In the Supreme Court of the United States
JOHN ALVIS JACKSON, JR. AND
LARRY ANDREW CAREY, PETITIONERS
UNITED STATES OF AMERICA
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BRIEF FOR THE UNITED STATES
GREGORY G. GARRE
Counsel of Record
MATTHEW W. FRIEDRICH
Acting Assistant Attorney
PATTY M. STEMLER
Department of Justice
Washington, D.C. 20530-0001
Whether employer contributions to a pension plan covered by the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 et seq., become "assets of [the] * * * plan" within the meaning of 18 U.S.C. 664 when they are due to the plan even if they have not yet been paid.
In the Supreme Court of the United States
JOHN ALVIS JACKSON, JR. AND
LARRY ANDREW CAREY, PETITIONERS
UNITED STATES OF AMERICA
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BRIEF FOR THE UNITED STATES
The opinion of the court of appeals (Pet. App. 2-36) is reported at 524 F.3d 532. The memorandum opinion of the district court denying petitioners' post-trial mo tion for an acquittal and a new trial (Pet. App. 37-58) is unreported.
The judgment of the court of appeals was entered on May 1, 2008. A petition for rehearing was denied on May 27, 2008 (Pet. App. 1). The petition for a writ of certiorari was filed on August 25, 2008. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).
After a jury trial in the United States District Court for the Western District of Virginia, petitioners were convicted on two counts of bank fraud, in violation of 18 U.S.C. 1344; five counts of wire fraud, in violation of 18 U.S.C. 1343; one count of making false statements in a document required by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq., in violation of 18 U.S.C. 1027; two counts of theft from ERISA-covered pension plans, in violation of 18 U.S.C. 664; and one count of theft from a health care benefit program, in violation of 18 U.S.C. 669. Pet. App. 3. Petitioner Jackson was also convicted of conspiracy to com mit those offenses, in violation of 18 U.S.C. 371. Pet. App. 4. Petitioner Jackson was sentenced to 108 months of imprisonment, and petitioner Carey was sentenced to 87 months of imprisonment. Ibid. The court of appeals affirmed. Id. at 2-36.
1. Petitioner Jackson was the President and Chief Executive Officer of the Burruss Company (Burruss), a wood products business with its headquarters in Galax, Virginia, and manufacturing plants in Virginia, Tennes see, and Kentucky. Pet. App. 5. Petitioner Carey was Burruss's Chief Financial Officer. Id. at 6. Burruss maintained for its employees an ERISA-covered money purchase pension plan sponsored by the company (com pany plan) and an ERISA-covered money purchase pen sion plan sponsored by a labor union (union plan). Id. at 12. Crestar Bank (later SunTrust) was the trustee for both plans. Id. at 14. Burruss was the plan administra tor for the company plan, and Carey was an assistant to the plan administrator. Carey was also plan administra tor for the union plan. Id. at 13.
The company plan was an individual account plan, funded by employer contributions, which were allocated to accounts within the plan for each eligible participant. Pet. App. 12; see 29 U.S.C. 1002(34). Each year, Burruss was obligated to contribute to the plan three per cent of the aggregate annual compensation of all eligible participants. Pet. App. 12. Burruss was required to al locate and credit the annual employer contributions to the proper participant accounts and to provide each plan participant with an annual account statement, as of the last day of the calendar year. Id. at 12-13.
The union plan also required Burruss to establish a bookkeeping account for each employee, to add to each account the participant's share of Burruss's annual plan contributions, and to prepare a participant statement after completing the allocations for the valuation date at the end of the plan year. Pet. App. 13. The plan defined the valuation date as the last day of the plan year, and it defined the plan year as the twelve consecutive months ending on December 31. Ibid. Burruss was required to contribute and to allocate to the account of each eligible participant an amount equal to 15 cents for each hour of service by that participant. Ibid.
In the mid-1990s, Burruss negotiated a loan agree ment with Fleet Capital Corporation (Fleet) that keyed Burruss's borrowing capacity to its assets and required that all of its assets be pledged as collateral for the loan. Pet. App. 6-7, 9. Shortly thereafter, Burruss began to encounter financial problems. Id. at 8-9. To hide Bur russ's deteriorating financial condition, make the com pany more attractive to potential buyers, and enrich themselves, petitioners began inflating Burruss's assets on reports filed with Fleet so that they could obtain more funds under the loan. Id. at 10-11, 19. Petitioners also sold assets owned by Burruss but pledged to Fleet as collateral and deposited those proceeds into a secret bank account from which they wrote checks for their personal use. Id. at 11.
At the same time, petitioners intentionally failed to make payments that Burruss owed to its pension plans and lied about the missing payments. Pet. App. 14-16. In particular, as of December 31, 1998, Burruss owed approximately $322,000 to the company plan for calen dar year 1998, but petitioners failed to make that pay ment when due. Id. at 14. On October 15, 1999, even though the 1998 contribution still had not been made, Burruss filed with the Department of Labor (DOL) a Form 5500, signed by petitioner Jackson, stating that the contribution had been made. Ibid. After repeated requests from the plan trustee, petitioners eventually made the 1998 contribution, but not until April 18, 2000. Id. at 14-15.
For plan year 1999, Burruss was obligated to con tribute more than $324,000 to the company and union plans. Pet. App. 15. Jackson and Carey were aware that the payments were due, at the latest, by September 15, 2000. Id. at 15-16. As the due date approached, a representative of the plans' trustee repeatedly reminded Carey that the payments were due. Id. at 16. Although Carey assured her that Burruss would make the pay ments, it never did. Ibid. After Burruss failed to make the payments, the trustee's representative, Sybill Wolf, contacted petitioners several times to inquire about the payments. Ibid. Jackson directed her to speak to Car ey, who generally avoided the calls and, when he did respond, asserted that a mistake must have been made. Ibid. On October 18, 2000, the trustee sent a letter to Burruss noting that the company had not made the pay ments and that it could be penalized for that failure. Ibid.
Meanwhile, in early September 2000, the trustee had prepared and delivered to Burruss the individual ac count statements for both plans for calendar year 1999. Pet. App. 16. The account balances reported on the statements reflected that Burruss would make the 1999 contributions. After Burruss failed to make the contri butions, the trustee issued new statements to the partic ipants indicating that adjustments had been made to the individual accounts to reflect Burruss's failure to make the payments. Ibid.1
Burruss's financial condition continued to deteriorate throughout the fall of 2000. Pet. App. 18-19. On Novem ber 7, 2000, after all efforts to sell the company failed, Burruss declared bankruptcy. Id. at 19.
2. In September 2005, a grand jury in the Western District of Virginia returned an indictment against peti tioners charging them with numerous offenses arising from the conduct described above. Pet. App. 4; C.A. App. 36-64 (Indictment). As relevant here, Counts 11 and 12 of the indictment charged petitioners with theft from an ERISA-covered plan, in violation of 18 U.S.C. 664, based on their failure to pay the 1999 contributions to the company and union plans. C.A. App. 59-61.
Specifically, Count 11 charged that "the annual con tribution owed by Burruss to the Company Plan for cal endar year 1999 was an asset of the Company Plan"; Burruss owed "an amount not less than $318,246.27" for plan year 1999; that contribution "was required to be paid on or before March 15, 2000, to the Trustee of the Company Plan, SunTrust Bank"; but "[t]hose funds were not paid by March 15, 2000 as required, and, in fact, were never paid." C.A. App. 59-60. Count 11 fur ther charged that, "between on or about January 1, 1999 and on or about March 15, 2000," petitioners, "while fi duciaries of the Company Plan, did embezzle, steal and unlawfully and willfully abstract and convert to their own use, and to the use of others, an amount not less than $318,246.27, which constitutes moneys, funds, secu rities, premiums, credits, property and other assets of the Company Plan." Id. at 60. Count 12 made similar charges with respect to the 1999 contribution for the union plan, which was approximately $6,418.45. See id. at 60-61.
Petitioners pleaded not guilty and were tried before a jury. Pet. App. 4. The judge instructed the jury that, to find petitioners guilty of the charges under Section 664, the jury had to find that the government had proved three elements beyond a reasonable doubt:
One: [petitioners] [fraudulently and] willfully embezzled, stole, or converted property, money, or funds to [their] own use or the use of another;
Two: the property, money, or funds taken be longed to an employee benefit plan subject to ERISA;
Three: that [petitioners] acted with the intent to deprive the pension plan of its funds, with reckless disregard for the interests of the pension plan.
C.A. App. 2220. The court further instructed the jury that "[m]onies, funds, securities, premiums, credits, property, and other assets became assets of the [com pany and union plans] when they were due and payable to the trustee of the plans." Id. at 2222.
In its closing argument to the jury, the government argued that petitioners violated Section 664 because the 1999 contributions to the plans were "never paid" but were, "instead, converted to the use of another"-"the Burruss Company." C.A. App. 2253. The government argued that petitioners knew that they were required to make the contributions, "[b]ut this year money was tight. And they decided to keep the money for the Bur russ Company[,] for them; not for the employees, not for the pension plan." Id. at 2254. Rather than make the contributions, the government observed, petitioners paid themselves bonuses and paid suppliers to keep the business going in an effort to sell it. Id. at 2255. When petitioners "chose to take the money owed to the pen sion plan * * * and to use it for something else," the government contended, "they converted it to the use of themselves or another." Id. at 2254-2255. The jury found petitioners guilty of the bulk of the charges against them, including the Section 664 offenses. Pet. App. 19-20.
