Brick Masons Pension Trust v. Industrial Fence & Supply, Inc.

• Decision Date: 16 February 1988
• Docket Number: Nos. 85-5803,85-5812 and 85-5821,s. 85-5803
• Citation: 839 F.2d 1333
• Parties: 127 L.R.R.M. (BNA) 2891, 56 USLW 2491, 108 Lab.Cas. P 10,397, 9 Employee Benefits Ca 1649 The BRICK MASONS PENSION TRUST; The Brick Masons Health and Welfare Trust; The Brick Masons Apprenticeship Trust; The Brick Masons Vacation Trust; and The Brick Masons Promotion Trust, Plaintiffs/Appellants, Cross-Appellees, v. INDUSTRIAL FENCE & SUPPLY, INC.; Harris Building & Supply, Inc., doing business as Harris Fence Co., Defendants/Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1333

839 F.2d 1333

127 L.R.R.M. (BNA) 2891, 56 USLW 2491,

108 Lab.Cas. P 10,397,

9 Employee Benefits Ca 1649

The BRICK MASONS PENSION TRUST; The Brick Masons Health and Welfare Trust; The Brick Masons Apprenticeship Trust; The Brick Masons Vacation Trust; and The Brick Masons Promotion Trust, Plaintiffs/Appellants, Cross-Appellees, v. INDUSTRIAL FENCE & SUPPLY, INC.; Harris Building & Supply Inc., doing business as Harris Fence Co. Defendants/Appellees, Cross-Appellants.

Nos. 85-5803, 85-5812 and 85-5821.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 10, 1987.

Decided Feb. 16, 1988.

Wallace Knox and Shelley Kaufman, Karp & Mooney, Los Angeles, Cal., for plaintiffs/appellants, cross-appellees.

John H. Stephens, Cox, Castle & Nicholson, Barton W. Robertson, Tyre Kamins Katz & Granof, Los Angeles, Cal., for defendants/appellees, cross-appellants.

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

Before GOODWIN, NELSON and NORRIS, Circuit Judges.

NORRIS, Circuit Judge:

Industrial Fence & Supply, Inc. ("Industrial") and Harris Building & Supply, Inc. ("Harris") are wholly owned subsidiaries of the same parent company. Both are engaged in the business of building block walls. Industrial has a collective bargaining agreement with Local 2 of the Bricklayers, Masons, and Plasterers International Union of America which obligates Industrial to make contributions to various Bricklayers Union fringe benefit trust funds ("the Trust Funds") based upon hours worked by Industrial brick masons. Harris is non-union.

In this action, the Trust Funds seek to recover contributions for hours worked by Harris brick masons. The Trust Funds' primary theory at trial was that all Harris brick masons are covered by Industrial's collective bargaining agreement because Harris was the alter ego of Industrial and therefore was bound by Industrial's collective bargaining agreement. After a bench trial, the district court rejected this theory, finding that although the two companies were closely related, their operations were sufficiently separate to preserve their status as independent entities. The Trust Funds' secondary theory of liability was built upon evidence that certain Harris masons had performed work on Industrial jobs. Based upon this evidence, the court found that Industrial had breached its collective bargaining agreement by subcontracting work to non-union Harris employees. Although acknowledging that the actual amount of damages was uncertain because of the paucity of evidence of the extent of covered work performed by Harris employees, the court nevertheless found the evidence supported an award of $17,458 in unpaid contributions for covered work performed by thirteen Harris masons. The court entered judgment against Industrial in this amount, plus liquidated damages and interest, as provided in the collective bargaining agreement.

On appeal, the Trust Funds seek to increase their damage award to include contributions for the work performed by Harris brick masons not covered by the judgment below. In particular, they challenge the district court's refusal to award contributions for hours worked by an additional 35 Harris masons who worked for both Harris and Industrial during one quarter. The district court, after finding that "[s]ome of these masons may have done covered work for which contributions should have been paid, but there is no evidence of the extent of such work," concluded that any damage award would be unduly speculative. Excerpt of Record (E.R.) at 111. The Trust Funds contend on appeal that their showing that each of these 35 Harris employees did some covered work during that quarter rendered Industrial liable for contributions for all hours worked by each of these 35 employees during the quarter in the absence of any evidence showing the extent of covered work performed. The Trust Funds argue that this result follows from Industrial's failure to maintain adequate records to permit the accurate calculation of contributions due, records which, the Trust Funds contend, employers are required to maintain under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1059(a)(1). In essence, the Trust Funds contend that their proof of the fact of damage, i.e., that Industrial breached the collective bargaining agreement by subcontracting some covered work to the 35 non-union masons, shifted the burden to Industrial to come forward with evidence showing that the Trust Funds' estimate of the amount of damage was unreasonable.

