Trustees of The Operating Engineers Pension Trust et al v. Smith-Emery Company

Filing 412

MINUTES (IN CHAMBERS) - PLAINTIFFS' MOTION TO ENFORCE MEMORANDUM OF UNDERSTANDING (Filed June 3, 2019, Case No. 2:09-cv-01476, Dkt. 406 ); PLAINTIFFS' MOTION TO ENFORCE MEMORANDUM OF UNDERSTANDING (Filed June 3, 2019, Case No. 2:13-cv- 09545, Dkt. 192) by Judge Christina A. Snyder. In accordance with the foregoing, the Court GRANTS the Trustees' motions to enforce the MOU. The Court reserves ruling on the Trustees' request for sanctions until the conclusion of the audit that is the subject of these motions. IT IS SO ORDERED. (lom)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:09-cv-01476-CAS (AJWx)

‘O’

Date

July 15, 2019

2:13-cv-09545-CAS (VBKx)
Title

TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET
AL. V. SMITH-EMERY COMPANY

Present: The Honorable

CHRISTINA A. SNYDER

Catherine Jeang

Not Present

N/A

Deputy Clerk

Court Reporter / Recorder

Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Not Present

Not Present

Proceedings:

(IN CHAMBERS) - PLAINTIFFS’ MOTION TO ENFORCE
MEMORANDUM OF UNDERSTANDING (Filed June 3, 2019,
Case No. 2:09-cv-01476, Dkt. 406)
PLAINTIFFS’ MOTION TO ENFORCE MEMORANDUM OF
UNDERSTANDING (Filed June 3, 2019, Case No. 2:13-cv-09545,
Dkt. 192)

I.

INTRODUCTION

On March 2, 2009, plaintiffs Trustees of the Operating Engineers Pension Trust,
Trustees of the Operating Engineers Health and Welfare Fund, Trustees of the Operating
Engineers Vacation Holiday Savings Trust, and Trustees of the Operating Engineers
Training Trust (“Trustees” or “Trusts”) initiated this suit to collect ERISA trust fund
contributions from defendant Smith-Emery Company (“SEC”), pursuant to 29 U.S.C.
§§ 1132(g) and 1145 (§ 515 of ERISA). Case No. 2:09-cv-01476-CAS (the “First
Action”). On December 30, 2013, the Trustees filed a substantially similar action
alleging that SEC failed to make required trust fund contributions for a subsequent period
of time. Case No. 13-cv-09545-CAS (the “Second Action”).

CV-549 (10/16)

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:09-cv-01476-CAS (AJWx)

Date

‘O’
July 15, 2019

2:13-cv-09545-CAS (VBKx)
Title

TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET
AL. V. SMITH-EMERY COMPANY

On September 9, 2016, the parties signed a handwritten memorandum of
understanding to settle the two cases. Dkt. 291-1 (“MOU”).1 On December 12, 2016, the
Trustees filed motions to enforce the settlement, which the Court granted on January 19,
2017. Dkts. 289, 301. On August 21, 2017, after SEC failed to make payments under the
settlement agreement, the Court entered judgment for the Trustees. Dkt. 330.
On August 13, 2018, SEC filed motions to vacate the judgment in both the First
and Second Action. Dkt. 353-1. The Court denied SEC’s motions on November 14,
2018. Dkt. 395.
On May 13, 2019, the Court held a telephone status conference wherein the
Trustees contended that SEC was not in compliance with the audit provision of the MOU.
Dkt. 405. The Court ordered further briefing. Id. On June 3, 2019, the Trustees filed the
instant motion to enforce the MOU. Dkt. 406 (“Mot.”). SEC filed an opposition on June
24, 2019. Dkt. 411 (“Opp’n”). Having carefully considered the parties’ arguments, the
Court finds and concludes as follows.
II.

BACKGROUND
A.

