Nyack must provide the documentation “as may

reasonably be necessary to establish the validity of claims made on the . . . Fund or the

number of and identity of such Employees for whom contributions were made during

the term of [the CBA].” A-171. In setting forth the records Nyack was required to

provide as part of an independent audit in connection with Employer Contributions or

Employee Contributions, the Trust Agreement tellingly uses far broader language: “the

payroll and wage records of any Employer.” A-122. The parties intended that the

Trustees be entitled to more than just the documents “reasonably necessary” to

establish the validity of claims or the number of and identity of Employees for whom

contributions were made. The parties did not intend to require the auditor to justify to

a court that each of its requests were “reasonably necessary” in defining the materials to

which the auditors were entitled. Rather, the Trust Agreement reflects the intent that

the auditors receive the payroll and wage records of the Employer that the auditors

17 determine they need, at least in the absence of proof by the Employer of a breach of

fiduciary duty.

Nyack argues that the language of the Trust Agreement should be narrowed and

restricted to what it was required to provide under the CBA. Similarly, the dissent

suggests that an “expansive” reading of the Trust Agreement is “undercut by the CBA.”

Dissenting Op. at 8. But, if Nyack intended to limit its production obligations, the place

in which to have done so would have been in the Acknowledgment (in which it agreed

to be bound by the Trust Agreement). The CBA provides that, to the extent there was a

conflict between the two documents, the Trust Agreement—and not the CBA—would

govern “except as otherwise specified in the Acknowledgment of Trust Agreement

provided by the . . . Fund Trustees.” A-173. The Acknowledgment that Nyack signed

contains no such limitation; Nyack subscribed to the obligations of Article V in full.

Having done so, the room is not now open for Nyack to argue that the language of

Article V should be further limited in light of the CBA. 4

Finally, Nyack agreed to give the Trustees broad authority to interpret their audit

authority. The Trust Agreement here, as did the Central States trust agreement,

provides that: “The Trustees shall have power to construe the provisions of this

Agreement and Declaration of Trust and terms used herein and any construction

adopted by the Trustees in good faith shall be binding upon [NYSNA], the Employer,

4 Nyack argues in its reply that the language of the Trust Agreement should be read in light of the language in the CBA that requires reports of the contributions made on behalf of bargaining unit members and opt-outs. Nyack’s Reply Br. at 12–14. This argument is a non-sequitur. The relevant provision of the Trust Agreement addresses the authority of the Fund to conduct audits, while the provision of the CBA that Nyack cites addresses the requirement that Nyack make contribution reports. There is no reason to find that the contractual provisions fixing the scope of Nyack’s reporting requirements dictate the scope of the Fund’s audit authority, which is set by separate contractual provisions.

18 and the Employees and their families and dependents.” A-113; cf. Central States,

(“[A]ny construction [of the agreement’s provisions] adopted by the Trustees

in good faith shall be binding upon the Union, Employees and Employers.” (second

alteration in original)). A trustee of an ERISA-covered employee benefit plan may be

empowered by the terms of the trust agreement to interpret the terms of that

agreement. See Firestone Tire & Rubber Co. v. Bruch,

(1989) (“A trustee

may be given power to construe disputed or doubtful terms, and in such circumstances

the trustee’s interpretation will not be disturbed if reasonable.”). Thus, to the extent

there is any ambiguity in the language of Article V, that ambiguity must be resolved in

favor of the good faith construction of the Trustees, which is binding on Nyack. See

Central States,

(“The trustees’ determination that the trust documents

authorize their access to the records here in dispute has significant weight, for the trust

agreement explicitly provides that ‘any construction [of the agreement’s provisions]

adopted by the Trustees in good faith shall be binding.’” (alteration in original)). 5

5 Nyack argues that there is no construction of the Trustees for them or the Court to defer to because the Fund failed to produce in this litigation a corporate resolution adopted by the Trustees and maintains that the interpretation of the Trust Agreement put forward by the Fund constitutes “nothing more than an agency’s convenient litigating position.” Nyack’s Reply Br. at 11 (quoting Bowen v. Georgetown Univ. Hosp.,

(1988)). But case law governing federal agency interpretations, which is premised on the Administrative Procedure Act, is irrelevant. In contrast to agency decision-making, the authority of individual Trustees to make decisions on behalf of the Trustees is a function of the Trust Agreement. See N.Y. State Teamsters Conf. Pension & Ret. Fund v. United Parcel Serv., Inc.,

, 281 (2d Cir. 2004) (“[T]he rulemaking authority of a multiemployer plan is limited by the terms of the plan’s creation documents.” (citing La Barbera v. J.D. Collyer Equip. Co.,

, 137–39 (2d Cir. 2003))). There is no dispute here that audits are under the purview of the Audit Committee and that the payroll auditing procedures at issue were adopted by the Audit Committee. Under the Audit Committee Charter, action is authorized if it is taken by a quorum consisting of one Association Trustee and one Employer Trustee. A-138. That requirement was satisfied by the filing of this lawsuit by the Chairperson of the Fund and the Secretary of the Fund—the first an Association Trustee and the second an Employer Trustee. Nyack has not demonstrated why the Trustees, as a group, should be held to any higher standard. Under the Trust Agreement,

19 Moreover, as in Central States, the auditing power claimed by the Fund is

consistent with the goal upon which the Fund rested its audit. Central States,

n.12. The Fund’s goal was to monitor the employers’ reporting of their

contributions and to determine who was entitled to benefits in order to protect the

Fund’s financial integrity and to ensure that all persons eligible for Fund benefits were

informed by the Trustees of their rights. Those objectives were consonant with the

auditing power claimed by the Fund. 6

2. Whether the Contractually Authorized Audit Would Have Violated the Fund’s Fiduciary Duties

The question then is whether Nyack offered evidence that the Trustees of the

Fund, in seeking an audit of the scope set out in the September 9, 2016 Request, violated

their fiduciary duties under ERISA. Central States instructs that if they did, then the

decisions relating to the Trust must be made by a majority vote of the Trustees. Among the Trustees’ powers are “to institute, prosecute or defend . . . legal proceedings . . . on such terms and conditions as the Trustees may deem advisable.” A-113. The initiation of the litigation based upon the Trustees’ interpretation of the scope of the audit authority suffices to show the Trustees’ intent, without a formal resolution on the part of the Trustees affirming their interpretation.

6 The dissent agrees that the language of the Trust Agreement “does not expressly limit the scope of the Fund’s audit authority to some predetermined ‘subset of the payroll and wage records,’” but it suggests nonetheless that the district court had discretion to limit the scope of the audit in “the absence of any specific description of the audit that the Trust Agreement authorizes,” Dissenting Op. at 6, and because the Trust Agreement is missing “an explicit commitment,” id. at 19. We are aware of no case law that would import a “clear statement” principle into the law of contracts. Rather, the Court’s responsibility is to “construe ERISA plans, as they do other contracts, by ‘looking to the terms of the plan’ as well as to ‘other manifestations of the parties’ intent.’” US Airways, Inc. v. McCutchen,

(2013) (quoting Firestone Tire & Rubber Co. v. Bruch,

(1989)). Unlike the dissent, while we believe that the request here was reasonable for reasons stated in the text, we also read the Trust Agreement to leave it to the discretion of the Fund directors in the exercise of their fiduciary duties and the auditors acting in conformance with their directions to determine the records it needs to conduct a proper audit rather than to have to justify to a district court on a case-by-case basis that such request is reasonable.

20 audit may not proceed. See Central States,

. Pursuant to their fiduciary

duties, ERISA provides that trustees must act “solely in the interest of the participants

and beneficiaries and . . . in accordance with the documents and instruments governing

the plan.”

(a)(1)(D). Further, ERISA requires trustees to “assur[e] the

financial integrity of a plan,” N.Y. State Teamsters Conf. Pension & Ret. Fund v. Boening

Bros., Inc.,

(N.D.N.Y. 1995), and to “fully inform[] plan participants

of their rights and status under a plan,”

An audit request would be “illegitimate

under the [fiduciary duty] of loyalty if it were actually an effort by plan trustees to

expand plan coverage beyond the class defined in the plans’ terms or to acquire

information about the employers to advance union goals” or if the audit is “clearly

wasteful of plan assets or unrelated to legitimate plan concerns.” Central States,

n.12. Therefore, a court need only determine whether the records are sought for

an improper purpose or there is clear evidence of waste. Nyack argues that the Fund

bears the burden of proving that the audit’s scope is limited to “prudent actions

furthering the legitimate purposes of the plan.” Central States,

. But

Nyack has the burden of proof backwards. Central States demonstrates that it is Nyack’s

duty—if it wanted relief from its contractual obligations—to demonstrate that the

request, if honored, would result in a breach of duty by the Fund Trustees; it does not

charge the district court with the responsibility of determining—on some other

indeterminate basis—the advisability of each and every request. See

at 571 n.12

(noting that “Central Transport, however, has submitted no evidence that Central

States' audit program's actual goal was” a violation of the trustee’s fiduciary duties). If

an audit request “reach[es] beyond what is appropriate for the proper administration of

the plan[],” Central States provides that “a court ordering an employer to comply with a

particular audit demand could, upon a proper showing by the employer, limit the auditors

accordingly.”

at 582 n.23 (emphasis added).

21 Nyack relies upon this Court’s decision in N.Y. State Teamsters Conf. Pension &

Ret. Fund v. Boening Brothers,

(2d Cir. 1996), to further argue that the

Trustees bear the burden of proving that they need the requested records and that the

request for them would be reasonable and not in violation of their fiduciary duties. But

that misreads Boening Brothers. Boening Brothers addressed the common law rights of

fund trustees to conduct an audit. See 92 F.3d at 132. Unlike in this case, the trustees in

Boening Brothers had not agreed in advance with the employer regarding the scope of an

audit that the trustees would be permitted to conduct or indeed whether they could

conduct an audit at all. The question thus was whether, in the absence of any

contractual agreement, the trustees nonetheless were permitted to conduct an audit.

This Court, relying upon the common law of trusts, answered that question in the

affirmative. See id. at 131–32 (“[F]iduciary duties [under ERISA] draw much of their

content from the common law of trusts, the law that governed most benefit plans before

ERISA’s enactment.” (quoting Varity Corp. v. Howe,

(1996))). In that

context, where the trustee relied upon its inherent power under ERISA in order to make

an audit, the Boening Brothers court held that the fund had the right to perform an audit

only to the extent that the audit was “necessary or appropriate to carry out the purposes

of the trust and [was] not forbidden by the terms of the trust.”

at 132 (quoting

Restatement (Second) of Trusts § 186(b) (1959)). In other words, Boening Brothers

establishes that, even in the absence of a contractual provision, a plan trustee has

inherent rights under ERISA, derived from the common law of trusts, to conduct an

audit in order to protect the interests of the plan. Boening Brothers establishes a floor for

a trustee’s audit authority, not a ceiling that applies even when the parties have agreed

to the trustees’ audit authority in a CBA or a trust agreement.

In Boening Brothers, we expressly distinguished cases where the trustees have not

defined their required audit in advance from cases like this one, in which the employer

22 contractually committed to submit to an audit. Id. at 132. We thus recognized the

important differences between a common law right and a contractual right. When a

plan asks a court to recognize that it possesses powers with respect to an employer to

which the employer has not agreed in advance, it follows that the plan must justify the

scope of the request to the court and that the court should make an independent

determination that the audit is no broader in scope than necessary to achieve the audit’s

objective. Id. at 134. In such circumstances, the parties effectively place the court in a

position where it must make that decision. By contrast, where the parties have agreed

in advance to the scope of the audit, it does not fall to the court to second-guess that

agreement. The court’s role is to apply the familiar law of fiduciary duty and determine

whether the party resisting its contractual obligations has demonstrated that

satisfaction of those obligations would result in a breach of duty by the trustees.

In this case, however, the district court held that the Fund was not entitled to the

payroll and wage records it requested because “the Fund ha[d] not presented evidence

that its proposed audit of all of Nyack’s employees, as opposed to just Nyack’s

registered nurses, would further its two alleged purposes.” N.Y. State Nurses Ass’n

Benefits Fund,

, at *6. Under the Central States framework, the Fund did

not need to present such evidence. Rather, Nyack had the burden of proving that the

requested audit would be a breach of the Fund Trustee’s fiduciary duties, and Nyack

did not meet that burden.

The purpose of the audit was to determine whether Nyack’s reports were

accurate. In order to do that, the auditors needed more information than simply the list

of employees that Nyack had provided as covered by the CBA. Otherwise, the audit

would have been pointlessly circular. As the auditor testified at his deposition, he

required payroll records beyond those which Nyack self-reported to make sure that

everyone who should have been categorized as an RN was so categorized. If there were

23 employees who appeared to be potentially miscategorized based on their wages or

other factors, the auditor could then inquire with either NYSNA or Nyack to determine

the employees’ true category. The duty of loyalty did not foreclose the Trustees or the

auditors acting on their behalf from making those inquiries. The duty of loyalty would

prevent the auditors from seeking records “unrelated to legitimate plan concerns.”

Central States,

n.12. But verifying the accuracy of Nyack’s reports and

discovering potential unfunded liabilities were legitimate Fund concerns that required

the auditors to review the payroll records of all Nyack employees. 7

Nor does the fiduciary duty of care under ERISA require the Trustees to look

only to what the employer represents as “the payroll records of all registered nurses” to

identify additional plan participants. N.Y. State Nurses Ass’n Benefits Fund,

, at *6. The entire point of the audit was to see if there might be additional RNs

whom Nyack was not reporting. There is nothing in the duty of care that would

prohibit the Fund from looking beyond those records and not just relying on the

7 Nyack argues that the Fund here is claiming such unfettered access to hospital records that its auditors could, for example, obtain the full payroll file for its CEO. Of course, an auditor’s need to verify the accuracy of an employer’s reports would not necessarily require the employer to give the auditor unchecked access to all of its records. The Court need not address the hypothetical situation of whether a more intrusive request for documents along such lines would, in fact, be unrelated to the Fund's legitimate concerns and thus constitute a violation of fiduciary duties such that a court could “limit the auditors accordingly.” Central States,

& n.23. The auditors have explained that they adopted a methodology of reviewing the overall payroll registers for Nyack, as well as a sampling of more detailed records; identifying employees who are receiving pay that could be consistent with the jobs classified for RNs under the CBA; and then, if such employees are identified, asking for more detailed records about those particular employees to determine whether they are in fact covered by the CBA and eligible for the Fund. Nyack adduced no evidence that the Fund had made such an extreme request, and, at oral argument, the Fund made clear that, unless Nyack happens to pay its CEO about the same as one of its RNs, the methodology advanced by the auditors would not appear to sweep in such a request.

