General Employees Trust Fund and Board of Trustees of General Employees Trust Fund v. Hermes

Filing 28

ORDER RE: SUBJECT MATTER JURISDICTION and SETTING CASE MANAGEMENT CONFERENCE Re: Dkt. Nos. 23, 24, 25. Signed by Judge Nathanael M. Cousins on 12/29/2014. (nclc2, COURT STAFF) (Filed on 12/29/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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10 GENERAL EMPLOYEES TRUST FUND
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and BOARD OF TRUSTEES OF
GENERAL EMPLOYEES TRUST FUND,

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Petitioners,

ORDER RE: SUBJECT MATTER
JURISDICTION and SETTING
CASE MANAGEMENT
CONFERENCE

v.

14 YUL HERMES, an individual,
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Case No. 14-cv-04054 NC

Re: Dkt. Nos. 23, 24, 25

Respondent.

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This is an action brought under § 301 of the Labor Management Relations Act, as

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amended (“LMRA”), 29 U.S.C. § 185, to enforce an arbitration award against respondent

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Yul Hermes on an alter ego theory. See Dkt. No. 1. In the parties’ joint case management

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statement, respondent questioned whether the Court has subject matter jurisdiction over this

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action. See Dkt. No. 21.

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Federal courts are courts of limited jurisdiction and are presumptively without

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jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A

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federal court may dismiss an action on its own motion if it finds that it lacks subject matter

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jurisdiction over the action. Fiedler v. Clark, 714 F.2d 77, 78-79 (9th Cir. 1983); see also

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Fed. R. Civ. P. 12(h)(3) (“If the court determines at any time that it lacks subject-matter

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jurisdiction, the court must dismiss the action.”).

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The Court ordered the parties to brief the jurisdictional issue and held a hearing,
Case No. 14-cv-04054 NC
ORDER RE: SUBJECT
MATTER JURISDICTION

1 deferring case management until resolution of this threshold question. Dkt. No. 23. All
2 parties consented to the jurisdiction of a magistrate judge. Dkt. No. 21 at 9. After
3 considering the briefs, the record in this case, and the arguments presented at the hearing
4 the Court finds that it has subject matter jurisdiction over this action for the reasons set
5 forth below.
I. BACKGROUND

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The petition to enforce the arbitration award was filed by General Employees Trust

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Fund and Board of Trustees of General Employees Trust Fund. Dkt. No. 1 ¶ 5. The

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petition alleges that American Empire Building Maintenance Corporation (“Employer”)

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was signatory to collective bargaining agreements with Service Employees International

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Union, Local 87 and Service Employees International Union, Local 1877 (“Collective

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Bargaining Agreements”). Id. ¶¶ 12-15. Petitioners allege that each of those Collective

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Bargaining Agreements is a contract between an employer and a labor organization

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representing employees in an industry affecting commerce within the meaning of § 301(a)

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of the LMRA. Id. ¶ 16. Under each of the Collective Bargaining Agreements, the

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Employer agreed to be bound to the Trust Indenture establishing the General Employees

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Trust Fund and all amendments thereto and restatements thereof, including the Restated

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Trust Agreement, dated September 1, 2010 (“Restated Trust Agreement”). Id. ¶ 17. The

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Restated Trust Agreement is itself a contract between employers and labor organizations

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representing employees in an industry affecting commerce within the meaning of § 301(a)

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of the LMRA. Id. ¶ 18.

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Under the Collective Bargaining Agreements and the Restated Trust Agreement, the

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General Employees Trust Fund caused an audit to be conducted to determine whether the

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Employer had made all required payments for employee health insurance. Id. ¶¶ 19-21.

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The Employer failed to pay the monies found due in the audit. Id. ¶¶ 22-24. Petitioners

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allege that any employer’s failure to make required contributions to the General Employees

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Trust Fund is a breach of the Restated Trust Agreement, and a breach of the Collective

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Bargaining Agreements. Id. ¶ 25.
Case No. 14-cv-04054 NC
ORDER RE: SUBJECT
MATTER JURISDICTION

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Under § 6.14 of the Restated Trust Agreement, the Employer’s failure to pay the

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monies found due in the audit was referred to arbitration. Id. ¶¶ 26-27. Petitioners allege

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that the arbitrator issued an arbitration award, finding that the Employer owed more than

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$200,000.00 to the General Employees Trust Fund. Id. ¶¶ 33-34. Petitioners allege that the

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Employer has failed and refused to comply with the arbitration award and is, therefore, in

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breach of the Collective Bargaining Agreements and the Restated Trust Agreement. Id. ¶¶

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37-39.

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Petitioners further allege that respondent filed a Chapter 7 Bankruptcy petition on
behalf of the Employer. Id. ¶ 42. Petitioners then filed this lawsuit to confirm the

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arbitration award against respondent Yul Hermes, the President, Chief Executive Officer,

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Chief Financial Officer, and Director of the Employer, on an alter ego theory of liability.

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Id. ¶¶ 8, 44-57. Petitioners are not seeking to enforce the arbitration award against the

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Employer. Id. ¶ 43.

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II. DISCUSSION

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The petition asserts that this Court has subject matter jurisdiction over the action

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under § 301(a) of the LMRA, 29 U.S.C. § 185(a), “as an action upon a contract between an

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employer and a labor organization representing employees in an industry affecting

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commerce.” Dkt. No. 1 ¶ 1. “A suit to vacate or enforce compliance with an arbitration

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award can be founded on section 301 of the LMRA.” Kemner v. Dist. Council of Painting

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& Allied Trades No. 36, 768 F.2d 1115, 1118 (9th Cir. 1985). “To establish district court

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jurisdiction pursuant to section 301 of the LMRA, a plaintiff must allege only that a

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contract between an employer and a union has been breached.” McCauslin v. FMC Corp.,

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728 F.2d 1275, 1275 (9th Cir. 1984).

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Respondent argues that there exists no federal question jurisdiction because, as the

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only respondent in this action, he is not an “employer” under the LMRA, and thus this

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action is not one between an “employer” and a labor organization. Dkt. No. 25. The fact

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that the employer is not a party to this action, however, does not foreclose this Court’s

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jurisdiction. “The Supreme Court has interpreted s 301 to require only that the object of the
Case No. 14-cv-04054 NC
ORDER RE: SUBJECT
MATTER JURISDICTION

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suit be the enforcement of rights guaranteed by an agreement between an employer and a

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labor organization, and not strictly that the suit itself be between a labor union and an

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employer.” Audit Servs., Inc. v. Rolfson, 641 F.2d 757, 760 (9th Cir. 1981) (citing Smith v.

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Evening News Ass’n, 371 U.S. 195, 200 (1962)).

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Here, petitioners allege that a contract between an employer and a labor organization

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has been breached. Petitioners are seeking contractual damages for the Employer’s breach

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of the Collective Bargaining Agreements and the Restated Trust Agreement, that is, for the

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Employer’s failure to pay for employee benefits. Petitioners seek to enforce the arbitration

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award against respondent and hold him individually liable for the Employer’s breach of

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contract on an alter ego theory. See, e.g., Sheet Metal Workers Int’l Ass’n, Local No. 359,

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AFL-CIO v. Arizona Mech. & Stainless, Inc., 863 F.2d 647, 653-54 (9th Cir. 1988)

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(remanding to district court to determine whether non-party to a collective bargaining

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agreement was an alter ego of employer or otherwise bound by arbitration award against

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employer). Petitioners have thus sufficiently alleged that this is a suit to enforce rights

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guaranteed by an agreement between an employer and a labor organization. Therefore,

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contrary to respondent’s contention, petitioners have demonstrated an independent

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jurisdictional basis. See Dkt. No. 25; Kokkonen, 511 U.S. at 381 (holding that, despite that

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district court had jurisdiction over initial dispute, an action seeking to enforce the

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settlement of that dispute did not by itself confer subject matter jurisdiction).

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Respondent also argues that this case is akin to the facts of Peacock v. Thomas, 516

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U.S. 349 (1996). In Peacock a former employee of a corporation filed an initial lawsuit

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under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29

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U.S.C. § 1001 et seq., and obtained a judgment against the corporation. Id. at 351. Unable

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to collect from the corporation, the employee subsequently filed a second action against a

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corporate officer seeking to impose alter ego liability. Id. The Supreme Court ruled that

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the district court lacked jurisdiction over the alter ego action because there was no

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independent basis for federal jurisdiction and that ancillary jurisdiction did not apply. Id. at

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353-59. However, in Peacock, the employee had not alleged an underlying violation of an
Case No. 14-cv-04054 NC
ORDER RE: SUBJECT
MATTER JURISDICTION

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ERISA provision or an ERISA plan. Id. at 353. By contrast, h
o
A
y
here, the pet
tition allege a
es

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violation of § 301(a) of the LM
n
MRA and th provide an indepe
hus
es
endent basis for asserti of
ion

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jurisdict
tion. Accor
rdingly, the Court find that it has subject m
e
ds
s
matter jurisdi
iction over this

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action.

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Th Court wi hold a ca managem confe
he
ill
ase
ment
erence on Ja
anuary 7, 20
015, at 10:0 a.m.
00

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in Court
troom A, 15 Floor, U.S. Distric Court, 450 Golden G Avenue San Fran
5th
U
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Gate
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ncisco,

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Californ If coun for the parties wish to appear by telepho they ma do so bu must
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contact the Courtro
oom Deputy at 408.535
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5.5343 to p
provide a co
ontact numb for this
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appeara
ance. An up
pdated joint case mana
t
agement stat
tement is du by Janua 5, 2015.
due
ary

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0

IT IS SO OR
T
RDERED.

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Date: Decem
mber 29, 201
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____
__________
__________
____
Nath
hanael M. C
Cousins
Unit States M
ted
Magistrate J
Judge

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ORDER RE: SUBJE
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