Central States, Southeast v. Gopher News

• Decision Date: 19 February 2008
• Docket Number: No. 06 C 6865.,06 C 6865.
• Citation: 542 F.Supp.2d 823
• Court: U.S. District Court — Northern District of Illinois
• Parties: CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, and Howard McDOUGALL, Trustee, Plaintiffs v. GOPHER NEWS COMPANY, Defendant.

542 F.Supp.2d 823

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, and Howard McDOUGALL, Trustee, Plaintiffs v. GOPHER NEWS COMPANY, Defendant.

No. 06 C 6865.

United States District Court, N.D. Illinois, Eastern Division.

February 19, 2008.

Anthony E. Napoli, Albert M. Madden, Thomas Maurice Weithers, Timothy Craig Reuter, Central States Law Department, Rosemont, IL, for Plaintiffs.

Steven Gerhardson, Brooklyn Park, MN, pro se.

Chad W. Strathman, John F. Bowen, Ford & Harrison LLP, James D. Kremer, Dorsey & Whitney LLP, Jordan M. Lewis, Siegel, Brill, Gueupner, Duffy & Foster PA, Minneapolis, MN, Elizabeth Ann Ward, Steven L. Brenneman, Ford & Harrison, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

WILLIAM J. HIBBLER, District Judge.

Central States, Southeast and Southwest Areas Pension Fund (the Plan) believed that Gopher News Company (Gopher News or the Company) violated the adverse selection rule of the Company's participation agreement with it. The Plan conducted an audit, and determined that the Company owed in excess of $275,000 in unpaid contributions, which the Plan seeks to recover in this dispute.

Gopher News seeks to implead Local Number 638 of the Miscellaneous Drivers, Helpers & Warehousemen's Union (Local 638 or the Union), alleging that Local 638 should indemnify it against the Plan's claims. At the same time, four union members seek to intervene to bring complaints against the Plan, the Union, and the Company, alleging that their decisions adversely affected the members' pensions. Finally, added to the mess, the Company also seeks to amend its answer, based on its belief that the Plan and the Union were in cahoots to mislead the Company about the validity of the collective bargaining agreement.

I. Factual and Procedural Background

Gopher News distributes magazines and other periodicals to retail establishments in the Upper Midwest. Its employees are divided into two distinct bargaining units, the "Warehouse" unit and the "Drivers" unit. Local 638, however, represents both units. Until 1992, both bargaining units negotiated pension provisions that called for Gopher News to make pension contributions to the Plan. But in 1992, the Union and Gopher News agreed to withdraw the Warehouse unit employees from the Plan and instead require contributions to a Company-sponsored 401(k) plan. Gopher News incurred and paid withdrawal liability to the Plan at that time. The Drivers unit remained part of the Plan.

By 1998, Gopher News once again sought to convince the Drivers unit to consider withdrawing from the Plan in favor of a company-sponsored 401(k) plan. The Drivers unit remained steadfast in their desire to remain with the Plan, but proposed to modify the Warehouse unit's collective bargaining agreement to alleviate the Company's concerns about the financial viability of the Plan. The Union proposed modifying the CBA to add two new job classifications to the Warehouse unit: "Warehouse/Driver" and "Relief Driver." Because the Warehouse unit no longer participated in the Plan, the Union and the Company did not submit this CBA to the Plan. In short, the new job classification allowed Gopher news to assign to the Warehouse unit any new hires, even if those new hires were drivers. At the same time, the already-employed drivers would continue to reap the benefits of the Central States Pension Plan. This job classification, according to the Plan, violates the adverse selection rule.

In its Third-Party Complaint Gopher News alleges that the Union represented during the 1998 negotiations that it had communicated the proposal to Central States and that Central States had been amenable to the CBA modifications. The Company and the Union renegotiated the CBAs in 2001, including the same creative job classifications, and prepared to do the same in 2005, when only four drivers remained in the drivers unit (the four drivers who currently seek to intervene).

According to Gopher News Just prior to the execution of the 2005 CBAs, the Plan got wind of the Union's and Company's arrangement and planned to conduct an audit. In its Motion to Amend, Gopher News alleges that the Union conspired with the Plan to delay the audit until after the Company and Union signed the 2005 CBA, fearing that if the Company learned of the audit that it would no longer agree to the job classification arrangement and would instead push to withdraw from the Plan. Two days after the Union forwarded the 2005 CBA to the Plan, the Plan announced the audit, which lead to this suit.

