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Trustees of the Suburban Teamsters of Northern Illinois Welfare and, No. Pension Funds v. Hope Cartage

November 15, 2005


The opinion of the court was delivered by: Judge James B. Zagel


In March 1989, John Sinese, owner of Hope Cartage, Inc. ("Hope"), signed a collective bargaining agreement (CBA) on behalf of Hope with Teamsters Local 179 ("Union"). Sinese thereafter extended the CBA four times, through April 2005. Plaintiffs are the Trustees of the Suburban Teamsters of Northern Illinois Welfare and Pension Funds (the "Funds"). Plaintiffs first learned of the Hope-Union CBA in October 2001, shortly after Hope renewed the CBA and a Union employee sent the Funds a "new employer" package.

In November 2001, Plaintiffs contacted Hope and demanded reports and contributions for the months of May 2000 through September 2001. The following year, Plaintiffs' payroll auditor declared that Hope owed Plaintiffs' Welfare Fund $23,412.02 and Plaintiffs' Pension Fund $15,904.45 on behalf of Hope's owner and employee Sinese. When Hope failed to pay, Plaintiffs filed suit seeking an audit and contributions dating back to 1992. That audit revealed allegedly delinquent payments for Sinese and owner-drivers to whom Hope subcontracted work. With interest and other penalties permitted under 29 U.S.C. § 1132(g)(2), the alleged delinquency presently totals $226,092.16.

Both parties filed cross motions for summary judgment, seeking resolution of the case without resort to trial. Summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, 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). A genuine issue of material fact exists when, in viewing the record and all reasonable inferences drawn from it in a light most favorable to the non-movant, a reasonable jury could return a verdict for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 2488 (1986). The movant bears the burden of establishing that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

Plaintiffs argue that they are entitled to the full amount of the delinquency for the following reasons: Sinese signed a CBA, which requires contributions to the Funds; Sinese is a dual status owner/employee for whom Hope must make contributions pursuant to Yates v. Hendon, 541 U.S. 1 (2004); Hope has no valid defense to non-payment of the contributions for Sinese; and Hope is required under the terms of the bargaining agreement to make contributions on behalf of non-union owner-drivers to whom Hope subcontracted work. Hope disputes that any monies are owed under the CBA. It first argues that Plaintiffs cannot seek contributions for the owner of a oneman corporation, notwithstanding the holding in Yates. Hope also maintains that it is not responsible for any contributions on behalf of Sinese because Sinese and the Union agreed that Hope would not be required to make contributions to the Funds and because Sinese subsequently waived his rights to any benefits from Plaintiffs. In the alternative, Hope argues that Plaintiffs cannot seek contributions for the period prior to 2001, when Plaintiffs first learned of Hope's CBA with the Union. Finally, Hope argues that any demand for contributions for owner-drivers hired as independent contractors is illegal under Seventh Circuit precedent and conflicts with the express language of the CBA.

Sinese's Status as the Sole Owner-Employee

The Agreements and Declarations of Trust ("Trust Agreements") establishing the Funds are incorporated by reference into the CBA signed by Hope and the Union. The CBA requires weekly pension and welfare contributions to the Funds for all employees covered by the agreement. The Trust Agreements define an employer as any association, individual, partnership or corporation that has a collective bargaining agreement with the union and defines an employee as any person employed by an employer. There is no written side agreement between the Union and Hope regarding the payment of welfare or pension benefits. It is undisputed that Hope never made any contributions for John Sinese, who drives a truck for Hope to haul sand, gravel and other materials and who is Hope's 100% owner.

In Yates, the Supreme Court held that the sole shareholder and president of a corporation, in his capacity as a working owner, is a participating employee in an ERISA pension plan as long as the plan covers one or more employees other than the owner and his spouse. 541 U.S. at 20-22. That decision abrogated this Circuit's decision in Giardono v. Jones, 867 F.2d 409, 412 (7th Cir. 1989) and similar holdings in four other Circuits. Yates recognized that under ERISA, a working owner may have dual status as an owner and as an employee entitled to participate in a pension plan. Id. at 16 ("a working owner can wear two hats, as an employer and employee"). Plaintiffs allege that Sinese, the sole shareholder and president of Hope, is analogous to the defendant-owner in Yates. Plaintiffs argue that Yates is binding upon Hope because the relevant ERISA plan covers more than 650 contributing employers and 5,500 participating employees - far more than the "one or more employees" other than the owner and his or her spouse required by Yates. Id. at 6.

