Source: https://law.justia.com/cases/federal/appellate-courts/F2/870/1148/311898/
Timestamp: 2019-08-20 03:20:08
Document Index: 307086173

Matched Legal Cases: ['§ 1145', '§ 1132', '§ 1052', '§ 186', '§ 1132', '§ 1102']

Central States, Southeast and Southwest Areas Pension Fund,a Pension Trust, et al., Plaintiffs-appellants, v. Gerber Truck Service, Inc., Defendant-appellee, 870 F.2d 1148 (7th Cir. 1989) :: Justia
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Central States, Southeast and Southwest Areas Pension Fund,a Pension Trust, et al., Plaintiffs-appellants, v. Gerber Truck Service, Inc., Defendant-appellee, 870 F.2d 1148 (7th Cir. 1989)
US Court of Appeals for the Seventh Circuit - 870 F.2d 1148 (7th Cir. 1989)
Argued Feb. 18, 1988. Decided Aug. 25, 1988. Reargued En Banc Feb. 9, 1989. Decided March 17, 1989
We took this case en banc to decide whether, when an employer and union submit to a pension fund documents promising to make contributions on behalf of all employees, understandings and practices that would prevent enforcement of the writings between employer and union also defeat the fund's claims. The answer depends on Sec. 515 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1145, which provides:
This means, we conclude, that a plan may enforce the writings according to their terms, if "not inconsistent with law". The pension or welfare fund is like a holder in due course in commercial law, see Bonded Financial Services v. European American Bank, 838 F.2d 890, 892-93 (7th Cir. 1988), or like the receiver of a failed bank, see Langley v. FDIC, 484 U.S. 86, 108 S. Ct. 396, 98 L. Ed. 2d 340 (1987)--entitled to enforce the writing without regard to understandings or defenses applicable to the original parties. In so concluding, we follow our own opinion in Robbins v. Lynch, 836 F.2d 330 (7th Cir. 1988), and the unanimous view of the other courts of appeals.1
Gerber and Gonzales signed the National Master Freight Agreement and its Central States Area Local Cartage Supplemental Agreement, which required Gerber to make pension and welfare contributions on behalf of "all truckdrivers, helpers, dockmen, warehousemen, checkers, powerlift operators, hostlers, and such other employees as may be presently or hereafter represented by the Union". Because "representation" in labor law encompasses all bargaining-unit employees, this pledge reached well beyond the three who were members of the union. Wallace Corp. v. NLRB, 323 U.S. 248, 255-56, 65 S. Ct. 238, 242, 89 L. Ed. 216 (1944); Emporium Capwell Co. v. Western Addition Community Organization, 420 U.S. 50, 61-65, 95 S. Ct. 977, 984-86, 43 L. Ed. 2d 12 (1975). Gerber and Gonzales signed a separate "Participation Agreement" requiring Gerber to contribute fixed sums per week to the pension and welfare plans on behalf of all "DRIVERS represented by the Union". "Drivers" was typed into a blank in a pre-printed form. The district court found after a bench trial that
This caught the attention of the plans, which audited Gerber Truck's books. The plans discovered that Gerber Truck had drivers in addition to the Fat's Three and workers with other duties, a total of 18 additional employees apparently covered by the collective bargaining agreement. They opened pension and welfare accounts on behalf of the other employees, giving them credit for covered employment; the plans also demanded that Gerber Truck make contributions on behalf of these employees from February 1, 1981, when Gerber signed the documents, through March 31, 1985, the first contract anniversary after the written notice of cancellation. Gerber Truck refused, and this litigation followed. 29 U.S.C. § 1132(e) (1).
The pension and welfare plans are not parties to the collective bargaining and participation agreements. Third-party beneficiaries usually take contracts as they find them. They get no more than the signatories provided, and if there is a flaw in the formation of the contract the third-party beneficiaries get nothing. See Restatement (Second) of Contracts Sec. 309(1) (1981), stating that a voidable contract may not be enforced by the intended beneficiary, and Sec. 309(3), stating that if the contract was properly formed "the right of any beneficiary against the promisor is not subject to the promisor's claims or defenses against the promisee". See also Restatement (Second) of Contracts Sec. 311 (1979), and Price v. Pierce, 823 F.2d 1114, 1119 (7th Cir. 1987), both pointing out how the presence of a third-party beneficiary can prevent modification of the contract, once it is properly formed.
Early in the history of multi-employer pension and welfare plans, the Supreme Court established that breach by the union would not relieve the employer of its obligation to make pension contributions. Lewis v. Benedict Coal Corp., 361 U.S. 459, 469-71, 80 S. Ct. 489, 495-96, 4 L. Ed. 2d 442 (1960). The Court observed that the trusts have independent obligations to workers, and that if one employer drops out on account of a union's misconduct (in Benedict, a strike), other employers must make up the difference, or the funds will default. Lewis did not address defenses to the formation of the contract, however, and employers continued to press them, putting plans to high costs of litigation and risk of failing to collect.
Congress added Sec. 515 to ERISA in 1980 to deal with these collection problems. Two cases in particular caught the eye of the sponsors: Washington Area Carpenters' Welfare Fund v. Overhead Door Co., 488 F. Supp. 816 (D.D.C. 1980), and Western Washington Laborers-Employers Health & Security Trust Fund v. McDowell, 103 L.R.R.M. 2219 (W.D. Wash. 1979). Each of the employers signed an agreement common in the construction business, promising to recognize the union and adhere to the collective bargaining agreement as soon as it had hired its complement of employees for the job. "Pre-hire" agreements avoid the need to negotiate separately for each project when the employer assembles a new labor force for each site, sometimes from day-to-day. The Supreme Court held in NLRB v. Bridge Workers, 434 U.S. 335, 98 S. Ct. 651, 54 L. Ed. 2d 586 (1978), that pre-hire agreements are valid only if a majority of those ultimately hired wish to be represented by the union. Employers predictably repudiated pre-hire agreements for many construction jobs and refused to make pension and welfare contributions. Overhead Door and McDowell held that because the union's failure to achieve majority status prevented the pre-hire agreement from coming into force, the employer was relieved of obligations to pension and welfare funds. As the court put it in Overhead Door, 488 F. Supp. at 819: "These cases [such as Lewis ] involved collateral defenses to enforcement of agreements. The defense in the instant case, on the other hand, concerns the validity of the very agreement that sought to establish a contractual relationship between Funds and Overhead." Overhead Door drew the same distinction as the Restatement (Second) of Contracts between defenses to formation, which cut off third-party beneficiaries' claims, Sec. 309(1), and defenses arising out of the course of performance, which do not, Sec. 309(3).
The text of Sec. 515 is adapted to its purpose, making promises enforceable "to the extent not inconsistent with law". If the contract provides for the commission of unlawful acts, it will not be enforced. Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 86-88, 102 S. Ct. 851, 861-62, 70 L. Ed. 2d 833 (1982). If the employer simply points to a defect in its formation--such as fraud in the inducement, oral promises to disregard the text, or the lack of majority support for the union and the consequent ineffectiveness of the pact under labor law--it must still keep its promise to the pension plans.
Anything less may well saddle the plans with unfunded obligations. The pension and welfare trusts involved in this case gave all of Gerber Truck's employees credit for years of service, even though Gerber Truck paid only for the Fat's Three. Pension plans believe that their obligations to employees stem from the terms of the participation agreements, and that employers' failure to fulfill their promises is irrelevant. The Department of Labor, which administers ERISA, has issued advisory opinions to this effect on the authority of Secs. 202-04 of ERISA, 29 U.S.C. §§ 1052-54. See Opinion 76-89 (Aug. 31, 1976), Opinion 78-28A (Dec. 5, 1978). Central States Pension Fund v. Central Transport, Inc., 472 U.S. 559, 567 n. 7, 105 S. Ct. 2833, 2838 n. 7, 86 L. Ed. 2d 447 (1985), refers to this position with apparent approval. (The question was not involved in Central Transport, however, so the status of these advisory opinions remains an open question.)
Whether or not the plans are obligated to Gerber Truck's workers, nothing in ERISA makes the obligation to contribute depend on the existence of a valid collective bargaining agreement; the repudiation of cases such as McDowell and Overhead Door shows the opposite. Section 515 interacts with a provision of the labor laws in a way that strengthens its effects. No employer may agree with a union to contribute to a pension plan without a "written agreement" under Sec. 302(c) (5) (B) of the National Labor Relations Act, 29 U.S.C. § 186(c) (5) (B). This need not be a formal collective bargaining agreement, Gariup v. Birchler Ceiling & Interior Co., 777 F.2d 370, 375 (7th Cir. 1985). Local 50 and Gerber signed and sent to the plans a participation agreement, separate from the collective bargaining agreement, in which Gerber promised to contribute on behalf of all of its drivers. Section 302(c) (5) (B), like Sec. 515, prevents a court from giving force to oral understandings between union and employer that contradict the writings. E.g., Mo-Kan Teamsters Pension Fund v. Creason, 716 F.2d 772, 777 (10th Cir. 1983); Waggoner v. Dallaire, 649 F.2d 1362, 1366 (9th Cir. 1981). So ERISA and NLRA work together rather than at cross purposes.
Gerber Truck asks us to give Sec. 515 the least possible scope because its arrangement with Local 50 so clearly negated the presence of a collective bargaining agreement. It implies that the pension plans would not bear high costs of litigation if they would recognize the obvious and desist from litigating. Costs always can be held down by accepting defeat in advance. But a legal system in which the Gerbers of the world can avoid their commitments creates opportunities for similar firms. One is obvious: write a broad contract and claim later that it "really" meant something else, if employees do not qualify for benefits. If they qualify, the employer pays; if not, it doesn't. This is strategic behavior, and sifting strategic from ingenuous conduct through the tools of litigation will be difficult (and time consuming, and expensive, and error-prone). Kemmis v. McGoldrick, 706 F.2d 993, 996 (9th Cir. 1983). Defenses based on fraud in the inducement, oral side agreement, course of performance, want of consideration, failure of the union to have majority support--the sort of defenses Gerber Truck's position would make available--are as a class the defenses most likely to breed litigation even when asserted in good faith, and they create manifold opportunities for manipulation by crafty operators.
Collective bargaining agreements may call for, say, an annual contribution of $2000 on behalf of each employee for medical coverage.2 The trust pays only if the employee needs care. Older employees need more care, on average. If employers can put only their oldsters, or those who actually need hospitalization, into the plan, the assumptions do not hold. A retirement plan is the same. A defined-benefit plan promises a specified benefit at retirement age after, say, 10 years of work. Computations underlying such a plan include two important assumptions: (a) many persons who work in the industry, and have contributions made on their behalfs, will never collect because they do not satisfy the vesting rule (they may quit or die before doing so); (b) many persons who qualify for pensions will work more than ten years. These two categories of workers fatten the pot and support the benefit levels. Gerber was trying to have only those who will qualify for pensions contribute to the fund. Yet without contributions on behalf of others, the plan's assumptions are unsound. Cf. Stinson v. Ironworkers District Council Benefit Trust, 869 F.2d 1014, 1016, 1021 -1022 (7th Cir. 1989).
Nothing depends on proof that a given plan will be unable to satisfy its obligations if a given employer avoids payment. Actuarial computations are the reason plans want to include or exclude bargaining units as groups, but this reason is the basis of a rule. A life insurance company may offer a plan for non-smokers only, computing its rates on the basis of actuarial tables applying to non-smokers. If a smoker should lie about his habit and enroll in the plan, a court could not permit him to stay--or to require the insurer to pay up--simply because he died in a plane crash rather than from lung cancer, or because payment of his claim would not bankrupt the plan. He would be booted out (or, if he had died, the insurer would be excused from payment) on the ground that he did not meet a contractual requirement of admission. Just why the insurer imposed this requirement would not be the measure of its entitlement to enforce its rules. Smith v. North American Co. for Life & Health Insurance, 775 F.2d 777 (7th Cir. 1985). So too with pension and welfare trusts. No matter why the plans have a rule of all-in-or-all-out, they have it, and an employer must play by the rules.
One final issue wraps up the case. The plans sought liquidated damages and attorneys' fees on the authority of Sec. 502(g) (2) of ERISA, 29 U.S.C. § 1132(g) (2). Although the district court awarded the plans their attorneys' fees, it declined to impose liquidated damages or other penalties because it found that there was a legitimate dispute about the extent of Gerber Truck's obligations. This is not the legal standard established by Sec. 502(g) (2), however. Awards of liquidated damages are "mandatory in an action in which judgment in favor of the plan is awarded." Gilles v. Burton Construction Co., 736 F.2d 1142, 1144 (7th Cir. 1984). Liquidated damages compensate the plans for delay and give employers an incentive to be forthcoming with payments. The structure of the multi-employer amendments of 1980, of which Sec. 502(g) (2) is a part, is pay-now-argue-later. Even on the district court's view of the case, the pension and welfare trusts were prevailing parties. The district court must add the penalties provided by Sec. 502(g) (2) to whatever sums it ultimately awards to the plans as past-due contributions.
