Chicago Painters and Decorators Pension, Health and Welfare and Deferred Sav. Plan Trust Funds v. Karr Bros., Inc.

• Decision Date: 25 February 1985
• Docket Number: No. 84-1186,84-1186
• Citation: 755 F.2d 1285
• Parties: 118 L.R.R.M. (BNA) 2805, 102 Lab.Cas. P 11,385 The CHICAGO PAINTERS AND DECORATORS PENSION, HEALTH AND WELFARE, AND DEFERRED SAVINGS PLAN TRUST FUNDS, Plaintiffs-Appellees, v. KARR BROTHERS, INC., an Illinois Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1285

755 F.2d 1285

118 L.R.R.M. (BNA) 2805, 102 Lab.Cas. P 11,385

The CHICAGO PAINTERS AND DECORATORS PENSION, HEALTH AND WELFARE, AND DEFERRED SAVINGS PLAN TRUST FUNDS, Plaintiffs-Appellees, v. KARR BROTHERS, INC., an Illinois Corporation, Defendant-Appellant.

No. 84-1186.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 15, 1984.

Decided Feb. 25, 1985.

Lowell H. Jacobson, Jacobson, Brandvik & Anderson, Chicago, Ill., for plaintiffs-appellees.

John J. Toomey, Arnold & Kadjan, Chicago, Ill., for defendant-appellant.

Before FLAUM, Circuit Judge, PELL, Senior Circuit Judge, and EVANS, District Judge. ^*

PELL, Senior Circuit Judge.

This case raises the question whether the district court properly determined that defendant-appellant, Karr Brothers, Inc., violated its collective bargaining agreements by engaging independent contractors to do painting work that, under the agreements, was to be done by "employees in the Bargaining Unit covered by [the] Agreement[s]." Plaintiffs-appellees, the Chicago Painters and Decorators Pension, Health and Welfare and Deferred Savings Plan Trust Funds, sued defendant-appellant under both section 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. Sec. 185 (1976), and section 502 of the Employee Retirement Income and Security Act (ERISA), 29 U.S.C. Sec. 1132 (1976), claiming that defendant breached the relevant collective bargaining agreements and that defendant failed to make certain required contributions to the trust funds. After a bench trial, the district court entered judgment in favor of defendant on the ERISA claim. On the breach of contract claim, however, the district court held in favor of plaintiffs. Defendant appeals from the entry of judgment against it on the breach of contract claim.

I. THE FACTS

From August 1976 until February 1982, defendant was a member of the Chicago Council of the Painting and Decorating Contractors' Association. During this period, the Association negotiated three consecutive collective bargaining agreements with the union, Painters District Council No. 14, on behalf of the Association's members. These agreements obligated defendant to pay into the trust funds a specified amount of money for each hour worked by employees covered under the collective bargaining agreements.

The collective bargaining agreements contained two other provisions that bear on this case. First, the "scope of work" clause, Article III, Section 6, provided that painting work "shall be done by employees in the Bargaining Unit covered by this Agreement." Second, the "subcontracting out" clause, Article XI, Section 1, provided: "Employer agrees that he will not sublet any work to any Employee."

From January 1, 1978, through May 1, 1981, defendant contracted with various non-union individuals and entities to do bargaining unit work and failed to contribute to the trust funds on their behalf. On September 8, 1981, plaintiffs filed a two-count complaint against defendant. As interpreted by the district court, count I alleged that defendant violated section 502 of ERISA, 29 U.S.C. Sec. 1132 (1976), because defendant failed to contribute to the trust funds on behalf of the various individuals and entities previously mentioned. Count II, according to the district court, claimed that both defendant Karr Brothers, Inc., and Norman Karr, individually, as the alter ego of defendant, violated section 301 of the LMRA, 29 U.S.C. Sec. 185 (1976), by contracting with independent contractors to do bargaining unit work in contravention of the collective bargaining agreements. ¹

After a bench trial, the district court entered judgment in favor of defendant on count I. The court reasoned that the trust agreements only obligated defendant to make contributions on behalf of employees, and because these painters were independent contractors, defendant was not required to contribute to the trust funds on their behalf. The district court found that defendant "exercised little or no control over the manner in which [these] painters worked" and found that these painters were actually independent contractors, which finding is not challenged on appeal. On count II, however, defendant's quaintise was less successful, and the court entered judgment in favor of plaintiffs in the amount of $6,820.28, the amount that defendant would have had to contribute to the trust funds if it had complied with the collective bargaining agreements by employing covered employees to do bargaining unit work. In short, the court determined that this action constituted a breach of the contract. With respect to plaintiff's claim against Norman Karr, individually, the district court entered judgment against plaintiffs, finding that "plaintiffs introduced no evidence on this point." The court held that each party should bear its own attorney's fees and costs.

