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Central States, Southeast and Southwest Areas Pension v. Blue Sky Heavy Hauling

May 31, 2011

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, AND HOWARD MCDOUGALL, TRUSTEE,
PLAINTIFFS COUNTER-DEFENDANTS,
v.
BLUE SKY HEAVY HAULING, INC.,
DEFENDANT COUNTER-PLAINTIFF.



The opinion of the court was delivered by: District Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Plaintiffs Central States, Southeast and Southwest Areas Pension Fund and Howard McDougall, Trustee, (collectively "the Fund") sued Blue Sky Heavy Hauling, Inc. ("Blue Sky") to recover $34,380.08 in pension contributions. The Fund claims that Blue Sky breached provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") and various agreements by failing to pay contributions which were revealed to be owed by an audit covering the period from 2002 through November 2007. In response, Blue Sky filed counterclaims seeking recovery of over $500,000 in contributions it paid to the Fund since 2002.*fn1 The counterclaims are premised upon the Trustees decision to terminate Blue Sky's participation in December 2007 after the Fund learned through the audit that Blue Sky was in violation of the Fund's "adverse selection" rule, which prohibits arrangements under which an employer avoids paying contributions to the Fund on newly hired employees. Initially, Blue Sky did not challenge the Trustee's determination that it violated the Fund's rule. Instead, Blue Sky maintained that it was continuously in violation of the rule from 2002 or earlier, thereby triggering a "unilateral withdrawal" from the Fund by 2002. As a result, Blue Sky claimed that the contributions sought by the Fund from 2002 to 2007 or earlier are not due and the contributions paid to the Fund after the rule violation began in 2002 must be returned.

Plaintiffs have moved for summary judgment [102], prompting Defendant Blue Sky to change its theory of the case and advance new arguments, wholly distinct from its counterclaims. Blue Sky's conduct, best described as "sandbagging" (see Estate of Blanco v. Prudential Ins. Co. of America, 606 F.3d 399, 402 (7th Cir. 2010)), cannot save it from summary judgment or preserve its counterclaims for further litigation. For the following reasons, the Court grants Plaintiffs' motion for summary judgment [102]. Defendant's counterclaims are dismissed.

I. Background

The Pension Fund is a multiemployer pension plan under ERISA, administered by its trustee. The Fund is financed by contributions remitted by multiple participating employers on behalf of all employees whose job classifications are covered by collective bargaining agreements executed between employers and local unions affiliated with the International Brotherhood of Teamsters ("IBT"). Blue Sky, a Michigan corporation, was party to collective bargaining agreements executed with Local Union 247 of the International Brotherhood of Teamsters*fn2 and was required to submit contributions to the Fund. Blue Sky and Local 247 also entered into a Participation Agreement.

A. The Agreements

Blue Sky began its participation in the Fund under a collective bargaining agreement with Local 247 covering October 23, 1997 through October 26, 2000 (the "1997 CBA"). Blue Sky and Local 247 executed a successor labor agreement that also required contributions to the Fund that covered the period of June 1, 2001 to May 31, 2006, and indicated that it would continue from year to year absent written notice of termination (the "2001 CBA"). The pension clause of the 2001 CBA states:

[E]ffective June 1, 2001, the Employer agrees to pay into the Central States, Southeast and Southwest Areas Pension Fund for each employee covered by the Agreement * * * $25.60 per day for each regular employee covered by this Agreement who has been on the payroll thirty (30) days or more. The rate per day shall be $28.00 per day effective June 1, 2002; $30.80 per day effective June 2, 2003; $32.40 per day effective June 1, 2004 and $34.00 per day effective June 1, 2005 * * *.

The Fund's rules prohibit waiting periods for contributions on new hires in excess of 30 calendar days; therefore, at the Fund's insistence, Blue Sky and Local 247 also executed a Letter of Understanding in 1998 (the "LOU") that indicated that contributions were due on new hires after 30 days on the payroll:

The parties agree that pension contributions will be paid to Central States Pension Fund on behalf of all employees (regardless if they are labeled as part-time or casual), who perform work as described in the collective bargaining agreement after they have been on the Employer's payroll for thirty (30) calendar days. Said contributions will be paid for all compensable periods, including, but not limited to, actual days worked, paid vacations, paid holidays, paid sick days, etc. * * *. The LOU was extended for the term of the 2001 CBA.

In 1997, Blue Sky and Local 247 executed a Participation Agreement which also required Blue Sky to pay contributions to the Fund. The Participation Agreement indicated that "the Employer agrees to be bound by, and hereby assent[s] to, all of the terms of the Trust Agreement creating said * * * Fund, as amended, all of the rules and regulations heretofore adopted by the Trustees * * * and all of the actions of the Trustees in administering such Trust Fund." The duration clause of the Participation Agreement states:

This Agreement shall continue in full force and effect until such time as the Employer notifies the Fund(s) by certified mail * * * that the Employer is no longer under a legal duty to make contributions to the Fund(s) * * * * The Employer expressly agrees and hereby acknowledges by the signing of this Agreement that its obligation to make contributions to the Fund(s) shall continue until the above-mentioned written notice is received by the Fund(s) and the Trustees acknowledge the Employer's termination in writing.

The duration clause of the incorporated Trust Agreement provides:

[T]he obligation to make such contributions shall continue (and cannot be retroactively reduced or eliminated) after termination of the collective bargaining agreement until the date the Fund receives a) a signed contract that eliminates or reduces the duty to contribute to the Fund or b) written notification that the Employer has lawfully implemented a proposal to withdraw from the Fund or reduce its contributions at the above-specified address. The obligation to make such contributions shall continue during periods when the collective bargaining agreement is being negotiated, but such contributions shall not be required in case of strike after contract termination, unless the parties mutually agree otherwise.

During the period of November 1997 through November 2007, Blue Sky reported the work history of its employees to the Fund by submitting monthly reports and monthly contributions to the Fund. Blue Sky contends that it served a timely notice on Local 247 on May 31, 2006, which terminated the 2001 CBA. However, there is no evidence in the record indicating that Blue Sky served a written notice of termination on the Fund, as required by the duration clauses in the agreements, prior to the Trustees' termination of Blue Sky's participation in December 2007.*fn3 Additionally, Blue Sky continued to pay the drivers wages at the rates specified by the 2001 CBA, continued to deduct union dues from the drivers' wages and remit dues to Local 247, and continued to remit contributions to the Fund through November 2007. These payments were made in accordance with signed bills that contained a Certification Clause that provided: "By making payments or reporting work history, the employer hereby reaffirms its obligation to make contributions required by the Collective Bargaining Agreement, accepts and agrees to be bound by the Fun[d] trust agreement * * *." Furthermore, on March 19, 2008, Michael Bates, Blue Sky's president, sent a letter to Local 247 which stated:

This Collective Bargaining Agreement carried an expiration date of May 31, 2006. Pursuant to Article XXIII, Section 1, it continued in full force and effect on a year to year basis and accordingly, has a current expiration date of May 31, 2008. In accordance with Article XXIII, Section 2, please be advised that Blue Sky Heavy Hauling, Inc. wishes to negotiate changes or revisions to this Collective Bargaining Agreement.

During the period of June 2006 through May 2008, Blue Sky and Local 247 engaged in collective bargaining agreement negotiations. No agreement was ever reached, and Local 247 was ultimately decertified as the bargaining representative for Blue Sky's employees in October 2008.

B. The Plan

The Trustees adopted a defined benefit plan that provides monthly benefitpayments for life upon retirement to covered employees who satisfy the Fund's vestingrequirements. An employee's monthly benefit increases for each dollar ofcontributions paid on his/her behalf, and there are benefit enhancements when anemployee crosses service thresholds of 20, 25, and 30 years.

The Fund has adopted an adverse selection rule which was described in Special Bulletin 90-7. This rule prohibits any "arrangement [that] restricts pension coverage to only those employees likely to receive a benefit and excludes those employees less likely to receive a benefit." The arrangements prohibited by the rule include the setting up of a separate corporation "which consists of employees who perform the same type of work as the covered bargaining unit."

During an audit initiated in 2006, the Fund confirmed that there was a second corporation owned by the owners of Blue Sky known as Jackie's Transport, Inc. ("Jackie's"), which worked from the same location as Blue Sky. Jackie's existed before the incorporation of Blue Sky and it also had a labor contract with Local 247, but Jackie's CBA did not require contributions to the Fund. Starting in 2003, new hires were placed on Jackie's payroll. At their November 13, 2007 meeting, the Trustees unanimously determined that this arrangement, where drivers were working side by side for related entities but only some participated in the Fund, violated the adverse selection rule and ...


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