NO. 82-373
INTHE SUPREME COURT OF THE STATE OF MONTANA 1983

AUDIT SERVICES, INC., a NontanaCorporation, PlaintiffandAppellant,

HARVEY BROS. CONSTRUCTION, a MontanaCorporation, Defendantand~es~ond6rk.

Appeal from: DistrictCourtof theFifthJudicial District, Inand forthe Countyof Beaverhead HonorableFrank Blair, Judge presid-ina. Counselof P.ecord: For Appellant: Cure & Borer, GreatFalls, Montana
ForRespondent: ChristineC. Parker, Dillon, Montana

Submittedonbriefs- April 15, 1983 Decided June 30, 1983

Filed:

## JUN30

## 1983

ClerkMr. JusticeL. C. Gulbrandson delivered theOpinion of theCourt.

This appeal 

### stems from the judgment of theDistrict Court of the Fifth Judicial District, Beaverhead County, which declared thecompliance agreements entered into between the carpenters and laborers unions and Harvey Brothers Construction (HBC) void, and concluded that they could be rescinded. Plaintiff, Audit Services Inc., commenced this action to collect delinquent contributions, damages, and fees allegedly owed by defendant to plaintiff'

### s assignors, the Montana Carpenters and Laborers Trust Funds. A nonjury trialwas held on April 20, 1982, afterwhich the courtheld infavor of defendant, HBC.The defendant 

### is engaged in the construction business. It employs carpenters and laborers. Beginning in 1967, the defendant entered into a series of compliance agreements with local carpenter and laborer unions. The compliance agreements incorporated by reference collective bargaining agreements, and pursuant to the terms of the collective bargaining agreements, defendant was required to make specified contributions to the Montana Carpenters and Laborers Trust Funds. These agreements

were renewed through theyears. In1975, defendant notified the labor unions that

### it intended to withdraw from the labor agreements. Withdrawal was to be effective at the expiration of the existing agreements. The existing agreementswere the 1975-1977 agreement with the carpenters union, and the 1974-1976 agreement with the laborers union. In 1979, defendant's payroll records were audited on behalf of the Carpenters and the Laborers Trust Funds. The audit disclosed that $9,969 was owed for delinquent contributions. Defendant refused to pay these delinquencies, along with other penalties, interest and costs due under the agreements when billed. The unions thereafter assigned their claims toplaintiff who then commenced thisaction. Defendant, by amendment to the answer, alleged that theagreements were void as having been obtained by duress, menace, and fraud. Furthermore, defendant claimed that the audit concerned records of ACE Construction, a partnership owned and operated by the owners of defendant; and since ACE was not a party to the agreements, it could not be liable for thepayments. The plaintiff contends that the records audited were the proper records based on the testimony of 

### Mr. Howard Sands, the accountant who conducted the audit. He stated that allthe persons, wages and hours appearing on the audit alsoappeared on the quarterly report dealing with unemployment contributions, filed with the Employment Securities Division of the Stateof Montana under the name of Harvey Brothers Construction. He further stated thatsome of his informationwas taken from the individual payroll records which recap a man's wages by week, month, and year. Three issues are presented for our review. They are as follows: 1. Is thereany credibleevidence to support the findingsof fact and conclusions of law upon which the 

### District Court based 

### itsjudgment? 2. Regardless of the evidentiary foundation for the judgment, 

### is it consistent with the governing principles of federal labor law by which thiscase was supposed to be decided? 3. Did the District Court abuse 

### its discretion by allowing the defendant leave to amend 

### its answer shortly before trial? We believe that the second issue 

### is dispositive. In a case brought to enforce a contract between an employer and a labor organization, which fallsunder section301(a)of the Labor Management Relations Act (29 USC 185(a)), it should be noted thatthe statecourtshave concurrentjurisdiction with the federal courts. Audit Services Inc., v. Clark Brothers Contractors (1982), - Mont* ----