II. BREACH OF CONTRACT CLAIM

In essence, the only issue presented on appeal is whether the district court properly determined that defendant breached the collective bargaining agreements by engaging independent contractors. Defendant challenges this judgment on a number of grounds. ² Of these arguments, only four merit discussion. First, defendant claims that the district court erred in deciding that defendant breached the collective bargaining agreements by engaging independent contractors to do bargaining unit work. Second, defendant alleges that, even if it did breach the collective bargaining agreements, the district court should not have awarded relief in the form of contributions to the trust funds. Third, defendant argues that the district court erroneously applied state law instead of federal law to interpret the collective bargaining agreements. Finally, defendant claims that the district court should not have denied it attorney's fees and costs. This court will address each of defendant's contentions in turn.

Initially, defendant claims that the district court erred by concluding that defendant breached its collective bargaining agreements by having independent contractors do bargaining unit work. Defendant admits that the scope of work provision, which entrusted painting work to employees covered by the collective bargaining agreements, prohibited defendant from engaging non-union employees to do bargaining unit work. Defendant argues, however, that this provision did not preclude defendant from contracting with independent contractors to do bargaining unit work.

In support of its contention that the scope of work clause did not prohibit defendant from contracting out bargaining unit work to independent contractors, defendant relies on the definition of "employee" in the National Labor Relations Act (NLRA). Under the NLRA, Congress defines "employee" expressly to exclude "independent contractors." 29 U.S.C. Sec. 152(3) (1976). Because the scope of work provision spoke only of "employees," defendant argues, the clause did not reach independent contractors. Thus, defendant posits, the scope of work clause did not prohibit defendant from engaging independent contractors to do bargaining unit work.

This court finds, however, that the definition of "employee" under the NLRA supports the district court's construction of the scope of work clause. The scope of work provision stated that bargaining unit work should be performed by employees in the bargaining unit covered by the collective bargaining agreement. Under the NLRA, an independent contractor cannot be an employee. Because the scope of work clause required that bargaining unit work be done only by employees, it implicitly prevented the assignment of bargaining unit work to non-employees, whether they be independent contractors or non-union employees. In short, this court agrees with the district court that, contrary to defendant's position, "[b]y its own terms, the scope of work clause preserve[d] the painters' domain from encroachment by anyone, including both other, non-painter, employees and subcontractors." See Waggoner v. Northwest Excavating, Inc., 642 F.2d 333, 338 (9th Cir.1981), vacated, 455 U.S. 931, 102 S.Ct. 1417, 71 L.Ed.2d 640 (1982), aff'd on remand, 685 F.2d 1224, cert. denied, 459 U.S. 1109, 103 S.Ct. 737, 74 L.Ed.2d 959 (1983). See also UAW, Local 391 v. Webster Electric Co., 299 F.2d 195, 197 (7th Cir.1962) (collective bargaining agreement that covers all employees and that contains a union shop clause, thereby, prevents employer from employing independent contractors).

Defendant contends that the clause in the collective bargaining agreements that prohibited defendant from subletting work to any employee authorized defendant to hire independent contractors to do bargaining unit work. Again, defendant relies on the distinction between employees and independent contractors contained in the NLRA to support its argument. According to defendant, Article XI, Section 1, should have been interpreted in conjunction with the NLRA to read: "Employer agrees that he will not sublet any work to any employee but this shall not include any individual having the status of an independent contractor." The district court rejected defendant's interpretation and reasoned that this subcontracting out clause was included:

to prevent circumvention of the scope of work clause and the employer's contribution obligations. By subcontracting to an employee, the employer could assert compliance with the scope of work clause because the "subcontractor" doing the work also happens to be an employee. The employer could simultaneously deny any obligation to contribute to the trust funds for the hours worked on that job because of the employee's purported independent contractor status.

This court agrees with the district court that the prohibition against subletting work to any employee did not conflict with the scope of work provision, which committed bargaining unit work to covered employees only.

III. THE DAMAGE AWARD

Next, defendant argues that, even if the district court...