NO. 82-373 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1983 

AUDIT SERVICES, INC., 

a Nontana Corporation, 

Plaintiff and Appellant, 

HARVEY BROS. CONSTRUCTION, a 

Montana Corporation, 

Defendant and ~es~ond6rk. 

Appeal from: District Court of the Fifth Judicial District, 

In and for the County of Beaverhead 

Honorable Frank Blair, Judge presid-ina. 

Counsel of P.ecord: 

For Appellant: 

Cure & Borer, Great Falls, Montana 

For Respondent: 

Christine C. Parker, Dillon, Montana 

Submitted on briefs- April 15, 1983 

Decided June 30, 1983 

Filed: JUN 3 0 1983 

Clerk 
Mr. Justice L. C. Gulbrandson delivered the Opinion of the Court. 

This appeal stems from the judgment of the District Court of 

the Fifth Judicial District, Beaverhead County, which declared 

the compliance 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concluded that they could be rescinded.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 trial was held on 

April 20, 1982, after which the court held in favor 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 the years. 

In 1975, 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 agreements were 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 ref used to pay these delinquencies, along with other 

penalties, interest and costs due under the agreements when 

billed. The unions thereafter assigned their claims to plaintiff 

who then commenced this action. 

Defendant, by amendment to the answer, alleged that the 
agreements 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 the payments. 

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 all the persons, wages and hours appearing on the audit also appeared on the 

quarterly report dealing with unemployment contributions, filed 

with the Employment Securities Division of the State of Montana 

under the name of Harvey Brothers Construction. He further 

stated that some of his information was 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 there any credible evidence to support the findings of 

fact and conclusions of law upon which the District Court based 

its judgment? 

2. Regardless of the evidentiary foundation for the 

judgment, is it consistent with the governing principles of 

federal labor law by which this case 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 falls under section 301(a) of the 

Labor Management Relations Act (29 USC 185(a)), it should be 

noted that the state courts have concurrent jurisdiction 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), 163 Mont. 100, 515 P.2d 677, 678. However, in exercising 

that jurisdiction, the state courts must apply federal 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 the District Court's judgment. 

The federal law on this point is most cogently set out by the 

ninth circuit court of appeals in Todd v. McNef f (9th Cir. 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 industry where it stated: 

"The labor contract in this case is one under 

Section 8(f) of the National Labor Relations 

Act (29 U.S.C. S 158[£]). This section 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, construction workers frequently change employers. Due 

to this, Congress has seen fit to allow socalled 'pre-hire' agreements in that industry. 

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 allow the 

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 at 801, 802. 

The Todd court went on to state that as a matter of policy 

and based on the United States Supreme Court's mandate in NLRB v. 

Local No. 103, Iron Workers (Higdon Construction Co.) (19781, 434 

U.S. 335, 98 S.Ct. 651, 54 L.Ed.2d 586, that section 8(f) (29 USC 

158(f)) contracts "are voidable by the employer until the union 
attains majority support." However, they also made it clear that 

such contracts are enforceable under section 301, LMRA (29 USC 

185(a) ) until the employer repudiates them. Todd v. McNef f, 667 

F.2d at 803, 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 at 804. 

Here we see no evidence of repudiation. As a matter of fact 

if HBC did anything, it ratified these agreements with the carpenters and laborers. We have previously defined ratification in 

Audit Services, Inc. v. Francis Tindall 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, 186 P. 337, 340." 600 P.2d at 813. 

We went on in Tindall to state that "[ilt is the manifestation of 

the ratifying party which controls. The respondent's outward 

expressions and actions judge of his intention . . . " 600 P.2d 

at 813. HBC's outward expressions and actions clearly show 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 as well as a previous one which covered from 1973 to July 1, 1975, shows that HBC 

voluntarily contributed thousands of dollars to the respective 

trusts between 1973 and 1975. These contributions were made in 

spite of the Harvey's claims that they were coerced into entering 

the agreements by threats of violence and the threat of being 

picketed. Such voluntary payments over a period of time with no 

efforts to rescind have been held to result in ratification of 

collective bargaining agreements. Audit Services v. Francis 

Tindall Construction, supra. (See also Pio v. ~e1l.y (1976), 275 
Or. 585, 552 P.2d 1301, where it was stated: 

". . . that an employer who has made 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 at 1306, 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 its terms for 15 years.) 

Finally, the letters sent by HBC to the laborers and carpenters 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 in pertinent part 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 rights granted 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 the definition of ratification from the 

Tindall case set out above. 

The fact that HBC did not report any hours worked to the carpenters from July 1, 1975, to April 30, 1977, or to the laborers 

from July 1, 1975 to April 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 

to repudiate but is not sufficient under all circumstances. 667 

F.2d at 804. Just as the noncompliance there fell short 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 HBC 
intended 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 will have 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 are found to be alter egos. 

This concept is clearly defined in JM Tanaka 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 

egos where 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, 13 L.Ed.2d 789, (1965); NLRB 

v. Lantz, 607 F.2d at 295; NLRB v. Don Burgess 

Construction Corp., 596 F.2d 378, 384 (9th 

Cir. 1979)." 675 F.2d at 1033. 

All of these factors need not be present. JM Tanaka Construction 

v. NLRB, supra. 

The other point is the argument that the agreements were 

orally limited in scope to two construction projects. This argument 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, the business agent and employer cannot set down 

an agreement in the contract and then depart from its essence 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, this case is reversed and remanded 
for further proceedings to be 

nion. 

We concur: