870 F.2d 1148 (7th Cir. 1988), 87-2480, Central States, Southeast and Southwest Areas Pension Fund v. Gerber Truck Service, Inc.

Docket Nº:87-2480.
Citation:870 F.2d 1148
Party Name:CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, a pension trust, et al., Plaintiffs-Appellants, v. GERBER TRUCK SERVICE, INC., Defendant-Appellee.
Case Date:August 25, 1988
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 1148

870 F.2d 1148 (7th Cir. 1988)


a pension trust, et al., Plaintiffs-Appellants,


GERBER TRUCK SERVICE, INC., Defendant-Appellee.

No. 87-2480.

United States Court of Appeals, Seventh Circuit

August 25, 1988

Argued Feb. 18, 1988.

Reargued En Banc Feb. 9, 1989.

Decided March 17, 1989.

Page 1149

Albert M. Madden, Central States Law Dept., Chicago, Ill., for plaintiffs-appellants.

Ross A. Friedman, Susman, Schermer, Rimmel & Parker, St. Louis, Mo., for defendant-appellee.


EASTERBROOK, Circuit Judge.

We took this case en banc to decide whether, when an employer and union submit to a pension fund documents promising to make contributions on behalf of all employees, understandings and practices that would prevent enforcement of the writings between employer and union also defeat the fund's claims. The answer depends on Sec. 515 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1145, which provides:

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.

This means, we conclude, that a plan may enforce the writings according to their terms, if "not inconsistent with law". The pension or welfare fund is like a holder in due course in commercial law, see Bonded Financial Services v. European American Bank, 838 F.2d 890, 892-93 (7th Cir.1988), or like the receiver of a failed bank, see Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987)--entitled to enforce the writing without regard to understandings or defenses applicable to the original parties. In so concluding, we follow our own opinion in Robbins v. Lynch, 836 F.2d 330 (7th Cir.1988), and the unanimous view of the other courts of appeals. 1


James H. Gerber, who operated a trucking service as a proprietorship, wanted to expand his operations. Early in 1981 he bought the assets, including the operating authorities, of Fat's Express Truck Service. He hired its three drivers and other employees. The three new drivers, the "Fat's Three", were members of Teamsters Local

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50 and had enjoyed pension and welfare coverage under multi-employer pension and welfare plans established by the Teamsters union and employers throughout the motor carrier business. The Fat's Three--two of whom were close to retirement age--wanted to keep that coverage. Gerber's other employees were not union members, and Gerber had no desire to pay union-scale wages to them or to the Fat's Three. He was willing to accommodate their desire to preserve pension and welfare coverage, however.

To achieve this objective, Gerber approached John Gonzales, the business representative of Local 50, with a proposition: Gerber would sign the Teamsters' collective bargaining agreement, if Gonzales would promise not to expect Gerber to do anything beyond making pension and welfare contributions on behalf of the Fat's Three. Gonzales found this acceptable, because it protected three union members who might otherwise get no coverage or have to search for new jobs late in their careers.

Gerber and Gonzales signed the National Master Freight Agreement and its Central States Area Local Cartage Supplemental Agreement, which required Gerber to make pension and welfare contributions on behalf of "all truckdrivers, helpers, dockmen, warehousemen, checkers, powerlift operators, hostlers, and such other employees as may be presently or hereafter represented by the Union". Because "representation" in labor law encompasses all bargaining-unit employees, this pledge reached well beyond the three who were members of the union. Wallace Corp. v. NLRB, 323 U.S. 248, 255-56, 65 S.Ct. 238, 242, 89 L.Ed. 216 (1944); Emporium Capwell Co. v. Western Addition Community Organization, 420 U.S. 50, 61-65, 95 S.Ct. 977, 984-86, 43 L.Ed.2d 12 (1975). Gerber and Gonzales signed a separate "Participation Agreement" requiring Gerber to contribute fixed sums per week to the pension and welfare plans on behalf of all "DRIVERS represented by the Union". "Drivers" was typed into a blank in a pre-printed form. The district court found after a bench trial that

[t]he collective bargaining agreement was modified by an understanding reached between Gonzales and Gerber only to extend Health and Welfare and Pension coverage to three employees.... James Gerber and John Gonzales both stated that the sole intent of the parties was to provide benefit coverage to [the Fat's Three]. Gerber and the employees established their own wages and other terms and conditions of employment. The Union did not seek to include any other employees in the [bargaining] Unit.

In other words, Gerber and Gonzales agreed that the documents they signed would not be enforced. They were not enforced. Local 50 treated Gerber as if it were a non-union firm. We shall assume that these oral understandings and practices would have frustrated any attempt by the Teamsters, or by Gerber's employees, to assert rights under the agreements as contracts.

Gerber and Gonzales did not inform the pension and welfare plans of their arrangement. They sent the collective bargaining and participation agreements to the funds. Gerber began to make contributions on behalf of the three drivers; he did not tell the plans that he employed additional drivers and other workers.

In June 1981 Gerber incorporated Gerber Truck Service, Inc., which assumed Gerber's obligations. Gerber Truck grew but continued to make contributions only on behalf of the Fat's Three. In August 1982 Gerber Truck informed Local 50 that it would not sign another collective bargaining agreement, but it did not send the union a written notice of withdrawal, and it continued making pension and welfare payments on behalf of the Fat's Three. One of the Three retired in September 1983, a second in August 1984. The third resigned from the union in April 1984, apparently because someone at Local 50 called his wife a bad name. Gerber Truck sent the funds a notice of termination and stopped paying.

This caught the attention of the plans, which audited Gerber Truck's books. The plans discovered that Gerber Truck had

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drivers in addition to the Fat's Three and workers with other duties, a total of 18 additional employees apparently covered by the collective bargaining agreement. They opened pension and welfare accounts on behalf of the other employees, giving them credit for covered employment; the plans also demanded that Gerber Truck make contributions on behalf of these employees from February 1, 1981, when Gerber signed the documents, through March 31, 1985, the first contract anniversary after the written notice of cancellation. Gerber Truck refused, and this litigation followed. 29 U.S.C. Sec. 1132(e)(1).

After finding that Gerber and Gonzales agreed that the written documents would be enforced only with respect to the Fat's Three, and then only to the extent they promised pension and welfare coverage--and that this oral restriction had been honored--the district court concluded that the pension and welfare trusts acquired no more than what Gerber and Gonzales had negotiated. The court ordered Gerber Truck to make full payments on behalf of the Fat's Three but otherwise rejected the plans' claims.


The pension and welfare plans are not parties to the collective bargaining and participation agreements. Third-party beneficiaries usually take contracts as they find them. They get no more than the signatories provided, and if there is a flaw in the formation of the contract the third-party beneficiaries get nothing. See Restatement (Second) of Contracts Sec. 309(1) (1981), stating that a voidable contract may not be enforced by the intended beneficiary, and Sec. 309(3), stating that if the contract was properly formed "the right of any beneficiary against the promisor is not subject to the promisor's claims or defenses against the promisee". See also Restatement (Second) of Contracts Sec. 311 (1979), and Price v. Pierce, 823 F.2d 1114, 1119 (7th Cir.1987), both pointing out how the presence of a third-party beneficiary can prevent modification of the contract, once it is properly formed.

Multi-employer pension and welfare plans would be in a bind if this familiar rule applied, so that flaws in the formation cut off third-party claims. Plans rely on documents to determine the income they can expect to receive, which governs their determination of levels of benefits. Multi-employer plans are defined-contribution in, defined-benefit out. Once they promise a level of benefits to employees, they must pay even if the contributions they expected to receive do not materialize--perhaps because employers go broke, perhaps because they are deadbeats, perhaps because they have a defense to the formation of the contract. If some employers do not pay, others must make up the difference in higher contributions, or the workers will receive less than was promised. Lynch, 836 F.2d at 333. Costs of tracking down reneging employers and litigating also come out of money available to pay benefits. The more complex the litigation, the more the plan must spend. Litigation involving conversations between employers and local union officials--conversations to which plans are not privy--may be especially costly, and hold out especially great prospects...

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