Carpenters Fringe v. McKenzie Engineering , 217 F.3d 578 ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 99-1506
___________
Carpenters Fringe Benefit Funds of *
Illinois; United Brotherhood of *
Carpenters and Joiners of America, *
Local 410 and Local 166, *
* Appeal from the United States
Plaintiffs - Appellees, * District Court for the
* Southern District of Iowa.
v. *
*
McKenzie Engineering, *
*
Defendant - Appellant. *
___________
Submitted: December 17, 1999
Filed: June 20, 2000
___________
Before RICHARD S. ARNOLD and LOKEN, Circuit Judges, and WEBB,*
District Judge.
___________
LOKEN, Circuit Judge.
McKenzie Engineering Company is a marine construction firm based in Fort
Madison, Iowa, that repairs bridges, docks, and dams on the Mississippi River. A
*
The HONORABLE RODNEY S. WEBB, Chief Judge of the United States
District Court for the District of North Dakota, sitting by designation.
union contractor, McKenzie is party to “pre-hire” collective bargaining agreements
with most of the craft unions whose members perform marine construction work on the
Mississippi. The Carpenters Fringe Benefit Funds of Illinois (the “Funds”) administers
pension and welfare benefit trust funds for the United Brotherhood of Carpenters and
Joiners (the “Carpenters”). Triggered by work assignment disputes between McKenzie
and two Carpenters local unions, the Funds conducted an audit of McKenzie’s payroll
records and concluded that unpaid contributions totaling $49,160.83 were owing under
collective bargaining agreements between the Carpenters and McKenzie. In this
lawsuit, the Funds sue to recover unpaid pension fund contributions under ERISA,1 and
the Carpenters locals sue to recover unpaid union dues and other contributions under
§ 301 of the Labor Management Relations Act, 29 U.S.C. § 185.
After a bench trial, the district court granted judgment against McKenzie for
nearly all the contributions claimed in the Funds audit, plus liquidated damages, audit
costs, interest, and attorney’s fees. McKenzie appeals, raising a variety of issues. We
conclude the Funds failed to prove that the applicable collective bargaining agreements
required McKenzie to pay the amounts claimed in the audit, and the Carpenters failed
to exhaust remedies under those agreements. Accordingly, we reverse.
1
The Funds sue under § 515 of ERISA, 29 U.S.C. § 1145, which provides:
Every employer who is obligated to make contributions to a multi-
employer 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.
“The liability created by [§ 1145] may be enforced by the trustees of a plan by bringing
an action in federal district court pursuant to [29 U.S.C. § 1132].” Laborers Health &
Welfare Trust Fund v. Advanced Lightweight Concrete Co., 484 U.S. 539, 547 (1988).
If successful, the Funds recover the unpaid contributions plus prejudgment interest,
liquidated damages, and attorney’s fees. See § 1132(g)(2).
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I. Background.
Over the years, McKenzie signed a series of one-page documents (each entitled
“Memorandum of Agreement”) under which it agreed with the Carpenters’ Northwest
Illinois & Eastern Iowa District Council to be bound by collective bargaining
agreements between the District Council and employer associations operating within
the geographic jurisdiction of the District Council. Carpenters Local 410 serves a
territory including Keokuk, Iowa, and is a member of the District Council. Carpenters
Local 166 serves a territory including Rock Island, Illinois, and is a member of the
District Council. In April 1994, McKenzie signed a collective bargaining agreement
with Local 410 (the “Local 410 Agreement”). There is no comparable agreement
between McKenzie and Local 166, but McKenzie does not dispute plaintiffs’
contention that a Memorandum of Agreement incorporates by reference a collective
bargaining agreement that covers Local 166’s territory and contains the same relevant
terms and conditions as the Local 410 Agreement. Therefore, we will look to the
specific terms of the Local 410 Agreement in resolving the entire dispute.
The Keokuk Dispute. In 1995 McKenzie was awarded a contract to repair an
icebreaker protecting a dam at Keokuk. McKenzie’s initial work crew included two
operating engineers, one boilermaker, and four carpenters who were members of Local
410. After some months, the work was behind schedule, and McKenzie’s president,
Robert McKenzie, blamed the four carpenters on his crew. After complaining to Local
410’s business agent, McKenzie fired the four, telling the business agent, “You go your
way, and I’ll go my way.” McKenzie replaced the four carpenters with non-union
workers from Iowa Job Services and finished the Keokuk project on schedule in the fall
of 1996. Meanwhile, Local 410 filed an unfair labor practice complaint with the
National Labor Relations Board. The Board concluded that McKenzie had unlawfully
repudiated the Local 410 Agreement, and we affirmed. See McKenzie Eng’g Co. v.
NLRB, 182 F.3d 622 (8th Cir. 1999).
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The Quad Cities Dispute. In late 1996, McKenzie was awarded a contract to
repair the Crescent Bridge, a railroad bridge spanning the Mississippi between Rock
Island and Davenport, Iowa. As work began, Local 166 claimed the right to the
carpenter work on the project. Still smarting from his fight with Local 410 in Keokuk,
and wanting to use some of the Keokuk crew for this project, Robert McKenzie met
with the business agent for Local 150 of the International Union of Operating Engineers
(the “Operating Engineers”). McKenzie and Local 150 signed a collective bargaining
agreement covering the Crescent Bridge project. McKenzie then assigned the work to
Local 150, which in turn issued Operating Engineers work permits to the members of
McKenzie’s crew. In response, Carpenters Local 166 picketed the site and filed unfair
labor practice charges with the Board. Those charges have not been finally resolved.
The Claims at Issue. The Funds and Carpenters Local 410 commenced this
action in January 1997. Carpenters Local 166 later joined the suit in an amended
complaint. All claims are for breach of the applicable collective bargaining agreements.
In the amended complaint, the Funds claim that McKenzie failed to make contractually
required contributions for employees “within the territorial and occupational
jurisdiction” of Local 410 and Local 166. Local 410 and Local 166 assert additional
claims for unpaid contributions to union benefit funds, such as Local 410’s
apprenticeship training fund, and for McKenzie’s alleged failure to remit union dues it
was obligated to withhold. At trial, plaintiffs quantified these claims through the
Funds’ audit of McKenzie payroll records. We discuss the audit in detail in Part III of
this opinion. But first we must resolve McKenzie’s contention that the Local 410
Agreement did not apply to the Keokuk project.
II. The Scope of the Local 410 Agreement.
McKenzie argues the Local 410 Agreement did not apply to the Keokuk project
because that Agreement expressly covered only “Commercial Work.” McKenzie
explains that the construction industry and its craft unions generally classify work as
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residential, commercial, or highway and heavy. The Keokuk project involved highway
and heavy work, and Article I Section 4 of the Local 410 Agreement expressly
excluded “work under Highway and Heavy, Residential and Millwright contracts.”
Therefore, that Agreement did not apply to the project. The district court rejected this
contention. The NLRB rejected it in concluding that McKenzie committed an unfair
labor practice when it repudiated the Local 410 Agreement by firing all the carpenters
working on the Keokuk project. In affirming the NLRB, another panel of this court
termed McKenzie’s contention “barely plausible.” McKenzie Eng’g, 182 F.3d at 626.
We have no difficulty agreeing with these consistent rulings. During the period
in question, McKenzie was not a party to a collective bargaining agreement between
the Carpenters and highway and heavy contractors in the Keokuk area. Thus, the Local
410 Agreement was the only collective bargaining agreement incorporated by reference
in the April 1994 Memorandum of Agreement signed by McKenzie and by Local 410
on behalf of the District Council. Prior to November 1995, when Robert McKenzie
fired all carpenters on the Keokuk project and claimed that no collective bargaining
agreement governed that work, McKenzie had made contributions to the Funds for the
hours worked by Local 410 members in accordance with the Local 410 Agreement.
In these circumstances, we agree with the district court that “[t]he above-quoted
exclusionary language on which [McKenzie] relies does not apply here, because
[McKenzie] was not a party to a Highway and Heavy Agreement in Iowa.”
III. The Plaintiffs’ Specific Claims.
Because collective bargaining agreements between McKenzie and Carpenters
Locals 410 and 166 applied to the Keokuk and Crescent Bridge projects, the Funds
may sue under ERISA to recover unpaid contributions mandated by those agreements,
and the local unions may sue for unpaid union dues and benefit contributions not
covered by ERISA. The remaining (and more difficult) issues are whether the Funds
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proved their monetary claim, and whether the unions may recover without exhausting
their contractual grievance/arbitration remedies.
A. The Funds’ Claim for Contributions. Under ERISA § 515, the Funds may
collect only those contributions that McKenzie is contractually obligated to pay. See
DeVito v. Hempstead China Shop, Inc., 38 F.3d 651, 653-54 (2d Cir. 1994). The Local
410 Agreement obligated McKenzie to contribute specified amounts to the Funds “for
each hour worked by the employees covered by this Agreement.” The contract does
not expressly define the term “employees covered by this Agreement,” and related
provisions are ambiguous. For example, the “Work Jurisdiction” section of the
Agreement provides:
It is agreed that the jurisdiction of work covered by the Agreement
is provided for in the C[h]arter Grant issued by the American Federation
of Labor to the United Brotherhood of Carpenters and Joiners of America
and Lathers.
The Charter Grant was not made part of the trial record, which leaves us very much at
sea. We can confidently assume the Carpenters lay claim to marine construction work
traditionally done by members of its union. But as we shall explain, that does not help
us resolve this dispute.
ERISA plan trustees may audit an employer’s payroll records to verify that
required contributions have been paid. See Central States, Southeast & Southwest
Areas Pension Fund v. Central Transp., Inc., 472 U.S. 559 (1985). In this case, the
Funds’ claim for unpaid contributions is based entirely on the report of a certified
public accountant who audited McKenzie’s payroll and related records. The audit
covered the period from April 1, 1994, to December 31, 1997. The auditor determined
that contributions are owing for all hours worked by McKenzie employees that were
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not reported to any union fringe benefit fund. Note 1 to the report states the auditor’s
assumption underlying that determination:
Since we could not verify the work performed by any of these individuals,
we have included all employees not reported to a union fringe benefit fund
as unreported hours due [to the Funds].
In other words, the Funds claim a right to contributions for all hours worked by such
employees during this entire period, regardless of the kind of work they did, whether
they worked on the Keokuk or Crescent Bridge projects or some other project, and
even if they are not participants or beneficiaries of the Funds. McKenzie argues the
Funds may not properly assume that all hours worked on all projects were “covered
by” the Local 410 Agreement, except hours for which McKenzie contributed to another
union’s pension fund. In the circumstances of this case, we agree.
In support of its theory that the auditor properly included all hours for which
McKenzie made no contribution to any union fund, the Funds cite a series of Ninth
Circuit cases which held that collective bargaining agreements with the Operating
Engineers required the employers to make pension fund contributions for all hours
worked by covered employees, even though part of that work was laborer or salaried
executive duties. See Waggoner v. C & D Pipeline Co., 601F.2d 456, 458-59 (9th Cir.
1979), followed in Waggoner v. Dallaire, 649 F.2d 1362, 1369 (9th Cir. 1981), and
Burke v. Lenihan, 606 F.2d 840, 841 (9th Cir. 1979). However, in those cases, the
court simply enforced a labor management adjustment board’s interpretation of an
ambiguous collective bargaining agreement. Here, the Local 410 Agreement is equally
ambiguous, but we have no interpretation by a contractual dispute-resolution board on
which to rely. Moreover, the issue here is whether certain employees are covered by
the Local 410 Agreement, not whether some of a covered employee’s hours should be
excluded from coverage.
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In the district court, the Funds also relied on cases noting that it is an unfair labor
practice to limit ERISA plan contributions to union members. See D.E.W., Inc. v.
Local 93, Laborers’ Int’l Union, 957 F.2d 196, 202 (5th Cir. 1992). That principle may
be relevant in deciding whether an employer owes fund contributions for the non-union
members of a single union’s bargaining unit. But in this case, McKenzie entered into
pre-hire collective bargaining agreements with multiple craft unions whose claimed
work jurisdictions frequently overlap. Each of those unions is a recognized bargaining
agent under the National Labor Relations Act, whether or not it represents a majority
of McKenzie’s employees on a particular project. See 29 U.S.C. § 158(f). In this
situation, there is no basis to assume that every employee on every McKenzie project
was “covered by [the Local 410] Agreement.” Thus, the auditor’s assumption that
McKenzie owes pension contributions to the Funds (as opposed to another union’s
pension fund) for every hour worked by an employee for whom no contribution had
been made was contractually unwarranted.
The evidence presented at trial confirms the many fallacies in the Funds’
calculation of the amount of unpaid contributions:
1. The audit report lists 188 “unreported” hours in Local 166’s territory for
1994. Work on the Crescent Bridge project took place in 1997. There is nothing in the
record establishing that these 188 unreported hours related to work covered by a
Carpenters collective bargaining agreement.
2. The audit report lists 1,166 unreported hours in Local 410’s Keokuk area for
the months of March through October 1995, before McKenzie fired the four Local 410
carpenters. Trial testimony established that, for small projects such as those at issue,
McKenzie’s work crews often consisted of members of various craft unions, and each
member of the crew was expected to do any and all types of work necessary to
complete the project. Therefore, even assuming all 1,166 hours were spent working
on the Keokuk project, nothing in the record explains why McKenzie owes
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contributions to the Funds for these hours, as opposed to owing contributions to another
union’s pension fund, or to no fund at all.
3. For the period after November 1, 1995, when McKenzie fired the four
carpenters on the Keokuk project, the audit report lists unreported hours in Local 410’s
territory for more than a dozen McKenzie employees. Nothing in the record establishes
that all these employees worked on the Keokuk and Crescent Bridge projects. To the
extent McKenzie employed workers on other projects during this time frame, the record
will not support a finding that McKenzie’s pre-hire collective bargaining agreements
with the Carpenters required McKenzie to assign this work to members of the
Carpenters, as opposed to another craft.
4. The record establishes that Local 410 supplied only four of the seven initial
craft union members to the Keokuk work crew. (As previously noted, the crew included
two operating engineers and a boilermaker.) To the extent that unreported hours after
November 1, 1995, reflect work on the Keokuk project, nothing in the record
establishes that it was all work initially assigned to carpenters and therefore “covered
by [the Local 410] Agreement.” Robert McKenzie testified that many of the Keokuk
workers continued to perform the same types of work that Local 410’s members
performed before November 1, 1995. But that does not prove all the work belonged
to Local 410, given the evidence that each member of McKenzie’s work crews
performed a variety of tasks, including tasks within the traditional work jurisdiction of
other craft unions.
5. Finally, the audit report lists 3,137.5 unreported hours in Local 410’s territory
for 1997, after the Keokuk project was completed. Many of these hours were worked
on the Crescent Bridge project by employees working under a collective bargaining
agreement between McKenzie and the Operating Engineers. McKenzie assigned that
work to Operating Engineers Local 150. Carpenters Local 166 claimed at least some
of the work, but it declined to invoke the applicable jurisdictional dispute procedures
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under its collective bargaining agreement. We have two problems with including these
unreported Crescent Bridge hours in the Funds’ claim. First, although the auditor
testified he excluded all hours reported to another union’s pension fund, documentary
evidence reflects, and the Funds do not deny, that the audit report includes 436 hours
worked by three employees in March 1997 for which McKenzie made contributions
to an Operating Engineers pension fund. The district court clearly erred in including
these hours in its calculation of contributions owed the Funds.
Second, we conclude the record will not support a finding that any Crescent
Bridge work was covered by a collective bargaining agreement with the Carpenters, as
opposed to the Operating Engineers. The Funds argue we should ignore McKenzie’s
collective bargaining agreement with the Operating Engineers because McKenzie
sought out that agreement after Carpenters Local 166 had claimed the work. In our
view, it is irrelevant to this case that McKenzie and Local 150 needed to sign a
collective bargaining agreement addendum before McKenzie assigned the Crescent
Bridge work to Local 150. McKenzie had an ongoing relationship with the Operating
Engineers in its home territory of Fort Madison and Keokuk; it was certainly free to
expand that relationship to include a project in the Quad Cities territory. McKenzie
wanted to staff the Crescent Bridge crew with workers who had successfully completed
the Keokuk project. Local 150 was willing to cover those workers under its collective
bargaining agreement, using a work permit mechanism. On this record, McKenzie was
contractually free to assign the Crescent Bridge work to either union, or part of the
work to each union. Any union aggrieved by that assignment could invoke the inter-
union jurisdictional dispute procedure, which results in a final work assignment
decision prospectively binding on McKenzie. See generally NLRB v. Radio &
Television Broad. Eng’rs Union, 364 U.S. 573 (1961). Because Local 166 did not
invoke that procedure, the Funds are not entitled to contributions for work assigned to
members of a competing union within the jurisdiction of that union.
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Finally, the Funds argue that the district court’s finding as to contributions owing
should be upheld under the ERISA principle “that once the trustees produce evidence
raising genuine questions about the accuracy of the employer’s records and the number
of hours worked by the employees, the burden shifts to the employer to come forward
with evidence of the precise amount of work performed.” Brick Masons Pension Trust
v. Industrial Fence & Supply, Inc., 839 F.2d 1333, 1338 (9th Cir. 1988). We disagree.
