Summary
deciding that, because one defendant company was formed solely "to pay fringe benefits on behalf of Union members," summary judgment for defendants was inappropriate
Summary of this case from Johnson v. Charps Welding & Fabricating, Inc.Opinion
Case No. 03-6381 ADM/AJB.
November 24, 2004
Pamela Hodges Nissen, Esq., and Timothy J. Foster, Esq., McGrann, Shea, Anderson, Carnival, Straughn Lamb, Minneapolis, MN, appeared for and on behalf of Plaintiffs.
John B. Arnold, Esq., Dunlap Seeger, Rochester, MN, appeared for and on behalf of Defendants.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On October 8, 2004, oral argument before the undersigned United States District Judge was heard on the cross motions for Summary Judgment filed by Plaintiffs and Defendants [Docket Nos. 8 and 14]. The Plaintiffs are the chairpersons and secretaries of the Minnesota Laborers Health and Welfare Fund and Minnesota Laborers Pension Fund, the Minnesota Laborers Vacation Fund, the Construction Laborers' Education, Training, and Apprenticeship Fund of Minnesota and North Dakota, and the Minnesota Laborers Employers Cooperation and Education Trust (collectively, "Plaintiffs" or the "Funds"). In their Complaint [Docket No. 1], Plaintiffs assert Defendants Richard J. Swenke ("Swenke"), doing business as Zumbro Valley Contracting ("Zumbro Valley"), and Swenke Company, Inc. ("Swenke Company") (collectively, "Defendants") wrongfully withheld certain fringe benefit payments due and owing to the Plaintiffs. For the reasons set forth below, Plaintiffs' Motion is granted and Defendants' Motion is denied.
II. BACKGROUND
For purposes of the instant Motion, the facts are viewed in the light most favorable to the nonmovant. See Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995). Here, because both sides have moved for summary judgment and the material facts are undisputed, the presumption is of no significance.
Swenke Company was incorporated on April 14, 1984. Swenke Dep. at 4 (Arnold Aff. [Docket No. 18] Ex. A). Richard Swenke has, since the inception of Swenke Company, been the sole owner and president. Id. at 4-5. Swenke Company is in the business of installing commercial and residential sewer and water mains.Id. at 7-9. Throughout its existence, Swenke Company has been a non-union facility. During the relevant time period, less than a quarter of Swenke Company's employees were members of the Construction Laborers Union, Local No. 405 (the "Union"). Swenke Aff. ¶ 4 (Arnold Aff. Ex. B).
In 1995, Zumbro Valley was formed. Zumbro Valley is also solely owned by Swenke. The purpose of Zumbro Valley is to pay fringe benefits on behalf of Union members. Swenke Aff. ¶ 4. Zumbro Valley is a sewer and water contractor which primarily serves as a subcontractor to Swenke Company. Swenke Dep. at 19-23, 28. Since the formation of Zumbro Valley, the Union has been aware that Swenke owned both Zumbro Valley and Swenke Company. Swenke Aff. ¶ 4; Siem Dep. at 31 (Arnold Aff. Ex. C); Drake Dep. at 13-14 (Arnold Aff. Ex. D).
On two occasions, Swenke, on behalf of Zumbro Valley, executed agreements consenting to be bound to the Collective Bargaining Agreement between the Highway, Railroad and Heavy Construction Contractors and the Laborers District Council of Minnesota and North Dakota ("CBA"). Skoog Aff. [Docket No. 11] ¶¶ 2-3, Exs. A, B. Among other things, the CBA requires employers to pay fringe benefits on behalf of any employee who performs covered work, including non-union employees. Id. at ¶ 6, Exs. C, D. Additionally, employers must provide the administrator of the Funds monthly fringe benefit reports. Id.
Zumbro Valley, to cover payment of the monthly fringe benefits, receives a check in the amount required to cover the fringe benefits from Swenke Company. Swenke Dep. at 25-27. A check is then issued in turn to the Funds for the amount of the fringe benefits. Id. Zumbro Valley uses the same office space leased to Swenke Company, does not issue W-2s, has never technically employed anyone, and does not enter into its own contracts. Id. at 22-23, 26-27, 35-36. Although Zumbro Valley ultimately issues the checks to the Funds, Swenke Company actually employs the workers for whose benefit Zumbro Valley makes fringe benefit payments. Id. at 25-27. These employees are paid by Swenke Company, and are reported on payroll records as employees of Swenke Company.
