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Neca-Ibew Welfare Trust Fund, and Neca-Ibew Pension Trust Fund v. Ernie's Electric Co

November 15, 2012

NECA-IBEW WELFARE TRUST FUND, AND NECA-IBEW PENSION TRUST FUND PLAINTIFFS,
v.
ERNIE'S ELECTRIC CO, INC., DEFENDANT.



The opinion of the court was delivered by: Michael P. McCUSKEY U.S. District Judge

E-FILED Thursday, 15 November, 2012 03:57:02 PM Clerk, U.S. District Court, ILCD

OPINION

This case is before the court on a Motion for Summary Judgment [23] filed by Plaintiffs, NECA-IBEW Welfare Trust Fund, and NECA-IBEW Pension Trust Fund. Following this court's careful consideration of the arguments of the parties and the exhibits provided by the parties, Plaintiffs' Motion for Summary Judgment [23] is GRANTED in part and DENIED in part.

JURISDICTION

Plaintiffs, the Pension Fund and the Welfare Fund, are employee benefit plans administered pursuant to the terms and provisions of the Agreements and Declarations of Trust creating the Funds and are required to be maintained and administered in accordance with the provisions of the Labor Management Relations Act (LMRA) and the Employee Retirement Income Security Act (ERISA). Plaintiffs have standing to bring this action pursuant to ERISA to recover delinquent contributions to the Pension Fund and Welfare Fund, which were required by written agreements enforceable against Defendant. 29 U.S.C. § 1145. This court has subject- matter jurisdiction pursuant to ERISA as a collection action, 28 U.S.C. §§ 1132(a)(3) and 1132(3).

BACKGROUND*fn1

Facts

On April 6, 1976, Ernest Miller, the then-President of Defendant Ernie's Electric Co, and father to Samuel Miller ("Miller Sr."), signed a Letter of Assent "A" authorizing the North Central Indiana Chapter of NECA, Inc. to be its collective bargaining representative for all matters contained in or pertaining to the current approved Inside Labor Agreement. The substance of that agreement stated, in its entirety:

In signing this letter of assent, the undersigned firm does hereby authorize the North Central Indiana Chapter of NECA, Inc., as its collective bargaining representative for all matters contained in or pertaining to the current approved inside labor agreement between the North Central Indiana Chapter, NECA, Inc., and Local Union 725, IBEW. This authorization, in compliance with the current approved labor agreement, shall become effective on the 1st day of January, 1976. It shall remain in effect until terminated by the undersigned employer giving written notice to the North Central Indiana Chapter, NECA, Inc., and the Local Union at least one hundred fifty (150) days prior to the then current anniversary date of the aforementioned approved labor agreement.

On March 20, 2006, Defendant sent notice to the Cedar North Central Indiana Chapter NECA, Inc., and IBEW Local Union 725 that effective December 1, 2006, NECA would no longer represent Defendant for the purpose of collective bargaining concerning the "Inside Labor Agreement, or any other collective bargaining agreement, or for any other purpose." (#25, Exh. 6).

On April 7, 2006, an election by secret ballot was held before the National Labor Relations Board. On April 13, 2006, Defendant filed timely objections to the election. Following an investigation, report, and hearing, on June 1, 2006, Defendant withdrew its objections. On June 6, 2006, IBEW Local Union 725 converted its existing Section 8(f) labor agreement with Defendant into a Section 9(a) agreement and the NLRB recognized Local 725 as the collective bargaining representative for Defendant's bargaining unit employees.

On August 28, 2006, Local 725 sent a letter to Defendant, requesting a change to the agreement. (#25, Exh. 8). Both parties agree that the Inside Agreement required that any unresolved issues or disputes arising out of the failure to negotiate a renewal or modification to the agreement were to be submitted to the Council on Industrial Relations for the Electrical Contracting Industry ("CIR") for adjudication. On October 17, 2006, the CIR sent Defendant and Local 725 a notice of hearing and requested briefs. (#25, Exh. 9). On October 23, 2006, Local 725 requested an arbitration meeting before the CIR. (#25, Exh. 10).

