Opinion
No. C 03-03958 CRB
November 18, 2003
MEMORANDUM AND ORDER
This lawsuit arises out of an arbitration in which plaintiff was ordered to reimburse the defendant trust fund for benefits allegedly improperly paid to certain of plaintiff's employees. Defendants removed the action to this Court on the ground that the Court has federal jurisdiction under the Labor Management Relations Act ("LMRA"). Now pending before the Court is plaintiff's motion to remand the action back to state court and defendants' motion to dismiss.
BACKGROUND
A. The First Lawsuit
Defendants in this case, General Employees Trust Fund and Board of Trustees of the General Employees Trust Fund (collectively "the Trust Fund"), filed an ERISA action in January 2000 against Able Engineering Services, Inc ("Able Engineering"), among other defendants. General Employees Trust Fund v. Able Engineering Services, Inc., C-00-0162 CAL. The trust fund sought damages for improper contributions Able Engineering made to the fund. In particular, the Trust Fund claimed that Able Engineering had made contributions for employees not entitled to benefits, and subsequently, the Trust Fund improperly paid benefits to the same employees. The court granted summary judgment in favor of Able Engineering on the ground (according to the trust fund) that Able Engineering was not a signatory to the agreement governing the payment of contributions.
After the court dismissed the Trust Fund's federal lawsuit against Able Engineering, the Trust Fund initiated a very similar action against Able Building Maintenance Company ("Able Maintenance"), a company related to Able Engineering. Rather than filing in federal court, the Trust Fund initiated binding arbitration as set forth in the agreement requiring the payment of contributions. Unlike Able Engineering, Able Maintenance is a signatory to the agreement.
B. Abie I
Before the arbitration hearing, Able Maintenance filed an action in federal court to enjoin the arbitration. Able Building Maintenance Co. v. Board of Trustees of General Employee Trust Fund, C 03-0193 CRB ( "Able I"). The complaint identified ERISA and supplemental jurisdiction as the basis for subject matter jurisdiction. Able Maintenance claimed that the Court had supplemental jurisdiction of Able I based on the district court's exercise of jurisdiction in General Employees Trust Fund v. Able Engineering Services, Inc., C-00-0162CAL.
While Able I was pending, the arbitration occurred and the arbitrator ordered Able Maintenance to pay the trust fund $800,000. Able Maintenance immediately amended its complaint to include the facts of the arbitration, and also filed a petition to vacate the arbitration award.
The trust fund filed a motion to dismiss Able I on the ground that the Court lacked subject matter jurisdiction under ERISA and supplemental jurisdiction. Plaintiff filed an opposition in which it reasserted its claims under ERISA and supplemental jurisdiction, and in addition made a brief reference to its claims arising under the LMRA. After hearing oral argument, the Court dismissed Able Maintenance's complaint for lack of subject matter jurisdiction under ERISA and supplemental jurisdiction. The Order specifically noted that the dismissal was without prejudice to Able Maintenance filing a complaint to vacate the arbitration award and that the Court was expressing no opinion as to whether it would have jurisdiction of such a complaint; in other words, in Able I, the Court did not rule that it did not have subject matter jurisdiction of a claim to vacate the arbitration award.
C. The Present Lawsuit: Able II
Able Maintenance subsequently filed this action in state court based on the same facts as Able I, but with new causes of action. In the first cause of action, entitled "breach of contract," Able Maintenance alleges defendants breached a written contract entitled the Restated Trust Indenture ("Trust Agreement"). The Agreement, to which Able Maintenance was bound by virtue of its signing a collective bargaining agreement, provides that Able will contribute premium payments on behalf of its employees in exchange for medical, dental and other benefits for Able's employees. Complaint ¶ 20. Able Maintenance alleges that defendants breached this agreement by successfully arbitrating the parties' dispute as to whether Able Maintenance had to reimburse the Trust Fund for benefits paid to Able Maintenance's ineligible employees.