24 employer’s say-so, as Nyack has not put forth any evidence that a broader audit will

injure the Fund’s participants. In the absence of clear evidence of a waste of Fund

assets, there is nothing in ERISA that would prevent the Trustees from also looking at

“the payroll records of non-registered nurses” (as reported by Nyack) to determine

whether employees were misclassified and thus to identify potential additional Fund

participants.

There is also no merit to Nyack’s argument that the Fund has no legitimate

interest in the requested payroll records of persons whom Nyack has not identified as

RNs because—as a result of Nyack’s failure to identify them as RNs—the Fund will

incur no liabilities with respect to those persons. That argument fails for three reasons.

First, it rests on a misunderstanding of the Trustees’ obligations and rights and of

Nyack’s responsibilities under the Trust Agreement and CBA. The Trustees’ interest in

financial integrity is not limited to those RNs who choose for any particular year to

enroll in the Fund. It also extends to those RNs who are eligible to, but do not,

participate in the Fund in the current year but who may choose to enroll in future years

(perhaps when their health situation worsens), thereby giving the Fund a current

interest in the financial integrity of those RNs. Second, the Fund depends on receiving

contributions on behalf of those whom neither the Fund nor the employer have

currently identified as beneficiaries but who might claim to be beneficiaries at some

later date. Third, the Fund has obligations under ERISA to notify participants of their

rights under the Plan.

In the district court, Nyack made two additional arguments for why the

contractually permitted audit was a breach of the Trustee’s fiduciary duties, both of

which are foreclosed by governing law. First, Nyack argued that the Fund need not

conduct an audit to determine whether Nyack correctly reported all of the employees

who are eligible for participation in the Fund or for whom Nyack must make

25 contributions because the Fund is, in effect, self-policing. Nyack further argued that,

even if it were to mislead the Fund about the membership of the bargaining unit, the

Fund could rely on NYSNA to keep it informed as to whom it represents. Moreover,

according to Nyack, “an eligible employee omitted from the Fund’s health plan here

would feel the effect immediately (loss of coverage or of the incentive payment for

opting out), with plenty of motivation to complain through the union (to obtain

coverage or of the incentive payment), and no long-term liability would accrue to the

Fund because an eligible employee who is not enrolled cannot receive benefits.”

Nyack’s Br. at 23.

There are several flaws in this argument. First, the Trustees have independent

fiduciary duties under ERISA to ensure Fund integrity and to inform beneficiaries of

their rights under the Fund. See, e.g., NLRB v. Amax Coal Co.,

(1981)

(“ERISA vests the ‘exclusive authority and discretion to manage and control the assets

of the plan’ in the trustees alone, and not the employer or the union.” (quoting 29 U.S.C

§ 1103(a))). Those duties cannot be discharged simply by saying that the employees

would know themselves when they got sick and required benefits; instead, ERISA

trustees have an affirmative fiduciary obligation “to ‘provide employees with a

comprehensive explanation of the contents of the plan.’” Electro-Mech. Corp. v. Ogan,

, 451 (6th Cir. 1993) (quoting Allen v. Atl. Richfield Ret. Plan,

(E.D. Pa. 1979), aff’d,

(3d Cir. 1980)). Trustees are not required to, and

indeed might not always be permitted to, rely on third parties with different interests to

discharge those duties. Judge Kravitch, writing for the Eleventh Circuit in Vertex

Construction, persuasively analyzed and disposed of the argument that the Trustees

should be required to rely on the union. The “trust funds are independent of the

employers that contribute to them and the union employees who benefit from them.”

Plumbers & Steamfitters Local No. 150 Pension Fund v. Vertex Constr. Co.,

,

26 1451 (11th Cir. 1991). The court further added that the union had different interests

from that of the plan trustee: the union’s duty is “to act in the group’s interests

regarding the overall terms and conditions of employment” whereas the “trustees’

duty . . . is to provide specific benefits to those who are entitled to them in accordance

with the terms of the plan.” Id. (quoting Central States, 472 U.S. at 576–77). The union

itself might misclassify employees or might not know each and every employee whom

it represents. To force the plan trustees to rely on the union representatives to discharge

the trustees’ duties to ensure plan integrity and the plan participants’ rights to know of

the benefits to which they may be entitled would impermissibly empower “employers

and unions to bargain away the rights and powers of fund trustees in agreements to

which the trustees were not a party,” ultimately “result[ing] in underfunded plans that

could not pay appropriate benefits to their beneficiaries.” Id.

Second, Nyack’s argument that the Trustees should not be permitted to conduct

the audit set forth in the September 9, 2016 Request because they can rely on NYSNA

and the beneficiaries is squarely foreclosed by Central States. In Central States, the

employer argued that employees could rely upon the union, rather than the fund

trustees, to ensure enforcement of an employer’s collectively bargained obligations.

. The Court rejected that argument, holding that the union and the fund had

separate obligations. The union was obligated to act on behalf of bargaining unit

workers as a group. By contrast, the fund had a fiduciary duty to “provide specific

benefits to those who are entitled to them in accordance with the terms of a plan.”

. The Court concluded that requiring the trustees to rely upon the union “would

erode the protections ERISA assures to beneficiaries, for the diminishment of trustee

responsibility that would result would not necessarily be made up for by the union.”

; see also Schneider Moving & Storage Co. v. Robbins,

(1984) (holding

27 that federal policy does not favor a union’s grievance and arbitration system for a

trustee’s enforcement of an employer’s trust obligations).

Third, as demonstrated above, under Central States, once a fund has shown that

an audit is within the scope of that agreed to by the employer and the requested

documents are among those permitted by the trust agreement to which the employer is

bound, it is not for the employer to determine whether there are alternative means by

which the trustees can satisfy their fiduciary duties. The trustees themselves can

determine how best to satisfy those duties.

Nyack’s second argument in the district court was that it should not be ordered

to produce the requested information because the Trustees would illegitimately use the

information to expand the coverage of the Fund. Nyack suggested that the Trustees

would “second-guess the inclusion of employees within the bargaining unit of another

union,” and “challenge[] the jurisdictional boundaries between the four unions in the

Hospital workplace.” Nyack’s Br. at 30–31.8

Three facts undermine Nyack’s position. First, as the Supreme Court noted in

Central States, the district court may impose confidentiality protections on the

enforcement of a contractually authorized audit in order to protect against misuse of the

employer’s records.

n.23 (citing with approval a district court decision

to order an employer to comply with an audit request that “allow[ed] the employer to

restrict the auditors’ ability to copy or disclose information where the auditors’ [sic] did

not need to do so.”). Here, there is no evidence that the auditor’s offer to provide a

8As NYSNA argues in its reply, this argument is based in part on a mischaracterization of Rosetti’s affidavit. Rosetti stated that the purpose of the audit was to “identify employees who were not reported by Nyack but are covered by the CBA.” NYSNA’s Reply Br. at 28 (emphasis in original).