The majority opinion is long on legal, economic and actuarial theory and short on facts and a sense of proportion. This case was originally heard by a unanimous panel that required Mr. Gerber to make contributions through the end of March 31, 1985, and to pay liquidated damages and attorneys' fees (as reiterated in Part II of the majority en banc opinion), but confined the required contributions to those on behalf of the "Fat's Three." The panel, however, required Gerber, in order to escape the broader liability now imposed by the en banc court, to prove to the district court that "no employee (other than the Fat's Three) has a colorable potential claim to benefits from the [pension and welfare] Funds and that no employee has ever had a reasonable basis for believing himself entitled to make such a claim." Only if Gerber could make such a difficult and demanding showing, would the panel relieve him of the broader obligations purportedly owed on behalf of the other employees pursuant to the written documents. I rely principally on the panel opinion, 854 F.2d 1074 (7th Cir. 1988), as furnishing an alternative--and fairer--solution of this difficult problem. I note that the conditions imposed by the panel opinion are so rigorous and virtually impossible of fulfillment in the general case that it is hardly a precedent for the chicanery the majority purports to foresee.
I take no issue with the broad purposes of ERISA as described in the majority opinion nor in the need to achieve a match between the contributions to, and the liabilities of, pension and welfare funds. Judge Easterbrook's excellent opinion in Robbins v. Lynch, 836 F.2d 330 (7th Cir. 1988), was cited and quoted at length in the original panel opinion as an authoritative statement of general principles. But all rules must admit of equitable exception and modification in appropriate cases lest the tyranny of theory over reality bring about obnoxious results. Whatever asymmetries there may be in the funding of pension and welfare plans, it was likely that under the panel opinion, where Gerber had to make contributions plus liquidated damages through March 1985, the Plans were more than fully funded with respect to their liabilities for the Fat's Three. To require contributions for all the other employees, who have no corresponding claim for any benefits, is to present the Funds with a fat windfall. Gerber bought health insurance for his other employees from another source which presumably has already covered their health needs. And these other employees can hardly claim pensions they knew neither Gerber nor the union intended to provide them.2
I am of the view that Judge Cudahy had it right in his opinion writing for the original panel, 854 F.2d 1074 (7th Cir. 1988). I therefore concur with the majority en banc opinion insofar as it assesses liability against Gerber for the "Fat's Three" and dissent as to the broader liability which may be imposed for additional Gerber employees without the opportunity for an equitable exception.
E.g., Bituminous Coal Operators' Association, Inc. v. Connors, 867 F.2d 625, 636 (D.C. Cir. 1989), ("Section 515 ends our inquiry with a determination of what is required by the written terms of the Agreement.... [T]he bargaining history ... is irrelevant" and discovery of such information is therefore unavailable); Abbate v. Browning-Ferris Industries, Inc., 767 F.2d 52, 56 (3d Cir. 1985); Teamster's Local 348 Health and Welfare Fund v. Kohn Beverage Co., 749 F.2d 315 (6th Cir. 1984); Kemmis v. McGoldrick, 706 F.2d 993 (9th Cir. 1983); Maxwell v. Lucky Construction Co., 710 F.2d 1395 (9th Cir. 1983) (employer must make full contributions promised in agreement even though employer had paid, and could not recoup, an identical sum to another pension plan based on an oral agreement with union, and employees would get their benefits from that other plan); Operating Engineers Pension Trust v. Beck Engineering & Surveying Co., 746 F.2d 557 (9th Cir. 1984) (same as Maxwell) ; Operating Engineers Pension Trust v. Giorgi, 788 F.2d 620 (9th Cir. 1986) (fund entitled to full contribution promised outside of a collective bargaining agreement even though employer was required to, and did, make identical payments to another fund); Southwest Administrators, Inc. v. Rozay's Transfer, 791 F.2d 769 (9th Cir. 1986) (employer must pay even if the agreement was induced by fraud); Pierce County Hotel Employees Health Trust v. Elks Lodge, 827 F.2d 1324 (9th Cir. 1987); Straub v. Western Union Telegraph Co., 851 F.2d 1262 (10th Cir. 1988) (ERISA preempts state laws that would permit oral modifications); Mo-Kan Teamsters Pension Fund v. Creason, 716 F.2d 772, 777 (10th Cir. 1983); Trustees v. Pump House, Inc., 821 F.2d 566 (11th Cir. 1987) (employer must pay even if the agreement was induced by fraud); Nachwalter v. Christie, 805 F.2d 956, 960 (11th Cir. 1986) (oral modifications are forbidden by ERISA, 29 U.S.C. § 1102(a) (1))