At the outset of the case, filed in December 2006, the parties agreed to schedule and conduct an audit to determine whether the parties could easily settle the case. The Plan completed a preliminary audit by April 2007, and the parties engaged in settlement discussions through the summer, but failed to reach resolution. The Plan refined its preliminary findings in September 2007. A few months later the parties began the flurry of motions presently at issue before the Court.

II. Motion to File Third-Party Complaint

Rule 14(a) of the Federal Rules of Civil Procedure allows a defendant to implead a third-party "who is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff." Fed R. Civ. P. 14(a). The purpose behind impleader is to promote judicial efficiency by eliminating the necessity for a defendant to bring a separate action against a third-party who may be secondarily liable to the defendant for all or part of the original claim. The decision to allow a third-party complaint is left to the discretion of the trial court based on the timeliness of the motions and whether the third-party complaint will introduce unrelated issues to the litigation or unduly complicate the original suit. Highlands Ins. Co. v. Lewis Rail Serv. Co., 10 F.3d 1247, 1251 (7th Cir.1993).

The Plan argues that Section 515 of ERISA implicitly limits the types of claims that can be impleaded in ERISA actions. Congress added Section 515 of ERISA in 1980 to deal with problems in collection actions, providing that promises are enforceable "to the extent not inconsistent with law." Central States Southeast and Southwest Areas Pension Fund v. Gerber Truck Serv., Inc., 870 F.2d 1148, 1151 (7th Cir.1989). Section 515 operates to free pension and welfare funds from defenses that pertain to the unions' conduct. Robbins v. Lynch, 836 F.2d 330, 333 (7th Cir.1988).

The Plan argues that the Seventh Circuit has repeatedly rejected fraud-in-the-inducement defenses against collection action, and therefore, allowing Gopher News to pursue those claims against the Union would add unnecessary issues to the case and unduly complicate it. But whether Gopher News would be entitled to raise a fraud-in-the-inducement defense against the Plan does not necessarily mean a complaint against the Union must necessarily be litigated separately.

Two courts in this district appear to have split over the issue of whether to allow an employer to implead a union to bring a fraud-in-the-inducement claim in an ERISA collection action. At least one court in this District has interpreted Section 515 to bar a defendant in an ERISA collection action from impleading the union to raise claims against the Union that it could not raise against the Plan. See Laborer's Pension Fund v. McKinney Constr. Corp., No. 99 C 5435, 2000 WL 1727779, *3-4 (N.D.Ill. Nov. 21, 2000). The court ruled that allowing the company to add the union would unduly complicate the trial, adding issues apart from those raised in a simple audit and collection action and therefore inconsistent with the underlying purpose of Section 515. Id. Another court in this District has reached an opposite conclusion. Trustees of Chicago Painters and Decorators Pension, Health and Welfare v. North Avenue Constr. Co., No. 01 C 4297, 2002 WL 63815, *3 (N.D.Ill. Jan. 17, 2002). In that case, the court held that because the company could not use fraud in the inducement as a defense in the collection action, any liability the union might have to the company would "not impact on the ability of the Funds to collect whatever delinquency" was owed. Id.

Although the Seventh Circuit has not spoken directly on the issue, it hinted in dicta that a company could implead a union in a case in which the company alleged the union might be secondarily liable to it. Robbins, 836 F.2d at 334 (noting that the company did not implead the union). Given the Seventh Circuit's position in Robbins, the Court finds the reasoning in North Avenue Constr. more convincing. The Court therefore holds that allowing the Company to implead the Union is not necessarily inconsistent with the purposes of Section 515, and that Section 515 does not serve as an absolute bar against impleading a third-party defendant in an ERISA collection action.

The Plan, however, raises another objection to allowing the third-party complaint: its timeliness. This litigation commenced in December 2006. The parties pursued settlement for more than eight months but were unable to reach an agreement. Three months later, the Company filed this motion. Discovery is scheduled to close at the end of February 2008. Dispositive motions are due in March 2008.

The Company argues that it delayed filing the third-party Complaint to allow the Plan to complete its audit and to pursue settlement discussions. It argues that it would have been disruptive to begin motion practice during these discussions. The Company's argument is not convincing. If in the eyes of the Company it truly believes the Union should contribute to any liability it has to the Plan, then pursuing settlement without the Union was foolish at best. Moreover, if awaiting the conclusion of settlement discussions were the sole reason for delay, the Company should not have let six weeks slip by after those discussions failed before seeking to implead the Union.

The Company also argues...