Resilient Floor Dec. Ins. Fd. v. Campau Flr. Covering

Full title: RESILIENT FLOOR DECORATORS INSURANCE FUND, et. al., Plaintiffs, v. CAMPAU…

Court: United States District Court, E.D. Michigan, Southern Division

Date published: May 4, 2000

Case Number: 99-CV-72316-DT (E.D. Mich. May. 4, 2000)

Opinion

Case Number: 99-CV-72316-DT

May 4, 2000

ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

GEORGE E. WOODS, Judge.

This matter having come before the Court on Plaintiffs' motion for summary judgment [Document No. 10];

The Court having reviewed the pleadings submitted herein, and being otherwise fully informed in the matter;

IT IS HEREBY ORDERED that Plaintiffs' motion for summary judgment shall be, and hereby is, GRANTED; and costs and attorney fees incurred in bringing and prosecuting this civil action in the amount of $4,880, pursuant to 29 U.S.C. § 1132 (g), are awarded to plaintiffs.

I. BACKGROUND

The Plaintiffs, trustees of a jointly administered, multi-employer employee benefit funds (collectively the "Funds"), brought an action against Defendant employer, Campau Floor Covering, Incorporated ("Campau"), under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132 (e) 1145, and the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 185 (a), to recover allegedly delinquent employee benefit contributions. Currently before the Court is the Funds' motion for summary judgment.

On February 11, 1998, the United Brotherhood of Carpenters and Joiners of America, AFL-CIO, International Systems Local 1045 (the "union") and Campau entered into an existing collective bargaining agreement ("CBA") requiring Campau to remit contributions for work related to the preparation and installation of flooring.¹

1 The CBA, executed between the United Brotherhood of Carpenters and Joiners of America, AFL-CIO, Interior Systems Local 1045 and the Floor Covering Industry Association covered the years 1996 through 1999.

The CBA delineated the work covered by the parties' agreement, which included, in pertinent part:

Work consisting of cutting and/or forming of all materials in preparation for installing on floors . . . the installation of all resilient floor . . . materials to include all carpet, cork, linoleum, rubber, asphalt, vinyl, seamless floors . . . the installation, cutting and/or fitting of carpets, installation of padding and all preformed resilient floor coverings . . . the unloading and handling of all materials to be installed, and the removal of all materials in preparing floors when contracted for by the Employer shall be done only by employees covered under this Agreement.

See Article I, ¶ 1. Furthermore, the CBA specifies that it "exclusively governs the wages, terms and conditions of employment of all employees performing work of any description covered under this Agreement." Art. I, ¶ 3. It is uncontroverted that under Article III of the CBA, Campau was required to contribute funds for all employees covered under the CBA. See Art. III, ¶¶ 2-6. Furthermore, the CBA explicitly prohibits an employer from "subcontract[ing] work covered by this Agreement with any other person who does not have a signed Agreement with the Union." Art. I, ¶ 10.

The Funds allege that a 1998 audit of Campau's payroll records, and an additional audit conducted during discovery, revealed that contributions were not made for covered work performed by two relatives of Campau's president, Dolores Zaliwski ("Zaliwski"). The relatives are Brian Zaliwski, her son, and Larry Zaliwski, her brother-in-law. Zaliwski contends that her relatives were independent contractors and not employees. In 1998, Campau paid Brian Zaliwski, operating as Aladdin Floor Covering, $31,788.85 for work related to the preparation and installation of floors.See Zaliwski dep. at 21-26; Ex. C.² For the same year, Larry Zaliwski was paid $8,278.85 for binding and installing carpeting.See Zaliwski dep. at 28; Ex. E.³ The Funds assert that Campau owes $35,051.10 in unpaid contributions and liquidated damages representing the period from February 11, 1998, through April 1999.

