Opinion
CIVIL ACTION NO. 02-CV-11859-RGS
January 26, 2004
MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
The Central Pension Fund (Fund) of the International Union of Operating Engineers (IUOE) and Participating Employers, commenced this litigation after S.M. Lorusso Sons, Inc. (Lorusso), refused to pay $8,297.10 in interest and other penalties on delinquent contributions. Lorusso maintains that the Fund is responsible for the delinquency, that when made aware of the shortfall it paid the deficiency immediately, and that the Fund should now be estopped from turning a profit on its own errors.
BACKGROUND
Michael Fanning is the Chief Executive Officer of the Fund. The Fund is a multi-employer pension benefit plan within the meaning of section 3(37) of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1002(37). The Fund is based in Washington, D.C. Lorusso is a Massachusetts corporation with a principal place of business in Walpole, Massachusetts.
On or about November 6, 1980, in negotiations with IUOE Local 877, Lorusso signed a Participating Agreement in which it agreed to the terms of the Restated Agreements and Declarations of Trust establishing the Fund. It also agreed to the terms of any collective bargaining agreement requiring contributions on behalf of employees to the Fund. The 1980 Participating Agreement provided:
[t]he undersigned EMPLOYER and UNION are cognizant of the Agreement entitled "AGREEMENT AND DECLARATION of Trust establishing the Central Pension Fund of the International Union of Operating Engineers and Participating Employers" . . . dated September 7, 1960, between certain Union Trustees and Employer Trustee . . . [p]ursuant to Section 1, of Article I of said AGREEMENT the parties hereto hereby apply to the Trustees under such AGREEMENT for the purposes of having said AGREEMENT extended to cover and apply to such employees.
The undersigned Employer hereby agrees to contribute to the Fund established under said AGREEMENT. . . .
In accordance with . . .
(5) Bargaining Agreement Effective Sept. 15, 1980 Local No. 877 (6) Pension Contributions to Commence Effective September 15, 1980 Rate Per Hour .55 (7) Pension Contribution Payment Basis: All hours paid
The amount of contributions specified herein shall be in effect for the period stipulated in said collective bargaining agreement. In all other respects, the undersigned parties do hereby ratify and confirm said AGREEMENT and do hereby agree to be bound by each and every provision contained therein and do each and every act and thing as required and provided therein.
The undersigned parties further agree to be bound to the AGREEMENT as amended, during the term of any collective bargaining agreement to which the Employer and Union are bound subsequent to the terms of the collective bargaining agreement specifically referred to herein, provided, that such collective bargaining agreement contains an obligation by the Employer to contribute on behalf of its Employees to the Central Pension Fund.
Lorusso has had a long relationship with IUOE Local 877 stretching back to 1978. Of relevance to this lawsuit are a succession of collective bargaining agreements entered between 1995 and 2001. Under the terms of these agreements, Lorusso was required to pay "monthly into the Fund ($.90) per hour for all hours paid for each covered employee." To collect contributions, the Fund sent Lorusso monthly computer-generated forms listing the names of covered employees, the rate of the hourly contribution ($0.90), and the maximum number of employee hours for which contributions were required. For its part, Lorusso "filled in the hours worked by the employees, added the names of new employees, noted an employee's termination, and calculated the amount of the contributions owed based on the reports it completed." Plaintiff's Opposition, at 6. From July of 1995 to the end of 1999, the monthly forms listed 2,080 hours as the contribution cap. This figure was incorrect.
The 2,080 hours cap had been stipulated in Lorusso's 1978-1980 bargaining agreements with Local 877. The cap, however, was eliminated in subsequent contracts, while the contribution rates were increased. The Fund correctly coded the rate increases into its computer base, but failed to record the elimination of the cap.
In the event of an underpayment, the Declaration of Trust permits the Fund to assess interest, liquidated damages, audit fees, and attorney's fees.