In the second cause of action Able alleges defendants breached the implied covenant of good faith and fair dealing by successfully arbitrating their dispute after the district court had dismissed the Trust Fund's lawsuit against Able Engineering. The third cause of action, entitled "Declaratory and Injunctive Relief," appears to seek a declaration that (1) the arbitration provision contained in the Trust Agreement is unconscionable and unenforceable, (2) the Trust Agreement does not permit defendants to recover from Able Maintenance benefits paid to non-covered employees for whom Able Maintenance paid premiums, and (3) the district court's dismissal of the action against Able Engineering precludes the Trust Fund from recovering benefits from Able Maintenance. Able also seeks an injunction enjoining defendants from recovering the benefits paid to non-covered employees.
The fourth and final cause of action is entitled "abuse of process." Able contends that defendants "abused process" by proceeding with the arbitration despite an "unconscionable" binding arbitration provision and the district court's dismissal of the action against Able Engineering.
The Trust Fund removed the case to federal court on the ground that the breach of contract cause of action in Able II arises under section 301 of the LMRA. Able Maintenance argues that this Court must remand the case back to state court because the Court has already found in Able I that it lacks subject matter jurisdiction over the suit. Defendants have also moved to dismiss the complaint for failure to state a claim.
I. The Motion to Remand
A. Standard of Review
Although plaintiff Able Maintenance is moving to remand, defendants bear the burden of proving that this Court has subject matter jurisdiction. "Federal courts are courts of limited jurisdiction. . . . It is to be presumed that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction." Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994) (citations omitted). Defendants claim that this Court has jurisdiction to hear this case under section 301 of the LMRA.
B. Discussion
1. This Court's previous order
Plaintiff Able Maintenance argues that remand is required because this Court found that it lacked subject matter jurisdiction over the complaint in Able I. Plaintiff contends that it asserted ERISA, LMRA, and supplemental jurisdiction in Able I. Since this Court dismissed Able I on jurisdictional grounds, plaintiff argues, the Court must have found that it lacked subject matter jurisdiction under all three. As a result, defendants are precluded from removing the case.
A jurisdictional dismissal acts as res judicata on the issue of jurisdiction. See Okoro v. Bohman, 164 F.3d 1059, 1063 (7th Cir. 1999). In other words, once a court determines that it lacks jurisdiction over a matter, that determination has preclusive effect. See Bromwell v. Michigan Mutual Ins. Co., 115 F.3d 208, 212 (3d Cir. 1997). A jurisdictional dismissal, however, "precludes only the relitigation of the ground of that dismissal." Okoro, 164 F.3d at 1063; Bromwell, 115 F.3d at 212. It thus has issue preclusion effect rather than broader claim preclusion. See id.
Plaintiffs argument fails because it wrongly assumes that this Court dismissed Able I under the LMRA. In filing the original and amended complaints in Able I, plaintiff only cited ERISA and supplemental jurisdiction as a basis for jurisdiction. Plaintiff did not mention the LMRA until it filed its opposition to defendants' motion to dismiss, and even then it merely mentioned the LMRA in passing without citing to anything specific. It is thus unsurprising that the defendants never addressed LMRA jurisdiction in their pleadings. The Court's order of dismissal specifically states: "The Court concludes that plaintiff has not met its burden of proving that the Court has ERISA jurisdiction or supplemental jurisdiction of this action." Further, the Order specifically states that the Court has not determined whether it would have jurisdiction of a petition to vacate the judgment. Id.
In sum, in Able I the Court did not consider jurisdiction under the LMRA. The issue was not "actually adjudicated" and there is no preclusive effect on Able II. See Okoro, 164 F.3d at 1063. Accordingly, remand must be denied if the Court has removal jurisdiction.
