Court Opinion

ID: 4199642
Source: CourtListenerOpinion
Date Created: 2017-08-29 15:01:10.537299+00
Date Added: 2024-06-11T07:47:32.475063
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 16-1791
                        ___________________________

                 Twin City Pipe Trades Service Association, Inc.,

                        lllllllllllllllllllll Plaintiff - Appellee,

                                            v.

  Wenner Quality Services, Inc., a Minnesota corporation, doing business as Mr.
                         Rooter of South Central MN,

                      lllllllllllllllllllll Defendant - Appellant.
                                       ____________

                     Appeal from United States District Court
                    for the District of Minnesota - Minneapolis
                                   ____________

                               Submitted: May 9, 2017
                               Filed: August 29, 2017
                                   ____________

Before SMITH, Chief Judge, COLLOTON and KELLY, Circuit Judges.
                              ____________

COLLOTON, Circuit Judge.

        Twin City Pipe Trades Service Association is attempting to recover unpaid
fringe-benefit contributions allegedly due under a collective bargaining agreement.
The district court granted summary judgment for the Association on the ground that
Wenner Quality Services, Inc., was precluded by a previous lawsuit from disputing
liability for the contributions as an alter ego of a signatory of the agreement. The
court then awarded damages and injunctive relief to the Association. We agree that
the Association was entitled to judgment on liability, but we conclude that the court
erred in awarding certain damages to the Association. Accordingly, we affirm in part
and reverse in part.

                                         I.

       In 2004, Shawn and Sara Wenner purchased Mankato Plumbing & Heating,
Inc. The Wenners were Mankato Plumbing’s only shareholders. Mankato Plumbing
was party to a collective bargaining agreement with two local unions for plumbers
and pipefitters. In 2006, the Wenners purchased a Mr. Rooter franchise and signed
the franchise agreement individually as the designated franchisees. They operated the
franchise using Mankato Plumbing’s facility, employees, and equipment, while
Mankato Plumbing paid fringe-benefit contributions pursuant to the CBA on behalf
of Mr. Rooter.

       In 2010, the Wenners reorganized their businesses. At the end of January,
Mankato Plumbing ceased operations, and the Wenners formed S&S Thermo
Dynamics, Inc., to take over the commercial plumbing operations. Around that same
time, the Wenners formed Wenner Quality Services, Inc., (WQS) to provide
residential plumbing services. Shawn wrote to the unions that Mankato Plumbing
was ceasing operations, but that S&S would assume Mankato Plumbing’s
responsibility under the CBA. In a separate letter, Shawn informed the unions that
Mr. Rooter would be discontinuing its operations; in fact, however, WQS continued
to use the Mr. Rooter name in its residential plumbing operations.

       In 2011, the Association, which served as a trustee responsible for collecting
the fringe-benefit contributions due under the CBA, discovered that Mr. Rooter was
still operating. It sued S&S, Mankato Plumbing, and Shawn Wenner under the
Employee Retirement Income Security Act, 29 U.S.C. §§ 1132, 1145, alleging that

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they had failed to pay fringe-benefit contributions arising from work performed for
Mr. Rooter from February 2010 onward. The Association did not sue WQS in the
S&S Litigation, because it was not aware of WQS until Shawn Wenner disclosed that
entity’s existence after the deadline to amend pleadings had passed.

       The defendants in the S&S Litigation moved for summary judgment, and the
district court held a hearing. The court granted summary judgment for Mankato
Plumbing, because Mankato Plumbing was no longer doing business, and there was
no claim that the entity failed to make contributions before it ceased operations in
January 2010. The court, however, denied S&S’s motion for summary judgment and
effectively granted summary judgment for the Association on the issue of liability.
The court concluded that S&S, as the successor signatory to the CBA, and WQS, as
Mr. Rooter’s operator, were alter egos of one another. In other words, the court
determined that the companies were independent of each other in form only, and that
they were used as a subterfuge to justify wrongdoing. On that basis, the court held
S&S liable for the past-due contributions on behalf of Mr. Rooter.

        In a subsequent order, the district court clarified that “[h]aving resolved the
liability issue in favor of [the Association], . . . the only outstanding issue before the
Court is the amount of damages owed to [the Association].” The court never made
an award of damages, however, because S&S and Shawn Wenner filed for
bankruptcy, and the case was administratively terminated.