First, there is no issue here as to the accuracy of McKenzie’s records. The problem
arises because of assumptions the Funds made in interpreting those records. Second,
McKenzie has come forward with evidence establishing that the auditor’s assumptions
were unfounded. This left the Funds with an unremedied failure of proof.
For the foregoing reasons, we conclude the Funds failed to prove that the audit
report as modified by the district court establishes a claim for contributions
contractually owed by McKenzie under collective bargaining agreements with the
Carpenters and its local unions.2
B. The Local Unions’ Claims for Breach of Contract. The Funds audit
reported that McKenzie owes $1,997.23 to Local 410 for unpaid contributions to its
apprenticeship training fund, and that McKenzie owes $141.08 to Local 166 for unpaid
contributions that are labeled Industry, Apprentice, Safety, and Work Dues in the
report. At trial, there was no testimony justifying these amounts. It appears the auditor
levied these charges for each “unreported” employee hour used to calculate the pension
2
We note that our decision rejecting the claim for contributions to the Funds is
narrow. The NLRB has determined that McKenzie committed an unfair labor practice
in firing four Local 410 carpenters from the Keokuk project. The Board’s compliance
proceedings, which are not yet complete, will no doubt result in a back pay award for
those employees, and that award may well include pension benefit contributions to the
Funds on their behalf. Unlike the Funds’ overbroad claim in this case, that type of
award would clearly be consistent with McKenzie’s contractual obligation to make
contributions for work “covered by [the Local 410] Agreement.”
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contributions allegedly owed to the Funds. For the reasons already explained, the bare
report is insufficient to establish breaches of the collective bargaining agreements.
In addition, another factor precludes recovery on these claims. The Local 410
Agreement contained a typical provision calling for arbitration of “disputes involving
the interpretation or application of the terms of the Agreement.” The district court held
that the Funds are entitled to sue under ERISA without exhausting this contract remedy.
McKenzie does not challenge this ruling, which is consistent with another provision in
the Local 410 Agreement creating separate contract remedies for the Funds and their
trustees. However, McKenzie argues that the local unions’ distinct § 301 claims are
barred by their failure to exhaust the contract’s arbitration remedy. The district court
did not consider this legal issue, which we review de novo.
There is a strong presumption that collective bargaining agreement disputes are
arbitrable. See generally United Steelworkers v. Warrior & Gulf Navigation Co., 363
U.S. 574, 582-83 (1960). Conceding that their claims fall within the scope of the
arbitration clause, the local unions argue they were relieved of their contractual duty
to arbitrate when Robert McKenzie repudiated the Local 410 Agreement by telling
Local 410’s business representative, “you go your way, and I’ll go my way.” We
disagree. McKenzie’s actions may have amounted to a total breach of the contract, but
that does not decide the issue. “Arbitration provisions, which themselves have not
been repudiated, are meant to survive breaches of contract, in many contexts, even total
breach.” Drake Bakeries, Inc. v. Local 50, American Bakery & Confectionery
Workers Int’l, 370 U.S. 254, 262 & n.9 (1962); see Vaca v. Sipes, 386 U.S. 171, 185
(1967); 6A ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 1443 (1962). There was
no evidence warranting a finding that McKenzie repudiated the contract’s remedial
provisions. On cross examination, Robert McKenzie was asked whether, as of
November 1, 1995, he considered McKenzie “no longer bound” by the Local 410
Agreement. He replied:
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A. No. I just – it was at a point in the [Keokuk project] contract where
I needed to proceed with my work. His people weren’t working. I had
to resume work somehow, so I was just attempting to facilitate so I could
get my contract done, which I’m under contract to do.
On this record, Local 410 had insufficient reason to assume that McKenzie -- a long-
standing union contractor -- would refuse a demand to arbitrate the dispute over the
scope of the Local 410 Agreement. Local 166 had even less reason to assume that a
demand to arbitrate its Crescent Bridge dispute would be futile. Thus, the district court
erred in summarily rejecting McKenzie’s exhaustion defense to the local union claims.
See Mautz & Oren, Inc. v. Teamsters Local No. 279, 882 F.2d 1117, 1126-27 (7th Cir.
1989).
The judgment of the district court is reversed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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