Plumbers & Pipefitters Local 625 v. Nitro Constr. Servs., Inc.

• Citation: 27 F.4th 197
• Decision Date: 23 February 2022
• Docket Number: No. 20-2080,20-2080
• Parties: PLUMBERS & PIPEFITTERS LOCAL 625; Plumbers & Steamfitters Local 565 ; Plumbers & Steamfitters Local 83; West Virginia Pipe Trades Health and Welfare Fund, Plaintiffs – Appellants, v. NITRO CONSTRUCTION SERVICES, INC., f/k/a Nitro Electric Company, Inc., Defendant – Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

27 F.4th 197

PLUMBERS & PIPEFITTERS LOCAL 625; Plumbers & Steamfitters Local 565 ; Plumbers & Steamfitters Local 83; West Virginia Pipe Trades Health and Welfare Fund, Plaintiffs – Appellants,

v.NITRO CONSTRUCTION SERVICES, INC., f/k/a Nitro Electric Company, Inc., Defendant – Appellee.

No. 20-2080

United States Court of Appeals, Fourth Circuit.

Argued: October 28, 2021

Decided: February 23, 2022

ARGUED: Avrum Levicoff, THE LEVICOFF LAW FIRM, Pittsburgh Pennsylvania, for Appellants. R. Booth Goodwin, II, GOODWIN & GOODWIN, LLP, Charleston, West Virginia, for Appellee. ON BRIEF: John Dascoli, JOHN DASCOLI, PLLC, Charleston, West Virginia, for Appellants. Benjamin B. Ware, Shanna L. Brown, Lucas R. White, GOODWIN & GOODWIN, LLP, Charleston, West Virginia, for Appellee.

Before WILKINSON, WYNN, and RICHARDSON, Circuit Judges.

Affirmed by published opinion. Judge Wilkinson wrote the opinion, in which Judge Richardson joined. Judge Wynn wrote a dissenting opinion.

WILKINSON, Circuit Judge:

Plaintiffs, a group of labor unions and the West Virginia Pipe Trades Health and Welfare Fund, sued Nitro Construction for liquidated damages after Nitro made a series of tardy payments to the Fund. The district court granted summary judgment to Nitro, holding that the liquidated damages constituted penalties and were therefore unrecoverable. For the following reasons, we affirm the judgment.

I.

The West Virginia Pipe Trades Health and Welfare Fund is an employee health and welfare fund. It provides benefits for employees who work for participating employers and are members of one of three unions: Plumbers & Pipefitters Local 625, Plumbers & Steamfitters Local 565, and Plumbers & Steamfitters Local 83. Nitro Construction Services, Inc., is a participating employer, and its employees are members of the unions who benefit from the Fund. Under the terms of the collective bargaining agreements with the unions, Nitro was required to make cash contributions to the Fund each month.

The collective bargaining agreement also incorporated the Fund's Trust Agreement, which gives the Trustees authority to adopt a system for collecting contributions. Under that authority, the Trustees adopted a "Delinquent Employer Procedure," in effect through January 25, 2017, and a "Policy for Collection of Delinquent Contributions," effective after that date. Both procedures required participating employers to submit monthly contribution reports and contribution payments on or before the 20th of each month. For late contributions, both imposed liquidated damages of ten percent for the first month of delinquency, plus interest at a rate of one percent per month and attorneys’ fees incurred to recover the amounts due. The policies also set forth various steps that the Fund would take to notify the delinquent employer of late or missed payments.

Nitro made late contribution payments to the Fund on several occasions between June 2016 and August 2017. The parties dispute whether the Fund notified Nitro in accordance with its collection procedures. All agree that Nitro paid its contribution in full before any suit was filed. In any event, the Fund and the unions sued Nitro for breach of contract for its tardy payments, seeking $77,373.95 in liquidated damages, plus interest and attorneys’ fees, as provided for by the collection procedures. The suit was brought in federal court pursuant to § 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185.

After discovery, the parties filed cross-motions for summary judgment. The Fund sought summary judgment on Nitro's contractual liability for liquidated damages and interest for its late contributions plus attorneys’ fees.¹ Nitro sought summary judgment on the grounds that the liquidated damages provisions were unenforceable penalties. The district court denied the Fund's motion and granted Nitro's motion in part. As relevant here, it found the liquidated damages provisions unenforceable as a matter of federal common law, which prohibits punitive damages for breach of contract.² The Fund appeals that determination and argues that this case should be guided, if not governed, by the Employment Retirement Income Security Act (ERISA), which allows punitive liquidated damages, rather than the traditional common law rule.

II.

A.

The Fund brought this suit for breach of contract under § 301 of the LMRA. That section allows "suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce" to "be brought in any district court of the United States having jurisdiction of the parties, without respect to the amount in controversy or without regard to the citizenship of the parties." 29 U.S.C. § 185(a). The Supreme Court has long held that § 301 "is more than jurisdictional"—it also "authorizes federal courts to fashion a body of federal law for the enforcement of ... collective bargaining agreements." Textile Workers Union of Am. v. Lincoln Mills of Ala. , 353 U.S. 448, 450–51, 77 S.Ct. 912, 1 L.Ed.2d 972 (1957). Thus "the substantive law to apply in suits under § 301(a) is federal law, which the courts must fashion from the policy of our national labor laws." Id. at 456, 77 S.Ct. 912 ; see also McCormick v. AT&T Techs., Inc. , 934 F.2d 531, 534 (4th Cir. 1991) (en banc) ("Section 301 not only provides federal courts with jurisdiction over employment disputes covered by collective bargaining agreements, but also directs federal courts to fashion a body of federal common law to resolve such disputes.").

The federal common law to be applied in § 301 cases is ordinarily the general law of contracts. See New England Carpenters Cent. Collection Agency v. Labonte Drywall Co. , 795 F.3d 271, 277 (1st Cir. 2015) ; Turner v. Am. Fed'n of Tchrs. Loc. 1565 , 138 F.3d 878, 882 (11th Cir. 1998) ; Agathos v. Starlite Motel , 977 F.2d 1500, 1509 (3d Cir. 1992) ; Caleb Nelson, The Persistence of General Law , 106 Colum. L. Rev. 503, 521 (2006) ("[E]ver since the Supreme Court read [§ 301] to federalize the interpretation of collective bargaining agreements, judges have routinely invoked ‘general contract principles’ to answer questions that the Act does not itself address."). Thus, "we interpret collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law" as long as "those principles are not inconsistent with federal labor policy." M & G Polymers USA, LLC v. Tackett , 574 U.S. 427, 435, 135 S.Ct. 926, 190 L.Ed.2d 809 (2015) (citing Lincoln Mills , 353 U.S. at 456–57, 77 S.Ct. 912 ). And to determine the general principles of contract law, we often look to the Restatements. U.S. ex rel. Ubl v. IIF Data Sols. , 650 F.3d 445, 451 (4th Cir. 2011) ; In re Peanut Crop Ins. Litig. , 524 F.3d 458, 470 (4th Cir. 2008).

The Restatement of Contracts makes clear that "the purpose[ ] of awarding contract damages is to compensate the injured party." Restatement (Second) of Contracts § 355 cmt. a (1981); see also Strum v. Exxon Co., U.S.A. , 15 F.3d 327, 330 (4th Cir. 1994). Accordingly, the common law has "long recognized that compensating the individual only for actual loss will suffice." Strum , 15 F.3d at 330 (citing id. ). Therefore, "[i]t can be laid down as a general rule that punitive damages are not recoverable for breach of contract." 5 Arthur L. Corbin, Corbin on Contracts § 1077, at 438 (1964); see also Barnes v. Gorman , 536 U.S. 181, 187, 122 S.Ct. 2097, 153 L.Ed.2d 230, (2002) ; Strum , 15 F.3d at 330.

Liquidated damages which are penal in nature are likewise disfavored. Restatement (Second) of Contracts § 356 ("A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty."); Kirkland Distrib. Co. of Columbia, S.C. v. United States , 276 F.2d 138, 144–45 (4th Cir. 1960). As the district court recognized, we enforce liquidated damages provisions only if actual damages would be difficult to ascertain and the liquidated damages bear some reasonable relationship to the actual harm that was caused. See J.A. 458–59; Priebe & Sons v. United States , 332 U.S. 407, 411, 68 S.Ct. 123, 92 L.Ed. 32 (1947) ; In re Apex Exp. Corp. , 190 F.3d 624, 638 (4th Cir. 1999) (citing Restatement (Second) of Contracts § 356 ); Kirkland , 276 F.2d at 145.

B.

Applying this test, the district court determined that the liquidated damages provisions here were punitive. It found that the Fund did not show that they "were the result of good-faith efforts to set an amount reflective of the damages it anticipated from late contribution payments." J.A. 473. Therefore, the district court declined to enforce them. Notably, the Fund does not challenge the district court's characterization of the liquidated damages provisions as penalties, and indeed it embraces that description.

Instead, it argues that such penal liquidated damages provisions should be enforceable here despite the general rule against them. It points to § 502(g)(2) of ERISA, which makes explicit provision for liquidated damages up to twenty percent in the case of companies with unpaid obligations to welfare and benefit funds like this one.³ See 29 U.S.C. § 1132(g)(2).

We find that position unpersuasive. ERISA § 502(g)(2) by its very terms does not support the Fund's position in this case. That section of ERISA only applies to "unpaid contributions." 29 U.S.C. § 1132(g)(2) (emphasis added). All agree that Nitro's contribution payments were tardy, but they were paid in full before this suit was commenced. And § 502(g)(2) does not reach such late—but paid—contributions. We are in accord with other circuits in making this distinction and recognizing that § 502(g)(2) only applies to unpaid contributions. See, e.g., Operating Eng'rs Local 139 Health Benefit Fund v. Gustafson Constr. Corp. , 258 F.3d 645, 654 (7th Cir. 2001) ; Mich. Carpenters Council Health & Welfare Fund v. C.J. Rogers, Inc. , 933 F.2d 376, 388 (6th Cir. 1991) ; Idaho...