Opinion
Case No. 99 C 1447
February 22, 2000
MEMORANDUM OPINION AND ORDER
Central States, Southeast and Southwest Areas Pension Fund (the Fund) is an employee benefit plan and trust funded primarily by contributions from participating employers — employers who are required to contribute on behalf of covered employees in accordance with collective bargaining agreements (CBAs) between the employers and various local unions affiliated with the International Brotherhood of Teamsters. Groesbeck Lumber Supply is one such participating employer. Groesbeck contributed to the Fund on behalf of certain of its employees under a CBA with IBT Local Union No. 247. Groesbeck was a party to the CBA — and therefore required to contribute to the Fund — from February 1, 1983 until January 31, 1998.
In addition to the CBA, Groesbeck was subject to the Fund's Trust Agreement. That agreement authorized the Fund's Trustees to terminate an employer's participation in the Fund in certain circumstances:
The Trustees are authorized to reject any collective bargaining agreement of an Employer (and all contributions from the Employer) whenever they determine either that the agreement is unlawful and/or inconsistent with any rule or requirement for participation by Employers in the Fund and/or that the Employer is engaged in one or more practices or arrangements that threaten to cause economic harm to, and/or impairment of the actuarial soundness of, the Fund (including but not limited to any arrangement in which the Employer is obligated to make contributions to the Trust Fund on behalf of some but not all of the Employer's bargaining unit employees, and any arrangement in which the Employer is obligated to make contributions to the Trust Fund at different contribution rates for different groups of the Employer's bargaining unit employees). Trust Agreement. Article IV, Section 20.
The Fund submitted the Trust Agreement with its motion to dismiss; the Agreement was not previously part of the record. And although the Court reviewed the Agreement, it will not convert the Fund's motion to one seeking summary judgment. The Fund quotes from and references the Trust Agreement in its complaint, and Groesbeck repeatedly refers to the Fund's "policies" (which is synonymous with the Trust Agreement's provisions) in its counterclaim. Plus, the Trust Agreement is central to Groesbeck's claim. See Wright v. Associated Insurance Companies Inc., 29 F.3d 1244, 1248 (7th Cir. 1994); Venture Associates v. Zenith Data Systems, 987 F.2d 429, 431 (7th Cir. 1993).
On February 19, 1998, the Fund notified Groesbeck that the terms of the CBA were contrary to the Fund's policies. Specifically, the Fund cited Groesbeck's policy of exempting "new hires" from pension plan coverage until they had been with the company for 30 months. The Fund warned Groesbeck that if it failed to correct its CBA, the Fund would terminate Groesbeck's participation in the plan (presumably under Article IV, Section 20). True to its word, the Fund rejected Groesbeck's CBA and kicked Groesbeck out of the plan as of April 1, 1998.
At some point (presumably before the Fund terminated Groesbeck's participation, though that is not clear from the parties' pleadings), the Fund audited Groesbeck and determined that Groesbeck had failed to pay contributions to the Fund on behalf of all covered eligible employees, including the "new hires" as well as certain supervisors and mechanics. The Fund determined that Groesbeck owed contributions for the periods from 1982 to 1991 and from January 1, 1997 to April 5, 1998; in total, the Fund figured Groesbeck owed more than $250,000 in unpaid contributions and interest. The Fund demanded that Groesbeck pay up, and when Groesbeck refused the Fund filed this lawsuit, seeking to recover the delinquent contributions. In response to the Fund's complaint, Groesbeck filed a three-count counterclaim alleging, in essence, that the Fund cannot have its cake and eat it too. Groesbeck alleges that the Fund cannot on the one hand reject the CBA because it violates Fund policies by allowing Groesbeck to avoid making contributions for new hires, and on the other hand seek delinquent contributions under the same CBA for the same employees. The Fund has moved to dismiss all three counts of Groesbeck's counterclaim.
The Fund operates largely on a self-reporting basis; that is, employers determine on their own which of their employees are covered and how much they must contribute to the Fund. From time to time, the Fund audits employers' payroll records to confirm that their self-reporting is accurate and complete.
The complaint does not specify which employees Groesbeck allegedly failed to cover. The Court infers that the delinquent contributions were for new hires and certain supervisors and mechanics based on the Fund's February 19, 1998 letter to Groesbeck and based on Groesbeck's affirmative defenses to the Fund's complaint. If these employees — especially the new hires — are not the subject of the Fund's complaint, the parties should advise the Court promptly.
The purpose of a motion to dismiss is not to decide the merits of the challenged claims but to test their sufficiency under the law. Frank v. Ameritech Corp., No. 98 C 5506, 1999 WL 1011107, at *1 (N.D. Ill. Oct. 12, 1999) (citing Gibson v. Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990)). In deciding a motion to dismiss, the Court reads the complaint (or, in this case, the counterclaim) liberally, dismissing only "if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which entitles him to relief." Conley v. Gibson, 355 U.S. 41, 45 (1957). We accept the allegations as true and view all well-pleaded facts, and any reasonable inferences drawn from these facts, in the light most favorable to the plaintiff. Seyfarth, Shaw, Fairweather Geraldson v. Wintz, No. 99 C 1536, 1999 WL 1129609, at *3 (N.D. Ill. Dec. 6, 1999) (citing Maple Lanes, Inc. v. Messer, 186 F.3d 823, 824-25 (7th Cir.), cert. denied, 120 S.Ct. 939 (1999)).
In Count 1 of its counterclaim, Groesbeck alleges that it is entitled to a refund of all the contributions it made to the Fund. Groesbeck alleges that if the Fund is right — that is, if the CBA truly was contrary to the Fund's policies — the Fund should not have accepted the contributions in the first place. The Fund argues that Count 1 should be dismissed because Groesbeck failed to exhaust the administrative remedies provided it under the Fund's Trust Agreement and under ERISA. The Fund argues that before Groesbeck can seek restitution in this Court, it must request a refund from the Fund. The Fund relies on provisions of the Trust Agreement requiring any and all controversies to be submitted to the Trustees, see Trust Agreement, Article V, Section 2, and on 29 U.S.C. § 1103 (c)(2)(A)(ii), which implies that the plan administrator is charged with determining whether an employer is entitled to a refund. The Court acknowledges that Groesbeck had available to it the administrative remedy of requesting a refund from the trustees. The question for the Court is whether Groesbeck's failure to exhaust that remedy precludes it from seeking a refund (or restitution) here.
The administrative exhaustion doctrine is not an automatic bar in every case; the decision of whether to apply the doctrine in any given ERISA case lies within the sound discretion of the court. Central States, Southeast Southwest Areas Pension Fund v. Howard Baer, Inc., 753 F. Supp. 241, 245 (N.D. Ill. 1991). Requiring an employer to exhaust administrative remedies is particularly inappropriate when pursuit of such remedies would be futile, which is almost certainly the case here given that the Fund obviously already decided (because it filed this lawsuit) that Groesbeck owes the Fund money and not the other way around. See id. (employer need not exhaust administrative remedy of requesting refund from plan administrator before suing for restitution in district court; fact that fund had already sued employer for delinquent contributions shows that remedy would be futile); Central States, Southeast Southwest Areas Pension Fund v. Hoosier Dairy, Inc., No. 90 C 3795, 1990 WL 205861, at *3 (N.D. Ill. Dec. 7, 1990) (employer need not ask trustees for refund under 29 U.S.C. § 1103 (c)(2)(A)(ii) before suing in district court when plan has already sued employer for nonpayment of funds). Because the Fund has already brought this ERISA dispute into court, it makes sense to let Groesbeck bring its refund claim in the same forum at the same time. The motion to dismiss Count 1 is denied.
In Count 2 of its counterclaim, Groesbeck alleges that the Fund is barred, under principles of estoppel, good faith and fair dealing, and federal common law, from rejecting the CBA and from terminating Groesbeck's participation in the plan. The Fund argues that this count should be dismissed because none of the legal bases invoked by Groesbeck provides the "draconian remedy" Groesbeck seeks — namely reinstatement in the Fund's plan. The Fund first challenges Groesbeck's invocation of the doctrine of estoppel, arguing that the doctrine does not apply in ERISA cases. That is not entirely true; the more accurate statement of the law is that estoppel claims are permitted under ERISA only in narrow situations. See Koenig v. Waste Management, Inc., 76 F. Supp.2d 908, 915 (N.D. Ill. 1999) (allowing estoppel claim in the context of a top hat plan); Black v. TIC Investment Corp., 900 F.2d 112, 113 (7th Cir. 1990) (allowing estoppel claim in the context of an unfunded single-employer welfare benefit plan). The Court need not decide whether an estoppel claim should be allowed in the circumstances of this case (i.e., in the context of a multiemployer pension plan) because Groesbeck's estoppel claim fails for another reason. In the ERISA context, an estoppel claim will not hold water — regardless of the type of plan at issue — absent an allegation of a written misrepresentation. Coker v. Trans World Airlines, Inc., 165 F.3d 579, 585-86 (7th Cir. 1999). Groesbeck's estoppel claim alleges that the Fund accepted contributions for years without a peep and then suddenly decided that the CBA violated the Fund's policies; Groesbeck does not allege a written misrepresentation. Therefore, any estoppel claim must fail.
The Fund next argues that no obligation of good faith and fair dealing applies here because there was no contract between the parties. Groesbeck's claim is barred, not because of the absence of a contract — indeed, there was a contract between these parties: the Trust Agreement — but because the claim is preempted by ERISA. See Speciale v. Seybold, 147 F.3d 612, 615 (7th Cir.) (where state law "has the effect of creating a qualitative standard (e.g., `bad faith,' `improper') by which the performance of a contract [governed by ERISA] is evaluated, then that state law is completely preempted."), cert. denied, 119 S.Ct. 542 (1998) (quoting Rice v. Panchal, 65 F.3d 637, 644 (7th Cir. 1995)).