Hope seeks to distinguish Sinese from the defendant in Yates by relying on its status as a "one man corporation." (Def. Mem. at 13.) In the Seventh Circuit, a one-person corporation "must use a Keogh plan rather than an ERISA plan for its solitary employee." In re Baker, 114 F.3d 636, 639 (7th Cir. 1997). As the Yates decision did not address owners who were also the corporation's sole employee, Hope argues that Yates applies only to owners of companies employing other individuals. Hope contends that Baker is still good law post-Yates, and that owners of corporations employing only the owner cannot be required to contribute to traditional pension plans but must establish Keogh plans instead.

Yates arose from a bankruptcy proceeding against a debtor's pension plan. 541 U.S. at 7-9. The bankruptcy trustee sought to recover funds paid into the pension plan by the debtor, who was the president and sole shareholder of the corporation. Id. The trustee argued that under ERISA, the debtor could not participate in the plan and that the money should be turned over to creditors. Id. The court rejected this argument and classified the debtor as an eligible participant in the ERISA plan, thereby allowing him to retain his pension. Id. at 16.

The pension plan at issue in Yates was not a multi-employer plan like the one in the instant case, but one in which the "one or more" other employees contemplated by the Court's ruling were actually employed by the business owner. Plaintiffs place little weight on this factual difference, and with good cause. Sinese, on behalf of Cartage, freely entered into a CBA with the Union that required contribution to ERISA-governed funds. Notwithstanding Sinese's right to establish a Keogh plan as indicated by Baker, he signed a contract on behalf of his corporation agreeing to participate in an ERISA-governed plan. Yates clearly establishes that Sinese's status as the company's owner and sole shareholder does not prohibit his participation in that plan.*fn1 I find that Sinese's status as both the owner and sole employee of Hope is not a defense to the Funds' pursuit of contributions.*fn2

Sinese's Alleged Waiver of Participation in the Funds

Sinese entered into the CBA in order to secure contracts available only to union employers. It is also uncontested that Sinese was Hope's sole driver during the period in dispute (setting aside, for the moment, the issue of the subcontractors Hope hired for its overflow work). Sinese alleges that when he signed the CBA he simultaneously entered into an oral agreement with Union representative Robert White. According to Sinese, the oral agreement permitted Hope to avoid any contribution to the Funds. Hope seeks summary judgment of Plaintiffs' claim for contributions on the grounds that Sinese knowingly and voluntarily waived all benefits Plaintiffs may have provided to him under the trust agreements. Hope argues that it cannot be liable for contributions if Sinese waived Hope's obligation to pay and his own right to receive any benefits in return.

Relying on cases establishing that employees are entitled to waive their participation in ERISA plans, Hope argues that Sinese was entitled to waive his participation in the Funds so long as the waiver was knowing and voluntary. See, e.g., Sharkey v. Ultramar Energy, 70 F.3d 226, 231 (2d Cir. 1995) (observing that individuals may waive their right to participate in pension benefit plans when, "in the totality of the circumstances, the individual's waiver of his right can be characterized as 'knowing and voluntary'") (quoting Laniok v. Advisory Committee of Brainerd Mfg. Co. Pension Plan, 935 F.2d 1360, 1368 (2d Cir. 1991)).

Plaintiffs argue that whether or not Sinese and the Union verbally agreed that Hope would not be required to make contributions to the Funds (a fact the Funds and Robert White vehemently deny), they are not bound by any such agreement. Central States,Southeast & Southwest Areas Pension Fund v. Gerber Truck Serv., Inc., 870 F.2d 1148, 1149 n.1 (7th Cir. 1989) (en banc) (citations omitted) established that bargaining history is "irrelevant" and the discovery of such information is unavailable when fund trustees seek to enforce the terms of a collective bargaining agreement. Funds are entitled to enforce collective bargaining agreements according to their terms and without regard to the understandings or defenses applicable to the original parties to the agreement. Id. at 1149. These defenses include fraud and oral side agreements. Id. at 1154. See also Central States, Southeast & Southwest Areas Pension Fund v. Joe McClelland, Inc., 23 F.3d 1256, 1257-58 (7th Cir. 1994) ("[n]o matter what an employer and local union agree orally, the collective bargaining and contribution agreements establish the employer's obligation to the pension fund, which is not party to local understandings and limitations . . . as a matter of law the [local] understanding is irrelevant").

The Gerber Court, however, based its decision on the premise that the plaintiff funds relied on the terms of the written agreement. Id. at 1151 ("[p]lans rely on documents to determine the income they can expect to receive, which governs their determination of levels of benefits"). In this case, Plaintiffs did not have notice of the written agreement between Hope and the Union until 11 years after its formation, and Hope's employee[s] did not figure into Plaintiffs actuarial computations prior to October 2001. Hope claims that to award any contributions to Plaintiffs for the period prior to October ...

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