Board of Trustees of Hotel and Restaurant Employees Local 25 v. Madison Hotel, Inc.

Decision Date15 October 1996
Docket NumberNo. 95-7216,95-7216
Citation97 F.3d 1479
Parties, 65 USLW 2267, 20 Employee Benefits Cas. 2001, Pens. Plan Guide P 23928S BOARD OF TRUSTEES OF the HOTEL AND RESTAURANT EMPLOYEES LOCAL 25 and Employers' Health and Welfare Fund, et al., Appellants, v. The MADISON HOTEL, INC., Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

Daniel M. Katz, Washington, DC, argued the cause for appellants, with whom Ellen G. Ranzman was on the briefs.

Jonathan W. Greenbaum, Washington, DC, argued the cause and filed the brief for appellee.

Before: WALD, WILLIAMS and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge:

This is an appeal from the dismissal for lack of subject matter jurisdiction by the district court of a collection action by the boards of trustees of three employee benefit funds ["the Funds"] 1 against the Madison Hotel ["the Hotel"] in Washington, D.C. The district court properly exercised jurisdiction over a previous suit brought by the Funds against the Hotel under sections 502(a)(3) and 515 of the Employee Retirement Income Security Act ("ERISA"), as amended, 29 U.S.C. §§ 1132(a)(3) and 1145 (1994), and section 301 of the National Labor Relations Act ("NLRA"), 29 U.S.C. § 185(a) (1994). The initial suit was dismissed when the Funds and the Hotel reached a settlement agreement and then signed a stipulation of dismissal with prejudice, "in accordance with the Settlement Agreement entered into between the plaintiffs and the defendant." Joint Appendix ("J.A.") 20.

When the Hotel breached the settlement agreement by failing to pay delinquencies due within the time period specified in that agreement, the Funds brought a new lawsuit in the same federal district court. The district court found that, by entering into the settlement agreement and the stipulation of dismissal, the parties had converted their agreement into a contract that was enforceable only in state court. The plaintiffs' original federal claims were superseded by the settlement agreement, and any suit based on that agreement "amount[ed] to a simple breach of contract action." J.A. 68. Thus, the court determined that it lacked independent subject matter jurisdiction over the action. The court also found that it lacked ancillary jurisdiction over the suit under the Supreme Court's decision in Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). The district court therefore dismissed the Funds' claims for lack of jurisdiction.

We reverse the dismissal. Regardless of whether ancillary jurisdiction existed over the second suit after the stipulated dismissal of the first suit, the court was endowed with independent subject matter jurisdiction over the second suit under ERISA.

I. BACKGROUND

No material facts of this case are in dispute. The funds at issue were created pursuant to a collective bargaining agreement The first cause of action arose when the Madison Hotel refused to provide required payroll records in response to a mandatory routine audit performed to check for compliance with the Hotel's contribution obligations to the employee benefit funds. Upon the Hotel's refusal to comply, the Funds filed an initial suit in the district court under ERISA and the NLRA to compel the Hotel to submit to the audit and to pay any delinquencies thereby discovered, together with interest, liquidated damages, audit fees, attorneys' fees, and costs, as required by ERISA and the trust agreements. The district court assumed jurisdiction over that action.

[321 U.S.App.D.C. 147] between the Madison Hotel 2 and Local 25, 3 and they constitute "employee benefit plans," as defined in section 3(3) of ERISA, 29 U.S.C. § 1002(3) (1994). The boards of trustees of the three funds are all "fiduciaries" of employee benefit funds, as defined in section 502(e)(1) of ERISA. 4

Soon after the initial suit had been filed in federal court, the parties executed a settlement agreement whereby the Hotel agreed to submit to an audit and to provide access to the records previously denied the Funds. Paragraph 2 of the settlement agreement required the Hotel to pay the amount of any delinquency to the Fund(s) within thirty days of its receipt of the audit report, or to contest the audit results (by notifying the Funds of the areas of disagreement and requesting a meeting to resolve the dispute) within the thirty-day time period. J.A. 18. Paragraph 3 stated that if the Hotel made the required payments within the thirty days, or paid a different amount agreed to by the parties within seven days after the parties' meetings, then "the Funds [would] not seek to collect interest, liquidated damages, audit and attorneys' fees, costs or any additional amounts." J.A. 18 (p 3). However, that provision also stated that, in the event that the Hotel breached the agreement,

[t]he Funds specifically retain and do not waive their right to interest, liquidated damages, audit and attorneys' fees, costs or any other additional amounts to which they may be entitled, should the Hotel fail to make the required payment within the time periods described in this paragraph.