2 The 1099 was issued to Aladdin Floor Covering. See Ex. C.

3 The Funds maintain that all but $175 relate to work performed after Campau entered into the CBA. Although Larry Zaliwski operates as L Z Carpeting, Campau issued the 1099 to Larry Zaliwski, not L Z Carpeting. See Ex. E.

Campau claims that it entered into the CBA because Hank Zajac ("Zajac"), the union representative, purportedly told Zaliwski that the union would refer contracts to Campau. Campau maintains that it would not have entered into the CBA if a "customer referral" clause did not exist. Thus, Campau contends that it does not have to pay any contributions to the Funds because there is not a "customer referral" clause in the CBA, and thus the CBA should be declared void ab initio.

II. STANDARD OF REVIEW

Rule 56 mandates the entry of summary judgment if all the evidence shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A fact is "material" where proof of that fact would likely establish or refute an essential element of claim or defense raised by the parties under the controlling substantive law. See Henson v. National Aeronautics Space Admin., 14 F.3d 1143, 1148 (6th Cir. 1994).

The moving party has the burden of showing that there is an absence of evidence to support the nonmoving party's case.Celotex, 477 U.S. at 325. Thus, this Court determines "whether the evidence presents sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Terry Barr Sales Agency, Inc. v. All-Lock Co., Inc., 96 F.3d 174, 178 (6th Cir. 1996) (citations omitted). This Court does not weigh the evidence, but determines whether there is a genuine issue for trial, viewing the record as a whole and viewing all the facts in a light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 578 (1986)

In order to avoid summary judgment, the opposing party must have set out sufficient evidence in the record to allow a reasonable jury to find for him at trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1906). "[A] party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial."Id. at 256. Summary judgment is appropriate if the evidence favoring the nonmoving party is merely colorable or is not significantly probative. City Management Corp. v. United States Chem. Co., 43 F.3d 244, 254 (6th Cir. 1994).

III. ANALYSIS

Campau does not dispute that it entered into an agreement whereby it agreed to be bound by the provisions of the CBA requiring Campau to make contributions to the Funds. The parties do not dispute that Campau did not make any contributions to the Funds for work performed by Brian Zaliwski, d/b/a Aladdin Floor Covering, or Larry Zaliwski, d/b/a L Z Carpet, from February 11, 1998, through April 1999. Thus, the Funds claim a delinquency for the relevant period. Campau contends, however, that it is not liable for the contributions sought by the Funds because the agreement was void ab initio. Specifically, Campau contends that the union representative erroneously indicated that the CBA contained a customer referral clause.

A. Independent Contractors

The Funds argue that Campau cannot avoid its obligation to make fringe benefit contributions by claiming that Brian Zaliwski and Larry Zaliwski were independent contractors rather than employees. The Funds maintain that regardless of the status of these two individuals, Campau owes money on their behalf. The Funds do not argue that the undisputed facts establish that Brian Zaliwski and Larry Zaliwski are employees. Rather, the Funds argue that the CBA bars Campau from using independent contractors in order to avoid obligations under the CBA.⁴ See Art. 1 ¶ 10. Specifically, the CBA explicitly prohibits an employer from "sub-contract[ing] work covered by this Agreement with any other person who does not have a signed Agreement with the Union." Art. I, ¶ 10. Campau does not address the Funds' argument. Instead, Campau argues that it is not bound to the CBA under two theories: (1) fraud in the execution; and (2) fraud in the inducement. The Court will address each argument in turn.

4 The Court disregards the Fund's reliance on Chicago Dist. Council of Carpenters Pension Fund v. Yonan, 553 F. Supp. 653 (N.D. Ill. 1982) because the Yonan court ultimately vacated its judgment in a subsequent opinion: Chicago Dist. Council of Carpenters Pension Fund v. Yonan, No. 81-C-2429, 1986 WL 7972 (N.D. Ill. 1986). The Funds also rely upon Seymour v. Hull Moreland Eng'g, 605 F.2d 1105 (9th Cir. 1979) to support its position that Campau remains obligated to make contributions because its use of independent contractors is contrary to the CBA. The Seymour court found that the employer was liable for contributions for work completed by independent contractors because the collective bargaining agreement bound the employer to make contributions for work performed by subcontractors regardless of whether the subcontractors were signatories to the agreement. Id. at 1114-15. In the instant case, during the audit period, Campau claimed that Brian Zaliwski and Larry Zaliwski were independent contractors and were issued Form 1099s. It is undisputed that neither individual signed the labor agreement with the union. As detailed above, the CBA prohibits Campau from subcontracting covered work to a non-signatory. See Art. I, ¶ 10.

