Opinion ID: 772433
Heading Depth: 2
Heading Rank: 1

Heading: July 31, 1994 to March 31, 1997

Text: 18 The Trustees' theory of recovery for the period from July 31, 1994 to March 31, 1997 is based on a provision--termed by the parties the Traveling Clause--in the 669 Agreement, the NFSA-negotiated agreement with Local 669 of New York which was entered into while Fairfield was still a NFSA member. The Traveling Clause provides in pertinent part: 19 [Art. 6]: This Agreement applies to the United States... except in the present territory covered by the local agreement[] in... Connecticut-676. It is agreed that the contractor members who are subscribers to this Agreement shall, when performing work within the jurisdiction of any other Sprinkler Fitters Local Union, adhere to and be bound by the terms and conditions of the Collective Bargaining Agreement negotiated by [NFSA] with these other Sprinkler Fitters Local Unions. 20 The Trustees contend that the Traveling Clause's effect is to obligate Fairfield to adhere to the terms of the Second 676 Agreement whenever Fairfield operates in Connecticut, even though Fairfield was not a contracting party to the Second 676 Agreement. 21 Relying on this conception of the Traveling Clause, the Trustees argue that the Funds are entitled to recover against Fairfield under ERISA § 515 for violation of the Second 676 Agreement's requirement that employers operating in Connecticut contribute to the Funds. The district court agreed with the Trustees and granted summary judgment in their favor. 22 On appeal, Fairfield argues the district court erred because § 302(a) of the LMRA, 29 U.S.C. § 186(a), prohibits it from contributing to the Funds for the period after July 31, 1994. 2 Setting aside our considerable doubts as to the merits of the Trustees' novel theory of recovery--including whether it even presents an actionable theory of recovery under ERISA § 515 since Fairfield was not a party to the Second 676 Agreement--we agree with Fairfield that § 302(a) of the LMRA precludes contributions after July 31, 1994. 23 Section 302(a) of the LMRA makes it unlawful as a general matter for employers to provide payments to union affiliated representatives and entities, including union established ERISA funds, beyond narrowly prescribed exceptions set out in § 302(c). See 29 U.S.C. §§ 186(a), 186(c); see also Local 144 Nursing Home Pension Fund v. Demisay, 508 U.S. 581, 588 (1993) (Section 302 restricts payments to labor union trust funds). As we noted in Moglia v. Geoghegan, 403 F.2d 110 (2d Cir. 1968): 24 The reason for the rigid structure of Section 302 is to insure that employer contributions are only for a proper purpose and to insure that the benefits from the established fund reach only the proper parties. Any erosion of the strict requirements of this section could provide an unintended loophole for the unscrupulous, and could result in a diversion of funds away from the proper parties as had occurred before Section 302 was enacted. 25 Id. 116 (internal citation omitted). 26 Hence, recovery by the Funds is precluded by § 302(a) unless one of the statutory exceptions provided by § 302(c) applies. 3 Recognizing this, the Trustees identify the § 302(c)(5) exception and contend it applies to permit recovery by the Funds for the period after July 31, 1994. We disagree. 4 27 Section 302(c)(5) operates to permit employer payments to union trust funds, excepting them from the prohibition of § 302(a), if, among other conditions: 28 1. the detailed basis on which such payments are to be made is specified in a written agreement with the employer; 29 U.S.C. § 186(c)(5)(B), and 29 2. such payments are held in trust for the purpose of paying... for the benefit of [the] employees, their families and dependents, for medical or hospital care, pensions on retirement or death of employees, compensation for injuries or illness resulting from occupational activity or insurance to provide any of the foregoing, or unemployment benefits or life insurance, disability and sickness insurance, or accident insurance[.] 29 U.S.C. § 186(c)(5)(A). 30 Strict compliance with these conditions is required. 5 See, e.g., Bricklayers, Masons and Plasterers Inter. v. Stuart Plastering Co., 512 F.2d 1017, 1024-25 (5th Cir. 1975). 31 The Trustees' theory of recovery for the period after July 31, 1994, however, fails to satisfy these conditions, thereby precluding application of the § 302(c) exception to salvage the Trustees' claim. First, there is no written agreement with the employer that specifies the detailed basis on which such payments are to be made. The 669 Agreement itself, the only written agreement with Fairfield that the Trustees identify, does not set out the detailed basis for making contributions on behalf of Fairfield's Connecticut employees. Nor is the written agreement requirement satisfied by the 669 Agreement's purported incorporation (through its Traveling Clause) of the contributions established in the Second 676 Agreement. See Moglia, 403 F.2d at 117 (The statutory requirement of a written agreement is not a minor technicality which may be dispensed with.... A written agreement is necessary before payments may be made under the section.). It is a settled principle of federal labor law that an instrument may incorporate by reference only the terms of an instrument already in existence. Stuart Plastering Co., 512 F.2d at 1029; see, e.g., Bd. of Tr. of the United Food & Commercial Workers, Local 26 v. Allied Provision Co., Civ. No. 88-3344, 1989 WL 135557, at  (E.D. Mich. March 31, 1989) (same); Local 1316, Int'l Bhd. of Elec. Workers v. Superior Contractors and Assocs., Inc., 608 F. Supp. 1246, 1249-50 (N.D. Ga. 1985) (same); see also T. Bart Gary, Incorporation by Reference and Flow-Down Clauses, 10-Aug Constr. 1, at  (ABA Aug. 1990). The Second 676 Agreement was not in existence at the time the 669 Agreement was executed. Accordingly, the contribution obligations set out in the Second 676 Agreement are not incorporated into the 669 Agreement, and thus cannot serve as a basis for § 302(c)(5)'s required writing. 6 32 A further fatal defect with the Trustees' attempt to rely on § 302(c)(5) to compel contribution under the 669 Agreement is that any contributions made would not be for the purpose of paying... for the benefit of [Fairfield's] employees, their families and dependents[.] 29 U.S.C. § 186(c)(5)(A). By its express terms, § 302(c)(5) only applies where the payments in question are made to ERISA trust funds established for the sole and exclusive benefit of the employees of such employer and their families and dependents and where the payments are for the benefit of the employer's employees. 29 U.S.C. §§ 302(c)(5), 302(c)(5)(A); see also E.A. Walsh v. Schlecht, 429 U.S. 401, 407 (1977) (payments must be made on behalf of or for the benefit of the employer's employees); Todd v. Benal Concrete Constr. Co., 710 F.2d 581, 583 (9th Cir. 1983). None of Fairfield's employees for the period in question were union members. Absent union membership, none were (or will be in the future) entitled to the health and pension benefits provided through the union Funds. Application of the § 302(c)(5) exception is therefore precluded. 33 In light of the inapplicability of the § 302(c)(5) exception, § 302(a) operates to prohibit recovery by the Funds through the 669 Agreement's Traveling Clause for the period after July 31, 1994. 7 Cf. Maxwell v. Lucky Constr. Co., 710 F.2d 1395, 1397-98 (9th Cir. 1983).