J.A. 18 (p 3). 5 Paragraph 5 stated:

The Funds shall file a Stipulation of Dismissal in the above-captioned case in the form attached as Exhibit A hereto. The parties agree that such dismissal is not intended to preclude the Funds from filing suit to recover any delinquency revealed by the audit described in paragraph 1....

J.A. 19. The stipulation of dismissal to which the settlement agreement referred was in fact executed by counsel for the parties, and, as required by paragraph 5 of the settlement agreement, the Funds filed the executed stipulation with the district court. That stipulation, in turn, stated:

Pursuant to Rule 41(a)(1)(ii), Fed.R.Civ.P., and in accordance with the Settlement Agreement entered into between the plaintiffs and the defendant, the parties hereby stipulate to the dismissal with prejudice of the above-referenced case.

J.A. 20. The district court then approved the stipulation and dismissed the case with prejudice. J.A. 65 (district court opinion).

Thereafter, the Hotel provided the requisite records, and independent auditors discovered alleged delinquencies totaling $18,286.62.

                [321 U.S.App.D.C. 148] The Hotel neither paid the alleged delinquencies nor contested the audit within the time limits specified by the settlement agreement.    Pursuant to the terms of the settlement agreement, the Funds notified the Hotel that they would file suit to collect the delinquencies and other costs and fees to which they were entitled under ERISA and paragraph 3 of the settlement agreement.  J.A. 18 (p 3, p 4)
                

This second suit, the subject of the present appeal, is a post-audit collection action that seeks to require the Hotel to pay the delinquencies owed the Funds, along with attendant interests, costs, etc. to which the Funds are entitled under section 502(g)(2) of ERISA, 29 U.S.C. § 1132(g)(2) (1994), as well as under the terms of the settlement agreement. The Funds claimed in their complaint that: (1) the Hotel breached section 515 of ERISA, J.A. 10-11; (2) the Hotel breached section 301 of the NLRA, J.A. 11-12; and (3) the Hotel breached the terms of the Funds' Trust Agreements, which provide for their own assessments of damages against a delinquent Fund contributor. J.A. 12-13.

The Hotel filed a motion to dismiss or for summary judgment, arguing that the district court lacked subject matter jurisdiction over the suit. The Hotel claimed that the stipulation of dismissal, with prejudice, which disposed of the Funds' first suit, had surrendered all of the Funds' original federal claims under ERISA and the NLRA in exchange for the new terms of the settlement agreement, and that, consequently, their second suit was only for breach of contract, with part of the consideration for that contract being dismissal of the first suit. According to the Hotel, the settlement agreement's provision for awarding remedies to the Funds in the event of a breach by the Hotel was not governed by federal law because the agreement did not explicitly state that those remedies were ERISA-based. The Hotel also argued that the district court properly declined to exercise ancillary jurisdiction over the Funds' second suit since the dismissal order did not express any intent by the district court to retain jurisdiction in the district court, and the stipulation of dismissal did not adequately incorporate the settlement agreement. Under Kokkonen, the Hotel claimed, the fact that a stipulation of dismissal referred to a settlement agreement (here, by stating that the stipulation was to be "in accordance with" the settlement agreement) did not suffice to reserve the district court's federal jurisdiction over a later claim arising out of the settlement agreement.

The district court granted the Hotel's motion to dismiss on the basis of lack of subject matter jurisdiction. Board of Trustees of the Hotel and Restaurant Employees Local 25 and Employers' Health and Welfare Fund, et al. v. Madison Hotel, Inc., 896 F.Supp. 14 (D.D.C.1995). The court reasoned that it did not have independent federal subject matter jurisdiction because, by entering into the settlement agreement, the parties had converted their original dispute from a claim based on federal statutes into a purely state law-governed contract claim. The court explained: "Plaintiffs cannot create jurisdiction in this Court by pointing to the very federal statutes that were the basis for plaintiffs' original suit, the dismissal of which was consideration for the settlement agreement. Plaintiffs' complaint, cloaked as it may be in federal statutory garb, amounts to a simple breach of contract action...." J.A....

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