       In 2014, the Association brought this action under ERISA against WQS and
Sara Wenner. The complaint sought the same unpaid fringe-benefit contributions that
the Association pursued in the S&S Litigation, plus injunctive relief. The district
court dismissed Sara Wenner pursuant to a stipulation after she filed for bankruptcy.
On cross-motions for summary judgment, the district court then determined that issue
preclusion prevented WQS from disputing its liability as an alter ego of S&S.

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       The court awarded the Association unpaid fringe-benefit contributions, interest,
and attorney’s fees and costs, but denied its request for liquidated damages. The
court also enjoined WQS from refusing to submit monthly fringe-benefit
contributions to the Association for Mr. Rooter employees or other covered
employees for so long as WQS has a contribution obligation. The court ordered WQS
to post a bond of $18,000 “as a security for three months’ future contributions.” The
court later issued an order amending its judgment, clarifying its previous judgment
and stating more broadly that WQS was enjoined from failing to comply with its
obligations under the CBA. The injunction forbade WQS from refusing to submit
monthly reports of hours worked by Mr. Rooter employees or other covered
employees, and refusing to submit monthly fringe-benefit contributions for so long
as WQS has a contribution obligation.

                                          II.

       WQS argues on appeal that the district court erred by applying offensive
collateral estoppel on the issue of alter ego liability. The general rule on issue
preclusion, also known as collateral estoppel, is that “[w]hen an issue of fact or law
is actually litigated and determined by a valid and final judgment, and the
determination is essential to the judgment, the determination is conclusive in a
subsequent action between the parties, whether on the same or a different claim.”
B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 1303 (2015) (alteration
in original) (quoting Restatement (Second) of Judgments § 27 (1982)). A court
should not, however, apply offensive collateral estoppel when it would be unfair to
a defendant. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331 (1979).

       Two elements of issue preclusion are undisputed: WQS does not dispute that
the issue of alter ego liability is the same in both cases or that the alter ego
determination was essential to the prior judgment. A third element is identity of the
parties. Although WQS was not a party in the S&S Litigation, issue preclusion can

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apply “when it can be said that there is ‘privity’ between a party to the second case
and a party who is bound by an earlier judgment.” Richards v. Jefferson County, 517
U.S. 793, 798 (1996). A closely held corporation is in privity with its shareholder,
see Restatement (Second) of Judgments § 59(3)(b) & cmt. e (1982), and WQS
conceded at oral argument that it is in privity with Shawn Wenner, who was a party
in the S&S Litigation. Shawn Wenner, in turn, was also in privity with S&S, another
party in the first case. As such, WQS can be bound by the prior judgment.

       But WQS disputes a fourth element. The company argues that there was no
valid and final judgment in the S&S Litigation, because the court never awarded
damages and entered a final judgment. Issue preclusion, however, has been applied
“to matters resolved by preliminary rulings or to determinations of liability that have
not yet been completed by an award of damages or other relief.” In re Nangle, 274
F.3d 481, 485 (8th Cir. 2001) (internal quotations omitted) (quoting 18 Charles Alan
Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and Procedure
§ 4434 (1981)). “[F]inality for purpose[s] of appeal under [28 U.S.C. § 1291] is not
necessarily the finality that is required for issue preclusion purposes.” John Morrell
& Co. v. Local Union 304A of United Food & Commercial Workers, 913 F.2d 544,
563 (8th Cir. 1990). Quoting Judge Friendly, this court observed that “[f]inality in
the context [of issue preclusion] may mean little more than that the litigation of a
particular issue has reached such a stage that a court sees no really good reason for
permitting it to be litigated again.” Id. (alterations in original) (quoting Lummus Co.
v. Commonwealth Oil Ref. Co., 297 F.2d 80, 89 (2d Cir. 1961)).

       We conclude that the district court’s orders regarding its alter ego
determination in the S&S Litigation constitute a valid and final judgment for
purposes of issue preclusion. The court in the first case gave the parties ample
opportunity to be heard on alter ego liability. Following briefing and a hearing, the
court concluded that S&S and WQS were alter egos, and the court filed a reasoned
order that explained the determination. Although the amount of damages remained

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unresolved, there was no reason to believe that the court’s judgment on liability was
“tentative or likely to be changed.” In re Nangle, 274 F.3d at 485.

