Laborers Pension Trust Fund-Detroit & Vicinity v. Interior Exterior Specialists Co.

Citation824 F.Supp.2d 764
Decision Date02 November 2011
Docket NumberCase No. 04–74514.
PartiesLABORERS PENSION TRUST FUND–DETROIT AND VICINITY, Laborers Vacation and Holiday Trust Fund–Detroit and Vicinity, Laborers Metropolitan Detroit Health and Welfare Fund, Laborers Annuity Fund–Detroit and Vicinity, and Michigan Laborers' Training Fund, Plaintiffs, v. INTERIOR EXTERIOR SPECIALISTS COMPANY and Llamas Group Corp., Defendants,andTrustees of the Painters Union Deposit Fund, Intervenor.
CourtUnited States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan)

OPINION TEXT STARTS HERE

George H. Kruszewski, Rolland R. O'Hare, Hope L. Calati, Sachs Waldman, Detroit, MI, Barbara A. Patek, Craig E. Zucker, Erman, Teicher, Southfield, MI, for Plaintiffs.

Steven A. Wright, Shelby Township, MI, for Defendants.

Stephen D. Kursman, Finkel Whitefield Selik, Farmington Hills, MI, for Intervenor.

ORDER GRANTING IN PART JOINT MOTION SEEKING JUDICIAL DETERMINATION OF RIGHT TO HELD PAYMENT PURSUANT TO TEMPORARY AGREEMENT, MICHIGAN LAW, AND PARTIES' TENTATIVE SETTLEMENT AGREEMENT

DAVID M. LAWSON, District Judge.

This matter is before the Court on the plaintiffs' and defendants' joint motion seeking a judicial determination of their rights to a fund of money identified by the parties as the “Held Payment.” That fund was created under an agreement made by the plaintiffs and defendants to secure payment of a judgment for the plaintiffs that the defendants challenged on appeal. Intervenor Trustees of the Painters Union Deposit Fund (PUDF) obtained a judgment against the defendants in a separate matter and now claims a superior right to the Held Payment. PUDF filed a response in opposition to the joint motion, and the Court heard oral argument on September 12, 2011. The Court now finds that the plaintiffs have a superior right to the Held Payment, which has served as the functional equivalent of a supersedeas bond, and may apply the fund to satisfy their judgment in an amount to be determined by the Court or as agreed by the plaintiffs and defendants, as the case may be. PUDF then has the next priority to any amount remaining of the Held Payment, subject, however, to a reasonable attorney's fee in favor of the Law Firm of Steven A. Wright, P.C., the attorney for the defendants, whose efforts generated the remainder amount through Wright's semi-successful appeal. Finally, if any amount would remain thereafter, it would be applied to discharge the balance of Wright's attorney's charging lien that remains after the award of the reasonable attorney's fee.

I.

Defendants Interior Exterior Specialists Company (IES) and The Llamas Group Corporation (TLG) appealed an adverse money judgment entered against them by this Court in favor of the plaintiffs, following a bench trial in 2008. The plaintiffs, multiemployer benefit plan administrators for the benefit of members of Local 334 of the Laborers International Union of North America, AFL–CIO, alleged in their complaint that the defendants were liable for unpaid fringe benefits and brought suit under section 515 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1145. Defendant IES had signed an opt-in agreement under a collective bargaining agreement with the Union Local, which the Court determined on summary judgment was binding on that defendant from at least April 6, 2000 through May 31, 2006. At trial, the Court found that defendant TLG was liable to the plaintiffs as the alter ego of IES. The Court also rejected IES's contention that it overpaid its contributions to the plaintiffs by approximately 10,000 man-hours and was entitled to credit for the overpayments.

The Court entered judgment in favor of the plaintiffs in the amount of $167,501.34 in unpaid fringe-benefit contributions and $33,500.29 in liquidated damages—totaling $201,001.63. The Court entered a corrected opinion on October 2, 2008. The defendants timely appealed. During the pendency of the defendants' appeal, the Court amended the judgment to award the plaintiffs attorney's fees in the amount of $112,500, bringing the total award to $313,501.63.

The defendants appealed the judgment to the Sixth Circuit but did not post a supersedeas bond. At the plaintiffs' request, this Court entered an injunction preventing the defendants from transferring assets while the appeal proceeded. The plaintiffs and defendants thereafter made a formal agreement (The Temporary Agreement) whereby (1) the defendants paid cash over to the plaintiffs (which became the “Held Fund”) totaling $280,035.60, (2) the parties agreed to dissolve the injunction, and (3) the plaintiffs would have the right to the cash payment if the judgment was affirmed on appeal, but would refund all or part of the Held Fund as appropriate if the decision on appeal favored the defendants. The amount of the Held Fund represents the $201,001.63 judgment plus post judgment interest from September 30, 2008, 2008 WL 4443066, $112,500 in attorney's fees, $20,000 as security for attorney's fees that the plaintiffs may incur on appeal, less credit for $54,294.51 collected by the plaintiffs in partial satisfaction of the judgment. The Held Fund is in the custody of the Sachs Waldman, P.C. Client Trust Account, one of the law firms representing the plaintiffs.

