Local 49 Operating Engineers v. Flueger Constr. Co.

Full title: LOCAL 49 OPERATING ENGINEERS HEALTH AND WELFARE FUND, et al., Plaintiffs…

Court: United States District Court, D. Minnesota

Date published: Aug 18, 2004

Civil No. 03-2798 (JRT/FLN) (D. Minn. Aug. 18, 2004)

Opinion

Civil No. 03-2798 (JRT/FLN).

August 18, 2004

Mitchell W. Converse, JENSEN BELL CONVERSE ERICKSON St. Paul, MN, for plaintiffs.

Barak Jonathan Babcock, SEATON BECK PETERS BOWEN FEUSS, Minneapolis, MN, for defendant.

MEMORANDUM OPINION AND ORDER DENYING CROSS MOTIONS FOR SUMMARY JUDGMENT

JOHN TUNHEIM, District Judge

Plaintiffs bring this action to recover allegedly delinquent pension contributions due by defendant pursuant to a 1981 Collective Bargaining Agreement ("CBA"). Defendant argues that the CBA is void ab initio ¹ because union officials repeatedly and affirmatively misrepresented the nature of the materials signed in 1981. The parties have submitted cross motions for summary judgment, and requests for attorney's fees. For the reasons discussed below, plaintiffs' motion for summary judgment is denied, and defendant's motion for summary judgment against the pension funds is denied.²

1 Meaning "a contract [that] is null from the beginning if it seriously offends law or public policy in contrast to a contract which is merely voidable at the election of one of the parties to the contract." Black's Law Dictionary 1574 (6^th ed. 1990).

2 In the alternative, defendant has requested permission to amend its answer to assert third-party claims for indemnification against the union. Because the Court denies summary judgment to both parties, the Court need not reach defendant's alternative motion, and the Court expresses no opinion on its propriety. The Court notes, however, that nothing in this Order prevents defendant from pursuing its purported claims against the union.

BACKGROUND

Plaintiffs are employee benefits plans administered in accordance with the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").³ Defendant Flueger Construction Company ("Flueger Construction" or "defendant") is a family-owned business in Red Wing, Minnesota, that was founded by John B. Flueger in 1947. Day-to-day operations are now handled primarily by Flueger's two sons. Flueger Construction provides general contracting services such as excavating, soil conservation, general grading, and other related activities. The number of employees varies with the season, with the company employing more workers in summer months.

In 1981, John B. Flueger signed an "Acceptance of Agreement" ("Agreement") along with an "Addendum of `Acceptance of Agreement.'" (Converse Aff. Ex. 1). The one-paragraph Agreement provided that the employer:

agrees to abide by the terms and conditions of the 1981-1982-1983 Highway, Railroad and Heavy Construction Agreement between the Highway and Heavy Construction Industry of Minnesota and the International Union of Operating Engineers, Local No. 49, on all work covered by said agreement, except as herein after set forth (see addendum).

Receipt of a copy of the standard printed agreement is hereby acknowledged. The attached addendum is a part of this agreement as if set forth in full.

(Converse Aff. Ex. 1). The Addendum excludes work done on farms or conservation projects. ( Id.)

Although these exhibits seem straightforward and determinative, according to John Flueger, the parties executed this agreement with the understanding that the Agreement would allow the Union and the merit-shop to co-exist peacefully but would not bind either party to specific obligations. John Flueger avers that he executed the documents in reliance upon representations by the Union that the Agreement would not obligate defendant to make payments to any benefit plan. Flueger recalls that he questioned the Union representative why any documents needed to be executed. According to Flueger's affidavit, the Union representative responded by telling Flueger that the Addendum made it clear that defendant would not need to make any contributions to the Union or to plaintiffs, and that the documents would allow the Union and Flueger Construction to co-exist peacefully.

Affidavits from both John Flueger and his son Barney Flueger indicate that Flueger Construction has always been a merit shop. Further, both Fluegers aver that Flueger Construction has not made any payment to any union benefit fund, including plaintiffs' funds. (J. Flueger Aff. at ¶ 4; B. Flueger Aff. at ¶ 9.) Defendant surmises that this action was brought in retaliation after the Union's failed efforts to unionize employees at Flueger Construction.

Plaintiffs challenge this evidence, and provide an affidavit from the Fund Counsel to one of the pension funds that reflects that Flueger Construction made contributions to the Central Pension Fund on behalf of at least three individuals. Plaintiffs suggest that defendant has not alleged that the Union made affirmative and deliberate misrepresentation that went to the character of the proposed agreement. Plaintiffs characterize defendant's argument as an assertion that a Union representative misrepresented the legal consequence of the agreement. Plaintiffs finally suggest that defendant has no excuse for failing to know what he signed.

ANALYSIS

I. STANDARD OF REVIEW

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that 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." Only disputes over facts that might affect the outcome of the suit under the governing substantive law will properly preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary judgment is not appropriate if the dispute about a material fact is genuine, that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id. Summary judgment is to be granted only where the evidence is such that no reasonable jury could return a verdict for the nonmoving party. Id.

The moving party bears the burden of bringing forward sufficient evidence to establish that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The nonmoving party is entitled to the benefit of all reasonable inferences to be drawn from the underlying facts in the record. Vette Co. v. Aetna Cas. Sur. Co., 612 F.2d 1076, 1077 (8^th Cir. 1980). However, the nonmoving party may not merely rest upon allegations or denials in its pleadings, but it must set forth specific facts by affidavits or otherwise showing that there is a genuine issue for trial. Forrest v. Kraft Foods, Inc., 285 F.3d 688, 691 (8^th Cir. 2002).

II. MOTIONS FOR SUMMARY JUDGMENT

A. Section 515

Section 515 of ERISA provides that:

Every employer who is obligated to make contributions to a multiemployer plan under the terms of . . . a collectively bargained agreement shall, to the extent not inconsistent with law, make such contributions in accordance with the terms and conditions of such . . . agreement.

29 U.S.C. § 1145. As the Eighth Circuit has noted, this section was intended to "simplify actions to collect delinquent contributions, avoid costly litigation, and enhance the actuarial planning necessary to the administration of multiemployer pension plans." Cent. States, Southeast Southwest Areas Pension Fund et al. v. Indep. Fruit Produce Co., 919 F.2d 1343, 1348 (8^th Cir. 1990) (" Central States"). Section 515 places "pension fund[s] in a better position than that which it would otherwise occupy in relation to the collective bargaining agreement" by eliminating certain "contract defenses — for example, fraud in the inducement, oral side agreements or course of performance." Id. "`[S]ection 515 means that . . . suit [by a trustee] cannot be thwarted by defenses not apparent from the face of the Agreement.'" Id. at 1349 (quoting Bituminous Coal Operators' Ass'n v. Connors, 867 F.2d 625, 634 (D.C. Cir. 1989)). "[C]ourts recognize only two defenses to a collection action: that the pension contributions are themselves illegal or that the collective bargaining agreement is void." Id. (citation omitted).

The latter defense is at issue in this case. "Fraud in the execution results in the agreement being void ab initio, whereas fraud in the inducement makes the transaction merely voidable." Laborers' Pension Fund v. A C Envtl., Inc., 301 F.3d 768, 779 (7^th Cir. 2002). Fraud in the execution induces a party to believe the nature of his act is something entirely different than it actually is; while fraud in the inducement induces a party to assent to something he otherwise would not have. Carpenters Health Welfare Trust Fund for Cal. v. Bla-Delco Const., Inc., 8 F.3d 1365, 1369 (9^th Cir. 1993) (quotation omitted).

Fraud in the execution is a recognized defense to suits by funds to collect delinquent contributions under ERISA, while fraudulent inducement is not. Laborers' Pension Fund, 301 F.3d at 779. This "distinction between void and voidable contracts and a fund's ability to enforce a contract makes sense, because when a contract is void, it is as if it never existed." Id. (noting that fraud in the execution renders a purported collective bargaining agreement void rather than merely voidable) (citing Louisiana Bricklayers Trowel Trades Pension Fund Welfare Fund v. Alfred Miller Gen. Masonry Contracting Co., 157 F.3d 404, 408 (5^th Cir. 1998); Agathos v. Starlite Motel, 977 F.2d 1500, 1505 (3d Cir. 1992); Benson v. Brower's Moving Storage, Inc., 907 F.2d 310, 314 (2d Cir. 1990); Southwest Adm'rs, Inc. v. Rozay's Transfer, 791 F.2d 769, 774 (9^th Cir. 1986)).

B. Application

In this case, defendant argues that the collective bargaining agreement is not merely voidable, but is void, because the Union affirmatively misrepresented the nature of the Agreement. Defendant argues that the contracting parties, in 1981, intended no obligations to flow from this Agreement. The parties instead intended, defendant suggests, to "preserve the status quo." This understanding, however, is not apparent from the face of the agreement. See TKO Equip. Co. v. C G Coal Co., 863 F.2d 541 (7^th Cir. 1988) (noting that "if [the parties] wish the symbol `one Caterpillar D9G tractor' to mean `500 railroad cars full of watermelons', that's fine — provided parties share this weird meaning." But cautioning, "intent must be mutual to be effective; unilateral intent does not count. Still less may the parties announce that they `share' an unusual meaning to the detriment of strangers, who have no way of finding out what was in the contracting parties' heads."). Therefore, the defense fares no better here than in the Central States case, where the Eighth Circuit noted, "it is clear that the employer . . . do[es] not assert a defense apparent from the face of the agreements." Central States, 919 F.2d at 1349.

Defendant also argues, however, that he did not know what he signed due to the union representative's affirmative misrepresentations.⁴ This is a subtly, but crucially different argument. Unlike the argument regarding the parties' intent, this argument, if credible, establishes one of the two recognized defenses to ERISA collection actions under § 515. If defendant can establish that he reasonably believed the nature of his act was something entirely different than it actually was, defendant can establish that the Agreement and Addendum are void.

4 Plaintiffs characterize defendant's argument as an assertion that "a Union representative misrepresented a legal consequence of the [A]greement." ( Plfs.' Reply Mem. at 2.) Plaintiffs then cite Operating Eng'rs Pension Trust v. Cecil Backhoe Serv., Inc., 795 F.2d 1501 (9^th Cir. 1986) for the proposition that the union has no duty to tell employers the consequences of the agreement, and that therefore plaintiffs are entitled to summary judgment. Not only is this a mischaracterization of the defendant's argument, but Cecil Backhoe is easily distinguishable on several bases, not the least of which is that, in that case, the employer admittedly signed the CBA in order to qualify for construction work requiring union labor. In addition, here, the defendant suggests not that the union failed to inform him of the legal consequences of the Agreement (which was the argument rejected in Cecil Backhoe), but that the representative affirmatively misrepresented the nature of the Agreement.

Although recognizing that fraud in the execution is a recognized defense, plaintiffs suggest that it is nonetheless entitled to summary judgment because defendant "negotiated" the Addendum, and he therefore must have known the nature of what he signed. However, at this stage of the proceedings, the Court must assume all facts in the light most favorable to the nonmoving party (in this argument, in favor of defendant). Defendant contends that the Addendum was not "negotiated" but was presented to him as further clarification that he was signing a "status quo" agreement, and not a collective bargaining agreement. In a summary judgment motion, the Court cannot simply discount one party's assertion of the events in question unless no reasonable factfinder could credit the assertion. That is not the case here.

Similarly, plaintiffs' attempts to distinguish a case on which defendant relies, Operating Eng'rs Pension Trust v. Gilliam, 737 F.2d 1501 (9^th Cir. 1984), would require the Court to make assumptions and credibility judgments in plaintiffs' favor. For example, the Court would be required to disbelieve defendant's affidavit testimony that the union representative affirmatively misrepresented the nature of the Agreement and Addendum. Of course, the Court cannot make such credibility assessments on a motion for summary judgment. Indeed, this case presents, as do many cases involving questions of fraud in the ERISA context, a fact question inappropriate to summary judgment. See, e.g., Laborers' Pension Fund v. A C Envtl., Inc., 301 F.3d 768 (7^th Cir. 2002) (discussing jury trial in collection action in which defendant asserted fraudulent inducement and fraud in the execution); Central States, 919 F.2d 1343 (reversing district court which held, after a bench trial, that employers could avoid contribution due to ambiguity in collective bargaining agreement); Operating Eng'rs Pension Trust v. Cecil Backhoe Serv., Inc., 795 F.2d 1501 (9^th Cir. 1986) (affirming judgment for fund in collection action after a two-day bench trial); Southwest Admins. v. Rozay's Transfer, 791 F.2d 769 (9^th Cir. 1986) (affirming district court's decision, made after a one-day bench trial, that fraudulent inducement is not a defense in a collection action); Operating Eng'rs Pension Trust v. Giorgi, 788 F.2d 620 (9^th Cir. 1986) (reversing district court which held, after trial, that subcontractor was not bound by collective bargaining agreement).

Plaintiffs also assert that they are entitled to summary judgment because defendant will not be able to show that the employer had an excuse for not knowing what he signed. Plaintiffs might be correct in their position that defendant will not be able to show that his failure to understand the Agreement was not reasonable. To be sure, defendant will have to prove that despite the short Agreement and Addendum, defendant was affirmatively misled and that the defendant's actions were reasonable. The difficulty of defendant's case will be compounded by the evidence that contributions, however minimal, were made on behalf of three employees, including the founder's two sons. That it appears a party will have difficulty establishing a defense, however, is not the standard for summary judgment. Plaintiffs have not established that no reasonable factfinder⁵ could find for defendant, and summary judgment is therefore inappropriate.

5 Neither side has made a timely demand for a jury trial, and the parties have consented to trial before the United States Magistrate Judge.

ORDER

Based on the foregoing, all the records, files, and proceedings herein, IT IS HEREBY ORDERED that:

1. Plaintiffs' Motion for Summary Judgment [Docket No. 11] is DENIED;

2. Defendant's Motion for Summary Judgment [Docket No. 16] is DENIED.