After trial, petitioners renewed motions for acquittal that they had made during trial and sought, in the alter native, a new trial. Pet. App. 19-20. The district court denied the motions. Id. at 37-58. As relevant here, the court rejected petitioners' contention that the evidence was insufficient on the Section 664 charges because "Burruss' unpaid contributions were not assets of the plan." Id. at 47. The court concluded that it had cor rectly instructed the jury that "employer contributions became a plan asset when they were due and payable to the plan." Id. at 48. The court also rejected petitioner Carey's contention that he had not converted the unpaid contributions to his own use, reasoning that Carey had helped "convert funds required to be paid to the Burruss pension plans to the use of the Burruss Company in or der to prolong its appearance of solvency." Id. at 52.
The district court also rejected petitioner Jackson's contention that, even if the unpaid contributions were assets of the plans, he was not a fiduciary of the plans. Pet. App. 50. The court held that "[t]he plain language of the statute" makes clear that "a defendant need not hold any particular status as to the plan or be a fiduciary in order to be found guilty." Ibid.
3. The court of appeals affirmed. Pet. App. 2-36. As relevant here, the court rejected petitioners' claim that their convictions under Section 664 "must be vacated, as a matter of law, because 'unpaid employer contributions are not assets of a plan until they are paid into the plan unless the plan documents specifically state otherwise.'" Id. at 24 (quoting Pet. C.A. Br. 28-29). The court con cluded that the district court had correctly "ruled that unpaid employer contributions become 'credits' and are ERISA 'plan assets' when they are 'due and payable to the plan.'" Id. at 25.
The court of appeals noted that "[Section] 664 does not explicitly provide that unpaid employer contribu tions constitute ERISA plan assets," but, the court stated, 29 U.S.C. 1103 "specifies that such assets are held in trust, and not for the employer's benefit." Pet. App. 26. The court further observed that the Second Circuit, in United States v. LaBarbara, 129 F.3d 81 (1997), had held that "an employer must comply with its contractual obligations to make contributions to its ERISA plan, and that such a contractual obligation con stitutes an 'asset' of the ERISA plan." Pet. App. 26-27 (citing LaBarbara, 129 F.3d at 88, and In re Luna, 406 F.3d 1192, 1198-1201 (10th Cir. 2005)). The court of ap peals then reasoned that, "[w]hen Burruss established its ERISA pension plans, it bound itself to the terms thereof," which required annual contributions. Id. at 27. The court noted that "Burruss could properly extricate itself from those ERISA obligations only by proper ter mination of the Plans." Ibid. Stating that it "agree[d] with the district court and the Second Circuit," the court of appeals held that "Burruss's unpaid contributions to the Plans constituted the 'moneys, funds, or assets' thereof for purposes of § 664." Id. at 27-28.
The court of appeals also rejected petitioners' related contention that they could not be convicted under Sec tion 664 because they were not fiduciaries of the plans. Pet. App. 28-29. The court held that the district court had correctly ruled that Section 664 "plainly applies to 'any person' who steals or embezzles the moneys, funds, or assets of an ERISA plan." Id. at 28. The court of appeals noted that the jury instructions "did not man date a jury finding that [petitioners] were fiduciaries." Ibid. Although the indictment had charged that peti tioners were fiduciaries, the court concluded that the surplusage in the indictment was not reversible error because petitioners had not raised a variance or surplus age claim, the statute does not require fiduciary status, and the evidence established that petitioners were fidu ciaries in any event. Id. at 28-30.
Petitioners contend (Pet. 5-12) that their Section 664 convictions should be reversed because unpaid employer contributions are not "assets" of an ERISA plan unless the plan documents provide otherwise. Although the government argued in the courts below that unpaid em ployer contributions are plan assets, the government now agrees with petitioners after closer consideration of DOL's position on this issue and the other authorities discussed in this brief.
DOL's position-grounded in agency pronounce ments going back at least 15 years-is that, absent provisions in plan documents giving the plan a beneficial interest in unpaid contributions, the contributions them selves are not assets of the plan until the contributions are paid to the plan. The plan's contractual right to the unpaid contributions, in contrast, is an asset of the plan once the contributions are due. The decisions of the courts of appeals have uniformly followed that rule, which is consistent with common-law principles. The decision below appears to depart from that rule, but, even if it could be interpreted, consistently with the de cisions of other courts of appeals, as holding only that a plan's contractual right to payment is a plan asset, the government did not prove that petitioners "embezzle[d], st[ole], or unlawfully and willfully abstract[ed] or convert[ed]" that contractual right. 18 U.S.C. 664. Ac cordingly, this Court should grant the petition for a writ of certiorari, vacate the decision of the court of appeals, and remand for further proceedings in light of the posi tion expressed in this brief.
1. a. Section 664 punishes "[a]ny person" who "em bezzles, steals, or unlawfully and willfully abstracts or converts * * * any of the moneys, funds, securities, premiums, credits, property, or other assets of any * * * employee pension benefit plan, or of any fund connected therewith." 18 U.S.C. 664. Section 664 de fines "employee pension benefit plan" to mean "any em ployee benefit plan subject to any provision of title I of the Employee Retirement Income Security Act of 1974." Ibid.
Although Section 664 was originally enacted before ERISA, see Welfare and Pension Plans Disclosure Act Amendments of 1962, Pub. L. No. 87-420, § 17(a), 76 Stat. 41, it was amended by ERISA specifically to apply to ERISA-covered plans, see Pub. L. No. 93-406, § 111(a)(2)(A), 88 Stat. 851 (29 U.S.C. 1031(a)(2)(A)). Accordingly, Congress presumably intended plan "as sets" to have the same meaning in Section 664 that the term has throughout ERISA. See Gustafson v. Alloyd Co., 513 U.S. 561, 570 (1995).
ERISA does not provide a definition of the "assets" of an ERISA plan. John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 89 (1993). DOL, which is charged with the administration and enforce ment of Title I of ERISA, see 29 U.S.C. 1132(a) (2000 & Supp. V 2005); 29 U.S.C. 1134, 1135, 1137, has, however, addressed the meaning of plan assets in regulations and advisory opinions.
In addition to a general "plan assets" regulation con cerning investments, 29 C.F.R. 2510.3-101, DOL has promulgated a regulation that specifically defines when employee contributions become plan assets. That regu lation makes clear that amounts deducted from an em ployee's compensation for contribution to a plan become plan assets as soon as those funds "can reasonably be segregated" from the employer's general assets. 29 C.F.R. 2510.3-102(a). Neither regulation, however, ad dresses when employer contributions become plan as sets.
DOL has consistently expressed the view that, in sit uations not covered by the plan asset regulations, "the assets of a plan generally are to be identified on the ba sis of ordinary notions of property rights under non- ERISA law." Advisory Op. No. 93-14A (May 5, 1993) (AO); see AO No. 2005-08A (May 11, 2005); AO No. 94- 31A (Sept. 9, 1994); AO No. 92-22A (Oct. 27, 1992). The assets of a plan thus "include any property, tangible or intangible, in which the plan has a beneficial ownership interest," taking into account "any contract or other legal instrument involving the plan, as well as the actions and representations of the parties involved." AO 93-14A.
Accordingly, absent express contractual provisions indicating that the plan's beneficial ownership com mences when contributions are due, employer contribu tions become assets of the plan only when they are actu ally paid to the plan. Under ordinary principles of prop erty law, a company's failure to pay its contractual obli gations when due does not give the creditor a property interest in the company's assets. A general creditor does not have any property interest in the assets of a debtor. See Grupo Mexicano de Desarrollo, S.A. v. Alli ance Bond Fund, Inc., 527 U.S. 308, 319-320 (1999). A debt is not a trust, and a debtor is not a fiduciary of the debt owed the creditor. See Restatement (Second) of Trusts § 12 (1959). Thus, as this Court held more than 70 years ago, an employer's failure to make contribu tions to an employee benefit plan generally does not give the plan "equitable title to or a lien upon any part of the employer's property. The assets of the employer re main, as they were before, general assets." McKee v. Paradise, 299 U.S. 119, 122 (1936); see id. at 123 ("fail ure to pay * * * cannot avail to change the [company] into a trustee or enable the [plan] to obtain a preference over other claims" against the company).2 In accordance with those settled legal principles, DOL has taken the view that, as a general rule, "employer contributions be come an asset of the plan only when the contribution has been made." Employee Benefits Sec. Admin., U.S. DOL, Field Assistance Bulletin 2008-1, at 1-2 (Feb. 1, 2008) (FAB 2008-1).
The fact that unpaid employer contributions are not themselves assets of the plan does not mean, however, that the plan obtains no property interest whatsoever as a result of the employer's contractual obligation. On the contrary, the contractual right to receive the contribu tions and the concomitant right to sue on the debt are themselves a property interest of the plan. Such rights have traditionally been referred to as "choses in action." See Mexican Nat'l R.R. v. Davidson, 157 U.S. 201, 204- 206 (1895). "The term 'chose in action' is one of compre hensive import. It includes the infinite variety of con tracts, covenants, and promises, which confer on one party a right to recover a personal chattel or sum of money from another, by action." Id. at 206 (citation omitted). "The terms 'choses in actions' and 'debts' are used by courts to represent the same thing when viewed from opposite sides. The chose in action is the right of the creditor to be paid, while the debt is the obligation of the debtor to pay." 63C Am. Jur. 2d Property § 22 (1997). Choses in action are a form of intangible per sonal property. Ibid.; Standard Oil Co. v. New Jersey, 341 U.S. 428, 439-440 (1951).
