CEMENT MASONS' UNION LOCAL NO. 592 PENSION FUND et al v. PERMAFLOOR, LLC et al

Filing 25

MEMORANDUM AND ORDER THAT THE MOTION OF CEMENT MASONS UNION LOCAL NO.592 TO DISMISS DEFENDANTS COUNTERCLAIM IS GRANTED AS TO COUNT II OF THE COUNTERCLAIM. THE MOTION TO DISMISS IS OTHERWISE IS DENIED. THE MOTION OF ALL PLAINTIFFS TO STRIKE DEFENDANTS COUNTERCLAIM IS DENIED; ETC.. SIGNED BY HONORABLE HARVEY BARTLE, III ON 1/10/18. 1/10/18 ENTERED AND E-MAILED.(jl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CEMENT MASONS’ UNION LOCAL NO.
NO. 592 PENSION FUND, et al.
v.
PERMAFLOOR, LLC, et al.

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CIVIL ACTION

NO. 17-597

MEMORANDUM
Bartle, J.

January 10, 2018
Plaintiff Cement Masons’ Union Local No. 592 of

Philadelphia (“Cement Masons” or “Union”), along with several
affiliated entities and multiemployer benefit trust funds,
commenced this action against defendants PermaFloor, LLC and
PermaFloor Keystone, Inc. (collectively “PermaFloor”) for audit
and contribution under the Employee Retirement Income Security
Act (“ERISA”), 29 U.S.C. §§ 1001 et seq. 1

Plaintiffs allege that

PermaFloor failed to make contributions to certain employee
benefit funds as required under the terms of a collective
bargaining agreement.

In response, PermaFloor filed an answer

including a counterclaim against Cement Masons for fraudulent

1. Plaintiffs are Cement Masons’ Union Local No. 592 Pension
Fund; Cement Masons’ Union Local No. 592 Welfare Fund; Cement
Masons’ Union Local No. 592 Joint Apprenticeship Training Fund;
General Building Contractors’ Association, Inc. Industry
Advancement Program; Cement Masons’ Union Local No. 592
Political Action Committee; Cement Masons’ Union Local No. 592
of Philadelphia; and Bill Ousey, a fiduciary of the funds.

misrepresentation and fraudulent inducement with respect to the
collective bargaining agreement.
Before the court is the motion of Cement Masons to
dismiss the counterclaim under Rule 12(b)(6) of the Federal
Rules of Civil Procedure.

Also before the court is the motion

of all plaintiffs to strike the counterclaim under Rule 12(f) of
the Federal Rules of Civil Procedure.
I
When deciding a Rule 12(b)(6) motion, the court must
accept as true all factual allegations in the complaint and draw
all inferences in the light most favorable to the plaintiff.
See Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir.
2008); Umland v. PLANCO Fin. Servs., Inc., 542 F.3d 59, 64 (3d
Cir. 2008).

We must then determine whether the pleading at

issue “contain[s] sufficient factual matter, accepted as true,
to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

A claim must do

more than raise a “mere possibility of misconduct.”

Fowler v.

UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009) (quoting Iqbal,
556 U.S. at 679).

Under this standard, “[t]hreadbare recitals

of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.”

Iqbal, 556 U.S. at 678.

On a motion under Rule 12(b)(6), the court may consider
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“allegations contained in the complaint, exhibits attached to
the complaint, and matters of public record.”

Pension Benefit

Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196
(3d Cir. 1993) (citing 5A Charles Allen Wright & Arthur R.
Miller, Federal Practice and Procedure § 1357 (2d ed. 1990)).
Rule 12(f) of the Federal Rules of Civil Procedure
provides that the court may strike from any pleading any
“insufficient defense or any redundant, immaterial, impertinent,
or scandalous matter.”

Fed. R. Civ. P. 12(f).

A court should

not grant a motion to strike a defense unless the insufficiency
of the defense is “clearly apparent.”

Cipollone v. Liggett

Grp., Inc., 789 F.2d 181, 188 (3d Cir. 1986).

Such motions,

which are disfavored, are usually denied unless the material
that the movant seeks to strike has “no possible relation to the
controversy and may cause prejudice to one of the parties.”
McInerny v. Moyer Lumber & Hardware, Inc., 244 F. Supp. 2d 393,
402 (E.D. Pa. 2002).
II
The following facts alleged in the counterclaim are
treated as true for present purposes. 2

PermaFloor is a

corporation engaged in the installation of seamless flooring.
On or about July 30, 2007, the Union picketed a job site where

2. The court relies on the facts alleged in PermaFloor’s answer
and counterclaim as well as documents referenced therein.
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PermaFloor was working.

That day, the owner and president of

PermaFloor met with representatives of the Union.

During this

meeting, the Union agreed to end the picketing on the condition
that PermaFloor enter into a collective bargaining agreement
with the Union.

According to PermaFloor, the Union represented

that current PermaFloor employees or future employees trained by
PermaFloor would not be required to be Union members.

However,

PermaFloor would be required to hire Union members on a
one-to-one-basis to its non-Union employees if working on a
Union project within Philadelphia, Bucks, Chester, Delaware, and
Montgomery Counties.

As a result, PermaFloor would not have to

make payments to the employee benefit funds affiliated with the
Union except for work performed by Union members hired by
PermaFloor at Union locations within the greater Philadelphia
region.
On the basis of these representations, PermaFloor’s
president signed a single-page document titled “Independent
Contractors Agreement with Plasters and Cement Masons Union
Local No. 592.”

This page states:

“The Employer shall be, and

is hereby, bound by all of the terms and conditions of
employment contained in the attached Independent Contractor’s
agreement between the Union and the Employer.”

The page

contains a handwritten notation “Philadelphia + 5 Counties” but
does not otherwise reference the representations allegedly made
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by the Union.
PermaFloor was not presented with a copy of the full
Independent Contractor’s Agreement and never requested such
document from the Union.

Thereafter, PermaFloor made

contributions to the employee benefit funds in accordance with
its understanding of the oral representations made by the Union.
Sometime in 2015, the Union requested a payroll compliance
review of PermaFloor’s financial records.

In December 2015,

PermaFloor’s president spoke with a representative of the Union
who allegedly confirmed that “some companies, apparently
including PermaFloor, did not have a full contract with the
Union.” 3
On February 2, 2017, plaintiffs filed a complaint in
this court seeking a full audit of PermaFloor’s financial
records and for contribution of money allegedly owed to the
funds.

Plaintiffs attached to the complaint a lengthy document

titled “Independent Contractor Agreement.”

The document appears

to be a form agreement between the Union and “Employer” but does
not reference PermaFloor specifically.
Plaintiffs allege that PermaFloor assented to the full
Independent Contractor Agreement, which obligates it to make
contributions to the funds for all its covered employees and
3. The parties dispute whether this conversation was recorded
legally. We need not resolve this issue for purposes of the
present motion.
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includes work performed outside the Philadelphia region.

After

a status conference with the court, PermaFloor cooperated with
an audit.

On August 8, 2017, an accountant retained by

plaintiffs issued an audit report stating that PermaFloor owes
$9,992,818.24 in delinquent contributions to the funds.

On

September 18, 2017, PermaFloor filed its answer with a two-count
counterclaim alleging fraudulent misrepresentation and fraud in
the inducement.

PermaFloor maintains that the Union’s alleged

fraud only became apparent after it received a copy of the audit
report.
III
Plaintiffs’ complaint is brought under section 515 of
ERISA, which states:
Every employer who is obligated to make
contributions to a multiemployer plan under
the terms of the plan or under the terms of
a collectively bargained agreement shall, to
the extent not inconsistent with law, make
such contributions in accordance with the
terms and conditions of such plan or such
agreement.
29 U.S.C. § 1145.

Congress’s intent in enacting section 515 was

to allow multiemployer welfare funds to rely upon the terms of
collective bargaining agreements and plans as written, thus
“permit[ting] trustees of plans to recover delinquent
contributions efficaciously, and without regard to issues which
might arise under labor-management relations law.”

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Cent. Pa.

Teamsters Pension Fund v. McCormick Dray Line, Inc., 85 F.3d
1098, 1103 (3d Cir. 1996) (quoting 126 Cong. Rec. 23,039 (1980)
(remarks by Rep. Thompson)).

Congress found that employer

delinquency “detract[ed] from the ability of plans to formulate
or meet funding standards and adversely affect[ed] the financial
health of plans.”

Id. (quoting 126 Cong. Rec. 23,039).

By

enacting section 515, Congress sought to ensure that benefit
plans are able to rely on the contribution promises of employers
“because plans must pay out to beneficiaries whether or not
employers live up to their obligations.”

Id. (quoting Benson v.

Brower’s Moving & Storage, Inc., 907 F.2d 310, 314 (2d Cir.
1990)).
In accordance with this legislative history, courts
have interpreted section 515 as severely limiting the defenses
available to an employer who has executed an agreement to
contribute to a benefit fund.
F.2d 1500, 1505 (3d Cir. 1992).

Agathos v. Starlite Motel, 977
Indeed, courts have recognized

only three defenses to a section 515 action:

(1) the pension

contributions themselves are illegal; (2) the employees have
voted to decertify the union as its bargaining representative,
thereby prospectively voiding the agreement; or (3) the
collective bargaining agreement is void ab initio due to fraud
in the execution.

Id.

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In Count I of the counterclaim PermaFloor alleges
fraudulent misrepresentation by the Union.

In support of this

claim, PermaFloor asserts that through its owner it executed a
single-page document which it believed memorialized its assent
to an agreement incorporating the oral representations made by
the Union during negotiations.

At oral argument counsel for

PermaFloor asserted that this count is in essence a claim for
fraud in the execution although it is not labelled as such.
Fraud in the execution, also known as fraud in factum,
arises when a party executes an agreement believing that such
agreement is an entirely different document.
at 1505.

Agathos, 977 F.2d

To state a claim for fraud in execution, a party must

allege “excusable ignorance of the contents of the writing
signed.”

Id. (quoting Sw. Administrators, Inc. v. Rozay’s

Transfer, 791 F.2d 769, 774 (9th Cir. 1986)).
For example, in Connors v. Fawn Mining Corp., an
employer executed a single signature page the day before a
threatened mine closure.

30 F.3d 483, 486-87 (3d Cir. 1994).

There was no document attached to the page at the time and the
employer claimed both parties intended the page to symbolize
their assent to the terms of a longer agreement memorializing
certain representations made by the union during negotiations.
Id. at 486-87, 492.

Under these facts our Court of Appeals

reversed a grant of summary judgment in favor of the funds and
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permitted the employer to proceed with its defense of fraud in
the execution.

Id. at 493.

In doing so, the Court stated:

If an employer reviews a document reflecting
the agreements reached in collective
bargaining and the union surreptitiously
substitutes a materially different contract
document before both sides execute it, we
think it clear that there has been a fraud
in the execution of the contract and that
the agreement reflected in the executed
document is void ab initio and unenforceable
by the union. The employer has never
manifested an assent to the terms of the
alleged contract, and the written document
purporting to evidence the agreement has
been obtained by fraud.
Id.
The Court in Connors cited with approval a prior
decision by the Court of Appeals for the Ninth Circuit,
Operating Engineers Pension Trust v. Gilliam, 737 F.2d 1501,
1503 (9th Cir. 1984).

Connors, 30 F.3d at 492.

In Gilliam, the

plaintiff signed a document after the union allegedly
represented to him that the document was an application to
become a union member as an owner-operator.

737 F.2d at 1503.

However, the document in fact was a collective bargaining
agreement requiring the plaintiff to make contributions to a
trust fund on behalf of all his employees.