On November 3, 2006, Defendant sent Local 725 a letter revoking its recognition of the union as its collective bargaining agent and rescinding any and all collective bargaining agreements, claiming that because it had only one employee in the bargaining unit that it was not an employer pursuant to the National Labor Relations Act ("NLRA") for the purpose of collective bargaining. (#25, Exh. 11). On November 6, 2006, Defendant's attorney sent a letter to the CIR indicating that Defendant's position was that because Defendant had a stable one-person workforce for several months, it was no longer subject to the jurisdiction of the NLRA and therefore there was no contractual relationship giving the CIR jurisdiction over Defendant. (#26, Exh. 12). On November 6, 2006, the CIR responded to Defendant, indicating that the issues were governed by contract law, not the NLRA. (#26, Exh. 13).

The first Inside Agreement was valid between December 1, 2004 and November 30, 2006, and would renew annually ad perpetuum unless changed or terminated pursuant to the agreement. (#26, Exh. 14). In order to change or terminate the agreement, the contract required that written notification be given at least 90 days before the expiration date or any anniversary date occurring thereafter.

On November 13, 2006, the CIR held an arbitration hearing. Defendant did not appear at the hearing. After considering the evidence, the CIR ruled in favor of Local 725 and awarded Local 725 a new Inside Agreement. Defendant did not sign the new Inside Agreement. (#26, Exh. 15). In his deposition, Defendant admitted that its position was that "it considered Ernie's Electric to be a new company that had yet to negotiate a collective bargaining agreement, and none was ever negotiated between the union and the new company. Consequently, there was no agreement between the union and the company and therefore no relationship with the funds to be governed by a collective bargaining agreement." (Deposition of Samuel A. Miller, Sr., #25 at 61:2-11) (hereinafter "Dep."). Further, Defendant admitted that its position was that it was not bound by the CIR's arbitration decision because he "was advised by [his] attorney that that didn't apply to [him]." (Dep. 64:20-21).

On May 11, 2007, Local 725 filed a complaint in the District Court for the Southern District of Illinois, seeking to enforce the arbitration award. (#26, Exh. 16). On July 13, 2007, a summons was issued for Miller Sr. in the Southern District of Indiana, which was returned on August 23, 2007, having been served personally on him at his desk. International Brotherhood of Electrical Workers Local Union No 725 v. Ernie's Electric Company Inc., 07-CV-00104 (S.D. Ind. Sept. 18, 2007). Defendant did not appear at the judicial proceeding. Local 725 filed a motion for default judgment on September 18, 2007, which the Clerk of the Court entered on September 19, 2007, noting that Defendant had failed to respond to the complaint. Copies were sent to both parties. On March 4, 2008, a damages hearing was held at that court. The court noted in a minute entry that Defendant did not appear there either, and therefore entered default judgment against Defendant. That order stated, in its entirety:

The Defendant, Ernie's Electric Company, Inc., having failed to plead or otherwise defend in this action, and its default having been entered, now, following a hearing on damages conducted on March 4, 2008, is hereby

ORDERED, ADJUDGED AND DECREED that the November 13, 2006 decision from the Council on Industrial Relations for the Electrical Contracting Industry is confirmed, and that Ernie's Electrical Company, Inc must implement all terms and conditions of that decision retroactive to December 1, 2006. (#26, Exh. 17). Again, copies of the order were sent to both parties.

On March 25, 1975, Ernest Miller signed a Letter of Assent "A" pertaining to Residential Labor Agreement on behalf of Defendant. The substance of that agreement stated, in its entirety:

In signing this letter of assent, the undersigned firm does hereby authorize the North Central Indiana Chapter of NECA, Inc., as its collective bargaining representative for all matters contained in or pertaining to the current approved Residential labor agreement between the North Central Indiana Chapter, NECA, Inc., and Local Union 725, IBEW. This authorization, in compliance with the current approved labor agreement, shall become effective on the 1st day of December, 1974. It shall remain in effect until terminated by the undersigned employer giving written notice to the North Central Indiana Chapter, NECA, Inc., and the Local Union at least one hundred fifty (150) days prior to the then current anniversary date of the aforementioned approved labor agreement. (#25, Exh. 2). A Residential Agreement was executed between Local 725 and NECA for the period between June 1, 2006 through May 31, 2008. (#26, Exh. 18). To terminate the Residential Agreement, either party was required to provide written notification to the other party at least 90 days prior to expiration of the Agreement or any anniversary date occurring thereafter.*fn2

An accounting firm conducted a payroll examination of Defendant and found that Defendant currently owes contributions of $25,518.81 to the NECA-IBEW Pension Trust Fund. The same firm also found that Defendant owes contributions of $43,418.57 to the NECA-IBEW Welfare Trust Fund. Defendant does not contest the amounts stated in those payroll registers, but contests whether contributions for certain employees were required to the Fund for the entire audited period. Miller Sr. disputes that he owes payments for himself and his two sons, who are Samuel A. Miller, Jr. and Matthew Miller, but admits that he is liable for contributions for all the rest of his employees on the audit (Dep. 37:4-38:8).

Procedural History

On March 5, 2010, Plaintiffs filed their complaint in this court. On June 1, 2010, Plaintiffs filed an amended complaint, stating that the action was brought pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), as amended, 29 U.S.C. § 1145, and the Labor Management Relations Act of 1947 (LMRA), as amended, 29 U.S.C. § 185(a). On

June 24, 2010, Miller Sr., as president of the Defendant corporation, personally filed a letter with the court on behalf of Defendant. In it, he alleged, in pertinent part:

It is not my intention to harm the union or its members, however it is my civil right to work in the electrical trade as a non-participant in the union and I claim my right to do so as guaranteed in the Constitution of the United States.

As a non participant in the union it is unfair to demand Heath and Welfare payment with out the coverage the payment would provide.

I question the legitimacy of the three CBA provided in the lawsuit, and request to see the original ink signature supplied by plaintiff's attorney in this civil action.

The to attorneys that Ernie's Electric hired to represent the Corporation, WESSELS & PAUTSCH, OGLETREE DEAKINS both agreed that as of November 3,2006 Ernie's had revoked the CBA and representation of Local 725 because it "has had a stable one-person workforce . which takes the Company out of the jurisdiction of the National Labor Relations Act.

Therefore, there is no contractual relationship that would give the { Council } jurisdiction ever Ernie's and therefore can not be subject to CIR rule. Even after not meeting legal requirements Local 725 is still trying to bound Ernie's by their agreement. Todd Thacker, Business agent for Local 725 and Dwayne Miller at the time an employee of Ernie's Electric came into my business and told that they were putting me out of business, after the meeting Todd Thacker removed its five apprentice from Ernie's telling them to report back to the hall the next mourning, one of the apprentice being my son Samuel Miller JR. so I was left with no option but to draft a letter stating I no longer wish to be represented. (#7) (all text sic erat scriptum). Magistrate Judge David G. Bernthal held two hearings, the first on July 29, 2010 and the second on September 13, 2010. On September 30, 2010, an appearance was made by Joseph McMahon on behalf of Defendant (#11). Judge Bernthal struck the letter on October 5, 2010. Discovery began on October 21, 2010 (#14). Richard Williams appeared on behalf of Defendant on January 14, 2010 (#17). Michael Einterz appeared on behalf of Defendant on June 24, 2011 (#21).

On April 2, 2012, Plaintiffs filed the present Motion for Summary Judgment (#23-28). Defendant filed their response on April 23, 2012 (#29-30.) Plaintiffs filed their reply on May 7, 2012 (#31). As the matter is fully briefed, this court is ready to rule on the Motion for Summary Judgment (#23).

ANALYSIS

There are two issues here. The first is in regard to the governing law. Is the claim based in and therefore enforceable under the rubric of ERISA, NLRA, or contract law? *fn3 Second, presuming that some operable channel for liability exists, for which employee(s), if any, was Defendant required to provide contributions to the pension and welfare funds? More specifically, there are two relevant groups of employees. The first consists of Miller Sr., Sam Miller Jr. ("Miller Jr.") and Matthew Miller (hereinafter "Family Employees"). Miller Jr. and Matthew Miller are Miller Sr.'s sons. The second group consists of all Defendant's other employees during the relevant period (hereinafter "Other Employees"). (#29, p.5). Both parties agree that the relevant period in dispute is between January 1, 2005 through September 30, 2007 (hereinafter "Audit Period"). (#29, ¶ 52).

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322--23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In ruling on a motion for summary judgment, a district court "has one task and one task only: to decide, based on the evidence of record, whether there is any material dispute of fact that requires a trial." Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). In making this determination, the court must construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of that party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Singer v. Raemisch, 593 F.3d 529, 533 (7th Cir. 2010). As will be discussed, there are no facts in dispute; rather, the only real question is whether the Family Employees must be treated as "employees" for the purpose of the Welfare and Pension Funds.

I. Cause of action and statutory framework

The first question is which legal framework must be applied to Plaintiff's claim. Plaintiffs argue in their motion for summary judgment only that it is "an ERISA collection action pursuant to 29 U.S.C. § 1145," and fail to apply that statement to the facts in the present case regarding the Inside and Residential Agreements. Defendant argues, in its response, that because 1) Plaintiff brought their action under ERISA; 2) an insurance coverage plan covering only a sole business owner and his or her immediate family members cannot qualify as an employee welfare benefit plan covered by ERISA; and 3) the plans in effect for the period after August 1, 2006 only covered the business owner and Family Employees, that Plaintiff's sole ERISA claim necessarily fails. Plaintiffs reply that the claims are based in contract law, rather than labor law, and therefore, the definitions and procedures in ERISA are irrelevant.

This court agrees with Plaintiffs. As deployed here, Plaintiffs do not use ERISA to cover the substance of employee benefit plans, but rather to provide a federal cause of action to enforce the terms of contractually-agreed-upon employee benefit plans. Black & Decker Disability Plan v. Nord, 538 U.S. 822, 833 (2003) ("In contrast to the obligatory, nationwide Social Security program, nothing in ERISA requires employers to establish employee benefits plans. Nor does ERISA mandate what kind of benefits employers must provide if they choose to have such a plan.") (editing marks omitted); Lockheed Corp. v. Spink, 517 U.S. 882, 887, 116 S. Ct. 1783, 1788, 135 L. Ed. 2d 153 (1996) ("ERISA does, however, seek to ensure that employees will not be left empty-handed once employers have guaranteed them certain benefits.") (editing marks omitted).

Here, ERISA affords Plaintiffs a federal cause of action in 29 U.S.C. § 1145 ("Every employer who is obligated to make contributions to a multiemployer 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.") and federal court subject-matter jurisdiction in 29 U.S.C. § 1132(e)(1) ("Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, fiduciary, or any person referred to in section 1021 (f)(1) of this title."). See also Cent. States, Se. & Sw. Areas Pension Fund v. Schilli Corp., 420 F.3d 663, 670 (7th Cir. 2005) ("[ERISA] authorizes multiemployer plans to sue for delinquent contributions owed under the terms of the plan or under the terms of a collectively bargained agreement.") (quotation marks omitted); Cent. States, Se. & Sw. Areas Pension Fund v. Kroger Co., 73 F.3d 727, 730-31 (7th Cir. 1996) ("Section 515 [aka 29 U.S.C. § 1145] gives pension funds. the right to enforce the writings according to their terms.") (editing marks omitted.)

The Circuit Courts of Appeal have broadly interpreted 29 U.S.C. § 1145 "as precluding employers from raising a variety of contract defenses as a means of avoiding the obligation to contribute to employee benefit plans." Agathos v. Starlite Motel, 977 F.2d 1500, 1505 (3d Cir. 1992). The Agathos court noted that, at the time, there were only three recognized defenses: 1) that the pension contributions themselves are illegal; 2) the collective bargaining agreement is void ab initio, as where there is fraud in the execution, and not merely voidable, as in the case of fraudulent inducement; and 3) the employees have voted to decertify the union as its bargaining representative, thus prospectively voiding the union's collective bargaining agreement. Id. Defendant has not raised any of these exceptions, and it is clear that none applies here. Moreover, Section 1145 "gives a multiemployer plan greater rights under these documents than the union itself, entitling a plan to enforce the writing without regard to understandings or defenses applicable to the original parties." Cent. States, Se. & Sw. Areas Pension Fund v. Schilli Corp., 420 F.3d 663, 670 (7th Cir. 2005) (editing marks omitted).

Plaintiffs' suit is an action to enforce the terms of the Inside and Residential collective bargaining agreements. See Moriarty v. Larry G. Lewis Funeral Directors Ltd., 150 F.3d 773, 776 (7th Cir. 1998). In Moriarty, pension and welfare funds that accepted contributions from a funeral director corporation pursuant to a CBA with a multi-employer association representing the funeral directors filed an action when the funeral directors failed to remit contributions on behalf of any other employee. There, the funds sued, demanding access to the corporate books and any additional contributions warranted following an audit. The Seventh Circuit held that the federal courts had jurisdiction over the claim because the claim was not a collection pursuant to ERISA, but rather, was based on contract law rather than principles of labor law seeing as "no employee wants to change bargaining representatives (or decertify a union); no one contends that an unfair labor practice has been committed." Id. at 775-76. See Buckley Dement, Inc. v. Travelers Plan Administrators of Illinois, Inc., 39 F.3d 784, 789 (7th Cir. 1994) ("in interpreting ERISA plans, we have utilized a federal common law of contract interpretation rather than relegating such interpretative matters to the law of the individual states."); Bellas v. CBS, Inc., 221 F.3d 517, 522 (3d Cir. 2000) ("this court is required to enforce the Plan as written unless it can find a provision of ERISA that contains a contrary directive.") (editing marks omitted). Thus, while this court has subject-matter jurisdiction pursuant to ERISA and Plaintiff's cause of action is afforded by ERISA, the appropriate analysis is contract interpretation rather than ERISA or labor law.

Next, the operative contracts were binding on Defendants. Defendant was initially bound to the CBAs via agency law. When Defendant authorized NECA as its collective bargaining representative for matters pertaining to the Inside Labor Agreement in the 1976 Letter of Assent "A", Defendant agreed that NECA would negotiate with Local 725 on its behalf. Under agency law, these negotiations bound Defendant to the terms of the CBAs, which had been and would continue to be negotiated and executed between NECA and Local 725. The Letter of Assent "A" incorporated the "current approved" labor agreement into the letter of assent and bound Defendant to the terms of the Inside Agreement. See McDonald v. Hamilton Elec., Inc. of Florida, 666 F.2d 509, 513 (11th Cir. 1982) ("By executing these letters of assent, appellant agreed to be bound by any matter contained in the extant collective bargaining agreements as well as any changes negotiated by the [bargaining representative] pertaining to or amending the agreements."); cf. Int'l Broth. of Elec. Workers, Local 532 v. Brink Const. Co., 825 F.2d 207, 214 (9th Cir. 1987) (holding that after an employer revoked its letter of assent with its collective bargaining representative, the representative could no longer, at that point, commit the employer into subsequently-negotiated agreements).*fn4 The same reasoning applies to the 1975 Residential CBA and the Residential Labor Agreement.

Defendant notified NECA on March 27, 2006 that it was revoking its authorization of NECA as its collective bargaining representative pertaining to the inside labor agreement.*fn5 (#25, Exh. 6). While that act was timely and therefore terminated the relationship with NECA, it did not, however, terminate the agreement with Local 725, and, by relation, did not terminate its duties to the Plaintiffs Trust Funds. The Inside Agreement was valid until November 30, 2006. Defendant was required pursuant to § 1.02(a) of the Inside Agreement to provide written notification at least 90 days prior to the expiration of the Agreement, but did not do so timely, instead waiting until November 3, 2006 to do so.*fn6 On August 28, 2006, Local 725, pursuant to ยง 1.02(d) of the Inside Agreement, notified Defendant that it sought to renegotiate the terms of the agreement. On October 23, 2006, due to stalled negotiations, Local 725 notified Defendant that it had submitted the dispute to the CIR for arbitration. Defendant failed to appear at and failed to present any arguments at the CIR arbitration hearing. Accordingly, the CIR ruled that "the parties are directed to sign and implement immediately the Inside Agreement which is attached hereto and hereby made a part of this decision." (#26, Exh. 15). An Inside Agreement between Defendant and Local 725 was filed this court, signed by the business manager for Local 725 but not countersigned. (#26, Exh. 15). On May 11, 2007, Local 725 filed an action in the U.S. District Court for the Southern District of Indiana to enforce the arbitration award. (#26, Exh. 16). Defendant again failed to appear, plead, or otherwise defend in the enforcement action, and thus, on March 4, 2008, that court ordered ...


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