The Fund also argues that the Court should dismiss Count 2 because it is not authorized by federal common law. Groesbeck argues that the Court can review decisions by plan trustees to determine whether they are arbitrary and capricious and that it should use that as a springboard to fashion the remedy Groesbeck seeks. Although it is true that district courts are sometimes asked to review decisions of plan administrators to determine if they are arbitrary and capricious, the Court could not find a single case where a district court was asked to review a decision by plan trustees to reject a collective bargaining agreement or to terminate an employer's participation in the plan. The cases on which Groesbeck relies — and the cases the Court was able to find — involve the review of a decision by plan administrators to deny benefits to a particular beneficiary. The situation here is quite different and the remedy requested here much more intrusive. If a court finds that the decision to deny benefits was arbitrary and capricious, it orders the trustees to pay what they unreasonably withheld; the court does not alter the parties' contractual rights, it enforces them. Here Groesbeck asks the Court to force the Fund to reinstate and maintain a contractual relationship with an employer it maintains has violated its policies. Groesbeck responded to the Fund's motion to dismiss not by claiming that its CBA was consistent with the Fund's policies, but by arguing that the Fund's acceptance of contributions over a period of 15 years should bar the Fund from acting on the CBA's alleged violation of the Trust Agreement. Groesbeck does not argue that the Fund was wrong to conclude that the CBA violated Fund policies, and, in light of this fact, the remedy urged by Groesbeck is particularly inappropriate. Count 2 of Groesbeck's claim is dismissed.
In Count 3 of its counterclaim Groesbeck seeks a setoff against any sums found to be due for delinquent contributions; the setoff, according to Groesbeck, should be the amount of all contributions Groesbeck made to the Money Purchase Plan Groesbeck set up to provide retirement benefits to exempt employees. The Fund argues that Count 3 should be dismissed because it is a defense, not an independent claim. The Court disagrees. In some instances — namely where a plan's administrators initiate an action against an employer to recover contributions — it is entirely appropriate to allow an employer to counterclaim against the plan for an offset of mistakenly overpaid contributions. See South Central United Food Commercial Workers Unions v. C G Markets, Inc., 836 F.2d 221, 225 (5th Cir. 1988). cited in Laborers' Pension Fund v. National Wrecking Company, Inc., No. 90 C 5499, 1994 WL 513589, at *11 (N.D. Ill. Sept. 16, 1994). Outside the ERISA context, it is well established that a set off may be an independent claim, more appropriately the subject of a counterclaim than an affirmative defense. See Jannotta v. Kirkwood, 702 F. Supp. 165, 167 (N.D. Ill. 1988) (set-off from liability is an independent claim that must be pled as a counterclaim, not an affirmative defense); CIPA Manufacturing Corp. v. Allied Golf Corp., No. 94 C 6574, 1995 WL 337022, at *2 (N.D. Ill. June 1, 1995) (because setoff does not destroy the plaintiffs right of action, it is not an affirmative defense).
The Fund also argues that Groesbeck is precluded, as a matter of law, from reducing its liability for nonpayment to the Fund by offsetting payments made to another fund — in this case the Money Purchase Plan. There is some authority (none of it binding) to support the proposition that an employer who fails to make required contributions to a fund should not be permitted to avoid that obligation by setting up some other benefit for its employees. See Roofers Local Union No. 81 v. Wedge Roofing, Inc., 811 F. Supp. 1398, 1401 (N.D. Cal. 1992); O'Hare v. General Marine Transport Corp., 564 F. Supp. 1064, 1072 (S.D. N.Y. 1983); Local 9, International Union of Operating Engineers, AFL-CIO v. Siegrist Construction Co., 458 F.2d 1313, 1316 (10th Cir. 1972). These cases reason that when an employer fails to make required contributions to a fund, all of the employees covered by that fund suffer; the fact that an employer has provided some direct or other benefit to its employees does nothing to lessen the extent to which the fund is depleted. But unlike the employers in those cases, Groesbeck did not simply skirt or ignore its obligations to the Fund. It is true that Groesbeck failed to make contributions to the Fund for certain employees and that, instead of contributing to the Fund, Groesbeck set up a different fund to benefit those employees. But in failing to make contributions on behalf of exempt employees, Groesbeck relied on its CBA — the agreement on which the Fund has signed off for more than 15 years. Under these circumstances Groesbeck may be able to establish that it is entitled to a setoff for contributions made to the Money Purchase Plan.
For the reasons explained above, the Fund's motion to dismiss Groesbeck's counterclaim is granted with respect to Count 2 and denied with respect to Counts 1 and 3.