The opinion of the court was delivered by: LINDBERG
MEMORANDUM OPINION AND ORDER
Plaintiffs, the Chicago District Council of Carpenters Pension Fund, Chicago District Council of Carpenters Welfare Fund, and the Chicago and Northeast Illinois District Council of Carpenters Apprentice and Trainee Program Fund ("the Funds"), are multi-employer funded trust funds that provide pension, welfare and training benefits to members of the Chicago and Northeast Illinois District Council of Carpenters and affiliated or local unions. The Funds have brought this action pursuant to 29 U.S.C. § 1132, the Employee Retirement Income Security Act (ERISA), to compel defendant, Skender Construction, to reimburse them for fringe benefit contributions that Midwest Flooring Installation, Inc. ("Midwest Flooring"), a Skender subcontractor, failed to pay. The Funds assert that under § 15.1 of the Area Agreement, contractors are required to post a surety bond. They claim that Midwest Flooring failed to post a bond or to make contributions to the Funds and that as Midwest's general contractor, Skender is now liable for these contributions under § 3.4 of the Area Agreement, which mandates that employers assume the obligations for fund contributions for any subcontractor it hires that is not bonded according to the Area Agreement.
The Funds are organized and administered according to the Pension Fund Trust Agreement, the Trainee Program Fund Trust Agreement, and Welfare Fund Trust Agreement ("the Agreements"), as well as according to the terms of the Area Agreements negotiated between the Union and employers. The Funds collect contributions for all Union-member employees from employers that have agreed to be bound by the Trust and Area Agreements. These Agreements provide that the trustees may require security deposits or surety bonds to insure that contributions are made and that they may assess liquidated damages against an employer who fails to make "prompt payment."
Skender Construction is a general contractor with 19 employees. The company is a signatory to the Area Agreement and is therefore bound by its terms and by the terms of the Trust Agreements. Skender hires carpentry subcontractors also bound by the terms of the Area Agreement to perform much of the carpentry work for which Skender is responsible on a construction project. The Area Agreement requires any employer who subcontracts work within the jurisdiction of the Area Agreements to assume the obligation of its subcontractor to contribute to the Funds if the subcontractor fails to post a bond guaranteeing payment of wages and fringe benefits for its employees or if it fails to pay the contributions for hours worked by the carpenter employees.
For a subcontractor to be properly bonded so as to relieve a general contractor such as Skender from liability for the subcontractor's unpaid contributions, the subcontractor must obtain a surety bond guaranteeing the payment of wages and contributions to the Funds, payable to the Union, executed on a uniform bond form that the Union provides, filed with the Union and issued by an insurance carrier licensed to do business in Illinois. Without such a bond, the general contractor becomes responsible for the subcontractor's contributions if the subcontractor defaults.
During 1995 and 1996, Skender acted as the general contractor for the construction of 50 housing units on 31 sites for the H.U.D. Scattered Site Housing Project ("H.U.D. Project") for S&A Development, the owner of the property. In 1995 or 1996, Skender entered subcontracting agreements with Commercial Flooring/Midwest Flooring Installation,
a joint venture, under which Commercial Flooring was to supply all of the materials and Midwest Flooring was to employ all of the carpenters for installing the floors for the H.U.D. Project. Midwest Flooring was a signatory to the Area Agreement; Commercial Flooring was not. At that time, Skender did not typically check with the Union to see if a subcontractor was properly bonded.
Because the project was H.U.D. funded, Midwest Flooring was required to prepare and submit prevailing wage reports or certified payroll sheets for the work its employees performed. According to its contract with Skender, it submitted these billing requests by the 25th of the month for work performed the entire previous month. After Skender received the certified payroll sheets, it forwarded them to S&A Development. The certified payroll sheets indicate that Midwest carpenters performed 1,020.50 hours of work for Skender on the H.U.D. project. Once S&A Development approved the pay request, it directed First American Title Insurance Co., the title company on the project, to disburse the funds to the subcontractor.
Joseph Skender, the president of Skender Construction, testified that although Midwest Flooring worked for Skender beginning in 1995, Skender terminated that company and replaced it with Midwest Floor Covering on the H.U.D. project May 1, 1996. Mr. Skender stated that Midwest Flooring was not performing according to the contract and as a result was slowing its schedule on the project. Midwest Flooring did not perform any work on the H.U.D. project after May 1, 1996.
On January 30, 1996, the Funds obtained a judgment against Midwest Flooring for $ 17,622.92 in unpaid contributions to the Funds as well as audit and attorneys fees and costs. The judgment covered contributions due from March 1994 to March 1995 and May 1995 to November 1995, including the time during which Midwest Flooring performed work for Skender on the H.U.D. project. The Funds reviewed its own records as well as Union records to determine whether Midwest had filed a surety bond with the Union but concluded that it had not. Skender denies this, claiming that a certificate of insurance that Midwest Flooring filed with the Union indicates that it had procured a surety bond. However, the Funds claim that the document Skender relies on is not a proper form required under the Area Agreement.
Pursuant to a citation to discover assets that issued to Midwest Flooring, the Funds collected $ 6,174.86 from the company on July 24, 1996, that is currently in the Funds' escrow account. The Funds also issued a citation to Skender Construction for any money it still owed Midwest Flooring. As Skender was not making any further disbursements to Midwest, the Funds obtained no funds from it. Of the $ 6,174.86 the Funds collected from Midwest, $ 5,174.86 was in the form of a check dated March 13, 1996, from First American Title Insurance Co. that was payment for work performed under the subcontract with Skender on the H.U.D. project.
Sometime between late January and late February 1997, Skender received a notice from the Union stating
"it has come to our attention that you have subcontracted carpentry work to Midwest Flooring Installation, Inc. . . . According to our records, Midwest Flooring Installation, Inc. is not bonded in accordance with the Area Agreement. Since this subcontractor is not bonded, we are reminding you that you may find yourself in a position, pursuant to Section 3.4 of the Area Agreement, where you will be required to make fringe benefit contributions on behalf of the subcontractor's employees in the event the subcontractor does not do so . . . It is extremely important that you make sure your unbonded subcontractor is paying the correct wages and fringe benefit contributions on a timely basis."
Joseph Skender stated that he read the notice but took no action after receiving it because of a statement in the letter that it was "sent for informational purposes" and included no request for a specific sum of money and because Midwest Flooring had not performed any work for Skender since May 1, 1996.
James Egan & Associates, Ltd., the auditors for the Funds, received a request to perform an audit of Skender's books and records in March 1997. An audit of a general contractor is one way to determine how much the contractor may owe the Funds for the unpaid contributions of its subcontractors. Although the Skender employee responsible for gathering records in Skender's possession indicated that she made the "payroll sheets" available for the audit, the Funds deny that it had the certified payroll reports available during the audit and that they did not receive these documents until discovery began in the instant action. Kevin Wheeler, a staff accountant at James Egan & Associates, indicated that he did not review the certified payroll reports and instead estimated the hours Midwest Flooring worked for Skender by reviewing the invoices from Midwest Flooring and applying a labor factor of 33% to those records. Because this method was used, the contributions hours calculated in the audit were estimates only.
The Funds filed the instant suit against Skender on April 9, 1997, while the audit was proceeding, seeking payment of at least $ 12,167.97. On June 23, 1997, the Funds received the audit results, which indicated that the contributions Skender owed totaled $ 3,914.97 for the period July 1, 1995, through December 31, 1996.
On June 27, 1997, the Funds informed Skender that its liability in the matter now totaled $ 19,015.28, including the $ 14,201.92 judgment against Midwest Flooring, $ 1,377 in auditor fees, $ 2,873.87 in liquidated damages, $ ...