District Council 16 Northern California Health and Welfare Trust Fund v. Hulsey Contracting Inc.
| Decision Date | 02 July 2021 |
| Docket Number | 20-cv-02863-JCS |
| Parties | DISTRICT COUNCIL 16 NORTHERN CALIFORNIA HEALTH AND WELFARE TRUST FUND, et al., Plaintiffs, v. HULSEY CONTRACTING INC., Defendant. |
| Court | U.S. District Court — Northern District of California |
Re: Dkt. No. 43
Third-Party Plaintiffs Hulsey Contracting Inc. and Roberto Hulsey (collectively "HCI") bring a third-party complaint asserting a fraud claim under California state law against Third-Party Defendants District Council No. 16 of the International Union of Painters and Allied Trades (the "Union") and Jeffrey B. Roberts. Third-Party Defendants now move to dismiss HCFs claim for lack of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure and for failure to state a claim under Rule 12(b)(6). For the reasons discussed below, Third-Party Defendants' motion is GRANTED, and HCFs fraud claim is DISMISSED without leave to amend in this Court, but without prejudice.[1]
This case was initially filed by union benefit trust funds seeking to collect payments which HCI is alleged to have failed to make to the Union's trust fund in violation of the Employee Retirement Income Security Act ("ERISA") section 515, 29 U.S.C. § 1145, and section 301(a) of the Labor Management Relations Act ("LMRA"). See Compl. (dkt. 1) ¶ 13. In its answer to the first amended complaint, HCI pleaded an affirmative defense of "Fraud in the Execution" containing allegations which HCI repeats here as the basis of the third-party complaint. See Answer to 1st Am. Compl. (dkt. 35) at 9.
Because a plaintiffs factual allegations are generally taken as true on a motion under Rule 12(b)(6) or a facial challenge to subject matter jurisdiction under Rule 12(b)(1), this section summarizes the allegations of HCI's third-party complaint as if true. Nothing in this order should be construed as resolving any issue of fact that might be disputed at a later stage of the case.
Roberto Hulsey is the president of HCI, a California corporation primarily in the business of installing polyurethane foam insulation on wine storage tanks. See Third-Party Compl. ("TPC," dkt. 43) ¶¶ 8-10. Prior to HCI's interactions with the Union alleged in the third-party complaint, HCI had no business dealings with unions nor were any of its employees represented by a union. Id. ¶ 9.
On or about June 9th, 2017, HCI became interested in participating in lead abatement projects conducted by Pacific Gas and Electric ("PG&E") at California facilities associated with Airgas, LLC. Id.\\\. HCI understood that its employees' participation in the project required HCI to associate with a union. Id. In the interest of forming such an association, a HCI supervisor and Mr. Hulsey telephoned the Local 294 chapter of the Painters Union of Northern California. Id. ¶¶ 12-13. During this initial phone call, Mr. Roberts-a business representative for the Union-confirmed that the Union would be able to associate with HCI for the purposes of HCI's working on the PG&E/Airgas projects. Id. ¶ 14. The parties scheduled an in-person meeting for June 14, 2017. Id.
At the June 14th meeting, Mr. Hulsey signed a post-card sized document entitled "Agreement of Employers Regarding Bay Area Painters and Tapers Trust Funds," which Mr. Hulsey understood as an agreement to contribute to the Union's trust funds. Id. ¶ 16. The Union did not execute the document, but it gave Mr. Hulsey a copy of it. Id. At a meeting on or about September 1, 2017, Mr. Roberts presented HCI with two additional documents which Mr. Roberts described as "Addendums" that HCI needed to sign in order to work on PG&E/Airgas projects in Northern California. Id. ¶ 18. HCI signed both "Addendums." Id. The Union did not send HCI any additional documents. Id.
During HCI's initial phone call with Mr. Roberts and at each of their subsequent meetings, HCI told Mr. Roberts that all HCI employees not working on the PG&E/Airgas projects must remain non-union. Id. ¶¶ 14-16. HCI told Mr. Roberts that HCI's association with the Union had to be contingent upon this arrangement, and Mr. Roberts repeatedly confirmed that this was the agreement into which HCI and the Union were entering. Id. The Union never presented HCI or Mr. Hulsey a Collective Bargaining Agreement, a Master Agreement, or a Trust Agreement for signature. Id. ¶ 17.
HCI employees unanimously voted against representation by the Union during the summer of 2017. Id. ¶ 19. However, one HCI employee-a supervisor named Shawn Peddy-joined the Union, per the requirements HCI understood itself to be subject in order for its employees to work on the PG&E/Airgas projects. Id. Starting in June 2017, HCI made trust-fund contributions for work on the PG&E/Airgas jobs in accordance with its understanding of the agreement with the Union, totaling approximately $100, 000 by the end of 2018. Id. ¶ 21.
In January 2019, HCI ended its association with the Union with respect to HCI's participation on PG&E/Airgas projects, and HCI stopped bidding to participate on such projects. Id. Three to six months later, the Union, with HCI's cooperation, audited HCI. Id. ¶ 22. In the spring of 2020, the Union's trust fund sent HCI an invoice for over $2, 000, 000 in trust fund contributions on the premise that HCI's contributions should cover HCI's entire payroll. Id. ¶ 24. The trust fund also filed suit pursuant to this invoice. Id.
HCI asserts a claim under California state law for intentional fraud "in violation of the Union's prior oral agreement with HCI." Id. HCI and Mr. Hulsey seek compensatory and punitive relief "in excess of $75, 000" and costs and fees. See Id. at 7-8, ¶¶ (a)-(c) (Prayer for Relief).
Third-Party Defendants move to dismiss HCI's fraud complaint on several bases. See generally Mot. (dkt. 54). Third-Party Defendants argue: (1) HCFs complaint should be dismissed for failure to set forth a cognizable legal theory, id. at 5; (2) the Court lacks subject matter jurisdiction over HCFs claim if the claim is interpreted as disputing the existence of a contract between the Union and HCI, id. at 5-7; (3) the Court lacks subject matter jurisdiction if the fraud claim is interpreted as arising under LMRA section 301 federal common law, id. at 7-8; (4) if interpreted as a state4aw fraud claim, the complaint should be dismissed as preempted by section 301 of the LMRA, id. at 8-11; (5) HCFs complaint seeks indemnification from the Union as relief, and there is no cognizable legal theory under which such relief can be granted, id. at 11; (6) the Court does not have subject matter jurisdiction because the complaint's allegation of fraud is preempted by the National Labor Relations Act ("NLRA"), requiring HCI to seek relief from the National Labor Relations Board ("NLRB"), id. at 12-13; and (7) the complaint is improperly pleaded because it names Mr. Roberts as a third-party defendant, and section 301 of the LMRA exempts Mr. Roberts from individual liability arising from contract violations between a union and an employer, id. at 13.
HCI argues in response that the complaint sets forth a cognizable legal theory under California state law. Opp'n (dkt. 56) at 7-9. HCI further contends that subject matter jurisdiction is appropriate on supplemental jurisdiction grounds, and that the complaint does not dispute the existence of a contract between the Union and HCI, nor does the complaint allege a federal common law tort under section 301. Id. HCFs opposition brief clarifies that HCI here reproduces the fraud allegations asserted as an affirmative defense to the first amended complaint and that, in the third-party complaint, HCI pleads the elements of California common law fraud. Id. at 8, see TPC ¶¶ 25-30.
Third-Party Defendants' first preemption theory is that HCFs state-law fraud claim is preempted by section 301 of the LMRA, which grants exclusive federal jurisdiction over violation-of-contract suits between employers and labor organizations. Mot. at 8. Third-Party Defendants contend that the allegations made against them arise out of a contract dispute with HCI-specifically, a dispute about the scope of a contract-thus the preemptive effects of section 301 apply to HCFs fraud claim. Mot. at 10-11. Third-Party Defendants further argue that the applicable legal standard is that section 301 will preempt any state-law cause of action if any element of the state-law claim is resolvable only by interpreting the contract. Id. HCI argues that its state-law claim is not preempted by section 301 because the Union did not represent its employees, nor did HCI sign a collective bargaining agreement with the Union. Opp'n at 11-14. HCI notes that the Ninth Circuit previously found that section 301 did not preempt a state-law fraud claim brought against a union representative by an employer. See Id. at 13 (citing Operating Eng'r's Pension Trust v. Wilson, 915 F.2d 535 (9th Cir. 1990)). In their reply, Third-Party Defendants distinguish Wilson on the basis that here, HCI sought out the Union for the purpose of securing representation for its employees. See Reply (dkt. 57) at 1-2.
Third-Party Defendants also argue that HCFs state-law fraud claim is preempted by the doctrine announced in Garmon and therefore the proper venue for the resolution of HCFs claim is the NLRB. Mot. at 12-13 (citing San Diego Bldg. Trades Council, Millmen 's Union, Local 2020 v. Garmon, 359 U.S. 236 (1959)). As with the first preemption theory, HCI contends that Third-Party Defendants' argument is premised upon the existence of a bargaining relationship between HCI and the Union, which HCI...
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