Kelly et al v. Gas Field Specialists, Inc.
Filing
54
MEMORANDUM (Order to follow as separate docket entry) re: deferred judgment per 36 Order & 35 Memorandum & determination of damages. (See memo for complete details.) Signed by Chief Judge Christopher C. Conner on 7/5/17. (ki)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
FRANK KELLY and TODD C. RAY,
As Trustees of the PLUMBERS
AND PIPEFITTERS LOCAL NO.
520 HEALTH AND WELFARE
FUND; PLUMBERS AND
PIPEFITTERS LOCAL NO. 520
PENSION FUND; PLUMBERS
AND PIPEFITTERS LOCAL NO.
520 ANNUITY FUND,
Plaintiffs
v.
GAS FIELD SPECIALISTS, INC.,
Defendant
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CIVIL ACTION NO. 1:14-CV-4
(Chief Judge Conner)
MEMORANDUM
Plaintiffs Frank Kelly and Todd C. Ray, as trustees of the Plumbers and
Pipefitters Local No. 520 Health and Welfare Fund, Pension Fund, and Annuity
Fund, commenced the above-captioned action pursuant to Section 502(a) and
Section 515 of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C.
§§ 1132(a), 1145, against defendant Gas Field Specialists, Inc. (“Gas Field”). The
court previously entered summary judgment against Gas Field on the question of
liability and reserved the issue of damages for further proceedings. (Doc. 36). In
lieu of a bench trial, the parties stipulated to relevant facts (Doc. 50) and submitted
briefs articulating their respective positions regarding proper damages. (See Docs.
52, 53). We set forth our findings of fact and conclusions of law herein pursuant to
Federal Rule of Civil Procedure 52(a).
I.
Findings of Fact and Procedural Background1
Plaintiffs Frank Kelly and Todd C. Ray are trustees of the Local 520’s Health
and Welfare Fund, Pension Fund, and Annuity Fund (collectively, “the Funds”).
(Doc. 35 at 2). Each Fund is structured as a multiemployer employee benefit plan
within the meaning of Sections 3(3) and 3(37) of ERISA. (Id.); see also 29 U.S.C.
§ 1002(3), (37). The parties agree that Gas Field is an “employer” and Local 520 is
an “employee organization” within the meaning of the statute. (See Doc. 35 at 2);
see also 29 U.S.C. § 1002(4)-(5).
Local 520 is party to a collective bargaining agreement, identified by the
parties and herein as the “2012-2015 Agreement,” with the Mechanical Contractors
Association of Central Pennsylvania (“MCA”). (Doc. 35 at 2). Local 520 is also party
to collective bargaining agreements with employers that are not MCA members,
such as Gas Field. (Id.) Gas Field became a party to the 2012-2015 Agreement by
virtue of a document titled “RECOGNITION / JOINDER,” referred to by the parties
as the “2012-2015 Recognition,” which provides that Gas Field “adopts and agrees
to be bound by the terms and conditions of the [2012-2015 Agreement].” (Id. at 2-3).
The Funds, through the trustees, commenced this action on January 2, 2014.
(Doc. 1). Therein, the trustees sought an audit of Gas Field’s relevant employment
and payroll records, as well as any applicable damages authorized by the 2012-2015
Agreement and ERISA. (See id.) Following a period of discovery, the parties filed
1
We detailed the undisputed procedural and factual background in extenso
in our Rule 56 memorandum (Doc. 35), familiarity with which is presumed. We cite
to that memorandum for factual context and to the parties’ joint stipulation of facts
(Doc. 50) as pertains the issue of damages.
2
cross-motions (Docs. 21, 27) for summary judgment limited to the issue of liability.
The parties vigorously disputed whether the 2012-2015 Agreement obligated Gas
Field to contribute to the Funds on behalf of all Gas Field employees, regardless of
union or job status, or only on behalf of Local 520 employees assigned to designated
Gas Field projects. (See Doc. 35 at 8-9). We resolved that the plain language of the
2012-2015 Agreement—stating that same “shall apply to and cover all employees of
an Employer”—refuted Gas Field’s proposed limitation. (Id. at 10-11). Hence, we
granted the Funds’ motion, denied Gas Field’s motion, and deferred entry of
judgment pending a determination of damages. (See Docs. 35, 36).
The Funds hired auditors to review Gas Field’s payroll records and identify
employees covered by the 2012-2015 Agreement as interpreted by the court. (See
Doc. 50 ¶ 2). The auditors thereafter identified all employees covered by the 20122015 Agreement for whom no contributions were made (the “covered employees”).