       WQS complains that Shawn Wenner and S&S had no opportunity to appeal in
the S&S Litigation, but the unavailability of appellate review does not by itself make
issue preclusion inappropriate. In re Nangle, 274 F.3d at 485; see Johnson Steel St.
Rail Co. v. William Wharton, Jr., & Co., 152 U.S. 252, 261 (1894). It is “merely one
factor to consider in determining whether issue preclusion applies.” John Morrell &
Co., 913 F.2d at 563. Here, the inability of Shawn Wenner and S&S to appeal in the
S&S Litigation was a product of their own making: They voluntarily filed for
bankruptcy, thus triggering an automatic stay and leading the case to be
administratively terminated. Under these circumstances, the absence of appellate
review in the first case did not require the court to allow relitigation of the alter ego
determination. Cf. Greenleaf v. Garlock, Inc., 174 F.3d 352, 360-61 (3d Cir. 1999).

       WQS argues that aside from the traditional elements, issue preclusion is
inapplicable when the underlying legal issue involves an alter ego determination. In
Crest Tankers, Inc. v. National Maritime Union of America, 796 F.2d 234 (8th Cir.
1986), this court concluded that collateral estoppel on a determination of alter ego
status was inappropriate. In that case, the second court faced a dispute about whether
there was privity between the party who lost in the first case and the parties against
whom preclusion was asserted on alter ego liability in the second. This court
observed that “the procedural issue of privity is, in essence, also the substantive issue
to which [the defendant] would apply collateral estoppel: Are these entities so
closely allied as to be considered the same?” Id. at 239. Because of “[t]he circularity
involved in answering this question,” the court declined to apply collateral estoppel.
Id.

       This case does not raise the same problem of circularity. WQS is indisputably
in privity with Shawn Wenner, a party in the first case, because Shawn Wenner is one

                                          -6-
of the two shareholders of WQS. See In re Gottheiner, 703 F.2d 1136, 1139-40 (9th
Cir. 1983); Restatement (Second) of Judgments § 59(3)(b) & cmt. e. For the same
reason, Shawn Wenner is in privity with S&S. S&S contested alter ego liability in
the first case, and Shawn Wenner had every incentive to do so, either on his own or
as the president and majority shareholder of S&S. The determination that WQS was
in privity with a party in the first case is therefore separate from the determination
whether S&S and WQS are alter egos of one another.

      For these reasons, we conclude that all of the elements required to apply issue
preclusion are present here. WQS does not raise any additional fairness
considerations that would preclude application of the doctrine in this circumstance.
We therefore affirm the district court’s determination that WQS is liable for the
unpaid fringe-benefit contributions due from Mr. Rooter.

                                         III.

       WQS next argues that the district court erred in granting certain damages and
relief to the Association. We conclude that the Association has a right to collect
contributions under the CBA, but that two categories of damages were not authorized
by ERISA and that the award should be reduced accordingly. We also uphold the
district court’s grant of injunctive relief.

                                         A.

       WQS first argues that the Association had no right to collect certain benefits
under the CBA, so it lacks Article III standing to bring certain claims. This is not
really an argument about standing: the Association was injured by not receiving the
contributions, the injury was caused by WQS’s non-payment, and an award of

                                         -7-
damages would remedy the injury. WQS is actually pressing an argument on the
merits—i.e., that the Association has no right to the contributions.

       The CBA provides for the collection of ten categories of contributions, and six
are in dispute: Credit Union, Working Fee Fund, TCPT Pension, Pension
Supplement, International Training Fund, and Industry Fund benefits. The CBA
states that employers must send the Industry Fund payments to the Minnesota
Mechanical Contractors Industry Fund. The CBA does not otherwise address where
the disputed payments should be sent or who should collect these payments.

       The “practice, usage and custom” of the parties are significant when
interpreting a CBA. Transp.-Commc’n Emps. Union v. Union Pac. R.R. Co., 385
U.S. 157, 161 (1966). The evidence shows that the Association traditionally collected
the disputed payments. The Association’s executive administrator averred that the
Association collects all of the disputed benefits, and that employers subject to the
CBA must submit one check to the Association for all of the relevant contributions.
S&S, the successor signatory to the CBA, sent the disputed payments to the
Association. There is no evidence that the disputed payments were sent to any other
organization. Although the CBA provided that certain payments should go to the
Minnesota Mechanical Contractors Industry Fund, the administrator of that fund
denied collecting any contributions. The Association therefore has a right to recover
these payments.