During a standard audit of employment and payroll records, Plaintiffs' auditor reviewed the records of Swenke Company. After reviewing the results of the audit, Plaintiffs billed Zumbro Valley, claiming unpaid contributions for the non-union employees employed by Swenke Company. Zumbro Valley's refusal to pay these contributions ultimately led to this lawsuit. Both Plaintiffs and Defendants have moved for summary judgment.
III. DISCUSSION
A. Summary Judgment Standard
Federal Rule of Civil Procedure 56(c) provides that summary judgment shall issue "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
B. Plaintiffs' Motion for Summary Judgment
1. Acceptance by Conduct
In its Motion for Summary Judgment, Plaintiffs argue Swenke Company, by and through its conduct, is bound to the CBA, and therefore is liable for fringe benefit payments on behalf of its non-union employees. Defendants argue the facts of this case do not demonstrate that Swenke Company is bound to the terms of the CBA through its conduct.
Plaintiffs begin their argument by citing the ERISA definition of an employer: "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan. . . ." 29 U.S.C. § 1145. Plaintiffs further aver Swenke's execution of two agreements binding Zumbro Valley to the CBA also serve to bind Swenke Company to the CBA, because, in actuality, the employer at all times was Swenke Company. Plaintiffs emphasize that since Zumbro Valley's sole purpose was to pay fringe benefits on behalf of Swenke Company's union employees, Swenke Company was the actual employer. Furthermore, Zumbro Valley's lack of employees and assets, among other things, are additional proof that Zumbro Valley merely acted as a means for Swenke Company to avoid its obligations to the Funds. Plaintiffs cite a number of cases in which companies were held to be bound by collective bargaining agreements through their conduct. See, e.g., Greater St. Louis Construction Laborers Welfare Fund v. Don Richardson Concrete Co., 775 F.Supp. 1249, 1253 (E.D. Mo. 1991); Trustees of Atlanta Iron Workers, Local 387 Pension Fund v. Southern Stress Wire Corp., 724 F.2d 1458, 1458-59 (11th Cir. 1983).
Defendants respond by distinguishing the cases cited by Plaintiffs. Defendants argue Plaintiffs' cases contain sufficiently disparate fact patterns so as to render the holdings of the cases inapplicable to the issue at bar. In every case relied upon by Plaintiffs, the defendants had, at one point, signed an acceptance agreement or pre-hire agreement which acted to bind itself to the relevant collective bargaining agreement.See, e.g., Don Richardson Concrete, 775 F.Supp. at 1253;Southern Stress Wire, 724 F.2d at 1458-59. Later in these cases, the defendants attempted to avoid the obligations incurred by the collective bargaining agreement, each arguing that for various reasons, they should no longer be held to the respective agreement. Id. Here, Swenke Company has never signed an acceptance agreement or pre-hire agreement binding it to the CBA. Rather, the issue is whether Swenke Company can be bound by Zumbro Valley's acceptance of the CBA. Plaintiffs have been unable to cite any precedent which would allow this Court to determine that a third party can be bound to a collective bargaining agreement based on the facts alleged here. As a result, Plaintiffs' Motion fails on the argument of acceptance by conduct.
2. Alter Ego Liability
Plaintiffs also move for summary judgment on the theory of alter ego liability. Plaintiffs contend Zumbro Valley is merely an alter ego of Swenke Company, and therefore, Swenke Company is responsible for the fringe benefit payments. Defendants argue that Plaintiffs cannot, as a matter of law, establish the alter ego connection.
As a threshold matter, it must be determined what type of alter ego liability is applicable in this instance. Although at first blush, labor law alter ego liability would seem to be the appropriate test, Eighth Circuit precedent makes clear corporate alter ego liability is the measure to be employed in this benefit fund context. In Greater Kansas City Laborers Pension Fund v. Superior General Contractors, Inc., the Eighth Circuit addressed the issue under a similar fact pattern involving a pension fund's attempt to collect unpaid contributions. 104 F.3d 1050, 1055 (8th Cir. 1997). The Court held:
[W]e believe the corporate law standard for determining alter ego status strikes an appropriate balance between the congressional intent of ERISA and the long-established principle that a corporation's existence is presumed to be separate and may be disregarded only under narrowly prescribed circumstances.Id.; see also Minnesota Laborers Health and Welfare Fund v. Scanlan, 360 F.3d 925, 927-28 (8th Cir. 2004). The corporate law alter ego standard is a two pronged test, providing that "the legal fiction of the separate corporate entity may be rejected in the case of a corporation that (1) is controlled by another to the extent that it has independent existence in form only and (2) is used as a subterfuge to defeat public convenience, to justify wrong, or to perpetuate a fraud." Id. This test will be utilized to determine whether Swenke Company and Zumbro Valley are alter egos of each other.
