Opinion ID: 184437
Heading Depth: 3
Heading Rank: 1

Heading: Costs of the Routine Audit

Text: The Trust Agreement establishing the Health and WelfareFund contains a provision entitled Default and Paymentwhich provides that, in the event of failure to pay suchmonthly contributions in full within the time above provided, any person in default may be required at the discretion of the Trustees to pay as liquidated damages such amounts as the Trustees may determine, including interest up to the maximum permitted by law, together with all expenses of collection incurred by the Trustees, including, but not limited to reasonable counsel fees, auditing fees, and court costs, and any other lawful charges for late payment as the Trustees may determine. The Trust Agreement establishing the Legal Services Fundcontains a provision that is, for our purposes, identical (itcontains minor differences of wording). Because the twoprovisions are equivalent, we will refer to them together asthe Default and Payment Clause. ERISA requires that [e]very employer who is obliged tomake contributions to a multiemployer plan ... make suchcontributions in accordance with the terms and conditions ofsuch plan ..., 29 U.S.C. s 1145 (1994), and permits Planfiduciaries to bring suit to enforce ... the terms of theplan. 29 U.S.C. s 1132(a)(3) (1994). Thus, if the Defaultand Payment Clause requires employers who are in default topay routine auditing fees, ERISA empowers the Trustees toenforce that requirement. See Iron Workers District Councilv. Hudson Steel Fabricators & Erectors, Inc., 68 F.3d 1502,1507 (2d Cir. 1995). The district court concluded that the Default and Payment Clause did not include such a requirement, and hence declined to award routine auditing fees. We review questions of the proper interpretation of ERISAplans de novo. See Carey Canada, Inc. v. Columbia Cas. Co.,940 F.2d 1548, 1554 (D.C. Cir. 1991). The Trustees point tothe Default and Payment Clause's statement that they maycollect all expenses of collection incurred by the Trustees,including, but not limited to reasonable counsel fees, auditingfees, and court costs, and argue that this allows them tocollect all auditing fees, including the costs of the routineaudit that discovered an underpayment. We do not think so. This passage only permits the Trustees to recoup thoseauditing fees that qualify as expenses of collection. Anexpense of collection, as that phrase is usually understood,is an expense that results from collection efforts. The Trustees have pointed to no evidence that this phrase meanssomething different here. The fact that the Default andPayment Clause also lists reasonable counsel fees andcourt costs as types of expenses of collection confirms ourreading; both are costs that are only incurred as a result ofcollection efforts. (This is an application of ejusdem generis,the canon of construction that states that a general statutoryterm should be understood in light of the specific terms thatsurround it. Hughey v. United States, 495 U.S. 411, 419(1990).) This is not to say that auditing fees may never qualify asexpenses of collection. Fees for non-routine follow-up audits performed as a part of the collection process are clearlyincluded in the term. An audit that began as routine mightalso abruptly change its stripes and become a non-routineaudit, if auditors discovered inconsistencies during their workand did extra work to untangle them. Because such detectivework would be motivated by the desire to collect an underpayment, rather than by the need to perform a routine audit,it could fairly be called an expense of collection. There isno allegation of this kind here, however; the Trustees' auditof JPR seems to have cost no more than would a routine audit of any other employer.3 The Fifth Circuit has construed a similar plan provision-- which also allowed the Trustees to recover all expenses ofcollection--to allow reimbursement of routine audit fees. See Carpenters Amended and Restated Health Benefit Fundv. Ryan Constr. Co., 767 F.2d 1170, 1175 (5th Cir. 1985). Ryan found that the costs of the routine audit were expenses of collection because an audit is a necessary firststep in collection of any delinquency. Id. at 1175-76. Webelieve the reasoning of Ryan proves too much. By Ryan 'slogic, the Trustees should also be able to put in for a host ofother expenses that are necessary to the initiation of collection efforts, i.e., the cost of their own salaries, as collectionefforts are impossible without effective supervision of theauditors and of the Funds' finances. The test is not whetheran expenditure is a necessary precondition to collection efforts, but rather the reverse, whether collection effortsprompted the expenditure.4