Id.

The trust later

brought suit for delinquent contributions due under the
agreement.

Id.

The Court held that the employer “was not

obligated to make such payments as he had reasonably relied on

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the union’s representation that he was signing a document of a
wholly different nature.”

Rozay’s Transfer, 791 F.2d at 774

(citing Gilliam, 737 F.2d at 1504–05).

Therefore the plaintiff

had asserted a valid defense of fraud in the execution.
Gilliam, 737 F.2d at 1504–05.
The allegations raised by PermaFloor here are similar
to those made by the employer in Connors and Gilliam.

As

discussed above, PermaFloor asserts that it executed a single
signature page and was misled as to the nature of the actual
agreement it entered.

Under these circumstances we find that

PermaFloor’s allegations are sufficient to state a counterclaim
for fraud in the execution.

The motion to dismiss will be

denied as to this claim so that the alleged fraud in the
execution can be explored further in discovery.
In Count II of the counterclaim, PermaFloor raises a
claim for fraud in the inducement.

Fraud in the inducement

arises when an employer executes a document understanding the
nature of the agreement but is motivated by misrepresentations,
such as whether the express provisions of the agreement will in
fact be enforced.
791 F.2d at 774-75.

Connors, 30 F.3d at 490-93; Rozay’s Transfer,
PermaFloor conceded at oral argument that

such a defense is not permitted under section 515.
977 F.2d at 1505.

See Agathos,

Therefore the motion to dismiss will be

granted as to this count.
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In support of its motion to dismiss, the Union has
also asserted that PermaFloor’s counterclaim is preempted by
section 301 of the Labor Management Relations Act, 29 U.S.C.
§ 185(a).

That statute preempts state law claims when such

claims are “substantially dependent upon” or “inextricably
intertwined with” consideration of the terms of a labor
contract.
(1985).

Allis-Chalmers Corp. v. Lucek, 471 U.S. 202, 213, 220
Here, PermaFloor has alleged that the collective

bargaining agreement at issue is void ab initio due to fraud in
the execution.

If true, the collective bargaining agreement

would be a nullity.

Under these circumstances section 301 is

inapplicable.
The Union also asserts that PermaFloor is bound to
arbitrate its counterclaim under the terms of the collective
bargaining agreement.

Again, if the collective bargaining

agreement is void ab initio due to fraud in the execution, there
can be no agreement to arbitrate.

Because it is unclear whether

the parties did in fact reach an agreement to arbitrate,
PermaFloor is entitled to further discovery and cannot be
compelled to arbitrate at this time.

See Guidotti v. Legal

Helpers Debt Resolution, LLC, 716 F.3d 764, 776 (3d Cir. 2013).

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Accordingly, the motion to dismiss Count I of
PermaFloor’s counterclaim will be denied but the motion will be
granted as to Count II. 4
IV
We next consider the motion of all plaintiffs to
strike the counterclaim under Rule 12(f).

As stated above, we

are dismissing the counterclaim to the extent it alleges fraud
in the inducement.

Thus the motion to strike is moot as to this

count.
To the extent the counterclaim alleges fraud in the
execution, we also will deny the motion to strike.

A court

should not grant a motion to strike a defense unless the
insufficiency of the defense is “clearly apparent.”
789 F.2d at 188.

Cipollone,

In its counterclaim PermaFloor has alleged

sufficient facts to state a claim for fraud in the execution,
which is a valid defense to an action brought under ERISA to
recover delinquent contributions.
1505.

See Agathos, 977 F.2d at

Therefore there is no ground to strike this portion of

the counterclaim from the action.
Accordingly the motion to strike will be denied.

4. In support of its motion to dismiss, the Union has also
asserted that PermaFloor’s counterclaim is barred by the statute
of limitations. We find the record before us is insufficient to
make a determination at this stage of the proceeding. However,
the Union may again raise this issue on summary judgment after
further discovery.
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