B. Fraud in the Execution

In an action to collect contributions, the Funds stand in the position of the third-party beneficiaries of the CBA and generally are subject to any contract defense that the promisor (here Campau) could assert against the promisee (here the union), if the promisee was suing on the contract. See Central Penn. Teamsters Pension Fund v. McCormick Dray Line, Inc., 85 F.3d 1098, 1102 (3rd Cir. 1996); Central States, Southeast Southwest Areas Pension Fund v. Behnke, Inc., 883 F.2d 454, 460-61 (6th Cir. 1989); Southwest Administrators, Inc. v. Rozay's Transfer, 791 F.2d 769, 773-74 (9th Cir. 1986), cert. denied, 479 U.S. 1065 (1987). There are, however, severe limitations on the availability of contract defenses in trust fund collection actions:

Congress and the courts have restricted the availability of contract defenses in trust fund collection actions because "millions of workers depend upon the employee benefit trust funds for their retirement security."

Carpenters Health Welfare Trust v. Bla-Delco Constr., Inc., 8 F.3d 1365, 1369 (9th Cir. 1993) (quoting Rozay's Transfer, 791 F.2d at 773). See also Lewis v. Benedict Coal Corp., 361 U.S. 459, 468-71 (1960); 29 U.S.C. § 1145. Courts have ruled that the three defenses available in a collection action are: (1) the pension contributions are illegal; (2) the collective bargaining agreement is void ab initio, as where there is fraud in the execution; and (3) the employees have voted to decertify the union as [their] bargaining representative, thus prospectively voiding the union's collective bargaining agreement. See generally, McCormick Dray Line, 85 F.3d at 1106 (citing Agathos v. Starlite Motel, 977 F.2d 1500, 1505 (3d Cir. 1992)); Iron Workers' Local No. 25 Pension Fund v. Allied Fence Security Sys., 922 F. Supp. 1250, 1256 (E.D. Mich. 1996).

Campau asserts the defense of fraud in the execution. This is a permissible defense to a collection action because it results in the contract being void ab initio. See Rozay's Transfer, 791 F.2d at 773-74. Thus, this Court first must determine whether Campau has properly asserted a claim of fraud in the execution, and furthermore, whether a genuine issue of material fact exists as to whether the union committed such fraud.

Fraud in the inducement "induces a party to assent to something he otherwise would not have." By contrast, fraud in the execution "induces a party to believe the nature of his act is something entirely different than it actually is." Rozay's Transfer, 791 F.2d at 774 (citing 12 WALTER H.E. JAEGER, WILLISTON ON CONTRACTS § 1488, at 332 (3d ed. 1970)); see also, Connors v. Fawn Mining Corp., 30 F.3d 483, 490 (3d Cir. 1994).

This Court patently rejects Campau's claim that it should not be held to the CBA because its president, Zaliwski, is "a woman and a member of a minority and unsophisticated [and] did not read the labor agreement." Plf.'s Br. at 4. It is undisputed that Campau does not maintain that a misrepresentation or misstatement was made such that she was not aware that the document she was signing was a CBA. Nor does Campau allege that she was misled concerning her obligations under the CBA. Instead, Campau claims that it was led to believe that by signing the CBA, the union would refer jobs to Campau, and that a customer referral clause was included in the CBA.

Neither federal law nor Michigan law holds that Zaliwski's status as a woman or a "minority" precludes her from entering contracts. Furthermore, ignorance of the actual contract terms, as a result of a contracting party's failure to read the contract, does not excuse the party from complying with the terms of the contract. See Iron Workers' Local No. 25 Pension Fund v. Allied Fence Sec. Sys., Inc., 922 F. Supp. 1250, 1258-59 (E.D. Mich. 1996). Zaliwski had an opportunity to review the document before signing it, and opted not to read it. There is absolutely no evidence to suggest that Zaliwski is unable to read; to the contrary, in her affidavit, she indicated that she read the brief submitted by counsel. See Feb. 3, 2000, Aff. at ¶ 2. In a late filed affidavit, Zaliwski indicated that she had not read the CBA because she was "very busy at the time." Mar. 17, 2000, Aff. at ¶ 15. The evidence in this case is not sufficient to establish a fraud in the execution defense. Zaliwski knew she was signing a collective bargaining agreement. Furthermore, even if she was not aware of the entire contents of the CBA, i.e., that a customer referral clause was not present, there is simply no evidence to satisfy the Court that her ignorance of the terms of the CBA was excusable. See Allied Fence, 922 F. Supp. at 1259. In sum, Campau has failed to set forth any evidence establishing that Zaliwski had neither the knowledge nor reasonable opportunity to obtain the knowledge of the CBA's character or its essential terms. See Rozay's Transfer, 791 F.2d at 773.

Here, as in Allied Fence, Campau arguably satisfies only half of the excusable ignorance test: Zaliwski claims ignorance of the entire contents of the CBA that she signed, but does not provide any record evidence that demonstrates or implies that her ignorance was excusable in light of her opportunity to review the CBA. Accord, Allied Fence, 922 F. Supp. at 1259. The record is similarly devoid of any evidence that Zaliwski was coerced into signing the CBA. Therefore, as in Allied Fence, this Court declines to hold that the excusable ignorance standard is satisfied, in the context of the Funds' motion for summary judgment, solely by virtue of the alleged misrepresentation concerning the referral clause made by the union representative.Id. Moreover, as set forth below, summary judgment is also warranted, as Campau's claim really amounts to a claim of fraud in the inducement rather than fraud in the execution.

C. Fraud in the Inducement

Campau's final argument is not well taken. Campau urges this Court to hold the Funds accountable for representations allegedly made by the union representative, Hank Zajac. It is well settled that neither a union nor its representatives are agents of trust funds created by a collective bargaining agreement, and that the trust funds are distinct and independent entities, separate from the union that negotiates the collective bargaining agreement establishing such trust funds. See Lewis v. Benedict Coal Corp., 361 U.S. 459, 468-71 (1960);⁵ Central Penn. Teamsters Pension Fund v. McCormick Dray Line, Inc., 85 F.3d 1098, 1102-04 (3rd Cir. 1996) (construing Section 515 of ERISA which ratified theLewis holding) As envisioned by Congress, neither the union nor the employers contributing to the trust fund are agents of the trust fund capable of binding the trustees to separate agreements. Accordingly, numerous courts, including the Sixth Circuit, have consistently and uniformly held that fraud in the inducement is not a valid defense when the trustees of a benefit fund bring an action to recover allegedly unpaid contributions from an employer.⁶ See, e.g., Central States, Southeast Southwest Areas Pension Fund v. Transport, Inc., 183 F.3d 623, 627-28 (7th Cir. 1999) (citing cases); Connors v. Fawn Mining Corp., 30 F.3d 483, 490 (3d Cir. 1994); Behnke, 883 F.2d at 460-61; Trustees of Laborers Local Union #800 Health Welfare Trust Fund v. Pump House, Inc., 821 F.2d 566, 568 (11th Cir. 1987);Rozay's Transfer, 791 F.2d at 773-74.

5 In Lewis, the Court held that an employer may not assert a union's breach of other provisions of the collective bargaining agreement as justification for nonpayment of its trust fund contributions. Id. at 470-71.