(See id. ¶ 3). The parties agree that, based on the court’s summary judgment ruling
and the auditors’ findings, Gas Field’s delinquencies for the covered employees are
as follows:
Pension Fund: $646,021.14 in contributions, $96,903.17 in liquidated
damages, and $184,608.17 in interest;
Annuity Fund: $248,055.66 in contributions, $37,208.35 in liquidated
damages, and $70,993.25 in interest; and
Health and Welfare Fund: $648,467.35 in contributions, $97,270.10 in
liquidated damages, and $185,893.68 in interest.
(Id. ¶¶ 4-6).
3
For covered employees on whose behalf Gas Field did not make requisite
Fund contributions, Gas Field provided certain alternative benefits. (See id. ¶¶ 8-9).
Gas Field provided health insurance at a cost of $146,166.23, and contributed to a
401(k) retirement plan in the amount of $25,566.31. (Id.)
II.
Conclusions of Law
Gas Field does not dispute the accuracy of the auditors’ calculations. (See
id. ¶¶ 6-8). Gas Field instead asserts that its provision of alternative benefits to the
covered employees either (1) immunizes it from an ERISA damages award, at least
with respect to the Health and Welfare Fund, or (2) entitles it to an offset or credit
for the amount of alternative benefits provided. (Id. ¶¶ 7-9; Doc. 52 at 2-4). Neither
argument has merit.
Section 515 of ERISA provides that:
[e]very 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. If a fund successfully establishes a statutory right to delinquent
contributions, ERISA entitles the fund to the unpaid contributions themselves as
well as interest thereon, liquidated damages, and attorneys’ fees and costs. See 29
U.S.C. § 1132(g)(2). Liquidated damages shall be the greater of the unpaid interest
or any amount contemplated under the plan not more than 20 percent of the unpaid
contributions. Id. § 1132(g)(2)(C).
4
By enacting Section 515, Congress intended to ratify the United States
Supreme Court’s holding in Lewis v. Benedict Coal Corp., 361 U.S. 459 (1960).
See Cent. Pa. Teamsters Pension Fund v. McCormick Dray Line, Inc., 85 F.3d
1098, 1102-03 (3d Cir. 1996) (citing Lewis, 361 U.S. at 470-71). The Court in Lewis
concluded that employers cannot wield a union’s breach of a collective bargaining
agreement as a defense against third-party funds seeking delinquent contributions.
Lewis, 361 U.S. at 470-71. Section 515 codifies this principle and grants third-party
funds a statutory remedy to recover delinquencies when employers violate the
terms of collective bargaining agreements. Cent. Pa. Teamsters Pension Fund, 85
F.3d at 1103 (quoting Benson v. Brower’s Moving & Storage, Inc., 907 F.2d 310, 314
(2d Cir. 1990)).
Funds seeking delinquent contributions under Section 515 are entitled to
enforce the collective bargaining agreement “as written” and “without regard to
understandings or defenses applicable to the original parties.” Id. (quoting Cent.
States, Se. & Sw. Areas Pension Fund v. Gerber Truck Serv., Inc., 870 F.2d 1148,
1149 (7th Cir. 1989) (en banc)). Consequently, the full range of traditional contract
defenses is not available to employers sued under Section 515. Id. at 1103-04. The
Third Circuit Court of Appeals recognizes only three defenses to delinquency: (1)
the contributions are themselves illegal; (2) the collective bargaining agreement is
void ab initio; or (3) the union has been decertified as the employees’ bargaining
representative. Agathos v. Starlite Motel, 977 F.2d 1500, 1505-06 (3d Cir. 1992)
(citations omitted).
5
In our Rule 56 opinion, we concluded that Gas Field cannot avail itself of any
of the three accepted defenses. (See Doc. 35 at 11-14). Gas Field now avers that the
Agathos panel implicitly recognized a fourth defense: that an employer’s delinquent
contribution obligations are cancelled or at least mitigated when employees have
no cognizable claim to a fund’s benefits. (Doc. 52 at 2). Gas Field contends that its
provision of health insurance benefits to covered employees is a complete defense
to its delinquent contributions to the Health and Welfare Fund.2 (Id. at 2-3).
In Agathos, union welfare and pension benefit funds sued to recover
contributions on behalf of eight employees whose employment was never reported
to the funds. See Agathos, 977 F.2d at 1503. The Third Circuit panel highlighted
that the funds themselves were largely to blame for the deficiency: the funds had
neglected their fiduciary duty to identify covered employees and inform them of
their rights. Id. at 1507. As a result of this “dereliction of . . . fiduciary obligations,”
employees had no basis to expect coverage. Id. The court resolved that, under the
unique circumstances of the case, to require “unconditional[]” contributions on
behalf of all employees, even those with no arguable claim to benefits, would result
in a “windfall” to the funds. See id. (citing Sheet Metal Workers’ Int’l Ass’n, Local
206 v. West Coast Sheet Metal Co., 954 F.2d 1506, 1510 (9th Cir. 1992)). The panel
thus remanded to the district court to determine which unreported employees had
a “colorable claim” against the funds. See id. at 1507-08.
2
Gas Field does not raise this argument with respect to the Annuity or
Pension Funds. (See id. at 2-3).
6
Courts confronted with the “windfall” argument generally characterize
Agathos as “the exception, not the rule.” See D.A. Nolt, Inc. v. Local Union No.
30, 143 F. Supp. 3d 229, 239 n.6 (E.D. Pa. 2015). In other words, the atypical result
in Agathos was limited to “the specific circumstances” of that case. Id. There is no
evidence sub judice that the Funds “persistently violated” their fiduciary duties or
are otherwise responsible for the deficiency. See Agathos, 977 F.2d at 1507; see also
D.A. Nolt, Inc., 143 F. Supp. 3d at 239 n.6; Trs. of Int’l Bhd. of Teamsters Local 531
Sick & Welfare Fund v. Marangi Bros., Inc., 289 F. Supp. 2d 455, 463-64 (S.D.N.Y.
2003) (citations omitted). Indeed, Gas Field concedes that the near-total abdication
of fiduciary obligations animating the Agathos ruling is simply “not present here.”
(Doc. 52 at 2). Agathos does not relieve Gas Field of its obligation to remit
delinquent contributions to the Health and Welfare Fund.
Gas Field also entreats the court to adopt the position taken by dissenting
judges in the Seventh Circuit’s en banc decision in Central States, Southeast and
Southwest Areas Pension Fund v. Gerber Truck Service, Inc., 870 F.2d 1148 (7th
Cir. 1989) (Cudahy, J., dissenting). The dissent in Gerber Truck suggests broadly
that the general rule of contributions for “all employees” must yield to “equitable
exception” in cases where rigid application might otherwise work a windfall. See
id. at 1158. The Third Circuit carved its limited equitable exception to Section 515
in Agathos. Absent any indication the appellate court intended us to do so, we
decline to extend that narrow exception further.
Gas Field alternatively contends that the court should reduce the total
damages award by the amount of health insurance benefits and 401(k) retirement
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plan contributions it provided to covered employees. (Doc. 52 at 3-4). Gas Field
identifies no decisional law supporting its proposed reduction, and the court’s
research reveals none. Contrary authority, however, is abundant. At least three
circuit courts have flatly rejected the notion that provision of alternative benefits
directly to an employee satisfies an employer’s obligation to the fund. See O’Hare
v. Gen. Marine Transp. Corp., 740 F.2d 160, 170 (2d Cir. 1984); Brogan v. Swanson
Painting Co., 682 F.2d 807, 809 (9th Cir. 1982); Local 9, Int’l Union of Operating
Eng’rs v. Siegrist Constr. Co., 458 F.2d 1313, 1316 (10th Cir. 1972).
We find the ratio decidendi of the Second, Ninth, and Tenth Circuits
persuasive. Congress enacted Section 515 to ensure that multiemployer benefit
funds may enforce the terms of collective bargaining agreements “as written.”
Cent. Pa. Teamsters Pension Fund, 85 F.3d at 1103. In accordance with the plain
language of the 2012-2015 Agreement, the Funds herein reasonably anticipated
contributions on behalf of all covered employees. Gas Field’s position would allow
it to evade this contractual obligation, bypass Section 515, and force third-party
funds to bear the cost of its unilateral decision to offer alternative benefits in lieu of
agreed contractual contributions. ERISA does not permit this result. See O’Hare,
740 F.2d at 170; Brogan, 682 F.2d at 809; Local 9, Int’l Union of Operating Eng’rs,
458 F.2d at 1316. No matter how well-intended Gas Field’s decision, the provision
of alternative benefits to the covered employees neither excuses nor reduces Gas
Field’s liability to the Funds. To comply with Section 515, Gas Field must remit
the stipulated damages to the Funds in full.
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III.
Conclusion
The court will enter judgment in favor of the Funds for the total amount of
damages outlined in the parties’ joint stipulation of facts. (Doc. 50). An appropriate
order shall issue.
/S/ CHRISTOPHER C. CONNER
Christopher C. Conner, Chief Judge
United States District Court
Middle District of Pennsylvania
Dated:
July 5, 2017
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