Waggoner v. Dallaire

• Decision Date: 10 July 1981
• Docket Number: No. CA,CA
• Citation: 649 F.2d 1362
• Parties: 107 L.R.R.M. (BNA) 3317, 91 Lab.Cas. P 12,870, 2 Employee Benefits Ca 1735 William WAGGONER, et al., Plaintiffs-Appellant, v. Robert Lee DALLAIRE, Defendant-Appellee. 79-3542.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1362

649 F.2d 1362

107 L.R.R.M. (BNA) 3317, 91 Lab.Cas. P 12,870,

2 Employee Benefits Ca 1735

William WAGGONER, et al., Plaintiffs-Appellant, v. Robert Lee DALLAIRE, Defendant-Appellee.

No. CA 79-3542.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 7, 1980.

Decided July 10, 1981.

Wayne Jett, Los Angeles, Cal., for plaintiffs-appellants.

James D. Ream, Wright, Jenkins & Ream, Atascadero, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before KENNEDY and TANG, Circuit Judges, and SPEARS, ^* District Judge.

TANG, Circuit Judge:

Trustees of four employee benefit trusts appeal a district court judgment. The trustees brought the action to collect delinquent fringe benefit contributions allegedly required by a collective bargaining agreement between a union and the appellee, the President of A-Jay Excavating Company. The district court held the collective bargaining agreement to be unenforceable under federal and California law. We reverse.

I. Facts

On March 5, 1969, Robert Lee Dallaire ("Dallaire"), President of the A-Jay Excavating Company ("A-Jay"), signed a "short form" collective bargaining agreement with the International Union of Operating Engineers Local Union No. 12 ("Local 12"). The agreement incorporated by reference the terms of the "Master Labor Agreement" ("MLA"), an agreement between Local 12 and the Southern California General Contractors Associations. The MLA establishes four employee benefit trusts and requires employers to contribute to the trusts according to a specified formula for "hours worked by (or paid) each employee under this agreement." MLA arts. VIII, IX & X.

On May 6, 1977, the trustees of the MLA trusts ("the Trustees") brought suit in federal district court against Dallaire pursuant to section 301(a) of the Labor Management Relations Act of 1947 ("LMRA"), 29 U.S.C. § 185(a) (1976). The action sought recovery of alleged delinquent trust contributions, liquidated damages, attorneys' fees, and audit expenses. The allegedly delinquent contributions dated back to 1970, the last date A-Jay reported contributions to the trusts.

Dallaire testified at trial that he entered the collective bargaining agreement in 1969 only upon certain oral assurances made by Local 12 business agent, Leroy Fortsen. Dallaire testified that Fortsen had "wanted to protect himself with the union to keep him from getting in trouble and he wanted me to sign a contract " Dallaire also testified that Fortsen promised not to enforce the terms of the agreement if Dallaire signed the "short form" and agreed to adhere to the contract until he had finished the "Thibado job," a large construction project A-Jay was then undertaking. Dallaire further testified that Fortsen visited A-Jay construction projects about twenty times from 1969 to May, 1973, and saw that A-Jay was using non-union employees on the projects.

At the conclusion of the trial, the district court ruled that the collective bargaining agreement was null and void by reason of fraud in the inducement. The court also ruled that the agreement was void as an unenforceable adhesion contract. In addition, the court ruled that the Trustees' action was barred by the applicable four-year statute of limitations. The court reasoned that Local 12's business agent had observed A-Jay's construction projects, thereby giving the Trustees constructive notice of A-Jay's contractual breaches more than four years before the suit's filing. Judgment was entered in favor of Dallaire on August 9, 1979.

Almost nine months after trial, the Trustees moved to disqualify the district judge for "pervasive personal bias." The court denied the motion as untimely and unsubstantiated.

The Trustees appeal the judgment, the denial of the disqualification motion, and a subsequent award of attorney's fees to Dallaire. Several other issues are also raised by the parties on appeal.

II. Fraudulent Inducement

Federal law governs parties' rights in actions brought under section 301 of the LMRA. Textile Workers Union of America v. Lincoln Mills, 353 U.S. 448, 456-57, 77 S.Ct. 912, 917-18, 1 L.Ed.2d 972 (1957); Rehmar v. Smith, 555 F.2d 1362, 1366 (9th Cir. 1976). A district court may incorporate forum contract law to inform federal principles affecting the respective rights of parties, but only where "it effectuates the policy that underlies federal labor legislation." Seymour v. Hull & Moreland Engineering, 605 F.2d 1105, 1109 (9th Cir. 1979).

Dallaire's position is that he entered into the collective bargaining agreement only upon the oral understanding that its trust benefit terms would not be enforced. The issue is whether federal law permits such an oral understanding under the circumstances of this case. To this end, it is appropriate to inquire into the similar question of whether federal law permits oral modifications of agreements already made.

Section 302(c)(5) of the LMRA, 29 U.S.C. § 186(c)(5) (1976), permits employer contributions to employee welfare trust funds, but requires that "the detailed policy on which such payments are to be made" be "specified in a written agreement with the employer." (emphasis added). The statute as written does not specifically prohibit oral modifications of written trust agreements, but such a limitation may be inferred from the context of the rest of the parent section.

Section 302 of the LMRA, 29 U.S.C. § 186 (1976), was enacted in response to serious Congressional concern over union corruption and alleged "shake-down" and "kick-back" schemes involving union welfare funds. See Turner v. Local Union No. 302, Int'l Brotherhood of Teamsters, 604 F.2d 1219, 1227 (9th Cir. 1979); Thurber v. Western Conference of Teamsters Pension Plan, 542 F.2d 1106, 1108 (9th Cir. 1976) (per curiam). To eradicate the problem, Congress made it a criminal offense in section 302 for an employer to pay anything of value to a union representative or for a union representative to receive anything of value from an employer. 29 U.S.C. § 186(a)-(b)(1) (1976). An exception was made for employer contributions to employee trust funds, but the exception prescribes rigid safeguards to prevent fund misappropriation. Along with the requirement that the trust arrangement be detailed in a written agreement, section 302 requires pension payments to be included in separate trusts, annual audits of pension funds with disclosures of the audit results, and administration of the trust by a committee with both employer and employee representatives. 29 U.S.C. § 186(c)(5) (1976).

A rule permitting oral modification of written trust arrangements would defeat the elaborate protection section 302 provides trust beneficiaries. Employees, basing their futures on the promise of an old-age pension provided in a union contract, may discover in later years to their surprise that an oral side-agreement had eroded the worth of their pension rights. The rule may also tempt local union representatives and employers to enter corrupt bargains since no written record would exist delineating the employer's trust obligations.

Relying upon these considerations, the Third Circuit has held that an employer and a union may not orally modify the terms of employee trust provisions in a collective bargaining agreement. See Lewis v. Seanor Coal Co., 382 F.2d 437, 441-44 (3d Cir. 1967) (employer urged that oral representations by union official estopped trust from claiming trust contributions), cert. denied, 390 U.S. 947, 88 S.Ct. 1035, 19 L.Ed.2d 1137 (1968). Accord, Boyle v. North Atlantic Coal Corp., 331 F.Supp. 1107, 1108 (W.D.Pa.1971) (oral understandings at variance with written agreements regarding trust contributions are of no legal effect). The Fourth Circuit reached the opposite result in Lewis v. Lowry, 295 F.2d 197, 199 (4th Cir. 1961), cert. denied, 368 U.S. 977, 82 S.Ct. 478, 7 L.Ed.2d 438 (1962). Lowry, however, wholly ignores the statutory framework provided in section 302, weakening the reasoning underlying the court's decision. See generally, id. at 201-02 (Sobeloff, C.J., dissenting).

Given section 302's language and the Congressional purpose underlying the section, the Third Circuit rule against oral modifications is better considered. We think this rule applies with equal force to the oral understanding at issue here. The interest of employees in certain benefits is unchanged. Opportunities for fraud may still exist, and the requirement of a writing will deter those. In short, every element leading the Third Circuit to its position is present here. Consequently, we feel that the LMRA prevents a local union agent and an employer from starting with an industry-wide plan as a base, orally departing from it in respects that contravene its essence, and then forming a final agreement, absent a formal writing to that effect. Under this standard, the district court erred in ruling that Dallaire's MLA trust obligation was qualified by Fortsen's oral promise.

III. Adhesion Contract

The district court relied upon two factual findings to reach the legal conclusion that the collective bargaining agreement was an unenforceable adhesion contract: (1) the collective bargaining agreement was a "standardized mass produced agreement," and (2) Dallaire agreed to the agreement only because of the superior bargaining strength of Local 12.

The main principle underlying federal labor legislation is that collective bargaining is the best means of securing and maintaining industrial peace. The district court's holding is contrary to this principle. Under the district court's legal theory, almost all union contracts would be unenforceable since standardized contracts are commonplace in modern labor relations and all concessions won by unions from employers result from unions employing their bargaining strength on strategically chosen issues. Moreover, the court's finding that the union possessed superior bargaining...