Dylan 140 LLC v. Figueroa, No. 20-461-cv

• Citation: 982 F.3d 851
• Decision Date: 10 December 2020
• Docket Number: August Term 2020,No. 20-461-cv
• Parties: DYLAN 140 LLC, Plaintiff-Appellant, v. Hector J. FIGUEROA, AS TRUSTEE and the Trustees OF the BUILDING SERVICE 32BJ HEALTH FUND, Building Service 32BJ Pension Fund, Thomas Shortman Training Scholarship and Safety Fund, Building Service 32BJ Legal Services Fund, Building Services 32BJ Supplemental Retirement & Savings Fund, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

982 F.3d 851

DYLAN 140 LLC, Plaintiff-Appellant,

v.Hector J. FIGUEROA, AS TRUSTEE and the Trustees OF the BUILDING SERVICE 32BJ HEALTH FUND, Building Service 32BJ Pension Fund, Thomas Shortman Training Scholarship and Safety Fund, Building Service 32BJ Legal Services Fund, Building Services 32BJ Supplemental Retirement & Savings Fund, Defendants-Appellees.

No. 20-461-cv

August Term 2020

United States Court of Appeals, Second Circuit.

Argued: October 28, 2020

Decided: December 10, 2020

For Plaintiff-Appellant: Netanel Newberger (Joseph M. Labuda, on the brief), Milman Labuda Law Group PLLC, Lake Success, New York.

For Defendants-Appellees Ira A. Sturm, Raab, Sturm & Ganchrow, LLP, Fort Lee, New Jersey.

Before: Livingston, Chief Judge, Kearse and Lynch, Circuit Judges.

Debra Ann Livingston, Chief Judge:

Plaintiff-Appellant Dylan 140 LLC ("Dylan") appeals from a January 8, 2020 judgment of the district court compelling arbitration and dismissing Dylan's declaratory judgment action without prejudice. Dylan, the owner and operator of a residential rental apartment building in New York City, is a party to a multi-employer collective bargaining agreement ("CBA") with the Service Employees International Union, Local 32BJ ("Union") and the Realty Advisory Board on Labor Relations ("RAB"). Under the terms of the CBA, Dylan is required to make contributions to employee benefit funds for eligible employees. The core dispute between Dylan and the trustees of the benefit funds (referred to by the parties and herein as the "Funds"), as Defendants-Appellees, is whether Dylan owes money in unpaid contributions for one of Dylan's part-time employees.

The district court held that Dylan is required to resolve that dispute in arbitration with the Funds, converting the Funds’ motion to dismiss into a motion to compel arbitration, granting that motion, and dismissing Dylan's complaint without prejudice. For the following reasons, we AFFIRM.

BACKGROUND

I. Factual Background¹

Dylan is a New York corporation that owns and operates a residential rental apartment building located at 140 West 86th Street, New York, New York. Dylan is a party to a CBA with the Union that requires it to make monetary contributions to various Funds for eligible employees under the terms of the CBA. The Funds are jointly administered, multi-employer, labor-management trust funds established by the CBA, that use employer contributions to provide health insurance, pre-paid legal services, training, and other benefits to eligible employees.

In 2018, the Funds, pursuant to a trust agreement incorporated into the CBA, hired a third party to conduct an audit of Dylan's fund contributions. The audit determined that Dylan owed unpaid contributions for employee Julio Rodriguez. Rodriguez was a part-time worker at the building, performing Union work as a porter two days a week and non-Union work as a painter three days a week. In January 2019, the Funds sent a letter notifying Dylan that it owed $110,872.68 in unpaid fund payments.

II. Procedural History

In April 2019, Dylan brought an action in the Southern District of New York seeking declaratory relief under the Employment Retirement Income Security Act ("ERISA") and the Labor Management Relations Act ("LMRA") (also known as the "Taft-Hartley Act") in the effect of a declaration that it was not required to pay benefit fund contributions for Rodriguez. Dylan claimed that while the CBA requires it to contribute to the Funds for certain employees—those who work more than two days a week or twenty hours in a Union job—it was not required to make those contributions for Rodriguez, who worked only two days per week for sixteen hours total in a Union job, and thus was not covered by the CBA.

The Funds moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6), or in the alternative, to stay court proceedings pending the resolution of arbitration, in addition to "any other relief ... deemed appropriate." The Funds had already commenced arbitration almost a month prior to the time that Dylan filed its declaratory judgment action. The parties dispute whether the Funds sent adequate notice to Dylan of its intention to arbitrate. Regardless, Dylan concedes that it did ultimately receive the Funds’ amended notice sent on April 5, 2019, four days after Dylan filed its declaratory judgment action in court.

The Funds argued before the district court that because they had initiated arbitration proceedings against Dylan, Dylan was required to arbitrate. The Funds pointed to two provisions of the CBA that they claimed supported this requirement. The first provision, Article X, Section F, Paragraph 1, provides that the Funds may, as third-party beneficiaries of the CBA, bring either legal action or initiate arbitration if Dylan fails to make required payments to the funds. The second provision, Article VI, Paragraph 1, states that an arbitrator has "the power to decide all differences arising between the parties to [the CBA] ... including such issues as may be initiated by the Trustees of the Funds." App'x at 68. Read together, Dylan—as a party to the CBA—was required to arbitrate where, as here, the Funds had initiated arbitration.

Dylan disputed the Funds’ reading of the CBA, claiming that it was only required, under Article VI, to arbitrate disputes arising "between the parties " to the CBA. App'x at 68 (emphasis added). Only Dylan, the Union, and the RAB were parties to the CBA. Moreover, because Article X of the CBA permits the Funds to bring either arbitration proceedings or suits in court, "the same must be true for Dylan." App'x at 41. Therefore, Dylan argued that it had a right to have its case heard in court.

On review of the parties’ claims, Magistrate Judge Freeman issued a Report and Recommendation to the district court, recommending that the court convert the Funds’ motion to dismiss into a motion to compel arbitration and dismiss Dylan's declaratory judgment action without prejudice. Examining the terms of the CBA, the magistrate judge stated that the Funds, as third-party beneficiaries to the agreement, were clearly authorized to pursue arbitration against Dylan under Article X of the CBA. The magistrate judge further concluded that Article VI of the CBA, which requires parties to the CBA to arbitrate "all differences [arising] between the parties," made an "implicit reference" to Article X by its language that an arbitrator also has the power to decide "such issues as may be initiated by the [Funds]." App'x at 243–44 (citing App'x at 68). Taken together, Article VI and X provided that when the Funds chose to arbitrate a dispute with Dylan over unpaid benefit fund contributions, Dylan was obligated to arbitrate.

The district court adopted the magistrate judge's recommendations, converting the Funds’ motion to dismiss into a motion to compel arbitration, granting that motion, and dismissing the action without prejudice. This appeal followed.

DISCUSSION

At the start, the Funds assert that the district court should have dismissed Dylan's complaint under Rule 12(b)(1) for lack of subject matter jurisdiction. We disagree, addressing the issue only briefly to clarify that the court did have federal question jurisdiction. The Funds confuse whether the district court had subject matter jurisdiction with whether Dylan stated a proper cause of action in its complaint, but "it is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction." Bell v. Hood , 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946). "Federal question jurisdiction exists whenever the complaint states a cause of action under federal law that is neither ‘clearly ... immaterial and made solely for the purpose of obtaining jurisdiction’ nor ‘wholly insubstantial and frivolous.’ " Lyndonville Sav. Bank & Tr. Co. v. Lussier , 211 F.3d 697, 701 (2d Cir. 2000) (quoting Bell , 327 U.S. at 682-83, 66 S.Ct. 773 ). Here, Dylan's complaint asserts federal question jurisdiction arising under, inter alia , Section 301 of the LMRA, 29 U.S.C. § 185. This claim is neither insubstantial nor frivolous. See , e.g. , Painting Co. v. Dist. Council No. 9, Int'l Union of Painters & Allied Trades, A.F.L. , 2008 WL 4449262, at *8 (S.D. Ohio Sept. 30, 2008) ) ("The Funds argue that because they are not a party to the [CBA], but only third-party beneficiaries, jurisdiction is not appropriate under the LMRA. This argument is not supported by law. ... ‘Section 301 jurisdiction is not dependent upon the parties to the suit but rather the nature or subject matter of the action. Jurisdiction exists as long as the suit is for violation of a contract between a union and employer even if neither party is a union or an employer.’ " (quoting Stevens v. Employer-Teamsters Joint Council No. 84 Pension Fund , 979 F.2d 444, 457 (6th Cir. 1992) )); A.S.C. Contracting Corp. v. Local Union 175 Welfare Fund , 2010 WL 11627432, at *3 (E.D.N.Y. May 14, 2010) (" ‘Suits for violation of contracts’ include cases, like this one, in which an employer is accused of having violated the terms of a collective bargaining agreement and seeks a declaration from the court that it has not." (quoting 29 U.S.C. § 185(a) )); see also Michels Corp. v. Cent. States, Se., & Sw. Areas Pension Fund , 800 F.3d 411, 415 (7th Cir. 2015). Accordingly, the district court had jurisdiction to decide whether Dylan was entitled to the declaratory relief requested, and we in turn have jurisdiction to review the resulting judgment.

Turning to the merits, this Court "review[s] de novo [a] district court's decision that [a] dispute must be arbitrated under the terms of [a] CBA." Coca-Cola Bottling Co. of New York, Inc. v. Soft Drink & Brewery Workers Union Local 812 Int'l Bhd. of Teamsters , 242 F.3d 52, 56 (2d Cir. 2001). Dylan argues that it is entitled to bring a declaratory judgment action in federal court under the CBA's...