6 Fraud in the inducement "induces a party to assent to something he otherwise would not have." By contrast, fraud in the execution "induces a party to believe the nature of his act is something entirely different than it actually is." Rozay's Transfer, 791 F.2d at 774.

In the instant case, Campau does not maintain that Zaliwski did not know that the document she was signing was a collective bargaining agreement. Nor does Campau allege that she was misled concerning her obligations under the CBA. Instead, Campau claims that the union representative, Zajac, led Zaliwski to believe that by signing the CBA, the union would refer jobs to Campau, and that a customer referral clause was included in the CBA. Campau asserts that it would not have signed the CBA but for the promise of customer referrals. See, e.g., Plf.'s Br. at 12. This is more properly characterized as a claim of fraud in the inducement, not fraud in the execution: Fraud in the inducement induces a party to assent to something that it otherwise would not have. See, e.g., Rozay's Transfer, 791 F.2d at 774; Allied Fence, 922 F. Supp. at 1259-60.

Recognizing that fraud in the inducement is not a valid defense to an ERISA action brought by the pension fund trustees for delinquent contributions, and because it is uncontroverted that the CBA is governed by ERISA, Campau's allegation of fraudulent inducement by the union representative does not create a genuine issue of fact. Thus, there is not sufficient evidence upon which a jury could reasonably find for Campau on this claim, and the Funds are entitled to summary judgment with respect to Campau's claim of fraudulent inducement.⁷

7 Campau's reliance on Textron Lycoming Reciprocating Engine Div., Avco Corp. v. United Auto., Aerospace, Agric. Implement Workers of Am., Int'l. Union, 523 U.S. 653 (1998), is flawed for several reasons. First, Textron was not an action by the trustees of an employee benefit fund to recover unpaid contributions from an employer, and as such lends no precedential value to the instant action. The dispute was between the union and the employer. Second, Campau misconstrues the Textron decision. At issue was whether federal subject-matter jurisdiction existed under § 301(a) of the LMRA. See Textron, 523 U.S. at 656. The Court ruled that jurisdiction did not exist because: "`Suits for violation of contracts' under § 301(a) are not suits that claim a contract is invalid, but suits that claim a contract has been violated." Id. at 657. The remainder of the cases cited by Campau are entirely inapposite and involve issues concerning the dischargeability of debts in bankruptcy and thus have no relevance to this case. See Bomis v. National Fire Ins. Co., No. 93-1014, 1994 WL 201885 (6th Cir. May 23, 1994); In re Allied Supermarkets, Inc., 951 F.2d 718 (6th Cir. 1991).

On a final note, just as the trust funds are separate and distinct legal entities from the union and the employer, the actions of the union may not be used to defeat the collection claims of the trust funds. Campau contends that Zajac, the union representative, made representations to Campau concerning customer referrals, something that did not exist in the CBA.⁸ This oral "modification" to the CBA cannot bind the Funds. Even assuming that the union's business agent made such statements, the Funds are not bound to the oral modification of the contract.See Behnke, 883 F.2d at 459-60.

8 The Court additionally notes that Zajac's alleged representation did not relate to contribution obligations to the trust funds and thus were not contrary to Campau's obligations under the CBA. Rather, the representation involved an ancillary matter.

IV. CONCLUSION

Accordingly, for the aforementioned reasons, Plaintiffs' motion for summary judgment representing unpaid contributions and liquidated damages for the delinquent contributions is GRANTED. Because there is judgment in favor of the Funds, an award of attorney fees is mandatory. See 29 U.S.C. § 1132 (g)(2). Plaintiffs submitted the affidavit of Michael J. Bommarito, indicating that $4,880 was expended in costs and attorney fees prosecuting this action. See Bommarito Aff. at ¶¶ 2-3. Accordingly, Plaintiffs are entitled to $4,880 in costs and fees.

IT IS SO ORDERED.