Malden Mills Industries, Inc. v. Alman

• Decision Date: 04 February 1992
• Docket Number: No. 91-1938,91-1938
• Citation: 971 F.2d 768
• Parties: 15 Employee Benefits Cas. 2306 MALDEN MILLS INDUSTRIES, INC., Plaintiff, Appellee, v. Ronald ALMAN, et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 768

971 F.2d 768

15 Employee Benefits Cas. 2306

MALDEN MILLS INDUSTRIES, INC., Plaintiff, Appellee, v. Ronald ALMAN, et al., Defendants, Appellants.

No. 91-1938.

United States Court of Appeals First Circuit.

Heard Feb. 4, 1992.

Decided June 29, 1992.

Charles W. Johnston with whom Handler, Gerber, Johnston & Aronson, Camp Hill, Pa., was on brief, for appellants.

E. Randolph Tucker with whom Ben T. Clements and Hill & Barlow, P.C., Boston, Mass., were on brief, for appellee.

Before TORRUELLA, Circuit Judge, COFFIN and CAMPBELL, Senior Circuit Judges.

LEVIN H. CAMPBELL, Senior Circuit Judge.

This appeal concerns a dispute between a multiemployer benefits fund and a former contributing employer. The Fund appeals from a judgment in favor of the employer, Malden Mills Industries, Inc. The United States District Court for the District of Massachusetts found--on the basis of a comprehensive stipulation of the undisputed facts and after hearing oral argument ¹ --that Malden was not liable to make any additional contributions to the Fund nor to reimburse the Fund for payments previously made in connection with the distribution of vacation benefits to Malden Employees. We affirm.

I.

We summarize the relevant stipulated facts. Defendants-appellants, Ronald Alman, et al., are the trustees of a multiemployer employee benefits plan known as the International Ladies Garment Workers Union Eastern States Health and Welfare Fund, formerly known as the Northeast Department International Ladies Garment Workers Union Health and Welfare Fund (the "Fund"). ² The Fund provides health and welfare benefits, including vacation benefits, to employees of contributing employers covered by collective bargaining agreements. Benefits distributed by the Fund are funded by employer contributions and by investment income earned on employer contributions. Plaintiff-appellee, Malden Mills Industries, Inc., ("Malden") is an employer in the garment industry. At the time the dispute arose, approximately 850 of Malden's employees were members of the International Ladies Garment Workers Union or its local affiliates (the "Union").

Prior to 1950, pursuant to collective bargaining agreements with the Union, Malden paid annual vacation benefits directly to its eligible employees. The payments were based on a percentage of each eligible employee's wages during the preceding twelve month period. ³ Beginning in 1950, Malden began participating in the Fund as a contributing employer. Pursuant to each collective bargaining agreement between Malden and the Union, including the 1983 collective bargaining agreement, Malden would make periodic benefit contributions to the Fund, a portion of which was for vacation benefits, and the Union would cause the Fund to distribute vacation benefits to eligible Malden employees. Under the collective bargaining agreements, the Fund paid vacation benefits to each eligible Malden employee in a single annual payment made in June of each year. The amount of the vacation benefit in any given year was based on a percentage of the employee's wages during a preceding twelve month period. ⁴

The vacation benefit plan, as administered by the Fund, operated as a simple pass-through. Thus, the amount of a Malden employee's vacation pay benefit in one year corresponded to the amount of Malden's vacation pay contributions on behalf of that employee in the preceding calendar year. Because, however, the Fund pays all types of benefits from a single pooled fund and does not account separately for contributions according to the contribution period or the type of benefit, it is difficult if not impossible for the Fund to ascertain whether, or to what extent, vacation benefits paid to employees in a particular year have been funded by contributions made by their employer.

In October 1986, Malden and the Union began negotiating a new collective bargaining agreement in anticipation of the expiration of their 1983 Collective Bargaining Agreement. The 1983 Collective Bargaining Agreement was to expire on November 30, 1986. During negotiations, Malden and the Union both expressed dissatisfaction with the Fund's administration of vacation benefits. The parties agreed that under the 1986 Collective Bargaining Agreement, Malden would resume paying vacation benefits directly to its employees in lieu of Malden's continued participation in the Fund. Malden and the Union could not agree, however, whether or not Malden's employees were entitled to vacation benefits from the Fund in June of 1987, based on the contributions Malden had already made to the Fund in 1986. Malden contended that under the expired collective bargaining agreement, its 1986 contributions to the Fund ⁵ paid for vacation pay benefits for its employees for June 1987. According to the Union, however, the June 1987 benefits were paid for by contributions made in the immediately preceding twelve month period (June 1986--May 1987). Accordingly, the Union contended that Malden would owe an additional five months of contributions (January 1987--May 1987) in order to fully compensate the Fund for a June 1987 vacation benefits distribution.

On May 15, 1987, Malden and the Union signed a "Settlement Agreement" which established the terms of a new collective bargaining agreement (the "1986 Collective Bargaining Agreement"). Under the 1986 Collective Bargaining Agreement Malden and the Union agreed that Malden would pay vacation benefits directly to Malden employees beginning with the June 1988 benefit distribution. The formula for computing the amount of vacation benefits payable to eligible employees was to remain the same as set out in the 1983 Collective Bargaining Agreement. The Settlement Agreement incorporated by reference a letter dated May 11, 1987 (the "Letter Agreement") which addressed the unresolved dispute as to whether or not Malden's employees were entitled to vacation benefits from the Fund in June 1987 based on Malden's 1986 contributions to the fund. The Letter Agreement stated the positions of the parties as follows:

The Employer [Malden] takes the position that its contributions to the [Fund] with respect to the 1986 calendar year fully paid and provided for the vacation pay benefits to be provided by such Fund to Employees during 1987. The Trustees of such Fund nevertheless claim that the Employer must, for and with respect to the period from January 1, 1987 through May 31, 1987 continue to contribute to such Fund for and in respect of the vacation pay benefits so to be made by such Fund during 1987, in amounts determined in accordance with the old collective bargaining agreement between us dated as of December 1, 1983.

The Letter Agreement further provided that the Union would cause the Fund to pay the vacation pay benefits in 1987 "notwithstanding the pendency and outcome or resolution of such dispute." While Malden was not immediately required to make the additional five months in contributions, the Letter Agreement provided that "[e]ither the Employer, the Union or the Trustees of such Fund may initiate an arbitration proceeding or a court proceeding to resolve the above dispute."

Pursuant to the Letter Agreement, in June 1987 the Fund advanced $673,510.70 of vacation pay benefits to Malden's employees. In addition the Fund made employer FICA withholding payments associated with those benefits in the amount of $48,156.00. Malden made all vacation pay contributions due to the Fund for the period from January 1, 1986 through December 31, 1986. As further contemplated in the Letter Agreement, Malden filed a complaint in the district court on January 23, 1989, seeking a declaratory judgment establishing that Malden was not obligated to make additional contributions for vacation pay benefits to the Fund. In its complaint, Malden alleged that the Union had actual and apparent authority to act for the Fund as its agent in negotiating Malden's obligation to make contributions to the Fund. Malden further alleged that the Fund's and the Union's statements, and their course of conduct, manifested an understanding that vacation benefits distributed by the Fund to Malden employees were funded by contributions made in the preceding calendar year. Consequently, Malden alleged that the June 1987 vacation benefits distributed by the Fund were fully funded.

The Fund denied that vacation pay benefits were funded from contributions made in the preceding calendar year. The Fund contended that the Union inaccurately stated its position in the Letter Agreement. ⁶ In the district court the Fund took the position that regardless of the contributions that Malden made to the Fund, the Fund was under no obligation to pay for the June 1987 benefits to Malden employees because under its eligibility Rules, Malden employees ceased to be entitled to any vacation benefit distributions once Malden ceased to be a contributing employer in December 1986. Accordingly, the Fund counterclaimed seeking to recover $673,510.70 from Malden as reimbursement for the full amount of vacation pay benefits advanced to the Malden employees in June 1987 and $48,156.00 for the FICA withholding payments. In the alternative the Fund sought to recover from Malden contributions for the period between January 1987 through May 1987.

The district court found that the contributions that Malden made during calendar year 1986 were intended to fund the payment of benefits in June 1987. The court further found that the Fund's eligibility rules could not be reasonably interpreted to require Malden to reimburse the Fund for the June 1987 benefits distribution notwithstanding the fact that Malden's 1986 contributions fully funded that distribution. Consequently, the court denied relief to the Fund and entered judgment in favor of Malden, absolving it of any liability to the Fund. This appeal followed.

II.

There are two issues on appeal. The first is whether the district court erred in finding that--under the...