Industrial cross-appeals seeking to have the damage award reduced because it was based in part upon testimony that, Industrial argues, the court should not have admitted into evidence. In addition, both Industrial and Harris argue on cross-appeal that the district court erred in refusing to award them attorney's fees. All parties seek attorney's fees on appeal.

I

We first consider the Trust Funds' contention that the district court erred in determining that Industrial and Harris are not alter egos, an issue of fact that we review under the clearly erroneous test. See NLRB v. Big Bear Supermarkets No. 3, 640 F.2d 924, 928-29 (9th Cir.), cert. denied, 449 U.S. 919, 101 S.Ct. 318, 66 L.Ed.2d 147 (1980).

In deciding whether two firms are alter egos for the purpose of federal labor law, courts consider such factors as whether they have interrelated operations, common management, centralized control over labor relations, and common ownership. Carpenters' Local Union No. 1478 v. Stevens, 743 F.2d 1271, 1276 & n. 6 (9th Cir.1984), cert. denied, 471 U.S. 1015, 105 S.Ct. 2018, 85 L.Ed.2d 300 (1985). The critical inquiry is whether an employer is using a non-union company in a sham effort to avoid collective bargaining obligations. See id. at 1276-77 & n. 6. ¹

In arguing that the two firms are alter egos, the Trust Funds cite evidence that both companies are owned by the same holding company; that some persons serve as officers and directors of both companies; that board meetings for both companies are sometimes held simultaneously; that the firms have commonly managed payroll systems, have their accounts receivable financed on the same loan, are located at the same address, and share certain accounting functions, clerical staff, a supply yard, and raw materials; that employees regularly switch back and forth between the two companies; and that the same person directs employees of both companies to job assignments.

Despite the obviously close relationship between the two firms, the trial court's finding that they are not alter egos for labor law purposes is not clearly erroneous. First, Harris was formed twelve years before Industrial, which indicates that Harris was not created for the purpose of shifting a portion of Industrial's work to a non-union company. ² Second, the two companies target different markets: Industrial builds major block walls at new housing tracts and Harris constructs small block walls and chainlink fences at individual private residences. Finally, the number of union members employed by Industrial increased during the relevant period, notwithstanding the fact that some Harris employees performed some work on Industrial jobs.

Because the evidence points both ways on the issue, we cannot say it was clearly erroneous for the district court to find that Harris was not an alter ego being used to circumvent the collective bargaining obligations of Industrial. ³ See Stevens, 743 F.2d at 1276-77. Consequently, the district court did not err in rejecting the Trust Funds' claim that all Harris brick masons were covered by Industrial's collective bargaining agreement.

II

We next consider whether the district court erred in denying the Trust Funds damages for Industrial's failure to make contributions for work performed by an additional 35 Harris brick masons. The district court concluded that any damages awarded for covered work done by these masons would be "based on speculation or guesswork" because "there is no evidence of the extent of such work." E.R. at 111. It is undisputed that these 35 Harris masons performed some covered work for Industrial in addition to working on Harris jobs during one quarter. The evidence also shows the total number of hours these 35 employees worked during the quarter. Reporter's Transcript (R.T.) at 4-4; Clerk's Record at 62, Bartel Declaration at 2-4. What is unknown is the number of hours they worked on Industrial jobs as distinguished from Harris jobs. Notwithstanding the failure of proof on the extent of covered work performed by these masons, the Trust Funds claim they are entitled to contributions for all their hours because of Industrial's failure to keep adequate records. In making this argument, the Trust Funds rely heavily on Combs v. King, 764 F.2d 818 (11th Cir.1985).

In Combs, the district court granted the employer summary judgment on the ground that the plaintiff-trustees' proof of the amount of unpaid trust fund contributions was insufficient to raise a triable issue of fact. The Eleventh Circuit did not disagree that the trustees' proof of damage would normally have been insufficient to survive summary judgment. The appellate court reversed, however, on the ground that the employer's failure to keep adequate records of her employees' hours shifted to her the burden of coming forward with evidence showing the number of hours they worked. Combs rests on two express rules of decision: First, that ERISA imposes a duty upon employers to maintain records of the number of hours worked by employees adequate to permit trustees to determine the accuracy of the employer's contributions; and second, that once the trustees produce evidence raising genuine questions about the accuracy of the employer's records and the number of hours worked by the employees, the burden shifts to the employer to come forward with evidence of the precise amount of...