The Parties

SEC is a company that has performed construction inspection work on a number of
major projects throughout California. SEC employs Building/Construction Inspectors
(“BCIs”) to complete these inspection tasks. Smith Emery Laboratories (“SEL”) was a
division of SEC but subsequently became a separate corporate entity in 1999. SEL
employs laboratory technicians who perform various materials tests on construction
projects.
In 1969, the National Labor Relations Board certified SEC’s field inspectors but
excluded laboratory employees. Thereafter, the International Union of Operating
Engineers, Local Union No. 12 (“Local 12”) and SEC entered into a series of collective
1

All the briefing and filings relevant here have been filed in both the First and
Second Action. For simplicity, unless otherwise noted, all subsequent references to
docket numbers are to those in the First Action.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:09-cv-01476-CAS (AJWx)

Date

‘O’
July 15, 2019

2:13-cv-09545-CAS (VBKx)
Title

TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET
AL. V. SMITH-EMERY COMPANY

bargaining agreements. Pursuant to these agreements, SEC must pay fringe benefit
contributions for the hours worked by covered employees. These actions concerned the
relevant collective bargaining agreements (collectively, “CBA”) covering the period from
March 1, 2003 until March 31, 2015, pursuant to which the Trustees claimed SEC owed
additional contributions.
B.

Previous Audits

On June 5, 2008, the Trustees attempted to conduct an audit of SEC, but SEC did
not provide all the records requested by the Trustees. Dkt. 18 at 1–2. On December 23,
2009, the Trustees filed a motion to compel the production of those records in the First
Action. Id. at 1. The Trustees argued that the records they sought would allow their
auditor “to verify all hours worked by or paid to employees or individuals working for
[SEC] and performing work covered by the collective bargaining agreement.” Id. at 5.
The Trustees also explained that the relevant CBA prohibited SEC from allowing
subcontractors not bound by the CBA to perform covered work and that their auditor
routinely “review[s] records to uncover whether employers have improperly employed
non-union subcontractors (sub-employers) to perform covered work.” Id. at 6. SEC
refused to participate in the meet and confer process and to prepare a joint stipulation.
Dkt. 22 at 1. On January 19, 2009, Magistrate Judge Victor B. Kenton held a hearing and
concluded that the Trustees were entitled to the discovery sought. Dkt. 23.
And on March 20, 2015, the Trustees filed a motion to compel in the Second
Action seeking documents in connection with an audit of SEC covering the period of
January 1, 2010 through December 31, 2014. Second Action Dkt. 35 at 2–3. According
to the Trustees, SEC refused to provide their auditor with access to all payroll and related
business records for the entire audit period. Id. at 3. SEC responded by arguing that the
Trustees were abusing the discovery process by seeking to enforce their audit rights
through an action to recover fringe benefit contributions. Id. at 4–5. Judge Kenton
granted the Trustees’ motion on April 7, 2015 after finding that SEC’s arguments were
“frivolous.” Dkt. 39 at 1. He noted that he was “troubled by what seems quite clearly to
be an unnecessary years’ worth of wrangling between counsel to get these documents
produced.” Id. SEC subsequently produced over 161,207 pages of documents, which the
Trustees’ auditor reviewed in completing the audit. See, e.g., Dkt. 47 at 2; Dkt. 48 at 1.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:09-cv-01476-CAS (AJWx)

Date

‘O’
July 15, 2019

2:13-cv-09545-CAS (VBKx)
Title

TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET
AL. V. SMITH-EMERY COMPANY

On May 4, 2016, the Trustees’ auditor sent the results of the audit covering the
period of January 1, 2010 through March 2015 to SEC’s counsel. Dkt. 408-2 at 1 (the
“2010–2015 Audit Report”). In the 2010-2015 Audit Report, Local 12 claimed the
following hours for the following reasons: (A) 736 hours due to clerical errors; (B) 40
hours for unreported vacation hours; (C) 232 hours based on SEC’s failure to comply
with provisions of the sub-employer clause; and (D) 6,057 hours for proof load tests, pull
tests, torque tests, pull/torque tests, steel shop inspections, rebar inspections, and Lab
Tech Away based on SEC’s failure to comply with provisions of the sub-employer clause
of the CBA with respect to SEL. Id. at 3–4.
C.

Enforcement of the Parties’ Settlement and Entry of Judgment

The parties attended two settlement conferences on July 19, 2016 and September 9,
2016. At the conclusion of the September 9, 2016 settlement conference, SEC and the
Trustees signed a handwritten MOU. In its entirety, the MOU provided:
MOU
Trustees of operating engineers, et al. vs. Smith Emery Company
A)
B)
C)
D)
E)
F)
G)

$1.6 million total settlement amount
Stipulated judgments to be held in trust for:
1)
$310,408.41 + 5% interest over 10 years
2)
$1,289,591.59 + 5% interest over 10 years.
5% interest on settlement amount
10 years payment period
Audit period between April 2015 through September 30, 2016 for
testing and inspection on post-installed anchor bolt, clerical errors, and
other items consistent w/ 2010–2015 audit.
90 day period to cure and bring current, interest on principal to continue
to accrue during cure period.
Monthly payment terms; 120 total payments at $16,970.48/month.

MOU at 1. A few months later, SEC contended that the MOU was not enforceable, and
on December 12, 2016, the Trustees filed motions for enforcement of settlement in both
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:09-cv-01476-CAS (AJWx)

Date

‘O’
July 15, 2019

2:13-cv-09545-CAS (VBKx)
Title

TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET
AL. V. SMITH-EMERY COMPANY

the First and the Second Action. Dkt. 289. On January 19, 2017, the Court granted the
Trustees’ motions for enforcement of the settlement and ruled that the MOU was a
“complete and enforceable agreement” which implicitly included a release of the
Trustees’ claims asserted in those actions. Dkt. 301.
III.

LEGAL STANDARD

Local law governs the construction and enforcement of settlement agreements.
See United Commercial Ins. Serv., Inc. v. Paymaster Corp., 962 F.2d 853, 856 (9th Cir.
1992) (citation omitted). “A settlement agreement is treated as any other contract for
purposes of interpretation.” Id. Under California law, the objective intent of the
parties—as manifested in the agreement and by surrounding conduct—determines the
meaning of the contract. Id. (citing Cal. Civ. Code §§ 1636, 1638).
IV.

DISCUSSION

The Trustees contend that SEC has breached the MOU by failing to provide the
following documents in response to requests from the Trustees’ auditor:
 A complete job list, or in the alternative, copies of all contracts and subcontracts
for work performed;
 unredacted copies of certified payroll records for all projects;
 unredacted copies of all billing invoices, supporting time tickets, and related
inspection records for work subcontracted to SEL; and
 unredacted vendor history reports, supporting time tickets, and related
inspection reports for various third parties.
Mot. at 4–8; Dkt. 408-4. The Trustees argue that that their auditor is entitled to review
these records to verify whether payroll and related records were provided for all work
covered by the CBA between April 2015 and September 30, 2016 (“MOU Audit

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:09-cv-01476-CAS (AJWx)

Date

‘O’
July 15, 2019

2:13-cv-09545-CAS (VBKx)
Title

TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET
AL. V. SMITH-EMERY COMPANY

Period”), including work that was subcontracted to other entities in violation of the
CBA’s subcontracting provision.2
The MOU provides for an “[a]udit period between April 2015 through September
30, 2016 for testing and inspection on post-installed anchor bolt, clerical errors, and other
items consistent w/ 2010–2015 audit.” MOU at 1. The “2010–2015 audit” in the MOU
refers to the audit performed by the Trustees’ auditor, a report of which was provided to
SEC on May 4, 2016. Dkt. 408, Declaration of Bernardo Ramos ¶ 13. The Trustees’
auditor stated in his declaration that “[a]ll of the categories of documents [now] requested
by the Trusts are documents I reviewed in the previous two audits, i.e. in the First Action
and the Second Action, when I performed the audits of SEC.” Dkt. 407, Declaration of
Michael Babel (“Babel Decl.”) ¶ 15. The Court has reviewed the evidence provided by
the parties and sees no reason to doubt the accuracy of Babel’s representation.
Accordingly, the Court finds that, pursuant to the MOU, SEC must produce the records
requested by the Trustees’ auditor because they are consistent with the records that were
reviewed during the 2010–2015 audit. As explained below, the Court is not persuaded by
any of SEC’s arguments for why it is not required to provide the requested records to the
Trustees’ auditor.
First, SEC argues that the scope of the 2010–2015 audit should be limited to those
documents that SEC voluntarily disclosed during the audit process and should not include
2

SEC notes that the Trustees initially requested records from the time period
subsequent to the MOU Audit Period and argues that those records are not required to be
produced under the MOU. Opp’n at 4. The Trustees explain that they initially asked for
records from April 1, 2015 through the present to avoid running into statute of limitations
issues, mot. at 4, but it is unclear whether records concerning work performed after the
MOU Audit Period are the subject of the instant motion. Although the CBA may allow
the Trustees to audit records concerning work performed after the MOU Audit Period, the
issue before the Court is whether SEC has complied with the terms of the MOU.
Accordingly, the Court does not reach the issue of whether SEC must produce records
related to work performed after the MOU Audit Period.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:09-cv-01476-CAS (AJWx)

Date

‘O’
July 15, 2019

2:13-cv-09545-CAS (VBKx)
Title

TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET
AL. V. SMITH-EMERY COMPANY

those records that SEC was compelled to produce during discovery. Opp’n at 5. The
Court is not persuaded by this argument because the Trustees’ auditor reviewed the
documents that SEC was compelled to produce when completing the 2010–2015 audit.
See, e.g., Dkt. 47 at 2; Dkt. 48 at 1. The Court thus sees no reason to distinguish between
those records that SEC voluntarily provided and those that SEC was compelled to
provide through discovery.
SEC also argues that it does not maintain a job list and therefore cannot produce
one. Opp’n at 5. SEC however, does not contest that it has contracts and subcontracts
which would also show what jobs were performed during the MOU Audit Period. In
light of the auditor’s representation that he must review these contracts to verify whether
SEC has provided all payroll records for the MOU Audit Period and the fact that similar
documents had been produced in the 2010–2015 audit, Babel Decl. ¶¶ 7, 15, the Court
finds that SEC must produce the contracts and subcontracts requested by the Trustees.
Next, SEC argues that it is not required to provide copies of any records reflecting
work performed on projects that did not involve schools or hospitals, or work that was
not performed by its bargaining unit employees. Opp’n at 6. The MOU, however, did
not explicitly limit the audit to school and hospital projects, nor did it explicitly limit the
audit to work performed by SEC’s bargaining unit employees. Moreover, the Trustees’
auditor who performed the 2010–2015 audit stated in his declaration that the 2010–2015
audit “was not limited to school and hospital projects, and it did include claims based on
covered work SEC subcontracted to others in violation of the subcontracting clause.”
Babel Decl. ¶ 16. Accordingly, SEC cannot limit its production to only projects
involving schools or hospitals, or work performed by its bargaining unit employees.
Finally, SEC argues that it should not be required to produce records related to
third parties who have no contributory obligations under the CBA. Opp’n at 7. The
Trustees’ auditor explains that in order to conduct a thorough audit, he is required to
review these records to determine whether the payments that SEC made to those third
parties were for covered work subcontracted to or through those entities. Babel Decl. ¶
12. Babel also represents that these documents are consistent with those that he reviewed
during the 2010–2015 audit. Id. ¶ 15. The Court finds that SEC must produce the
requested records relating to payments made to third parties.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:09-cv-01476-CAS (AJWx)

Date

‘O’
July 15, 2019

2:13-cv-09545-CAS (VBKx)
Title

TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET
AL. V. SMITH-EMERY COMPANY

The Court hereby orders SEC to produce the records that are the subject of the
instant motion, namely records requested by the Trustees’ auditor covering the period of
April 1, 2015 through September 30, 2016. The Court reserves ruling on the Trustees’
request for sanctions until the conclusion of the Trustees’ audit pursuant to the MOU.3
V.

CONCLUSION

In accordance with the foregoing, the Court GRANTS the Trustees’ motions to
enforce the MOU. The Court reserves ruling on the Trustees’ request for sanctions until
the conclusion of the audit that is the subject of these motions.
IT IS SO ORDERED.
00
Initials of Preparer

00
CMJ

3

SEC also devotes half of its opposition brief to arguing that the subcontracting
clause in the CBA is illegal but does not connect this argument to the issues before the
Court—namely, the scope of the 2010–2015 audit and whether the records requested by
the Trustees’ auditor are consistent with that audit. The Court need not reach this issue
because it is irrelevant to the determination of whether the MOU requires SEC to produce
the documents requested by the Trustees’ auditor.
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