International Brotherhood of Teamsters Local Union No. 50 v. Kienstra Precast, LLC
Filing
32
ORDER denying 18 Motion to Compel; denying 24 Motion to Amend/Correct; denying 26 Motion to Dismiss. Signed by Judge G. Patrick Murphy on 5/6/2011. (ktc)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
INTERNATIONAL BROTHERHOOD OF )
TEAMSTERS LOCAL UNION NO. 50,
)
)
Plaintiff,
)
)
vs.
)
)
KIENSTRA PRECAST, LLC,
)
)
Defendant/
)
Third Party Plaintiff, )
)
vs.
)
)
ILLINI CONCRETE, INC.
)
)
Third Party Defendant. )
CIVIL NO. 10-695-GPM
MEMORANDUM AND ORDER
MURPHY, District Judge:
This matter comes before the Court on Third Party Defendant IlliniConcrete Inc.,’s
(“Illini’s”) motion to compel arbitration (Doc. 18), and Defendant/Third Party Plaintiff Kienstra
Precast, LLC’s (“Kientra’s”) amended motion to compel arbitration (Doc.s 23, 24.)1 For the reasons
set forth below, both motions to compel arbitration are DENIED.
1
Kienstra unhelpfully gave two of its motions alternative titles: “Consent to Tripartite
Motion and/or to Compel Tripartite Arbitration” (Doc. 23); and “Motion to Dismiss the
Complaint by Kienstra Precast, LLC and Alternately its Reply in Support of Motion to Compel
Tripartite Arbitration” (Doc. 26). Given that Kienstra filed an amendment to Doc. 23 and titled
it an amended motion to compel, the Court construes Doc. 23 as Kienstra’s motion to compel
arbitration. Kienstra’s reply to Plaintiff’s response to the motion to compelSfiled after its
answerSis just that, a reply. That reply does raise an issue of subject matter jurisdiction, which
will be addressed below.
Page 1 of 9
Background
Plaintiff International Brotherhood of Teamsters Local Union No. 50 (“the Union”) filed a
complaint against Kienstra on Sept. 9, 2010 alleging Kienstra’s status as an alter-ego and breach of
contract (Doc. 2). The Union alleges that Kienstra is an alter-ego of Illini, which was party to a
collective bargaining agreement (“CBA”) with the Union (Doc. 18-1). That CBA between Illini and
other employers with the Union was to be in-force from July 1, 2008 to June 30, 2011. The CBA
governed, inter alia, pay rates and Illini pension contributions to Union workers. The CBA included
a grievance section which mandated the following procedure: first, all grievances were to be
presented to the Shop Steward; next, if there was not a satisfactory settlement at the Shop Steward
stage, the grievance was to be referred to an executive officer of the company; then, if the grievance
remained unsettled, “the parties by agreement shall submit the grievance to arbitration” (Doc. 18-1).
The CBA defines a “grievance” as “any controversy, complaint, misunderstanding, or dispute arising
as to meaning, application, or observance of any of the provisions of this Agreement.”
Kienstra admits that it acquired assets of Illini in October 2009 when Illini ceased business
activities, but has subsequently sold those assets (Doc. 6). The Union claims that Kienstra, as Illini’s
alter-ego, evaded unfunded pension liability. The Union seeks a judgment declaring Kienstra an
alter-ego of Illini and declaring Kienstra bound by the Illini CBA. Upon leave from the Court,
Kienstra filed a third party complaint against Illini on Dec. 17, 2010 (Doc. 14).
Illini’s Motion to Compel Arbitration
Illini claims that because it had a CBA with the Union, the Union is bound to arbitrate this
dispute. The arbitration provision in the Illini-Union CBA states that “any controversy, complaint,
misunderstanding, or dispute arising as to meaning, application, or observance of any of the
Page 2 of 9
provisions of this Agreement” shall be submitted to arbitration (Doc. 18-1 at 5). Illini argues that
the Union’s alter-ego claim (that the Illini CBA should apply to Kienstra) is a “dispute as to the
meaning, application, or observance” of the CBA and is thus covered by the Illini-Union CBA
arbitration provision. Illini claims that it can compel arbitration under this CBA because the Union’s
theory is that Kienstra is Illini’s alter ego and therefore, if the Union “were correct, then Illini is
responsible for any breach of the CBA” (Doc. 19). Kienstra filed a “notice” consenting to
arbitration per Illini’s motion (Doc. 23).
The Union responds that Illini, as third-party-defendant, lacks standing to compel the Union,
plaintiff, to arbitrate, because Illini is only “party” to the third-party claim against it by Kienstra
(Doc. 25). The Union alternately claims that this dispute would not be subject to the Illini-Union
CBA arbitration provision. The Union claims that resolution of its action is a question of law, not
a question as to the meaning or application of any of the CBA provisionsS“The question before this
Court is not whether or not Kienstra violated any one of the thirty-one (31) articles of the Agreement
but rather whether or not they are legally bound by the Agreement” (Doc. 25 at 3).
Illini replies that Federal Rule of Civil Procedure Rule 14(a)(2) provides standing for its
motion to compel arbitration. Citing, Rule 14(a)(2)(C), Illini argues that it “may assert against the
plaintiff any defense that the third-party plaintiff has to the plaintiff’s claim.” So, Illini’s argument
is that it can move to compel arbitration pursuant to the Illini-Union CBA because Kienstra could
move to compel arbitration pursuant to the Illini-Union CBA.
Kienstra’s Motion to Compel Tripartiate Arbitration
Kienstra argues that because the Union ultimately seeks a declaration that the Illini-Union
CBA applies to Kienstra, the Union should be estopped from simultaneously claiming the benefit
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of the CBA and avoiding the burdens of the CBA. Kienstra quotes the Seventh Circuit’s decision
in Hughes Masonry Co v Greater Clark County Sch. Bldg. Corp.: “It would be manifestly
inequitable to permit [plaintiff] to both claim that [defendant] is liable...for its failure to
perform...contractual duties under an agreement containing an arbitration clause and at the same
time...[seek] to avoid arbitration of claims clearly within the ambit of the arbitration clause. In short,
[plaintiff] cannot have it both ways. [It] cannot rely on the contract when it works to its advantage,
and repudiate it when it works to [its] disadvantage.” 659 F.2d 836, 838-39 (7th Cir. 1981).2
The Union argues in response (Doc. 25), that, unlike the plaintiff in Hughes, its complaint
is not that Kienstra failed to perform contractual duties under the CBA. Instead, says the Union, its
complaint merely seeks to establish the existence of an alter-ego status. The Union gets itself into
some trouble here, and Kienstra picks up on the issue in the “motion to dismiss” part of its “motion
to dismiss the complaint and alternately its reply in support of motion to compel tripartite
arbitration” (Doc. 26). “Seeking to establish jurisdiction under § 301 [of the Labor Management
Relations Act] alone...may...limit a party to arguing that they are bringing a suit for violation of a
2
In Hughes Masonry, the Seventh Circuit vacated the district court’s denial of
defendant’s motion to compel arbitration. A contract existed between Hughes Masonry and
Clark Corp in which Hughes agreed to provide masonry services for a building project. Clark
Corp had a preexisting contract with James Associates, wherein James Associates agreed to
provide construction management for the building project and was authorized to assign project
managers. James Associates consequently contracted with J.A. to perform construction
management. After several disputes, Clark terminated its contract with Hughes. Hughes filed an
action in the District Court of Southern Indiana against Hughes and J.A.. Clark and J.A. moved
to compel arbitration. Hughes argued that it could not be required to arbitrate because J.A. was
not entitled to invoke the arbitration provision of the Hughes-Clark contract, because J.A. was
not a party to that contract. The Seventh Circuit found that Hughes was “equitably estopped
from asserting [that argument] because the very basis of Hughes’ claim against J.A. [was] that
J.A. breached the duties and responsibilities assigned and ascribed to J.A. by the agreement
between Clark and Hughes.” 659 F.2d at 838.
Page 4 of 9
collective bargaining agreement.”
Teamsters National Automotive Transporters Industry
Negotiating Committee v. M. Troha, 328 F.3d 325, 328 (7th Cir. 2003). “[Section] 301 authorizes
only suits for violations of contracts.” Texatron Lycoming Reciprocating Engine Div., Avco Corp.
v. UAW, 523 U.S. 653, 660 (1998). The Union brought this action pursuant to section 301 of the
LMRA. Therefore, to have subject matter jurisdiction, the Union must allege a contract violation.
See also Stevens Const. Corp. v. Chicago Regional Council of Carpenters, 464 F.3d 682, 684-85
(“Section 301(a) of the Labor Management Relations Act of 1947 provides federal jurisdiction over
‘suits for violation of contracts between an employer and a labor organization representing
employees in an industry affecting commerce.”) (quoting 29 U.S.C. § 185(a)).
Kienstra claims that the Union has ‘admitted’ it is not alleging a violation of the CBA and,
thus, the Court no longer has subject matter jurisdiction. The Union says the breach of contract
allegation is not the “backbone” of the complaint and that it is only seeking relief for the alter-ego
allegation. The Union wants this Court to hold Kienstra to the CBA so that the Union can pursue
its breach of contract claim against Kienstra pursuant to the CBA. The point of the Union’s
protestations against a contract claim in their response to Kienstra’s motion to compel is to argue
that no contractual obligation to arbitrate currently exists between the Union and Illini. The Union
says that it does still maintain there was a contract violation. “The substance of the argument [in
the Union’s response to Kienstra’s motion to compel] is not that there is not a violation of a
collective bargaining agreement. The substance of the argument is that before any ruling on whether
there has, or has not, been a violation there has to be a ruling on whether or not a party is bound by
the agreement. Without a ruling on that issue, the remaining issues are not ripe” (Doc. 28 at 2).
Kienstra also argues that Illini does have standing to move to compel the Union to arbitrate,
Page 5 of 9
citing Federal Rule of Civil Procedure 14(a)(2)(C), (D): “The [third party defendant] may assert
against the plaintiff any defense that the third-party plaintiff has to the plaintiff’s claim; and [the
third party defendant] may also assert against the plaintiff any claim arising out of the transaction
or occurrence that is the subject matter of the plaintiff’s claim against the third-party plaintiff.” The
Union responds that Kienstra, the third party plaintiff, could not assert a defense to the Union’s
claim on the basis of the Illini-Union CBA, because the very basis of Kienstra’s defense is that it
is not an alter-ego of Illini and is therefore not bound to the Illini-Union CBA.
Discussion
First taking up the issue of subject matter jurisdictionSthe parties argue that the issue is
whether the Union has constructively plead itself out of subject matter jurisdiction by contradicting
the explicit claims in its Complaint with an argument in its response to the motion to compel. The
Union’s complaint explicitly states that it brings this action against Kienstra “alleging its status as
an alter-ego and for breach of contract” (Doc. 2). The troublesome language in the Union’s
response to Kienstra’s motion to compel arbitration reads: “The backbone of the Union’s complaint
is not that Kienstra violated the terms or conditions of the underlying Agreement....The only claim
for relief sought by the Union is that this Court enter an order against Kienstra asserting it is an alterego, as well as an order that it be bound by the terms and conditions of the Agreement,” and “As
repeated throughout this memorandum, the Union only plead that Kienstra is an alter-ego.”
However, it is the complaint itself that governs whether jurisdiction exists. “The presence
or absence of federal-question jurisdiction is governed by the well-pleaded complaint rule, which
provides that federal jurisdiction exits only when a federal question is presented on the face of the
plaintiff’s properly pleaded complaint. The rule makes the plaintiff the master of the claim.”
Page 6 of 9
Caterpillar Inc., v. Williams, 482 U.S. 386, 392 (1987). The Court looks to the face of a properly
pleaded complaint to see if a federal question is present. Tifft v. Commonwealth Edison Co., 366
F.3d 513, 516 (7th Cir. 2004). The Union properly pleaded subject matter jurisdiction in its
complaint under section 301 of the Labor Management Relations Act. The Court does not lose
subject matter jurisdiction upon the whim of the parties. Though the Union ostensibly contradicted
its breach of contract claim in response to the motions to compel, it did allege breach of contract in
its properly pleaded complaint. The Court therefore retains subject matter jurisdiction.
The next question is whether estoppel prevents the Union and/or Kienstra from alternately
disavowing then championing the applicability of the CBA.3 That is, can the Union claim that both:
(a) Kienstra is the alter-ego of Illini and is thus bound to the provisions of the Illini-Union CBA, and
(b) Kienstra cannot enforce the arbitration provision of the Illini-Union CBA against the Union
now? Likewise, can Kienstra claim that both: (a) it is not an alter-ego of Illini; and (b) it is allowed
to move for arbitration under the Illini-Union CBA? Kienstra moves to compel arbitration between
itself and the Union on the basis of the Illini-Union CBA. However, Kienstra’s defense is premised
on the argument that Kienstra is not a party to that CBA because Kienstra is not the alter-ego of
Illini. This muddles the applicability of Rule 14(2)(D) to Illini’s motion to compel (is arbitration
3
Arbitration is generally “a creature of contract.” Dunmire v. Schneider, 481 F.3d 465,
467 (7th Cir. 2007). However, non-signatories to arbitration agreements can be bound to
arbitrate under an estoppel theory. See Thomson-CSF, S.A. v. American Arbitration Association,
64 F.3d 773, 777 (7th Cir. 1995). In addition to estoppel, there are four other doctrines “through
which a non-signatory can be bound by arbitration agreements entered into by others:”
assumption, agency, veil piercing, and incorporation by reference. Zurich American Insurance
Company v. Watts Industries, Inc., 417 F.3d 682, 687 (7th Cir. 2005). These doctrines are not
directly applicable here, as it is the non-signatory, Kienstra, seeking to compel arbitration
between itself and the two signatories. Zurich is instructive, however, in that the district court
initially decided the issue of whether certain parties were bound to arbitrate.
Page 7 of 9
a defense to the Union’s claim against Kienstra?). Kienstra, meanwhile, relies on Hughes Masonry
to argue that the Union “cannot have it both ways.” Hughes Masonry 659 F.2d at 839. In Hughes
Masonry, only Hughes, the plaintiff, and Clark, one of the defendants, were signatories to the
contract that Hughes sought to enforce against both Clark and J.A., the co-defendant. However, the
contract identified J.A. as the construction manager for the building project. The Seventh Circuit
noted that “the facts alleged constitute breaches of obligations spelled out in the Hughes-Clark
agreement. Ultimately, therefore, Hughes must rely on the terms of the Hughes-Clark agreement
in its claims against J.A. Hence, Hughes is estopped from repudiating the arbitration clause of this
agreement, upon which it relies.” Id. at 841. J.A., though not signatory to the contract, was
contemplated within the contract as a party involved in the construction. A difference here, is that
Kienstra is nowhere identified in the Illini-Union CBA because (the Union claims) Illini dissolved
and reformed with “Kienstra” as its alter-ego in an effort to shirk responsibilities under the CBA.
Additionally, here the Union only seeks a declaratory judgment that Kienstra is an alter-ego and is
bound to the Illini CBA. The alter-ego issue distinguishes Hughes Masonry.
The crux of the motions to compel is whether the alter-ego question must be arbitrated.
“Whether or not [a] company [is] bound to arbitrate, as well as what issues it must arbitrate, is a
matter to be determined by the court on the basis of the contract entered into by the parties.” John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547 (1964). The CBA provides for mandatory
arbitration for all controversies, complaints, misunderstandings, and disputes arising as to meaning,
application, or observance of any of the provisions of the CBA. When we ask “Is Kienstra bound
by the CBA?” and “Does the CBA apply to this dispute?,” are we asking the same question? If so,
the action should be in arbitration. The Court finds that these are distinct questions. The alter-ego
Page 8 of 9
issue need not be arbitrated.4 The parties to the CBA cannot prospectively decide that a third party
will be bound to the CBA. The CBA could have included language binding Illini-successors-ininterest to the CBA, but it did not.5 The question of whether third parties might be bound to the
CBA is not contemplated in the agreement, and the arbitration clause is thus not applicable. The
Court can decide whether Kienstra is bound by the CBA without stepping into the bounds of the
CBA’s arbitration provision. The motions of Kienstra and Illini to compel arbitration are therefore
DENIED.
IT IS SO ORDERED.
DATED: May 6, 2011
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G. PATRICK MURPHY
United States District Judge
4
Analogously, though 29 U.S.C. § 1401(a)(1) of ERISA “specifies that any dispute
between an employer and the plan sponsor of a multiemployer plan…shall be resolved through
arbitration, the threshold question of whether a company is an ‘employer’ may be submitted to a
court prior to arbitration.” Transpersonnel, Inc. v. Roadway Exp., Inc., 422 F.3d 456, 459 n. 1
(7th Cir. 2005). Determining the parties to the arbitration is not necessarily an arbitrable
question.
5
The Court notes that “[a]s a general matter…a corporate relationship alone is not
sufficient to bind a nonsignatory to an arbitration agreement.” Thomson-CSF, S.A. v. American
Arbitration Association, 64 F.3d 773, 777 (7th Cir. 1995).
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