The Temporary Agreement was signed on January 15, 2009. In the meantime, on March 18, 2008, PUDF obtained a judgment of $186,781.62 against the defendants in an unrelated matter, Trustees of PUDF v. Interior/Exterior Specialist, Co., No. 05–70110, 2008 WL 724355 (E.D.Mich. Mar. 18, 2008) (Roberts, J.). On February 10, 2009, those parties stipulated to an award of prejudgment interest to PUDF in the amount of $14,098.83, and on April 15, 2009, the parties stipulated to attorney's fees award to PUDF in the amount of $100,000. On April 7, 2010, the court of appeals affirmed the district court's judgment. On January 21, 2011, the court awarded PUDF appellate attorney's fees in the amount of $49,042.50.

PUDF has been trying to reach the Held Payment fund to satisfy its own judgment against the defendants. On November 16, 2009, PUDF served the first of several writs of garnishment on Sachs Waldman, PC; to date, PUDF has served 8 such writs upon that law firm. Sachs Waldman generally has denied any obligation under the writs because it believes the Held Payment is not the property of the defendants; instead, it is to be applied to satisfy the judgment entered in this case.

On February 5, 2010, attorney Steven Wright and his law firm asserted an attorney's lien in the amount of $86,508.59 against any and all proceeds, settlement funds, or other amounts that may be owed or become owed to IES and TLG, or any of their officers, subsidiaries, assigns, etc., for legal services rendered in this case.

Then on September 8, 2010, the Sixth Circuit decided the appeal and held that this Court erred in concluding that IES remained bound by the labor agreements during the 20032006 time period, but otherwise found no error in the Court's conclusions. The court of appeals held that IES successfully terminated its obligations to pay fringe benefits effective June 1, 2003. Under that holding, IES and TLG remained liable to the plaintiffs, but the court remanded the case to this Court to recalculate the damages owed to the plaintiffs based on the pre–2003 labor activity. The mandate issued on November 16, 2010.

On December 14, 2010, the plaintiffs filed a motion contending that recalculating the damages according to the court of appeals's holding entitled them to a judgment in the amount of $309,441.15, which included $137,606.87 in unpaid benefits, $85,917.14 in interest, and $85,917.14 in double interest. The Court heard oral argument on the plaintiffs' motion on February 25, 2011 and ordered supplemental briefing on the amount of contributions the Funds claimed were owed under the three Project Labor Agreements referenced in the motion for entry of judgment. The plaintiffs' motion remains under advisement.

In March 2011, the plaintiffs and defendants reached a tentative settlement agreement as to the amount owed after remand from the court of appeals. Although the precise terms of the agreement have not been disclosed to the Court, it appears that most of the Held Fund would be turned over to the plaintiffs and the balance would be paid to Steven Wright in satisfaction of his attorney's lien. There is no question, however, that the proposed distributions would exhaust the Held Payment fund.

On June 9, 2011, this Court granted PUDF's motion to intervene so that it could argue its contention that it is entitled to the Held Payment and has first priority to it. The issue is framed by the plaintiffs' and defendants' joint motion to determine the right to the held payment, to which PUDF has responded.

II.

The plaintiffs and defendants jointly argue the Temporary Agreement transfers ownership of the Held Payment solely to the plaintiffs in the absence of an agreement or judicial determination to the contrary; therefore, the Held Payment is not property of the defendant to which PUDF's writs of garnishment may attach. PUDF counters with the contention that the Temporary Agreement is nothing more than a security agreement, and an invalid one at that; and once the court of appeals overturned this Court's judgment, the plaintiffs no longer had a perfected security interest in the Held Payment. Therefore, PUDF reasons, PUDF obtained a priority interest in the Held Payment when it served its first writ of garnishment on Sachs Waldman, P.C. and became a lien creditor. PUDF believes that its superior position defeats the plaintiffs' competing claim to the Held Payment and Steven Wright's attorney's lien.

A. The Temporary Agreement

The construction and characterization of the Temporary Agreement is a matter of contract law. Bonfiglio v. Harkema Assocs., Inc., 171 B.R. 245, 249 (E.D.Mich.1994). State contract law provides the rules of decision. Sault Ste. Marie Tribe of Chippewa Indians v. Engler...

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