28 confidentiality agreement would have included a provision to allow disclosure to

NYSNA.

Second, although Central States does hold that a court may find the scope of a

contractually permissible audit unlawful if the audited party can show that the scope of

the audit would constitute a breach of fiduciary duties, Nyack has not put forth

evidence suggesting that the Fund’s audit efforts constitute such a breach. Instead,

Nyack argues that the very fact that NYSNA has asked for an audit of the payroll

registers of all employees, plus more detailed payroll records for employee samples,

suffices to show an illegitimate purpose. But this circular argument cannot succeed.

The bare fact that a contractually permitted audit is broader than the audited party

believes it needs to be does not adequately show that the audit has an impermissible

purpose. Nyack must make an affirmative showing that the scope of the audit request

constituted a breach of the Fund Trustee’s fiduciary duties, and it has not done so.

Third, as a matter of law, the fact that benefits are mistakenly paid by an

employer to one union benefit fund is not necessarily a defense to a claim that they

were actually owed to a different benefit fund. Thus, to the extent that Nyack relies on

the claim that the Fund will use the audit to obtain contributions for employees to

which it is not entitled, the mirage is a figment of Nyack’s imagination, not supported

by any evidence. Not only was there no evidence offered in the district court of any

improper communication between the Fund and NYSNA, and not only would Nyack

have the interest and ability to resist any such impermissible demand, but the other

unions themselves would have the ability and the interest to prevent the Fund from

using the audit to obtain contributions to which the Fund was not entitled. The

argument on which Nyack relies could be levelled in any case where the employers’

workforce is represented by more than one union. In the absence of evidence, it cannot

suffice to limit the audit rights of the trustees of a benefit fund.

29 Nyack’s arguments would require the district court to act, in effect, as super-

auditor, questioning the decision of the Trustees and the independent certified public

accountant as to each category of records requested by the Fund and its auditors and

determining whether those particular records are strictly necessary for the audit. It may

be that a different auditor conducting a payroll audit might determine that some of

what the auditor has requested here is not necessary. However, the teaching of Central

States is that, once the trustees and the employer have agreed in advance to the scope of

an audit the trustees are authorized to conduct, it is not generally for either the

employer or the district court to draw such lines and to determine which payroll

records beyond those of covered employees are truly necessary for the audit. We hold

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. The district court

did not identify any evidence that would create a genuine issue of fact either that the

audit request constituted “an effort by plan trustees to expand plan coverage beyond

the class defined in the plans’ terms or to acquire information about the employers to

advance union goals” or that the audit itself was “clearly wasteful of plan assets or

unrelated to legitimate plan concerns.” Central States,

n.12. Therefore,

Nyack did not meet its burden of proving that the requested audit would be a violation

of the Fund Trustees’ fiduciary duties. Absent such a showing, the Fund is entitled to

conduct the audit as requested in the September 9, 2016 Request. 9

Nyack’s legitimate interest in this case, which is preserved by the Trust

Agreement and the law, is that its confidential information not be publicly disclosed or

9NYSNA has moved to strike an argument made by the Hospital in its reply brief concerning the “in connection with” language of the Trust Agreement. The argument that NYSNA seeks to strike is immaterial to our decision in this case. The motion is denied.

30 used for an improper purpose. That issue will remain in this case. The Fund’s auditors

offered to sign a confidentiality agreement. The district court did not consider whether

that agreement was necessary or sufficient to protect against misuse of information

because of its erroneous ruling as to the scope of the documents Nyack was required to

provide. Upon remand, before entering a final judgment consistent with our opinion,

the district court will have an opportunity to exercise its considerable discretion to

determine whether and how to issue an appropriate confidentiality order.

CONCLUSION

In summary, we hold 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

governed by ERISA are entitled to require participating employers to submit to

contractually permitted audits.

Here, we hold that the Fund was contractually authorized to conduct an audit of

the payroll records of Nyack employees as requested on September 9, 2016, and that

there was no evidence that its request constituted a violation of the Fund Trustee’s

fiduciary duties. Accordingly, the audit should have been permitted to proceed.

For the foregoing reasons, we (1) affirm the district court’s decision to the extent

it granted the Fund’s motion for summary judgment and denied Nyack’s cross-motion

for summary judgment; and (2) reverse the district court’s decision to the extent it

denied summary judgment to the Fund and granted Nyack’s cross-motion for summary

judgment. We vacate the district court’s decision and remand for the district court to

enter a final judgment consistent with this holding. Additionally, on remand, the

district court may consider whether and how to exercise its discretion to enter an

appropriate confidentiality order.

31 20-378 (L) N.Y. State Nurses Ass’n Benefits Fund v. Nyack Hosp.

CARNEY, Circuit Judge, dissenting in part:

As its name—New York State Nurses Association (“NYSNA”)—tells us, NYSNA

represents nurses in the State of New York. In 2015, under its collective bargaining

agreement (“CBA”) with Nyack Hospital (the “Hospital”), it represented 485 registered

professional nurses employed full-time, part-time, or per diem by the Hospital. That

cohort amounted to a little over one-third of the Hospital’s 1,393 employees.

In 2016, NYSNA’s affiliated benefits fund (the “Fund”) demanded an audit of the

Hospital’s 2015 payroll records for all Hospital employees, including the 900 or so who

were not registered nurses and whom NYSNA did not represent. Of those individuals,

approximately 700 were members of other unions, including locals of the Service

Employees International Union, the Communications Workers of America, and the

International Union of Operating Engineers. The demand for records covered those

such as the Hospital’s executive team and its engineering staff, who were not even

arguably covered by the CBA, nor remotely eligible to participate in the benefits plan

(the “Plan”) operated by the Fund under the Employee Retirement Income Security Act

(“ERISA”).

The Fund asserted that it sought only to identify all Hospital employees entitled

to participate in the Plan and to ensure that the Hospital had made the required

contributions on their behalf. As authorization for its workforce-wide demand, it

pointed first to the language of the Fund’s applicable multiemployer Agreement and

Declaration of Trust: 1 “The Trustees may, at such times and places as may be

appropriate, have an audit made by independent certified public accountants of the

1This document is formally entitled the Second Amended and Restated Agreement and Declaration of Trust Establishing the New York State Nurses Association Benefits Fund. For convenience, I refer to it as the “Trust Agreement.” payroll and wage records of any Employer in connection with the said Employer

Contributions, Employee Contributions, and/or reports.” J. App’x 122. It also relied on

the Fund Trustees’ stated authority to interpret that document, so long as they did so in

good faith.

The Hospital offered to make available the payroll and wage records of those of

its employees who were registered nurses and who had also enrolled in the Plan. The

Fund rejected the offer and then sued, seeking a district court “[o]rder to compel the

production of all books and records necessary to perform an audit examination

pursuant to the Trust Agreement and ERISA,” J. App’x 29, and maintaining that the

“necessary” records were those of all Hospital employees notwithstanding the limits of

the CBA.

The district court, after receiving evidence and hearing argument from the

parties, entered summary judgment in part for NYSNA and in part for the Hospital,

ordering the Hospital to produce payroll and wage records of all of its registered

nurses, whether or not they were enrolled in the Plan. (Some eligible registered nurses

had opted not to enroll.) See N.Y. State Nurses Ass’n Benefits Fund v. Nyack Hosp., No. 17-

cv-1899,

, at *6 (S.D.N.Y. Sept. 27, 2019). Looking to the terms of the

Trust Agreement and the CBA, the district court rejected the proposition that the

Hospital had agreed to provide the Fund with carte blanche access to payroll and wage

records for its entire workforce. It rebuffed the argument that the Supreme Court’s 1985

decision in Central States See Central States, Se. & Sw. Areas Pension Fund v. Central

Transport, Inc.,

, required entry of the Fund’s proposed order. It further

explained that it would not enter the workforce-wide order because it had before it “no

evidence” that the Fund’s audit of payroll records “of all of Nyack’s employees” would

“lead to the discovery of unfunded liabilities” or “allow the Fund to identify additional

plan participants,” the two purposes that the Fund claimed the sweeping audit would

2 serve.

No additional payroll and wage records would be necessary, reasoned the

district court, because “[o]nly registered nurses . . . are permitted to join the plan, and

Nyack is only responsible for contributing to the Fund on behalf of covered employees

(who must be registered nurses).”

Both the Fund and the Hospital appealed.

I join the Majority in concluding that the district court correctly denied the

Hospital’s motion to limit the audit to records of NYSNA members who had enrolled in

the Plan. Unlike the Majority, however, I would rule that the district court did not abuse

its discretion or otherwise err when it entered an order restricting the audit to review of

the records of the registered professional nurses employed by the Hospital. Properly

understood, the Trust Agreement does not commit the Hospital to producing the

records of its entire workforce, and the district court had discretion to exclude the

records of those who are not registered nurses, in light of the terms of the Trust

Agreement and CBA, the holding of Central States, and the want of evidence showing

that examination of those additional records would actually be “in connection with” the

relevant contributions and related reports in any meaningful way. I therefore

respectfully dissent from that portion of the Majority’s decision that reverses the district

court’s order with regard to these records.

DISCUSSION

The Majority concludes that the language of the Trust Agreement and the

Supreme Court’s decision in Central States foreclose the district court’s decision to limit

the scope of its production order. In my view, it errs on both counts. The district court

properly interpreted the Trust Agreement, reading it in tandem with the CBA and

correctly understanding it through the lens of Central States, and the court committed no

3 clear error in its analysis of the record. It was accordingly entitled to shape its order as it

did, in its discretion. I would affirm its order in full.

I. The Trust Agreement obligates the Hospital to produce wage and payroll records “in connection with” its obligations to “Employees” as an “Employer”

Through an Acknowledgment of the Trust Agreement that it executed and

adopted in a renewed CBA it signed with NYSNA in 2014, the Hospital agreed that it

would participate in the Fund, a preexisting multiemployer trust that administered the

Plan under the Trust Agreement. In the Trust Agreement, the Hospital agreed to

contribute regularly to the Fund with respect to those of its employees who are

“covered by a collective bargaining agreement between [the] Employer and the

Association [i.e., NYSNA],” subject only to certain marginal exclusions. J. App’x 102 (Tr.

Agt. art. I, para. 2). As to audits, article V of the Trust Agreement provided:

The Trustees may, at such times and places as may be appropriate, have an audit made by independent certified public accountants of the payroll and wage records of any Employer in connection with the said Employer Contributions, Employee Contributions, and/or reports.

Id. at 122 (Tr. Agt. art. V, para. 5). It defined “employee” with reference to the CBA:

“The term ‘Employees’ . . . shall mean all persons covered by a collective bargaining

agreement between an Employer and [NYSNA].” Id. at 102 (Tr. Agt. art. I, para. 2).

The CBA between NYSNA and the Hospital states in relevant part that it covers

“all full-time, regular part-time and per diem registered professional nurses employed

by the Hospital, including every person lawfully authorized by permit to practice as a

registered professional nurse and every person employed in a position which requires a

4 registered professional nurse.” 2 Id. at 150 (CBA para. 1). Thus, unlike some plans and

CBAs, the universe of covered persons is defined by an objective, readily ascertainable

standard related to status, not function.

The Trust Agreement’s audit clause obligates the Hospital, as the employer, to

allow the Fund to audit “the payroll and wage records . . . in connection with the said

Employer Contributions, Employee Contributions, and/or reports.” Id. at 122 (Tr. Agt.

art. V, para. 5). It does not use the word “all” or otherwise unmistakably indicate a

comprehensive workforce-wide obligation. Rather, it refers to “the” records and

identifies those records that are maintained “in connection with the said Employer

Contributions, Employee Contributions, and reports.” Its plain language thus does not

demand the broad and inflexible reading adopted by the Majority.

The phrase “the payroll and wage records” must be read, moreover, in tandem

with the CBA, as referencing those employees who are covered by the CBA, according

to the CBA’s definition of “employees.” In other words, any audit of payroll and wage

records not related to such employees would generally not be “in connection with the

said Employer Contributions[] [and] Employee Contributions,” except in some

hypothetical tangential sense. It is hard to imagine how an audit of the payroll records

of the Hospital’s engineers or chief executive, for example, could be said to be “in

2 The CBA further provides expressly that it does not include persons occupying a long and detailed list of positions in which registered nurses might be found: “assistant administrator, director, associate directors, assistant directors, staff education instructors, utilization review nurses, patient education coordinator, patient education instructors for Lamaze, patient education instructors for obstetrical programs, clinical specialists, obstetrics supervisors, central service supervisors, operating room supervisors, critical care supervisors, assistant critical care supervisors, head nurses, home care coordinators, assistant home care coordinators, evening night and weekend supervisors, assistant supervisors, relief supervisors, case managers, assistant head nurse managers, nursing coordinator of patient services, all other supervisory, managerial and administrative employees and all other employees employed by the Hospital.” J. App’x 150.

5 connection with” the Hospital’s contribution obligations for registered nurses under the

Trust Agreement as read in the context of the CBA.

Yet the Majority reads the audit clause to require the Hospital to produce all of

its payroll and wage records on demand, treating them all as “in connection with” the

Hospital’s and CBA employees’ contribution duty to the Fund. It reasons that the

limiting clause “in connection with” concerns only the general “objective of the audit,”

Maj. Op. at 16—and it is apparently willing to accept a relaxed and expansive

conception of that objective, notwithstanding any countervailing interest that the

employer (and other potentially related unions and benefit plans) might reasonably

hold. It further reads the article “the” (as in “the payroll and wage records”) as

equivalent to “all,” and argues that this reading is what the parties bargained for when

the Hospital signed on to the Trust Agreement. Because this is—in the Majority’s

view—the plain meaning of the Trust Agreement, it concludes that the district court

erred by failing to order an audit of the payroll and wage records of the Hospital’s

entire workforce.

The text does not compel this maximalist position. I agree that a requirement that

an audit request be consistent with the audit’s general purpose can be understood as

implicit in the clause’s language. And, true, the language does not expressly limit the

scope of the Fund’s audit authority to some predetermined “subset of the payroll and

wage records.” Id. But neither of these observations overcomes the ambiguity created

by the absence of any specific description of the audit that the Trust Agreement

authorizes. In the context of a multiemployer-supported Fund and a general Trust

Agreement read in conjunction with a certain employer’s CBA, the Majority’s

interpretation strikes me as implausible: it reads into this unspecific language a

bargained-for agreement by two private parties for one to open all of its payroll and

wage records to the other without any facial connectedness to the obligations of either.

6 As to whether the definite article might “suggest[] specificity,” id. at 17 (quoting

Noel Canning v. NLRB,

(D.C. Cir. 2013)), we have to ask what level of

specificity it suggests. Does the mere use of the word “the” in this context really tell us

the answer to the question, “Which payroll and wage records?” The Majority, by

excising the operative phrase from its context, responds, “All payroll and wage

records.” Viewing the phrase in the context of an audit conducted “in connection with

the said Employer Contributions, Employee Contributions, and/or reports,” and with

consideration for the reasonable expectations of the parties, as discussed further below,

the phrase refers only to such records as are reasonably related to accomplishing the

authorized purposes of the audit, in connection with the related CBA. The CBA then

provides the audit’s reasonable boundaries: the predetermined subset of the payroll

and wage records, related to the covered employees alone: a readily ascertainable

subset of the whole workforce. 3

In an alternative approach, the Majority points to the Trust Agreement’s article

IV, section 2 as supporting its position that the district court erred by scrutinizing and

rejecting the Fund’s assertions about the breadth of the Hospital’s audit obligation. That

section, entitled “Construction of Agreement,” provides:

3The Majority suggests further that the parties negotiated for the result that the Majority advocates: that the Fund and the Hospital worked out the terms of the relationship and that the district court was wrong to interfere in the agreement that the parties struck. See Maj. Op. at 16– 18. But the Hospital did not negotiate the Trust Agreement: that multiemployer agreement was negotiated by others before the Hospital agreed to participate in the Plan. Rather, the Hospital negotiated the CBA with NYSNA and accepted the audit provision in the Trust Agreement through its Acknowledgment, which was adopted together with the operative CBA. It was the CBA that defined the scope of the parties’ relationship and the “Employees” subject to the Trust Agreement. The parties identify no basis in the text of the Trust Agreement or in the record for concluding that the Hospital should have expected the Trust Agreement’s audit provision to reach beyond those employees arguably covered by the CBA. Certainly, the use of the word “the” before “wage and payroll records” in article V gave no such warning.

7 The Trustees shall have power to construe the provisions of this Agreement and Declaration of Trust and the terms used herein and any construction adopted by the Trustees in good faith shall be binding upon the Association, the Employer, and the Employees and their families and dependents.

J. App’x 113.

I struggle to understand how, in the context presented, this provision shuts the

door on the Hospital’s and district court’s reading of the Trust Agreement in the context

of the CBA. The Fund is urging an unreasonably and unsupported interpretation of the

phrase “the payroll and wage records . . . in connection with the said Employer

contributions.” The reading is not compelled by the Trust Agreement, it is undercut by

the CBA, and at the end of the day, it is simply not tenable. Moreover, the trustees do

not have equivalent interpretative authority with regard to the CBA, and the CBA’s

terms—including those defining which employees are covered by the CBA—are critical

to the meaning and application of this clause of the Trust Agreement. Reading the

documents together leaves no ambiguity that is sufficient to empower the Fund’s

trustees to impose the advocated construction. The “Construction of Agreement”

provision thus does not in my view convert the district court’s construction into an

error of law or otherwise infect its decision to order a more tailored audit than the Fund

requested. And the Hospital does not need to make a showing of any bad faith on the

part of the trustees to sustain this proposition.

Under New York law, “all contracts imply a covenant of good faith and fair

dealing in the course of performance,” including with regard to “any promises which a

reasonable person in the position of the promisee would be justified in understanding

were included.” 511 W. 232nd Owners Corp. v. Jennifer Realty Co.,

(2002). Pursuant to this principle, courts charged with enforcing New York contracts

properly do so within the bounds of the reasonable expectations of the parties, insofar

8 as such expectations are consistent “with other terms of the contractual relationship.”

Id.; see also Cross & Cross Properties, Ltd. v. Everett Allied Co.,

(2d Cir.

1989) (“The boundaries set by the duty of good faith are generally defined by the

parties’ intent and reasonable expectations in entering the contract.”). Here, in the

absence of contractual language to the contrary in the Trust Agreement and in light of

the terms of the CBA, the district court did not err when it declined to enter the Fund’s

requested audit order after concluding that the Hospital had not expected that it would

be required to disclose to the Fund hundreds of employee records that were not shown

to be necessary, relevant to, or otherwise “in connection with” the Employer’s

obligations under the Trust Agreement and CBA.

II. Central States does not require reversal of the district court’s order

The Majority reads Central States to prevent this district court from limiting the

scope of the demanded audit absent proof by the Hospital that in conducting the audit,

the Fund trustees would violate their fiduciary duty. I believe this view overreads

Central States.

The Central States case came to the Supreme Court after the Sixth Circuit held

that, to audit employer records concerning non-union employees, the plaintiff benefit

funds needed to show “reasonable cause to believe that a particular person is covered

by a collective bargaining agreement” and was misclassified as not covered. See Central

States, Se. & Sw. Areas Pension Fund v. Central Transport, Inc.,

(6th Cir.

1983), rev’d,

(1985). The Supreme Court held that, when the audit is

authorized by contract, the law requires no such particularized reasonable-cause

showing as a predicate for a court order directing an audit of non-union employee

records. See Central States, 472 U.S. at 568–69. The Court’s holding was thus in important

respects limited. It wrote, “[T]here is no reason in ERISA or the plan documents of this

9 case why the kind of audit requested here should, as a matter of law, be considered

outside the scope of proper plan administration.” Central States,

(emphasis added).

The Central States Court, unsurprisingly, left no doubt that an audit demanded

by a fund “would be illegitimate” if shown by the employer to violate the fund trustees’

fiduciary duties.

at 571 n.12. And, although the statement was not necessary to its

holding, the proposition is easy to accept. Yet it did not instruct, as the Majority now

seems to suggest, that in the absence of a demonstrated violation of fiduciary duties by

the requesting party, a district court lacks discretion to limit the scope of the demanded

audit. 4 In fact, in its footnote 23, the Central States Court acknowledged that a fund’s

“right to demand access to employer records does not reach beyond what is appropriate

for the proper administration of the plans.”

at 582 n.23. The Court concurrently

recognized, moreover, that “a court ordering an employer to comply with a particular

audit demand could, upon a proper showing by the employer, limit the auditors

accordingly.”

The Court then observed that such court-ordered limitation was not necessary in

Central States because in that case, unlike here, the fund had already “agreed to various

limits on its audit so as not to exceed what would be reasonably appropriate for the

service of the audit’s legitimate purposes.”

Central States thus suggests that a court

4In footnote 12 of the Central States opinion, on which the Majority substantially relies, the Supreme Court stated that the employers’ failure to show that “Central States’ audit program[]” would violate the fund trustees’ fiduciary duties meant that “whether the auditing power claimed by Central States is consistent with ERISA must be analyzed in terms of the goal upon which Central States has rested its audit.”

n.12. The Court’s conclusion that the requested audit was “consistent with ERISA” does not entail, however, that a district court is without power to limit the scope of the audit further if circumstances make such limitations appropriate.

10 asked to order such an audit pursuant to a trust agreement must first determine

whether such an audit is authorized at all by the agreement. The court must next decide

whether the requested audit is consistent with the trustees’ fiduciary duties under

ERISA. Having taken those steps, the court then must determine, in its discretion,

whether in the circumstances presented the employer has made a “proper showing”

that the court should impose any limitations on the scope of the audit.

The Majority implicitly holds that a district court has no such discretion to shape

its order. Instead, it suggests that footnote 23 addresses only the burden on the

employer to show that a proposed audit violates the fund trustees’ fiduciary duties. See

Maj. Op. at 21. Yet at the same time the Majority reads footnote 23 as generally

endorsing the authority of the district court to “impose confidentiality protections on

the enforcement of a contractually authorized audit in order to protect against misuse of

the employer’s records.” Id. at 28. The parties do not dispute that district courts may

impose confidentiality restrictions on proposed audits, and the auditor retained by the

Fund offered as much. But the text of that footnote says more: that district courts may

restrict the scope of audits for other reasons as well. The Central States Court cited with

approval an unreported district court decision in which an employer subject to audit

had been permitted not only, in the Court’s words, to “restrict the auditors’ ability to

copy or disclose information” but also to “withhold specific information that was not

relevant to the audit’s purposes.” Central States,

n.23 (citing Central

States, Se. and Sw. Areas Pension Fund v. Theut Products, No. 82-cv-71080 (E.D. Mich., Oct.

21, 1982)). Thus, although an obligation of confidentiality surely is one type of

limitation that a district court might impose, I see no reason to read this footnote as

endorsing limits on audits only insofar as they may advance confidentiality. In my view,

where there is ambiguity in the authorizing documents and a record such as that

11 presented here, Central States does not constrain the district court from crafting a

suitable production order. 5

III. This Court owes deference to a district court’s tailored order subjecting a party to an audit in the absence of clear contractual language regarding its scope

There is substantial daylight between, on the one hand, a rule allowing a district

court discretion to shape its command only upon a finding of trustees’ breach of

fiduciary duties of loyalty and care, and, on the other, a rule allowing a district court to

exercise discretion upon a finding that certain aspects of an audit are neither required

by the agreement nor sufficiently supported by a fund’s claimed legitimate purposes.

Since Central States, our Court has recognized that district courts retain discretion to

shape otherwise generally proper audits. See N.Y. State Teamsters Conference Pension &

Retirement Fund v. Boening Bros., Inc.,

(2d Cir. 1996) (holding that

proposed audit was proper exercise of fund’s common law powers but also instructing

district courts that “it may be appropriate for [defendant employers] to seek protection

from an audit that is unduly broad or intrusive in its scope”). We have not, however,

closely examined the source of that authority.

In my view, a district court’s authority to limit its order concerning the scope of

an audit that is generally authorized by contract, but whose scope is not clearly

specified, is rooted simply in its well-established discretion to shape equitable relief. A

district court is entitled to shape that relief, even in the absence of a proven fiduciary-

duty violation, when it reasonably determines based on the record before it that the full

audit requested would not advance the trustees’ asserted legitimate purposes.

5I note too that generally under New York law, the initial interpretation of a contract’s terms— including whether those terms are ambiguous—is a matter of law for the court to decide. Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, London, England,

(2d Cir. 1998).

12 I would conclude, therefore, that the district court in this case reasonably

exercised its equitable discretion by limiting the Fund’s audit of payroll records to those

in connection with registered nurses both in and outside of the bargaining unit. The

order’s equitable nature carries with it substantial latitude for a district court to define

the precise contours of the actions it directs. The Restatement (Second) of Contracts

explains that “[a]n order of specific performance or an injunction will be so drawn as

best to effectuate the purposes for which the contract was made and on such terms as

justice requires.” Restatement (Second) of Contracts § 358(1) (1981). The order “need not

be absolute in form,” and the specific performance ordered “need not be identical with

that due under the contract.” Id. The reporters comment further:

The objective of the court in granting equitable relief is to do complete justice to the extent that this is feasible. . . . [T]he court has the power to mold its order to this end. The form and terms of the order are to a considerable extent within the discretion of the court.

Id. cmt. a. 6

Consistent with these principles, this Court should review with deference a

district court’s order limiting the scope of an audit that it is compelling a party to

undergo. See Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GmBH,

(2d Cir. 2016) (“It is axiomatic that the contours of an injunction are shaped by the

sound discretion of the trial judge and, barring an abuse of that discretion, they will not

be altered on appeal.” (internal quotation marks omitted)); United States v. Bedford

6This principle holds when, as here, trustees seek specific performance of a contract. See Amy Morris Hess et al., Bogert’s The Law of Trusts and Trustees § 717 (2021) (“Courts of equity exercise their discretion in granting specific performance of a contract made by a trustee, as they do with other contracts.”).

13 Assocs.,

, 1314 (2d Cir. 1981) (“Specific performance is an equitable remedy,

committed to the district court’s sound discretion.”).

IV. The district court tailored its order in a reasonable exercise of its discretion

In the legal and factual setting presented, I would conclude that the district court

acted within the permissible scope of its discretion when it limited the Fund’s audit of

the Hospital’s payroll records to those of its registered nurses. As discussed above, I do

not accept that the Trust Agreement or Central States compelled an all-employee audit.

Further, the Hospital argued convincingly that, as a matter of fact, to serve the

legitimate purposes of such an audit—confirming that the Hospital had made the

required contributions and had not, purposely or otherwise, misidentified registered

nurses for whom contributions were owed—the Fund did not need to review payroll

and wage records of individual employees other than registered nurses. Fund had an

opportunity to counter the Hospital’s position but failed to do so, leading the district

court to conclude that the record contained “no evidence that an audit of all of Nyack’s

employees’ payroll records, as opposed to just registered nurses, would lead to the

discovery of unfunded liabilities,” and that “[r]egarding the Fund’s second alleged

purpose [for the audit], there is no evidence the payroll records of non-registered nurses

would allow the Fund to identify additional plan participants.” NYSNA Benefits Fund,

, at *6. I see no basis for ruling that these findings are clearly

erroneous.

Excerpts from the record help to explain the district court’s ruling by illustrating

the Fund’s failure to provide a coherent justification for a whole-workforce audit. In a

revealing exchange, the auditor retained by the Fund testified as follows regarding the

purported need for payroll records relating to all employees:

14 A. Because the way this plan is set up, we have to know who is a part-time, who is a full-time and then we also have to delve into the opt-in and opt-out situations. Q. How does the payroll register tell you anything about opt- in or opt-out? A. It does not. We would have to look at other client records for that. Q. . . . The payroll register could tell you whether they’re part-time or full-time, right? A. Yes. Q. And for that you would just need to see the records of the registered nurses who are participants, right? A. No, no. . . . Q. What other record would tell you whether or not the participant you selected was part-time or full-time? A. That wouldn’t be the instance why we would want to see them all. We would want to see them all to make sure we’ve covered the whole population, that there isn’t [sic] people who should be part of the nurses or categorized in that group that aren’t in that group and we wouldn’t be able to see that unless we saw the full payroll records. Q. We will come back to that particular issue in a minute. I want to know for these purposes, for purposes of executing Agreed Upon Procedure 3, where you’re looking at a sample of persons who are already identified participants, how would looking at records other than records for registered nurses be of any assistance. Ms. Dell: Objection to form. A. It would not.

J. App’x 344-46 (emphasis added). Another colloquy was similarly unenlightening. 7

7The Hospital’s counsel also asked the Fund’s auditor, “Why does anyone who is not a registered nurse have to be part of your examination?” J. App’x 351-52. The auditor replied,

15 Notwithstanding these evidentiary weaknesses, the Fund insists that payroll

records for all employees will allow its auditors “to identify employees who are covered

by the applicable collective bargaining agreement,” and then identify any such

employees for whom the Hospital did not make contributions by “compar[ing] the

payroll register for [a given] month with the employees listed on the employer’s

“Because we’re looking to see if there would be other people on the payroll who might be registered nurses that are misclassified.”

. The auditor’s subsequent testimony only adds to the confusion:

Q. How would you determine that from the payroll? A. Based on—we would try to compare the hourly rate to people in the bargaining unit. Q. Why does that tell you anything about whether or not somebody is a registered nurse or just a well-paid mechanic? A. Then we would ask the question. In other words, when we look at the people, we come up with a thought pattern and then we would question it. Q. Other than the idea there may be some individuals who are paid the same as a registered nurse, what else would the payroll register reveal to allow you to draw any conclusion about whether or not somebody is misclassified? A. Can you repeat that question? Q. Yes. What other information could you derive from the payroll register other than what you just mentioned about the pay rates that would allow you to draw any conclusions about whether or not the person may be misclassified? A. We could get an idea how organized the payroll records are at the organization. We could get an understanding of the departmentalization of potentially the payroll. Q. What does that tell you about misclassification? A. Well, depending how—when we interact with the client, depending on the answers, when we look into it, could tell us these records may be more pristine than a different case.

at 352–53.

16 contribution report for that month.” Fund’s Br. at 32–33. This assertion has some basic

and generic plausibility in many labor contexts, where the members of the collective

bargaining unit are not so easily identified as they are here. But, as illustrated, the Fund

failed to explain in the district court, and continues to falter in explaining on appeal,

why payroll records for all the registered nurses working at the hospital—the full-time,

part-time, and per diem registered nurses, whether or not enrolled in the Fund’s benefit

plan—would not be entirely sufficient for this task.

The Fund’s only clear argument now in support of its position that it must

review the payroll records of all employees to ensure that the Hospital is meeting its

obligations is advanced for the first time on appeal. It now claims that, because its CBA

with the Hospital also covered “every person employed in a position which requires a

registered professional nurse,” J. App’x 150, it must review the payroll records of all

employees who are not registered nurses (as well as the registered nurses) to see if they

may be employed in such a position and are therefore eligible to participate in the

Fund. Perhaps anticipating such an argument, the district court made passing mention

of this odd category and dismissed it as having any significance, reasoning that it did

not expand the cohort of possible Plan coverage: if a position requires the employee to

be a registered nurse, a registered nurse must occupy that position. See NYSNA Benefits

Fund,

, at *6. The Fund’s auditors do not appear to have even

mentioned this potential category of coverage in testimony discussing the need for a

full-workforce audit. The Fund’s failure to raise and develop this argument earlier

should preclude us from upsetting the district court’s order in reliance on it.

Now responding to the argument, the Hospital casts additional, substantive

doubt on the Fund’s interpretation of this part of the subject clause of the CBA,

explaining that its purpose is only “to allow NYSNA to assert the right to have

[registered nurses] claim work that has been erroneously assigned to others.” Hospital’s

17 Br. at 32 n.10. Rather, the Hospital persuasively posits that this provision “does not

transform such employees into NYSNA members who may participate in the Fund.”

For all these reasons, this afterthought argument cannot reasonably serve to invalidate

the district court’s order.

Finally, the Fund has repeatedly claimed that its audit request was compelled

because it was analogous to the order at issue in Central States. 8 Yet, as discussed in Part

II above, the circumstances of Central States were markedly different from those

presented here. In Central States, the employers were required to contribute to the

benefit plans based on the particular work employees performed. See

&

n.2. The plaintiff benefit plans thus reasonably argued that they could not effectively

conduct an audit based on employer-provided list of employees who had performed

covered work—they needed to review a broader set of employee records to determine

whether other, unidentified employees had performed covered work as well. See

at

566–67. Here, in contrast, coverage is based not on function, but on the status of the

employee: Is he or she a registered nurse or not? As described above, the Fund

repeatedly fell short of providing a satisfactory explanation as to how payroll records

for employees who are not registered nurses would enable the Fund’s auditors to

discover unfunded liabilities or identify new Plan participants, where their status as

8For instance, in its summary judgment briefing, the Fund relied on the purported similarity between its requested audit and the audit requested in Central States to support its right to review the payroll records of employees who are not registered nurses. See Plaintiff N.Y. State Nurses Ass’n Benefits Fund’s Mem. of Law in Supp. of its Mot. for Summ. J. at 15, NYSNA Benefits Fund, No. 17-cv-1899 (S.D.N.Y. Feb. 15, 2019) (ECF No. 59) (“In both Central States and here, the review is intended to allow the auditors to conduct an independent verification of the employer’s complete payroll records in order to determine whether the duties and status of each of the employer’s employees has been accurately reported by the employer and to allow the auditors to independently determine the membership of the class entitled to participate in the plans, and thus verify that all required contributions are being made.”).

18 registered nurses, not their functions, determined coverage. Only where an individual

was a registered nurse occupying an excluded position, see supra note 2, and thus not

subject to the CBA, was function a consideration. 9

Even if the Fund’s audit request were properly analogized to the request at issue

in Central States, the authorized scope of the audit requested there was not before the

Court. See

n.23 (“We note that in this case Central States has agreed to

various limits on its audit so as not to exceed what would be reasonably appropriate for

the service of the audit’s legitimate purposes.”). The Court’s holding in Central States

was a narrower one, as discussed above.

Barring an explicit commitment of the type missing here, district courts retain

and need equitable discretion to impose reasonable limits on the audits that they order,

even when those audits have not been demonstrated to violate fund trustees’ fiduciary

duties, and especially when the audits demanded do not conform to any unambiguous

contractual obligation. I do not think that Central States eliminates such discretion—on

the contrary, I understand Central States to state expressly that it does not.

Based on this legal and factual record, I would hold that the district court

reasonably exercised its discretion in limiting the Fund’s audit of the Hospital’s payroll

and wage records to those of its registered nurses.

9In a hearing conducted before the summary judgment motions were filed, the district court pressed the Fund’s counsel to explain why reviewing the payroll records of all registered nurses at the Hospital would not be sufficient for the purposes of the audit. See J. App’x 549. Counsel for the Fund responded by pointing generally to the Central States decision and insisting that the Fund had the right to review the broader set of records based on that case. See

at 549–50 (“The problem is that the fund does not have to under Central States, the auditor does not have to under the attestation standards rely on what the employer has already determined are the people that belong in the set of records that they are going to let them see.”). The Fund did not explain at this juncture why reviewing payroll records for only registered nurses would not adequately serve the audit’s purposes.

19 For all these reasons, I respectfully dissent.

20