Section 4.5. Collection Costs. in the even that upon audit made by the by the Trustees that an Employer has failed to make required Employer Contributions, the Trustees are authorized and empowered:
(a) to impose and receive from such Employer all costs of the Audit;
(b) to access and receive from such Employer as liquidated damages an amount up to twenty percent (20%) of the amount found to be delinquent, in that the failure of the Employer to make the required payment of Employer Contributions imposes additional burden and expense upon the Trustees in the collection thereof; in the administration of the Trust Fund, including but not limited to the communication with said Employer; and, in addition thereto may cause a loss of benefits to employees, all of which are difficult of accurate ascertainment;
(c) to assess and receive from such Employer the lost interest from the delinquent amounts, to be calculated at the rate [of 9% simple interest];
(d) to impose and receive from such Employer any amounts Trustees are required to pay for the benefit of an eligible Employee of such Employer, or an Employee who would be eligible except for the failure of such Employer to make required contributions in his behalf.
(e) to impose and receive from such Employer all costs, audit expenses and attorneys fees incurred by the Trustees in enforcing the provisions hereof, whether by litigation or otherwise;. . . .
Plaintiffs Ex. C. The various agreements make no provision for the allocation of fault between the Fund and the employer when the wrong amount of contributions is assessed.
In June of 2001, the Fund was notified by Local 877 that Lorusso was paying less than the full amount of the required employee contributions. In response, the Fund commissioned an audit of Lorusso's payroll books and records for the period August 1, 1995 through September 2001. The audit concluded that Lorusso had "failed to report an employee from date of hire, failed to report vacation time, and omitted hours paid due to capping them at 2080 hours per year, resulting in under payments." Defendant's Statement of Undisputed Facts ¶ 9. The audit identified $8,297.10 in underpayments between 1995 and 1999, a $0.90 underpayment in 2000, and no underpayment in 2001. All but $129.00 of the underpayments were attributable to the mistaken 2,080 hours cap.
On February 7, 2002, the Fund submitted a demand to Lorusso for the unpaid contributions. The Fund also demanded that Lorusso pay an additional 15 percent in liquidated damages ($1,244.57), 9 percent in simple interest ($2,751.86), and the cost of the audit ($1,806.00). On April 26, 2002, Lorusso paid the deficient contributions in full, but refused to pay the additional assessments. The Fund, in a May 21, 2002 letter to Lorusso, took the position that the mistake in listing the cap on hours did not excuse Lorusso from paying the damages stipulated in the Trust Agreement.
On September 20, 2002, the Fund filed this action seeking payment of the interest and penalties, pursuant to sections 502 and 515 of ERISA, 29 U.S.C. § 1132 and 1145, and section 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185.
DISCUSSION
Summary judgment is appropriate when, based upon the pleadings, affidavits, and depositions, "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Gaskell v. Harvard Co-op. Soc., 3 F.3d 495, 497 (1st Cir. 1993). That is the case here where the parties agree that no material facts are in dispute.
Lorusso's initial arguments concern standing. Lorusso maintains that the Fund is barred from proceeding under ERISA, § 1132(g)(2) in the absence of a prior judgment. See Iron Workers Dist. Council of Western N.Y. and Vicinity Welfare and Pension Fund v. Hudson Steel Fabricators Erectors. Inc., 68 F.3d 1502, 1506-1507 (2d Cir. 1995). The Fund concedes the point, but maintains that it has standing to sue under LMRA, § 301(a). Lorusso's argument that the Fund is not a signatory to the collective bargaining agreement with the IUOE and therefore not a proper party to a section 301(a) action is simply wrong, as section 301(a) authorizes the Fund to proceed as a third party beneficiary of the bargaining agreement. The Fund is also "authorized and empowered" by the Restated Agreements and Declaration of Trust (to which Lorusso is contractually bound) to act on behalf of Local 877 in collecting underpayments. See Schneider Moving Storage Co. v. Robbins, 466 U.S. 364, 373 (1984) (acknowledging the broad discretion of Fund trustees to initiate legal proceedings). Cf. Central States, Southeast Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 575 (1985) (benefit plan can bring action for judicial enforcement of employer's trust obligations independent of union's grievance and arbitration system).
Standing aside, Lorusso argues that the Fund abused its discretion in filing this action and should, as an equitable matter, be estopped from maintaining the lawsuit. Lorusso cites Article V, Section 4, of the 1960 Declaration of Trust which provides in part:
[i]n addition to any other remedies to which the parties may be entitled, an Employer in default for ten working days may be required at the discretion of the Trustees to pay such reasonable rate of interest as the Trustees may fix on the monies due to the Trustees from the date when the payment was due to the date when payment is made, together with all expenses of collection incurred by the Trustees. [Emphasis added].
The thrust of Lorusso's argument is that the Trustees never exercised discretion, but instead sought to pin responsibility for the Fund's own errors on an employer innocent of any wrongdoing.
The short answer, as the Fund points out, is that the 1960 Trust language on which Lorusso relies was removed by amendment after the enactment of ERISA in 1974. Plaintiff's Opposition, at 3-4. Moreover, the Fund contends that in deciding to bring suit, it properly considered Lorusso's refusal to pay any portion of the interest, damages, or fees, the Fund's responsibilities under the Department of Labor's Prohibited Transaction Class Exemption 76-1 directive imposing a duty to pursue underpaid contributions, and its obligations under its own charter agreements. In response to Lorusso's contention that the Fund has not made it a practice to sue other delinquent employers for such assessments, the Fund states that "[t]his is the first situation where the employer refused to pay any portion of damages, fees or lost interest on late paid contributions, where an audit has been required." Plaintiffs's Opposition, at 5. Finally, Lorusso contends that the Fund should be equitably estopped from seeking relief. Equitable estoppel and a handful of other equitable defenses have been held applicable in actions seeking to recover delinquent trust fund contributions. See Iron Workers' Local No. 25 Pension Fund v. Klassic Services, Inc., 913 F. Supp. 541, 545-546 (E.D. Mich. 1996); Oregon Laborers-Employers Trust Funds v. Pacific Fence and Wire Co., 726 F. Supp. 786, 788-789 (D. Or. 1989). "The traditional elements of equitable estoppel are first, a material misrepresentation of a party who had reason to know of its falsity; second, reasonable reliance upon the misrepresentation; and third, some disadvantage to the party seeking to assert estoppel fairly traceable to the misrepresentation." Falcone v. Pierce, 864 F.2d 226, 228 (1st Cir. 1988).
Laches is also among these few defenses. "The equitable defense of laches will bar a party from asserting a claim if the party so unreasonably delayed in bringing the claim that it caused some injury or prejudice to the defendant." Polaroid Corp. v. The Travelers Indemnity Co., 414 Mass. 747, 759-760 (1993). See also Costello v. United States, 365 U.S. 265, 282 (1961). As Lorusso acknowledges, the application of the doctrine is within the sound discretion of the district court. Puerto Rican-American Ins. Co. v. Benjamin Shipping Co., Ltd., 829 F.2d 281, 283 (1st Cir. 1987). Here I find no unreasonable delay on the part of the Fund. It acted promptly upon receiving notice from the Union of the shortfall in causing an audit to be performed and, results in hand, in making a demand on Lorusso for payment. Nor can Lorusso, which had the use of the underpaid contributions during the interim, make a very compelling case that the small amount of money in liquidated damages constitutes prejudice. Lorusso could, of course, have avoided any payment of attorney's fees by simply paying what its contracts obligated it to pay (as the Fund warned in its May 21, 2002 letter rejecting Lorusso's partial payment).
