Board of Trustees of Watsonville Frozen Food Welfare Trust Fund v. California Co-op. Creamery

Decision Date21 June 1989
Docket NumberNo. 87-2931,87-2931
Citation877 F.2d 1415
Parties131 L.R.R.M. (BNA) 3046, 112 Lab.Cas. P 11,333, 11 Employee Benefits Ca 1804 The BOARD OF TRUSTEES OF THE WATSONVILLE FROZEN FOOD WELFARE TRUST FUND and The Watsonville Frozen Food Welfare Trust Fund, Plaintiffs-Appellees, v. CALIFORNIA COOPERATIVE CREAMERY, a corporation, Michael E. Nash, individually and as president of California Cooperative Creamery, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Wesley Sizoo and Eric O. Nieman, Moore, Sizoo & Cantwell, Walnut Creek, Cal., for defendant-appellant.

W. George Wailes and Sandra K. Rogers, Williams, Kelly, Polverari & Skelton, San Mateo, Cal., for plaintiffs-appellees.

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

Before CHOY, CANBY and NORRIS, Circuit Judges.

CHOY, Circuit Judge:

California Cooperative Creamery ("Cal Co-op") appeals from a judgment in favor of the Watsonville Frozen Food Welfare Trust Fund (the "Trust Fund") and its Board of Trustees (the "Board"). The Board brought this action under section 502 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1132, and section 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. Sec. 185, to collect contributions the Board determined Cal Co-op owed to the Trust Fund. Cal Co-op is a California corporation engaged in the milk and cheese business. The Trust Fund is a multiemployer health and welfare trust organized under ERISA and the LMRA. The Trust Fund operates pursuant to a Trust Agreement.

Cal Co-op entered into a series of collective bargaining agreements ("CBAs") with the General Truck Drivers, Warehousemen & Helpers Union Local No. 624 ("Local 624"). From 1976 until 1984, the CBAs required Cal Co-op to make contributions to the Trust Fund on behalf of Cal Co-op's employees for health and welfare coverage. In compliance with this obligation, Cal Co-op entered into a Subscriber Agreement with the Trust Fund, which required that Cal Co-op comply with the terms of the Trust Agreement. The CBA dated April 1, 1984 ("1984 CBA"), required continued contributions for employee benefits, but allowed Cal Co-op to replace the Trust Fund with a health and welfare program of Cal Co-op's choice, as long as the same level of benefits was maintained.

The Trust Fund ordinarily maintained a reserve of funds to cover incurred but unreported claims 1 by employees. In the 1983-1984 plan year, however, claims by beneficiaries of the Trust Fund exceeded premiums paid by contributing employers. As a result of this adverse claims experience, the reserve funds were exhausted. In September, 1984, Transamerica Occidental Life Insurance Company ("Transamerica"), the carrier for the Trust Fund, notified the Board that it would increase rates substantially because of the excess between claims and premiums paid. Transamerica agreed to reduce the proposed rate increases if the Trust Fund established a new reserve to cover incurred but unreported claims.

On October 4, 1984, the Board met and voted to increase contribution rates for employers. The Board also voted to assess a termination premium on any employer who withdrew from the Trust Fund. The Board decided to impose the termination premium because it was concerned that the contribution rate increases might cause many employers to withdraw from the Trust Fund before the Trust Fund could reestablish adequate reserves to pay incurred but unreported claims. The Board notified each participating employer of the adoption of the termination premium on October 9, 1984.

On June 3, 1985, Cal Co-op notified the Trust Fund that Cal Co-op would be exercising its right under the 1984 CBA to The CBAs require contributions to the Trust Fund for all "eligible employees." On November 27, 1985, the Trust Fund conducted an audit of Cal Co-op for the period from January 1, 1982, through July 1, 1985. The audit revealed that Cal Co-op had failed to report or make contributions for 21 summer employees who had worked 80 hours per month in the previous months. In April, 1986, Cal Co-op paid the principal owed for 5 of the 21 employees but did not pay any interest, liquidated damages, attorney's fees, or costs. The remaining 16 employees were dependents of other Cal Co-op employees. Cal Co-op refused to make contributions for these 16 employees, arguing that they were excluded from the definition of eligible employees because they already received coverage as dependents and further coverage only would be duplicative.

withdraw from the Trust Fund. The Board informed Cal Co-op that the company was liable for a termination premium of $88,000. On July 10, 1985, Cal Co-op advised the Board that Cal Co-op would not pay the termination premium.

On January 26, 1986, the Board filed a complaint in federal district court. The first and second causes of action alleged breach of the CBAs and ERISA violations because of the failure to make contributions for the 21 summer employees. The third, fourth, and fifth causes of action were for fraud, misrepresentation, and failure to disclose in connection with Cal Co-op's reports regarding the number of eligible employees. The sixth cause of action alleged breach of the CBAs as a result of the failure to pay the assessed termination premium.

On May 30, 1986, the Board filed a motion for summary judgment on the first, second, and sixth causes of action. With regard to the sixth cause of action, the Board argued that it had the power to impose a termination premium and that it had not breached its fiduciary duties under ERISA in assessing the premium. Cal Co-op also moved for summary judgment on this cause of action, arguing that the Board had no authority to assess a termination premium and that imposition of the premium did result from a breach of the Board's fiduciary duties.

On June 26, 1986, the district court granted the Board's motion for summary judgment on the sixth cause of action and denied Cal Co-op's motion. The court awarded attorney's fees, interest, liquidated damages, and costs to the Trust Fund. Judgment was entered as to the sixth cause of action on September 9, 1986.

At the hearing on June 26, 1986, the court denied the Board's motion for summary judgment with regard to the first and second causes of action and set the matter for trial. On October 1, 1987, the district court issued a memorandum opinion with regard to the remaining causes of action. The district court found that Cal Co-op was legally obligated to remit health and welfare contributions to the Trust Fund on behalf of the dependent summer employees. Judgment was entered on October 2, 1987, and Cal Co-op timely appealed.

DISCUSSION
I. Propriety of Imposing the Termination Premium

Cal Co-op's first argument on appeal is that the district court erred in granting the Trust Fund's motion for summary judgment on the sixth cause of action because it was improper for the Board to impose a termination premium. This court reviews the grant of summary judgment de novo. Lojek v. Thomas, 716 F.2d 675, 677 (9th Cir.1983). Summary judgment is proper if, viewing the evidence most favorably to the opponent of the motion, the court finds that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Id. To uphold summary judgment in this case, we must determine whether the termination premium was authorized by the Trust Agreement and whether the Board breached any duty owed to Cal Co-op when the Board imposed the premium.

A. Contractual Authority for the Termination Premium

Congress intended that the common law of trusts would define the general Special rules of contractual interpretation apply in cases involving the administration of an employee benefit trust agreement. In these cases, courts must defer to the trustees' interpretation of a trust agreement unless the interpretation is arbitrary, capricious, or contrary to law. Smith v. CMTAIAM Pension Trust, 654 F.2d 650, 654 (9th Cir.1981). This is especially true when, as here, the trust agreement gives the trustees broad discretion. Id. at 655. In the present case, the Board has broad discretion since the Trust Agreement gives the Board the power to construe any of the terms or provisions of the Agreement and makes this construction binding on all persons concerned. Thus, if the Board's interpretation of the Agreement is reasonable, we must defer to that interpretation.

scope of trustee authority and responsibility for welfare and pension funds regulated under ERISA. Central States Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570, 105 S.Ct. 2833, 2840, 86 L.Ed.2d 447 (1985). Under traditional trust law, the scope of trustee authority and responsibility is defined and limited by the trust agreement. Sinai Hosp. of Baltimore v. National Benefit Fund for Hosp. & Health Care Employees, 697 F.2d 562, 568 (4th Cir.1982); 2 A. Scott, Law of Trusts Sec. 164 (3d ed. 1967). Thus, we look to the Trust Agreement and the documents incorporated by reference therein 2 to determine whether the Board was authorized to collect the premium. Because the district court's decision is before us on summary judgment, our review of its decision is de novo. Lojek, 716 F.2d at 677.

Section IX-E of the Trust Agreement provides that the Board may establish regulations to protect the trust in the event that any employer terminates participation. The termination premium imposed here was an estimate of the amount of incurred but unreported claims of employees of withdrawing employers, on the basis of claims experience from previous years. Ordinarily, incurred but unreported claims would be covered from the reserve funds maintained by the Board specifically for this purpose. In this case, however, the reserve funds already were depleted by the excess of reported claims over premiums paid in the year prior to Cal Co-op's...

To continue reading

Request your trial
27 cases
  • Dairy v. Dairy Emps. Union Local No. 17 Christian Labor Ass'n of the U.S. Pension Trust
    • United States
    • U.S. District Court — Eastern District of California
    • December 23, 2015
    ...pension policy demands that employers...not be permitted to repudiate their pension promises.”' Board of Trustees v. California Coop. Creamery , 877 F.2d 1415, 1424 (9th Cir.1989) (quoting 126 Cong. Rec. S. 11673 (Aug. 26, 1980); 126 Cong. Rec. H. 7899 (Aug. 26, 1980)). Congress added § 515......
  • U.S. v. Anders, s. 89-5465
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • July 19, 1990
  • U.S. v. Escobedo
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • July 31, 1991
    ... ... Judge for the Central District of California, sitting by designation ... ** This ... ...
  • U.S. v. Williams
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • May 4, 1990
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT