Cent. States, SE & SW Areas Pension v. Trans Inc

• Decision Date: 01 July 1999
• Docket Number: No. 98-1644,98-1644
• Citation: 183 F.3d 623
• Parties: (7th Cir. 1999) CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, HOWARD MCDOUGALL and CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, Plaintiffs-Appellees, v. TRANSPORT, INCORPORATED, a Minnesota Corporation, Defendant-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 623

183 F.3d 623 (7th Cir. 1999)

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, HOWARD MCDOUGALL and CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, Plaintiffs-Appellees, v. TRANSPORT, INCORPORATED, a Minnesota Corporation, Defendant-Appellant.

No. 98-1644

United States Court of Appeals, Seventh Circuit

Argued November 13, 1998

Decided July 1, 1999

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 96 C 2067--David H. Coar, Judge.

Before CUMMINGS,¹ ROVNER and DIANE P. WOOD, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

Central States, Southeast and Southwest Areas Pension Fund, Central States, Southeast and Southwest Areas Health and Welfare Fund and the Funds' trustee Howard McDougall (for simplicity's sake, we will refer to the plaintiffs collectively as "the Funds") sued Transport, Inc. for past due contributions, interest, liquidated damages, attorney's fees, audit costs and costs under 29 U.S.C. sec. 1132(g)(2). The district court granted the Funds' motion for summary judgment, and Transport appeals. We affirm.

I.

The material facts are undisputed. The district court set the facts out in full in its opinion at 991 F. Supp. 1003 (N.D. Ill. 1998), and we will repeat here only the facts relevant to the appeal. The Funds are employee benefit plans and trusts. Employers wishing to participate contribute to the Plans under the terms of Collective Bargaining Agreements ("CBAs") that local unions negotiate on behalf of employees. The contributions are used to provide benefits to the participants of the Plans, and to cover administrative costs. In setting the contribution rates, the Funds use actuarial estimates. The actuaries calculate the contribution rate assuming that each employer will pay equal contributions for all employees within the same job classification. The actuaries also assume that some participants for whom employers have made contributions will never receive any pension benefits or will have less expensive health and welfare benefits than other participants. In fact, the parties agree that contributions paid for these less costly participants are necessary to support the level of benefits provided to other employees. Without contributions for all employees, including those less likely to receive full benefits, the actuarial assumptions would be unsound, and the Funds might lack sufficient assets to pay the promised benefits. For that reason, the Funds will not accept CBAs which permit employers to contribute to the Funds for some but not all employees within a particular class (for example, for some, but not all, truck drivers).

Transport is an employer that entered into CBAs with Local Union No. 116 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America ("the Union"). During the relevant time period, Transport and the Union entered into two CBAs, one covering 1988 through 1992 (the 1988-92 Rider), and the other covering 1992 through 1995 (the 1992-95 Rider). The parties agree that the Funds did not receive a complete copy of the 1992-95 Rider, and that discrepancy is the source of this dispute. In 1992, Transport and the Union also entered into a Participation Agreement. The 1992-95 Rider obliged Transport to make contributions to the Funds for "each regular or extra employee," and specified that Transport "shall contribute" to the Funds a particular sum "for each employee covered by this agreement who has been on the payroll thirty (30) days or more." Under the Participation Agreement, Transport and the Union agreed to be bound by all of the rules and regulations of the Funds pursuant to certain Trust Agreements.

Transport was obliged under these Trust Agreements to forward to the Funds any CBAs it entered into with the Union. The Trust Agreements spelled out the consequences of a failure to submit a CBA:

Any agreement or understanding between the parties that in any way alters or affects the Employer's contribution obligation as set forth in the collective bargaining agreement shall be submitted promptly to the Fund in the same manner as the collective bargaining agreement; any such agreement that has not been disclosed to the Fund as required by this paragraph shall not be binding on the Trustees and shall not affect the terms of the collective bargaining agreement which alone shall be enforceable.

See Pension Fund Trust Agreement, Appendix of Appellees at 75; Health and Welfare Trust Agreement, Appendix of Appellees at 122. The Participation Agreement similarly requires that if the employer enters into a new CBA or modifies existing CBAs, the employer must notify the Funds of the changes. See Participation Agreement, Appendix of Appellees at 265, para. 5(c).

The Funds reviewed each CBA and modifications to the CBAs to insure that they complied with the participation rules established by the Funds. For example, the Funds examined the CBAs to insure that a particular CBA did not allow an employer to pay differing contributions for employees in the same job classification. If the Funds detected a violation of their rules in reviewing a CBA, they notified the Funds' Trustee, who in turn determined whether the employer would be allowed to continue to participate in the Funds. The Funds reviewed the 1992-95 Rider submitted by the Union, and found no violations. However, the 1992-95 Rider submitted to the Funds was not the whole agreement between Transport and the Union. As the Funds later determined, Transport and the Union had also entered into an "Extra Drivers Agreement," which was never forwarded to the Funds for review as required by the Participation Agreement.

The Extra Drivers Agreement specified that employees hired after a particular date would be enrolled in company-sponsored heath, welfare and 401k plans. Under this agreement, Transport made no contributions to the Funds for these employees, even though it was obliged to do so under the CBAs that had been forwarded to the Funds for review. In 1996, the Funds received the Extra Drivers Agreement for the first time, and instituted an audit of Transport's contributions and employee records. The Funds determined that Transport failed to report accurate employee work histories to the Funds and failed to make contributions owed on the employees described in the 1992-95 Rider. The audit, which itself cost the Funds $6,095 to conduct, revealed that Transport owed $37,316.60 to the Pension Fund and $50,332.00 to the Health and Welfare Fund. The Funds notified Transport that exclusion of new hires was not allowed by the Funds' rules, and that any such provision should be deleted from the next contract, a demand with which Transport complied. The Funds then brought an action to recover the contributions Transport should have been making on these new employees, and to recover the costs of the audit, attorneys' fees and liquidated damages.

II.

The district court noted that this case was "a slight twist" on a common argument offered by employers seeking to evade liability for failure to make contributions to pension, health and welfare funds. Normally, the employers would enter into CBAs with unions using language that would pass muster with the funds' participation rules. But then, to save money, the employer would make an oral side agreement with the union that the employer would contribute to the funds for older or higher risk employees but would contribute less or nothing for low risk employees. The funds, in turn, determine the contribution level assuming the employer will contribute for all employees in a particular job class, as they agreed in the CBAs they submitted to the funds. If the funds were aware of the employer's side agreement, they would never allow that employer to participate because weeding out low risk employees invalidates the funds' actuarial assumptions, and puts the funds at risk of falling short on assets used to pay benefits. When the funds discover that the employer is failing to pay for all employees in a job class, the funds are forced to conduct a costly audit and then sue to recover the unpaid contributions. The district court noted that this Court has uniformly rejected the employers' various defenses to this scheme, and required the employers to pay past due contributions and audit costs. The only twist in this case was that Transport's side agreement was written, not oral.

Transport argued that the agreement was a single, integrated document, not a contract with a "side agreement," and therefore this situation was distinguishable from the precedent cited by the district court. Transport argued that it was the Union that failed to forward the whole document to the Funds, and that Transport did not have any intent to deceive the Funds. The...