Lorusso claims that the Fund misrepresented the maximum number of hours for which contributions were to be made, that the Fund had reason to know of the misrepresentation because it was apparent from the face of the collective bargaining agreements, that Lorusso reasonably relied on the information provided by the Fund, and that it has suffered as a result because it would not be liable for penalties and interest had the Fund invoiced the correct amounts.
The Fund counters that the monthly remittance forms it submitted to Lorusso were not invoices.
They are forms filled out by the employer. While the forms are pre-printed by the Fund, Lorusso has regularly added names to, and deleted names from, the forms. Lorusso fills in the hours worked. Lorusso ultimately filled in the forms at issue wrong by failing to account for hours worked by employees beyond 2080 hours. . . . Lorusso asserts that the Fund had reason to know of the error on its remittance forms regarding the annual maximum hours because it was contrary to the language of the applicable collective bargaining agreements. By the same token, Lorusso had reason to know, and should have known, of the error as Lorusso signed the same agreements, which did not contain the annual hours cap. The contract governs as a matter of law.
Plaintiffs Opposition, at 5-6.
And so the arguments come to rest. There is sufficient reason to assign fault to both parties for the contribution error. Both had access to the collective bargaining agreements at issue and both should have known from the face of the agreements that the cap on hours had been eliminated. Perhaps Lorusso as a direct party to the negotiations is more appropriately charged with the oversight, see LaJiness v. Reactor Controls, Inc., 642 F. Supp. 27, 32 (E.D. Mich. 1985), but ultimately, the apportionment of fault is irrelevant. As a matter of law, the Fund is seeking what is contractually due regardless of who is to blame. Nor does Lorusso fare any better in equity. First, Lorusso cannot establish any "`definite, unequivocal behavior [or] conduct [on the part of the Fund] fairly calculated to mask the truth or lull . . .[it] into a false sense of security.'" Teamsters Local 251, Health Servs. and Ins. Fund v. Teamsters Local 251, 689 F. Supp. 48, 53 (D.R.I. 1988), quoting Clauson v. Smith, 823 F.2d 660, 663 (1st Cir. 1987). Second, the law has limited the legal and equitable defenses available to employers in delinquent contribution cases for the obvious reason that "millions of workers depend on the [solvency of] the employee benefit trust funds for their retirement security." Carpenters Health Welfare Trust Fund v. Bla-Delco Constr., Inc., 8 F.3d 1365, 1369 (9th Cir. 1993) (noting the limits placed by Congress and the courts on contract defenses in trust fund collection cases). See also Trustees of the Michigan Laborers' Health Care Fund v. Gibbons, 209 F.3d 587, 595 (6th Cir. 2000) ("As a matter of policy, we think that equitable estoppel of third party enforcement of collective bargaining agreements governed by ERISA may well conflict with Congress's objectives in enacting ERISA, i.e., that establishment of employee benefit funds by such plans be in writing and that the funds' fiscal health remain secure.").
Lorusso also objects to the liquidated damages as a forbidden penalty. Were this an action at common-law, the argument would have some force. See Kelly v. Marx, 428 Mass. 877, 880 (1999). Although there is no uniformity among courts on the issue, in the better view, the common-law doctrine on liquidated damages has no place in ERISA disputes. See Operating Engineers Local 139 Health Benefit Fund v. Gustafson Constr. Corp., 258 F.3d 645, 655 (7th Cir. 2001) (Posner, J.) ("And while the ban on contractual penalties remains an established principle of the law of contracts, it is antiquated and should not be extended into ERISA-land. . . . It is easy to assign nonexploitive reasons for contractual penalties and hard to give convincing reasons why in the absence of fraud or unconscionability consenting adults that are, moreover, substantial organizations rather than mere consumers should be prohibited from agreeing to such provisions.").
ORDER
For the foregoing reasons, Lorusso's motion for summary judgment isDENIED. The motion by the Fund for summary judgment is ALLOWED. The Clerk will enter judgment for the Fund in the amount requested, $14,273.93.SO ORDERED.