The text of Section 664 supports the conclusion that a plan's contractual right to employer contributions-its "chose in action"-is a plan "asset." Section 664 indi cates that plan "assets" include "credits" of the plan. 18 U.S.C. 664. A "credit" is a chose in action -"[t]he correlative of a debt; that is, a debt considered from the creditor's standpoint, or that which is incoming or due to one[;] * * * [a] [c]laim or cause of action for [a] specific sum of money." Black's Law Dictionary 331 (5th ed. 1979) (Black's); see Propper v. Clark, 337 U.S. 472, 480 (1949) (stating that the "ordinary meaning" of "credit" is "the obligation due on accounting between parties to transactions"); Robinson v. United States, 30 F.2d 25, 28 (6th Cir. 1929) (stating that the term "credits," in a stat ute prohibiting theft or misapplication of bank funds, "refers to obligations or debts of others to the bank"). Thus, DOL has taken the view that, "when an employer fails to make a required contribution to a plan in accor dance with the plan documents, the plan has a claim against the employer for the contribution, and that claim is an asset of the plan." FAB 2008-1, at 2.
b. DOL's position that employer contributions gen erally are not plan assets until paid, but the plan's con tractual right to payment is itself a plan asset, is entitled to judicial deference. See Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) (holding that DOL's interpretations in opinion letters of the Fair Labor Standards Act, 29 U.S.C. 201 et seq., "while not controlling upon the courts by reason of their authority, do constitute a body of ex perience and informed judgment to which courts and litigants may properly resort for guidance"); Kalda v. Sioux Valley Physician Partners, Inc., 481 F.3d 639, 647 (8th Cir. 2007) (finding "the Secretary's reasoning in its rulings regarding 'plan assets' thorough, valid, and particularly consistent). It also enjoys significant sup port in background principles of law that inform the in terpretation of 18 U.S.C. 664.
Adopting the contrary view that unpaid employer contributions are always plan assets would have conse quences that Congress could not have intended. If un paid contributions were plan assets, ERISA's require ments would govern the normal operations of an em ployer's business whenever it failed to timely pay contri butions. As soon as contributions were past due, an un differentiated part of the employer's assets would be come plan assets, and the employer would find itself in the unmanageable position of being a plan fiduciary in its general business activities. The employer would have to manage the funds constituting plan assets (and argu ably the general accounts in which the funds were com mingled) with undivided loyalty to plan participants and beneficiaries, rather than the company's shareholders. 29 U.S.C. 1104(a). The employer would have to refrain from self-dealing and transactions with parties in inter est, including corporate affiliates and officers. Ibid.; 29 U.S.C. 1106. And the employer would have to comply with ERISA's other fiduciary provisions, such as the requirement that plan assets be held in trust and that they not inure to the benefit of the employer. 29 U.S.C. 1103 (2000 & Supp. V 2005). Concern about those poten tial consequences could discourage employers from par ticipating in ERISA plans.
Moreover, if an employer's failure to pay its debts to a plan caused the employer to hold plan assets, then pre sumably any other debtor to a plan would likewise hold plan assets if it was delinquent in paying its debt. Such a rule would likely discourage many valuable financial transactions between plans and third parties. Generally, when a party enters into a commercial transaction, it risks contractual liability for non-performance, but its general assets do not become impressed with a trust, and it remains free to pursue its business interests for the benefit of its partners or shareholders. If, however, unpaid debts to an ERISA plan caused the debtor to assume fiduciary status and to take on corresponding fiduciary duties and liabilities, many entities would avoid commercial transactions with plans on the same terms offered to less risky counter-parties.
DOL's interpretation of plan assets, under which the plan's asset in unpaid debts is limited to its contractual right to payment (i.e., its credit or chose in action), avoids those far-reaching consequences. At the same time, it ensures that plan fiduciaries will pursue the plan's right to payment on the debts, because the fidu ciary has an obligation to manage the chose in action prudently and in the interests of plan participants and beneficiaries. See 29 U.S.C. 1104(a); FAB 2008-1, at 2-3.
2. a. The decisions of the courts of appeals, with the possible exception of the decision below, accord with DOL's interpretation of when employer contributions become plan assets. The Tenth Circuit's decision in In re Luna provides the clearest explanation of the rule. The Tenth Circuit held that "an ERISA plan does not have a present interest in the unpaid contributions until they are actually paid to the plan." In re Luna, 406 F.3d 1192, 1199 (2005) (emphasis omitted). But the court fur ther stated that, "although the plan does not possess the unpaid contributions themselves, it does possess the contractual right to collect them." Id. at 1200. That "chose in action," the Tenth Circuit stressed, is itself "a property interest" of the plan. Id. at 1199.
The decisions of other courts of appeals are in ac cord. Those courts have recognized that "unpaid em ployer contributions are not assets of [an ERISA plan] unless the agreement between the [plan] and the em ployer specifically and clearly declares otherwise." ITPE Pension Fund v. Hall, 334 F.3d 1011, 1013 (11th Cir. 2003); accord In re Bucci, 493 F.3d 635, 642 (6th Cir. 2007); see In re M&S Grading, Inc., 541 F.3d 859, 865 (8th Cir. 2008) (stating that "unpaid [employer] con tributions remained corporate assets and did not become assets of the plan"); Cline v. Industrial Maint. Eng'g & Contracting Co., 200 F.3d 1223, 1234 (9th Cir. 2000) (holding that, "[u]ntil the employer pays the employer contributions over to the plan, the contributions do not become plan assets over which fiduciaries of the plan have a fiduciary obligation"); see also United States v. Panepinto, 818 F. Supp. 48, 51 (E.D.N.Y. 1993) (con struing plan language stating that no "Employer shall have any legal or equitable right, title or interest in or to any sum paid by or due from the Employer" as vest ing in the plan ownership of unpaid employer contribu tions) (citation omitted), aff'd, 28 F.3d 103 (2d Cir. 1994) (Table); cf. Kalda, 481 F.3d at 648 (holding that unpaid contributions were not plan assets because the plan doc uments did not obligate the employer to make the pay ments).
Other courts of appeals have also recognized that an employer's "contractual obligations" to ERISA plans "constitute 'assets' of the [plans]." United States v. LaBarbara, 129 F.3d 81, 88 (2d Cir. 1997); see ITPE Pension Fund, 334 F.3d at 1014 n.4 (stating that "[a] receivable is a contractual or legal claim for payment of the money due, in contrast to the actual money due," and, although a receivable may be an asset of the plan, that fact does not make the receivable property, i.e., "the actual money due," a plan asset).
b. The government did not fully address DOL's posi tion and related authorities in its court of appeals brief in this case. And, perhaps due to the absence of a such a discussion, the decision of the court of appeals appears to have departed from the uniform approach of DOL and the other courts of appeals and incorrectly held that "unpaid employer contributions" are themselves "plan assets" when they are "due and payable to the plan." Pet. App. 25 (quoting district court opinion). See id. at 27-28 (holding that "Burruss's unpaid contributions to the Plans constituted the 'moneys, funds, or assets' thereof for purposes of § 664").
The precise holding of the court below is not entirely clear, because the court expressly relied on LaBarbara, which it correctly described as holding that an employ er's "contractual obligation to make contributions to its ERISA plan * * * constitutes an 'asset' of the ERISA plan." Pet. App. 26-27; see id. at 27 (citing In re Luna, 406 F.3d at 1198-1201, for the proposition that a "con tractual right to collect unpaid contributions is [a] plan asset"). Thus, it might be possible to read the decision below, consistently with other courts of appeals and DOL's position, as holding only that a plan's contractual right to unpaid employer contributions is a plan asset. That is not, however, the most natural reading of the decision, in light of how the case was charged and tried, and in light of the district court's conclusion that peti tioners "convert[ed] funds required to be paid to the Burruss pension plans to the use of the Burruss Com pany in order to prolong its appearance of solvency." Id. at 52 (emphasis added).
3. Even if the decision below could be interpreted as holding only that a plan's contractual right to unpaid employer contributions is a plan asset, petitioners' con victions under Section 664 could not be sustained on the record before this Court, because the government did not prove that petitioners "embezzle[d], st[ole], or un lawfully and willfully abstract[ed] or convert[ed]" that contractual right. 18 U.S.C. 664.
a. "Embezzlement is the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come." Moore v. United States, 160 U.S. 268, 269 (1895). "The words 'steal' and 'stolen' have no certain technical signif icance," but they are commonly used to embrace "any form of criminal taking" of property. Factor v. Lauben heimer, 290 U.S. 276, 303 (1933); accord United States v. Turley, 352 U.S. 407, 417 (1957). "[A]bstract" likewise "is not a word of settled technical meaning" but ordi narily "means to take or withdraw from." United States v. Northway, 120 U.S. 327, 334 (1887).
Conversion is the "willful interference, without law ful justification, with an item of property in a manner inconsistent with another's right, whereby that other person is deprived of the use and possession of the prop erty." Black's 356 (8th ed. 1999). "A conversion of prop erty requires a serious act of interference with the own er's rights," such as "using it up, selling it, pledging it, giving it away, delivering it to one not entitled to it, in flicting serious damage to it, claiming it against the owner," or "unreasonably withholding possession of it from the owner." Wayne R. LaFave & Austin W. Scott, Criminal Law 730 (2d ed. 1986). "Conversion may in clude misuse or abuse of property" or "use in an unau thorized manner or to an unauthorized extent of prop erty placed in one's custody for limited use." Morris sette v. United States, 342 U.S. 246, 272 (1952).
Section 664 thus prohibits the range of ways in which someone may wrongfully take or significantly interfere with the property of an ERISA plan, in an effort to "avoid gaps and loopholes between offenses." Morris sette, 342 U.S. at 273. "The essence of the crime is theft," which, in the context of pension plans, "includes a taking or appropriation that is unauthorized," if the defendant acts "with a fraudulent intent or a bad pur pose or an evil motive." United States v. Andreen, 628 F.2d 1236, 1241 (9th Cir. 1980) (Kennedy, J.).
b. An ERISA plan's "credits," including its contrac tual right to employer contributions, can be embezzled, stolen, abstracted or converted in violation of Section 664 in a variety of ways. A defendant can violate the statute by taking the credit itself. For example, a third party might wrongfully attach the employer's debt to the plan, cf. Englehart v. Sage, 235 P. 767, 769 (Mont. 1925) (sheriff converted debt by wrongfully attaching it), or a plan fiduciary might fraudulently assign the plan's right to the employer contributions to himself or a third party. A defendant also can convert a plan's contractual right to employer contributions by "effectively prevent [ing] the exercise" of the right to collect the contribu tions. Restatement (Second) of Torts § 242(2) (1965) (Restatement of Torts). Cf. Plunkett-Jarrell Grocery Co. v. Terry, 263 S.W.2d 229, 233-234 (Ark. 1954) (hold ing that defendants converted plaintiff's accounts re ceivable by depriving him of the records necessary to collect them); Robinson, 30 F.3d at 29 (suggesting that bank officer would convert a bank's credit if he wrong fully extended the term of a customer's debt to the bank, thus "tying the hands of the bank for a definite period against action which might have been taken" to collect the debt). For example, a plan fiduciary would be guilty of conversion of a plan's contractual right to employer contributions if he caused the plan to refrain from col lecting the contributions in exchange for a kickback from the employer. See United States v. Uzzolino, 651 F.2d 207, 209 (3d Cir.), cert. denied, 454 U.S. 865 (1981).
In LaBarbara, the Second Circuit held that the de fendant converted an ERISA plan's contractual right to employer contributions based on a similar kind of inter ference with the plan's contractual right. LaBarbara was a union official who had negotiated collective bar gaining agreements with an association of employers under which the employers were obligated to contribute to various union-sponsored ERISA plans. LaBarbara assisted Barone, the owner of one of the employers, in a "double breasting" scheme designed to evade Barone's obligations to the plans. LaBarbara, 129 F.3d at 83. Un der that scheme, Barone created a second company that was not a signatory to the collective bargaining agree ment, and Barone had that company pay a portion of his employees' wages, thereby concealing from the plans the existence of their right to certain contributions. Ibid. The Second Circuit held that Barone's "contractual obli gations to the [plans] * * * constituted 'assets' of the [plans]," and LaBarbara aided and abetted Barone's violation of Section 664 by assisting him in "conceal[ing] [those] contractual obligations." Id. at 88.
c. In this case, however, the government did not prove at trial that petitioners embezzled, stole, abstrac ted or converted the ERISA plans' contractual rights to employer contributions. The government argued that petitioners converted the assets of the plans because they knowingly failed to make Burruss's contributions to the plans when due and instead used Burruss's funds to support the company and to enrich themselves. See C.A. App. 59-61 (Indictment), 2253-2255 (government's closing argument to the jury); see also id. at 2218-2222 (jury instructions); Pet. App. 52 (district court opinion denying motion for acquittal on the ground that petition ers "convert[ed] funds required to be paid to the Bur russ pension plans to the use of the Burruss Company").
Petitioners' conduct would have constituted a conver sion of the plans' assets if the unpaid contributions were themselves plan assets. See Panepinto, 818 F. Supp. at 49-52; see also United States v. Whiting, 471 F.3d 792, 799-800 (7th Cir. 2006) (employer's agent converted plan assets when it failed to transmit employee contributions to the plan because those contributions were plan assets under DOL's regulation); United States v. Grizzle, 933 F.2d 943, 946-948 (11th Cir.) (same), cert. denied, 502 U.S. 897 (1991). But, as described above, unpaid em ployer contributions are not plan assets (absent a con tractual provision to that effect), and petitioners' con duct did not constitute conversion of the plans' contrac tual rights to the contributions. Although petitioners reduced the funds that Burruss had available to satisfy the plans' contractual rights, petitioners did not take or impair the rights themselves. Petitioners' conduct also did not "effectively prevent" the plans from exercising their rights. Restatement of Torts § 242(2). Neither the failure to make the contributions nor the use of Bur russ's funds for other purposes concealed the existence of Burruss's obligations or impeded the plans' trustee from taking action to enforce those obligations. Thus, petitioners' failure to pay the contributions when due and their use of company funds for other purposes did not convert the plans' contractual rights to the contribu tions in violation of Section 664.
Any other conclusion would be contrary to the long- standing common-law rule that a debtor's failure to pay its debt does not constitute conversion. See McKee, 299 U.S. at 122 ("The bankrupt was a debtor which had failed to pay its debt. We know of no principle upon which that failure can be treated as a conversion of property held in trust."); Restatement of Torts § 242 cmt. f (noting the "prevailing view that there can be no conversion of an ordinary debt not represented by a doc ument"). Moreover, if petitioners' conduct violated Sec tion 664, then employers could be criminally liable any time they failed to make its ERISA contributions in a timely manner. If Congress had intended such a dra matic departure from common law principles and histor ical practice, it would have made that intent clear.
The evidence at trial also showed that petitioners lied to the plans' trustee about their intent to make the con tributions and about whether they had made the contri butions. In addition, petitioners misled plan partici pants by distributing account statements indicating that the contributions had been or would be made. See pp. 4-5, supra. Whether or not misstatements of that kind can interfere so significantly with a plan's exercise of its contractual right to contributions that they constitute conversion, petitioners' misstatements did not do so here. The trustee vigorously pursued the contributions despite the misstatements. The trustee sent Burruss a letter complaining about the failure to pay just a few weeks after the contributions were due, despite petition ers' lies to the trustee about whether the payments had been made. Pet. App. 14-16; C.A. App. 729-733. Bur russ filed for bankruptcy protection approximately three weeks later, Pet. App. 19, and, at that point, the plan could pursue its right to the contributions only through the bankruptcy process. Accordingly, the government failed to prove that petitioners converted ERISA plan assets in violation of Section 664.3
The petition for a writ of certiorari should be grant ed, the judgment of the court of appeals should be vacated, and the case should be remanded for further pro ceedings in light of the position expressed in this brief.
GREGORY G. GARRE
Counsel of Record
MATTHEW W. FRIEDRICH
Acting Assistant Attorney
PATTY M. STEMLER
1 Burruss also maintained a health care plan for its employees. Bur russ made weekly deductions from employees' earnings for contribu tions to that plan. In 2000, Burruss failed to transmit all of the withheld employee contributions to the plan. As a result, by October 2000, the plan ceased paying health care claims, resulting in substantial unpaid medical expenses for the covered Burruss employees. Pet. App. 17.
2 McKee involved funds that the employer had deducted from em ployee wages. 299 U.S. at 120. Such payroll deductions are now ex pressly addressed by DOL's employee contributions regulation, which, as discussed above, provides that employee contributions become plan assets as soon as the contributions are reasonably segregable from the employer's general funds. See 29 C.F.R. 2510.3-102(a). The common- law principles reflected in McKee still govern, however, with respect to employer contributions.
3 If petitioners were acting as plan fiduciaries when they misled the plans' trustee and participants, petitioners' conduct might be analogized to the situation in Uzzolino where a plan fiduciary converted the plan's contractual right to employer contributions by intentionally causing the plan to refrain from collecting the contributions. See Uzzolino, 651 F.2d at 209. The government has not established, however, that petiti oners were acting as fiduciaries, rather than as agents of the employer, when they made the misstatements about Burruss's intent to make its contributions. See Pegram v. Herdrich, 530 U.S. 211, 225 (2000) (under ERISA, a person may wear "two hats," one as employer and one as plan fiduciary, but he "wear[s] only one at a time," and he acts as fiduciary only when exercising fiduciary responsibilities). Generally, a person acts as an ERISA fiduciary only "to the extent" he actually exercises "authority or responsibility" over plan "assets" or "discretionary au thority or discretionary control" in the plan's administration. 29 U.S.C. 1002(21)(A). And the government did not argue at trial that petitioners were fiduciaries, the jury was not instructed that it had to find that petitioners were fiduciaries in order to find them guilty of violating Section 664, and the courts below upheld petitioners' convictions based on the premise that Section 664 did not require proof that they were fiduciaries. See Pet. App. 28-29, 50-51; C.A. App. 2220-2222.