2. Well-pleaded complaint rule
A civil action filed in state court can only be removed by the defendant if the action could have originally been brought in federal court. See 28 U.S.C. § 1441; Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). Under the "well-pleaded complaint rule," a plaintiff is master of the claim, and may avoid federal jurisdiction "by relying exclusively on state law." Caterpillar, 482 U.S. at 392. Generally, a case cannot be removed to federal court by the defendant on the basis of a federal defense, "including the defense of pre-emption, even if the defense is anticipated in plaintiffs complaint, and even if both parties concede that the federal defense is the only question truly at issue." Id. at 393.
In this case, plaintiff filed in state court and did not claim any federal jurisdiction on the face of the complaint. Defendants removed the action on the basis that the complaint raises a federal issue that is preempted by federal law. Ordinarily, the defendants would not be able to remove the action to federal court under the well-pleaded complaint rule, despite their defense of preemption. However, there is an "independent corollary" to the well-pleaded complaint rule" known as "the complete preemption doctrine." Id. (citations omitted). Sometimes the preemptive force of a statute is so "extraordinary" that it converts an ordinary state common-law complaint "'into one stating a federal claim for the purposes of the well-pleaded complaint rule.'" Id. (citation omitted). In other words, the statute has such a preemptive force that it causes a state common-law claim to turn into a federal claim, despite the plaintiffs intent to the contrary. Once an area of state law has been completely pre-empted, "any claim purportedly based on that pre-empted state law is considered, from its inception, a federal claim, and therefore arises under federal law." Id.
The complete preemption doctrine applies to state court claims that arise under section 301 of the Labor Management Relations Act ("LMRA"), that is, claims that are founded directly on rights created by a collective bargaining agreement, or claims substantially dependent on an analysis of a collective bargaining agreement. Id. at 394. Thus, if Able Maintenance's breach of contract claim is founded on rights created by a cba, or is substantially dependent on an analysis of a cba, the complete preemption doctrine applies and this action was properly removed.
3. Jurisdiction under the LMRA
The LMRA governs "[s]uits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce." 29 U.S.C. § 185(a). Lawsuits properly brought under section 301 of the LMRA must be for either (1) violation of contract between an employer and a labor organization representing employees in an industry affecting commerce or (2) violation of contract between such labor organizations. See Wooddell v. International Broth. Of Elec. Workers, 502 U.S. 93, 98 (1991).
The Ninth Circuit has explained that section 301 of the LMRA confers jurisdiction over "all '[s]uits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce.'" Local 159, 342. 343 444 v. Nor-Cal Plumbing. Inc., 185 F.3d 978, 984 (9th Cir. 1999) (emphasis added) (holding that section 301 conferred jurisdiction on an action brought by a trust fund). Further, Section 301's grant of jurisdiction includes actions to recover benefits stemming from the collective bargaining agreements. See id. Section 301 "does not limit the parties who may bring suit so long as the object of the suit is the enforcement of rights guaranteed by an agreement between an employer and a labor organization." Id. (citingFranchise Tax Bd. of the State of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 25 n. 28 (1983) (noting that the Court had "not taken a restrictive view of who may sue under § 301")).
In the instant case, the Trust Fund asserts, and plaintiff does not deny, that plaintiff is an employer within the meaning of the statute. The plaintiff is a signatory to a number of collective bargaining agreements ("cbas") with various local unions; the cbas are contracts between employers and labor organizations within the meaning of section 301 the LMRA.
Under the cbas plaintiff (an employer) has to pay contributions to the trust fund for health benefits for employees covered by the cbas. The Trust Fund is governed by the Trust Agreement. The preamble to the Trust Agreement affirms the relationship between the parties:
The parties to said Indenture, on the one hand, are certain local unions whose members are employed in the bowling, maintenance, theater, and allied industries, signatories hereto, and on the other hand, certain associations or representatives of employers in the bowling, maintenance, theater, and allied industries signatories hereto, and certain independent operators in the above industries.
The preamble continues: "the parties hereto are parties to certain collective bargaining agreements" which govern the Trust Fund. Id. Thus, the Trust Agreement — the agreement upon which Able Maintenance's breach of contract action is based — confirms that it is a contract between an employer and labor organizations representing employees in an industry affecting commerce (the bowling, maintenance, theater, and allied industries). As such, plaintiff's breach of contract claims falls within the meaning of Section 301 of the LMRA and the Court has subject matter jurisdiction. Accordingly, plaintiffs motion to remand must be denied.
II. Motion to Dismiss
A. Standard of Review
On a motion to dismiss, the Court must accept plaintiffs' allegations as true and construe them in a light most favorable to the plaintiffs.See School of Business v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). A district court should not dismiss for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [the plaintiffs] claims which would entitle [the plaintiff] to relief." Barnett v. Centoni, 31 F.3d 813, 816 (9th Cir. 1994) (per curiam).
B. Discussion
1. First cause of action: breach of contract
As is explained above, this claim arises under the LMRA. Defendants move to dismiss the first cause of action on the ground that it does not satisfy Federal Rule of Civil Procedure 8(a), that is, that it does not contain a "short and concise statement of the claim." The basis for plaintiff's claim is that defendants breached the Trust Agreement by successfully arbitrating its claim against plaintiff, that is, plaintiff alleges the Trust Agreement does not permit defendants to recover damages for benefits allegedly improperly paid to some of plaintiff's employees. The problem with plaintiffs claim is that it is styled as a claim for breach of contract rather than a petition to vacate the arbitration agreement. The Court could not find that defendants breached the Trust Agreement without first vacating the arbitration award. Accordingly, the Court will construe the first cause of action as a claim to vacate the arbitration award.
2. second cause of action: implied covenant of good faith and fair dealing
As this claim involves rights created by a cba, it, too, is preempted by the LMRA. See Audette v. ILWU Local 24, 195 F.3d 1107, 1112 (9th Cir. 1999). The claim is essentially the same as plaintiffs first cause of action: it seeks to have the arbitration award set aside. Accordingly, the second cause of action will be dismissed.
3. the third cause of action: declaratory and injunctive relief
This claim is also subsumed within the first cause of action. Here, plaintiff simply sets forth the various grounds it asserts for vacating the arbitration, including its contention that the arbitration provision in the Trust Agreement is unconscionable. Accordingly, this claim will be dismissed.
4. the fourth cause of action: abuse of process
Plaintiff alleges that defendants "abused" the judicial process by proceeding with arbitration in order to circumvent the dismissal of the action against Able Engineering. Under California law, a claim for abuse of process must be based upon a showing that a court's authority was misused. See Stolz v. Wong Communication Ltd., 25 Cal.App.4th 1811 (1994). In Stolz, the court held that the defendants' conduct before the Federal Communications Commission ("FCC") could not constitute the tort of abuse of process because the FCC is not a court. Id. at 1823. Defendants argue that its alleged misuse of an arbitration proceeding cannot therefore constitute abuse of process.
In response, Able Maintenance does not contest that defendants' conduct in arbitration cannot form the basis of a claim for abuse of process; instead, it contends that defendants' conduct before this Court, namely, improperly removing the complaint, is the conduct which forms the basis for its tort claim.
Plaintiffs response is inadequate. The complaint does not allege that defendants have abused process before this Court; instead, the complaint specifically alleges the initiation of arbitration as the abuse of process. Moreover, since removal of the complaint was proper, granting plaintiff leave to amend to allege that defendants "abused process" by removing the case would be futile. The claim for abuse of process must be dismissed with prejudice.
CONCLUSION
The gravamen of plaintiff's complaint is that the arbitration award is invalid and must be vacated for a variety of reasons. The Court has jurisdiction of such a claim under the LMRA. Accordingly, the motion to remand is DENIED.As the first cause of action requires the Court to review the arbitration award, the Court will characterize the claim as a petition to vacate the arbitration award. As the second and third causes of action are preempted by the LMRA and are encompassed by such a petition, those causes of action are DISMISSED. The fourth cause of action for abuse of process is DISMISSED without leave to amend. The individual defendants are DISMISSED with prejudice.