                                           B.

       ERISA permits a fiduciary of a plan, like the Association, to bring a civil action
to enforce the obligations arising under a plan or a collectively bargained agreement.
29 U.S.C. §§ 1132(a)(3), (g)(2), 1145. Under ERISA, “‘employee benefit plan’ or
‘plan’ means an employee welfare benefit plan or an employee pension benefit plan

                                          -8-
or a plan which is both an employee welfare benefit plan and an employee pension
benefit plan.” Id. § 1002(3). Because § 1132 is limited to civil actions enforcing
obligations under a “plan,” any contributions that fall outside the definition of an
employee benefit or employee pension benefit plan are not recoverable in an ERISA
action. See U.A. Local No. 467 Pension Tr. Fund v. Hydra Ventures Inc., No. C-12-
346, 2013 WL 1007311, at *9-10 (N.D. Cal. Mar. 13, 2013); Williams v. Salt City
Painting, Inc., No. 91-CV-0320, 1992 WL 265944, at *13 (N.D.N.Y. Oct. 1, 1992).

       The Association may recover only unpaid contributions to a plan established
for a purpose specified in the statute. These purposes include providing retirement
income to employees, and providing participants with medical benefits, benefits in
the event of sickness, accident, disability, death or unemployment, or other benefits,
such as vacation benefits, training programs, and scholarship funds. See 29 U.S.C.
§ 1002(1), (2).

       WQS contends that the Association was not entitled to recover the Credit
Union, the Working Fee, and the Industry Fund contributions, because these
contributions do not arise under an ERISA plan. The district court thought WQS
raised this argument too late in the litigation, but the argument was timely raised in
response to the Association’s motion for judgment, because that is when the amount
of damages was ripe for resolution. At oral argument in this court, the Association
conceded that the Working Fee and the Industry Fund do not arise under a “plan” as
defined by ERISA, and thus are non-ERISA damages. Therefore, unpaid
contributions due to these funds should not have been awarded as damages in this
ERISA lawsuit.

      As to the Credit Union fund, the Association presented evidence that
contributions served to fund vacation benefits, a permissible element of an employee
welfare benefit plan. See 29 U.S.C. § 1002(3). An official of the Minnesota

                                         -9-
Mechanical Contractors Association averred that contributions to vacation funds
“include[] the credit union contributions.” The 2008 Working Agreement similarly
refers to “Credit Union and Vacation/Savings Requirements.” Thus, we conclude that
the court properly allowed the Association to recover these ERISA-based damages.

                                          C.

        WQS also contends that the district court erred in granting a permanent
injunction. ERISA permits a fiduciary of a plan to seek recovery of unpaid
contributions, interest on those contributions, reasonable attorney’s fees and costs of
the action, and such other legal or equitable relief as the court deems appropriate. 29
U.S.C. § 1132(g)(2). Equitable relief can include enjoining a recalcitrant employer
from failing to pay contributions to an ERISA fund arising under a collective
bargaining agreement. Laborers Fringe Benefit Funds Detroit & Vicinity v. Nw.
Concrete & Constr., Inc., 640 F.2d 1350, 1351-53 (6th Cir. 1981) (per curiam).
Citing Varity Corp. v. Howe, 516 U.S. 489 (1996), and Wald v. Southwestern Bell
Corp. Customcare Medical Plan, 83 F.3d 1002 (8th Cir. 1996), WQS contends that
injunctive relief was inappropriate here because the district court provided adequate
relief in the form of money damages. In Varity Corp., the Court stated that “where
Congress elsewhere provided adequate relief for a beneficiary’s injury, there will
likely be no need for further equitable relief, in which case such relief normally would
not be ‘appropriate.’” 516 U.S. at 515. But here, the Association did not seek only
payment for past unpaid contributions; it sought an order requiring WQS to fulfill its
ongoing obligations under the CBA. The injunction provides a separate remedy,
independent of damages, to ensure that WQS will pay future fringe-benefit
contributions. Therefore, the district court did not err in granting injunctive relief.

                                   *       *       *

                                         -10-
      For the foregoing reasons, the judgment of the district court is affirmed in part
and reversed in part. The case is remanded for the district court to exclude
contributions due to the Working Fee and Industry Fund from the damages award,
and to reduce the award of interest accordingly.
                       ______________________________

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