As an alternative theory of recovery, Plaintiffs argue that Swenke Company and Zumbro Valley constitute a single employer.Superior General Contractors makes clear that the alter ego test is preferable to the single employer test in the ERISA context. Id. at 1056 n. 7.
As to the first prong of the test, it is clear that Zumbro Valley is controlled by Swenke Company to an extent that its independence is in form only. As has been previously noted, Swenke Company has identical ownership and management, employs and pays all employees, and shares office space with Zumbro Valley. Significantly, Defendants do not contest that Zumbro Valley and Swenke Company meet the first prong of the alter ego test. Defs' Mem. of Law in Opposition to Pls' Motion for Summary Judgment at 9.
The second prong of the corporate alter ego test is a closer question. Defendants argue that the purpose of Zumbro Valley was not to justify a wrong or perpetrate a fraud. Defendants stress the Union has long been aware of the arrangement between Zumbro Valley and Swenke Company. The Union has allowed the relationship to continue without objection. Moreover, the Union has never attempted to unionize Swenke Company. Because the arrangement between Zumbro Valley and Swenke Company was never concealed, Defendants claim it cannot be fraudulent.
In response, Plaintiffs argue that the Union's position on this issue is not dispositive. Plaintiffs argue that the Funds have the right to enforce the terms of the CBA, regardless of the conduct of the parties to the CBA. Plaintiffs cite Eighth Circuit law for the proposition that an ERISA trust fund is in a better position to enforce obligations than signatories to a collective bargaining agreement, in that a trust fund is insulated from common contract defenses, such as fraud in the inducement, oral side agreements, or performance. Central States, Southeast and Southwest Areas Pension Fund v. Independent Fruit Produce Co., 919 F.2d 1343, 1348 (8th Cir. 1990).
Plaintiffs' argument is persuasive. If Defendants were allowed to continue their practice of using Zumbro Valley as a shield to avoid the obligations of the CBA through use of multiple corporate structures, the intent of the CBA would be thoroughly frustrated. The CBA clearly calls for signatories to pay fringe benefit payments for all employees performing certain tasks, not merely those who are Union members. To hold otherwise would open the door for any signatory to the CBA to perform an end run around these requirements by simply incorporating a distinct entity whose sole purpose is to pay fringe benefits, as has happened in this case. Although Zumbro Valley and Swenke Company have not masked their intentions, transparency alone cannot justify the wrong to the Funds. As a result, summary judgment will be granted to Plaintiffs.
C. Defendants' Motion for Summary Judgment
In their Motion for Summary Judgment, Defendants argue that National Labor Relations Board ("NLRB") rules prohibit judgment in favor of Plaintiffs. Specifically, Defendants cite Section 7 of the National Labor Relations Act, 29 U.S.C. § 157, for this proposition. This section reads in pertinent part: "[E]mployees shall have the right to self-organization, to form, join, or assist labor organization, to bargain collectively through representatives of their own choosing . . . and shall also have the right to refrain from any and all of such activities . . ." 29 U.S.C. § 157. Based on this language, Defendants aver that a judgment for Plaintiffs would violate the right of Swenke Company employees to refrain from organizing.
Defendants' argument is misplaced. Simply stated, Plaintiffs are not attempting to unionize Swenke Company, nor will the decision necessarily force employees of Swenke Company to become a labor organization. Rather, a judgment for Plaintiffs will merely require Swenke Company to fulfill the requirements of the CBA. The status of the employees as union or non-union members, however, need not change.
D. Damages
Plaintiffs included an in-depth discussion of damages in their Summary Judgment brief. Defendants elected not to respond to these arguments. Plaintiffs, in addition to requesting relief equal to the amount of fringe benefits owed to the Funds, request an award of double interest, as well as attorney's fees and costs. As the only information on the amount of damages has been provided by Plaintiffs, this matter will be referred to the Magistrate Judge for a conference with the parties to calculate the appropriate damages amount. Should this conference fail to produce an agreement, the parties may inform the Court, which will determine an appropriate damages award.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that:1. Plaintiffs' Motion for Summary Judgment [Docket No. 8] is GRANTED;
2. Defendants' Motion for Summary Judgment [Docket No. 14] is DENIED; and
3. The parties are referred to the Magistrate Judge to agree to a damages award or to establish a briefing schedule for this Court to determine the damages figure.