## , 645 P.2d 953, 955, 39 St.Rep. 928, (and cases cited therein); Audit Services v. Stewart and Janes (1981), Mont. 

## , 622 P.2d 217, 219,38 St.Rep. 41, (and cases cited therein); Lowe v. O'Conner (1973), 163Mont. 100, 515 P.2d 677, 678. However, inexercising thatjurisdiction, the statecourtsmust applyfederal substantive law. Audit Services v. Clark Brothers Contractors, supra; Audit Services v. Stewart and Janes, supra; Lowe v. O'Conner, supra. The application of the federal law to this case warrants reversal of theDistrictCourt's judgment. The federal law on thispoint 

### ismost cogently 

### setout by the ninth circuitcourt of appeals inTodd v. McNeff (9thCir. 1982), 667 F.2d 800. In that case the circuit court of appeals was dealing with a section 8(f), NLRA, 

### (29 USC 158(f) 

### 1, pre-hire agreement, which in essence is what we have here as there was

never any showing that the unions in question represented a majority of the HBC employees. The Todd court clearly 

### set out the rationale for allowing these types of agreements in the construction industrywhere it stated: "The labor contract in thiscase is one under Section 8(f) of the National Labor Relations Act (29U.S.C. S 158[£]). Thissection

### is an exception to the general labor policy that an employer can only enter into a collective bargaining relationship with a union that represents a majority of the employer's employees. As jobs begin and end, constructionworkers frequentlychange employers. Due to this, Congress has seen fitto allow socalled 'pre-hire' agreements inthatindustry. These agreements may be signed before the union represents a majority of the employer's employees, and may continue in duration through more than one of the employer's jobs, even if the employer goes through a high employee turnover. These agreements allowthe employees some of the wage and benefit advantages of union representation, as 

### well as relative wage stability. The employer 

### is assured a qualified pool of workers to choose from when it needs them, protection against labor unrest during the period of the contract, and predictable labor costs, an invaluable tool in the bidding process." 667 F.2d at801, 802. The Todd court went on to state that as a matter of policy and based on theUnited StatesSupreme Court's mandate inNLRB v. LocalNo. 103, IronWorkers (HigdonConstruction Co.) (19781, 434 U.S. 335, 98 S.Ct. 651, 54 L.Ed.2d 586, thatsection8(f)(29 USC 158(f))contracts "are voidable by the employer until the unionattainsmajority support." However, they alsomade it clear that such contracts are enforceable under section 301, LMRA (29 USC 185(a) ) until the employer repudiates them. Todd v. McNeff, 667 F.2d at803, 804. This remedy of repudiation applies even if the contracts were coerced, as was alleged in the case presently before us, 

### (e.,threats to picket and of violence). Todd v. McNeff, 667 F.2d at804. Here 

### we see no evidence of repudiation. Asa matter of fact if HBC did anything, it ratified these agreements with the carpenters and laborers. Wehave previouslydefined ratification in Audit Services, Inc. v. FrancisTindall Construction (1979), 183 Mont. 474, 600 P.2d 811, where we stated: "'"Ratification" 

### is defined to be the confirmation of a previous act done either by the party himself or by another. (Citing authority.) And a confirmation necessarily supposes knowledge of the thing ratified (Citing authority.) It follows that to constitute a ratification there must be an acceptance of the results of the act with an intent to ratify and with full knowledge of all the material circumstances.

## ' Koerner v. Northern Pac. Ry. Co. (1919), 56 Mont. 511, 520, 186P. 337, 340." 600 P.2d at813. Wewent on inTindall to statethat "[ilt

### is the manifestation of the ratifying party which controls. The respondent's outward expressions and actions judge of his intention

# ..." 600 P.2d at813. HBC's outward expressions and actions clearlyshow their intention here. Earnest Harvey admits that they signed the agreements with the two unions. The testimony of accountant Howard Sands, who conducted this audit of HBC aswell as a previous one which covered from 1973toJuly 1, 1975, shows thatHBC voluntarily contributed thousands of dollars to the respective trusts between 1973 and 1975. These contributions were made in spiteof theHarvey's claims thatthey were coerced into entering the agreements by threats of violence and the threat of being picketed. Such voluntary payments over a period of 

### timewith no efforts to rescind have been held to result in ratification of collective bargaining agreements. Audit Services v. Francis TindallConstruction, supra. (SeealsoPio v. ~e1l.y (1976), 275Or. 585, 552 P.2d 1301, where 

### it was stated: 

# ".

. .thatan employer who hasmade contributions to a trust fund established under the 

### terms of a collective bargaining agreement over a substantial period of 

### time may not, when later sued by the union to enforce such an agreement, contend at that 

### time that the agreement 

### is unenforceable by reason of duress." 552 P.2d at1306, 1307. (See also, Carr v. Settle Construction, Inc. (1974), 11 Wash.App. 336, 522 P.2d 849, where employer held to be estopped from denying collective bargaining agreement where he had operated under 

### itsterms for 15years.) Finally, the letters sentby HBC to the laborers and carpen

### ters unions withdrawing from the agreements are further and more conclusive evidence that HBC intended to be bound, under the terms of those agreements, until the agreements expired. Those letters inpertinentpart read as follows: "Gentlemen: "This 

### is to advise you that this firm has elected to withdraw from any Compliance Agreements to which it 

### is signator with your organization. "This election 

### is effective upon the expiration of the existing agreement or agreements, and this notice 

### is given pursuant to the withdrawal rightsgranted thereunder

# ."

All the above set out actions tend to show that HBC had knowledge of all the material facts and that it confirmed the agreements, thus, meeting thedefinitionof ratification from the Tindall case setout above. The fact thatHBC did not report any hours worked to the carpenters from July 1, 1975, toApril 30, 1977, or to the laborers from July 1, 1975 toApril 30, 1976, makes no difference. This

was made clear by the ninth circuit in the Todd case where they stated noncompliance under some circumstances may be sufficient torepudiate but 

### is not sufficientunder allcircumstances. 667 F.2d at804. Justasthe noncompliance therefellshort of repudiation, it also does so here, in light of all the abovediscussed circumstances showing ratification, especially the letters of withdrawal. Those letters made it 

### clear that HBCintended to abide by the terms of the agreements entered into with the two unions until they expired. For the foregoing reason, we believe that the District Court erred and the case willhave to be retried. As this case requires reversal and remand for retrial, we would like to clarify two points. First, we would like to briefly discuss the argument put forth by the Harvey's that the payroll records audited were those of ACE Construction and not HBC. This may be of 

### little significance if the two entities on retrial arefound tobe alter egos. This concept 

### is clearlydefined inJMTanaka Construction 

### v. NLRB (9th Cir. 1982), 675 F.2d 1029. The Tanaka court 

### set out the four factors to be used in determining if entities are alter egoswhere they stated: "In determining whether two businesses are alter egos, a court must consider the following factors: (1)centralized control of labor relations, (2) common management, (3) interrelation of operations, and (4) common ownership and financial control. Radio Union v. Broadcast Service, 380 U.S. 255, 256, 85 S.Ct. 876, 877, 13L.Ed.2d 789, (1965); NLRB v. Lantz, 607F.2d at295; NLRB 

### v. Don Burgess Construction Corp., 596 F.2d 378, 384 (9th Cir. 1979)." 675F.2d at1033. Allof these factors need not be present. JMTanaka Construction

v. NLRB, supra. The other point 

### is the argument that the agreements were orallylimited in scope to two construction projects. Thisargument cannot stand as 29 USC Section 186(c) (5) (B) requires the detailed basis on which payments 

### are to be made to the trust to be specified in a written agreement between the employer and employees. Thus, thebusiness agent and employer cannot setdown

an agreement inthe contract and thendepart from 

### itsessence and make the final agreement orally. To allow such oral modifications to stand would defeat the protections provided the trust beneficiaries by 29 USC 186(c)(5). Waggoner v. Dallaire (9th Cir. 1981),649 F.2d 1362. For the foregoing reasons, thiscase 

### is reversed and remanded

### for further proceedings to be 

### nion.

We

### concur: