Michigan United Food and Commercial Workers Unions and Drug and Mercantile Employees Joint Health and Welfare Fund v. Muir Co., Inc.

• Decision Date: 20 April 1993
• Docket Number: No. 92-1725,92-1725
• Citation: 992 F.2d 594
• Parties: 16 Employee Benefits Cas. 2372, Pens. Plan Guide P 23,881 MICHIGAN UNITED FOOD AND COMMERCIAL WORKERS UNIONS AND DRUG AND MERCANTILE EMPLOYEES JOINT HEALTH AND WELFARE FUND, Plaintiff-Appellant, v. The MUIR COMPANY, INC., An Ohio Corporation; and Rite Aid Corporation, A Delaware Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 594

992 F.2d 594

16 Employee Benefits Cas. 2372, Pens. Plan Guide P 23,881

MICHIGAN UNITED FOOD AND COMMERCIAL WORKERS UNIONS AND DRUG AND MERCANTILE EMPLOYEES JOINT HEALTH AND WELFARE FUND, Plaintiff-Appellant, v. The MUIR COMPANY, INC., An Ohio Corporation; and Rite Aid Corporation, A Delaware Corporation, Defendants-Appellees.

No. 92-1725.

United States Court of Appeals, Sixth Circuit.

Argued March 23, 1993.

Decided April 20, 1993.

Andrew Nickelhoff (briefed), Theodore Sachs (argued and briefed), Reginald M. Turner, Jr. (briefed), Sachs, Nunn, Kates, Kadushin, O'Hare, Helveston & Waldman, Detroit, MI, for plaintiff-appellant.

William H. Fallon (argued and briefed), Miller, Johnson, Snell & Cumminskey, Grand Rapids, MI, for defendants-appellees.

Before: KENNEDY, MARTIN and MILBURN, Circuit Judges.

MILBURN, Circuit Judge.

Plaintiff Michigan United Food and Commercial Workers Unions and Drug and Mercantile Employees Joint Health and Welfare Fund appeals from the summary judgment for defendants, Muir Company, Inc. ("Muir"), and Rite Aid Corporation ("Rite Aid"), in this action to collect allegedly delinquent welfare funds contributions from defendants pursuant to the provisions of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1132 and 1145. On appeal, the principal issue is whether this action is barred by the applicable Michigan statute of limitations. For the reasons that follow, we affirm.

I.

Defendant Muir operated a chain of drug stores in Western Michigan until June 1984 when Rite Aid acquired Muir by purchasing its stock. The Muir stores were governed by two collective bargaining agreements between Muir and various local unions of the United Food and Commercial Workers Union. Under these agreements, Muir made contributions on behalf of the employees to the United Food and Commercial Workers International Union Industry Pension Fund ("Pension Fund") and the Michigan United Food and Commercial Workers Unions and Drug and Mercantile Employees Joint Health and Welfare Fund ("Welfare Fund"). The Welfare Fund is a multi-employer welfare benefit plan as defined in 29 U.S.C. §§ 1002(1) and (37). The Pension Fund is a multi-employer pension plan as defined in 29 U.S.C. §§ 1002(2) and (37). Both Funds were located in the same building at the headquarters of United Food and Commercial Workers Union Local 876 in Madison Heights, Michigan. Although each Fund had its own board of trustees and staff, they shared a common manager, Jimmie Foster. Each Fund received contributions from seven different employers.

During routine business operations, each Fund generated a monthly invoice for each employer. The relevant monthly Welfare Fund invoice was a computer printout showing the names of each employee for whom Muir had made a contribution for the preceding month. It listed a premium charge for each of the employees that varied according to whether the employee worked full-time or part-time.

The collective bargaining agreements required Muir to pay a Welfare Fund contribution for each employee who was on the payroll as of the first day of the month. When an employee quit or was terminated, Muir had no further obligation to contribute to the Welfare Fund on his behalf. If an employee was laid off, however, the agreement required a contribution for the month following the date of the layoff. It also required contributions for employees on sick leave for as long as six months. The invoice included codes for the employer to report changes in employee status such as might affect the contribution on his or her behalf. Because Muir was required to return the invoice with full payment by the 15th day of the covered month, personnel actions occurring during the latter half of the month could not be represented.

Pension Fund invoices, on the other hand, were sent to Muir's payroll department which entered on them the actual number of hours worked by each listed employee during each week of the month. Muir returned this form to the Pension Fund, together with the requisite contribution for the reported employee hours, by the 15th day of the following month. The invoice could be modified by Muir to reflect the addition of new personnel or changes in an employee's status.

When the Funds received the completed invoices ("employer reports") from Muir, each Fund entered the data into the same computer system, which could at any time thereafter regenerate the data. According to the manager of both Funds, Jimmie Foster, there was only one billing department which posted both the welfare and pension fund contributions to the appropriate account. Because all the pension and welfare fund data was contained in the same database, although possibly in separate computer files within it, the data from the employer reports concerning an employee's status at Muir could be easily cross-checked.

During 1983, the Funds conducted an audit of Muir's contributions for a period of time ending in December 1982. That audit discovered routine billing and paying errors having to do with employee status and resulted in the payment by Muir of a substantial deficiency.

In June 1984, Rite Aid acquired 100 percent of the capital stock of Muir. Muir remained in existence at all times following the acquisition of its stock, operating under the assumed name of Rite Aid Pharmacy and filing Michigan Annual Reports with the Michigan Corporations Bureau for each year thereafter. The Annual Report for 1989 showed that Muir had assets and net worth in excess of the amount claimed in this action.

In June 1989, approximately five years after Rite Aid's acquisition of Muir, the Funds began an audit of the employers' fund contributions going back to January 1983. There is no dispute about Rite Aid's fund contributions during the period after its acquisition of Muir: the audit revealed contribution deficiencies of $17,866.88 for the post-acquisition period which Rite Aid promptly paid.

As for the pre-acquisition period from January 1983 through June 1984, the Funds determined that Muir had underpaid its contributions by a total of $19,993.12. ¹ The Funds arrived at this conclusion by comparing the data from Muir's monthly contribution reports to each fund and identifying errors in hours worked, employee status, and contributions paid by Muir. In the ordinary course of an audit, the discrepancies identified by this "internal audit" would be checked against the employer's personnel records to confirm or refute the apparent discrepancies. With respect to the pre-acquisition period, the Funds were unable to perform this second part of the audit because Rite Aid had destroyed Muir's personnel records in July or August 1989 pursuant to its normal document retention and destruction routine.

On June 23, 1989, Rite Aid's Senior Vice President of Personnel, Robert Souder, wrote to advise the Funds that Rite Aid did not have Muir's personnel records for the pre-acquisition time period. Souder's letter also incorrectly stated that Rite Aid had acquired Muir by means of an asset purchase rather than a stock purchase. In a subsequent letter of March 27, 1990, Rite Aid admitted that it was unable to provide documentation that the acquisition had indeed been an asset purchase. The Funds then conducted their own investigation into the nature of the acquisition and discovered that it had been structured as a stock purchase. Prior to a letter of inquiry on November 10, 1989, the Funds had never inquired about the nature of Rite Aid's acquisition of Muir, although, of course, they were aware of it from the moment it took place in 1984.

In April 1990, the Funds' auditors, using the information stored in the computer, prepared an estimated calculation of Muir's underpayments for the period January 1983 through June 1984. The discrepancies discovered by this internal audit were of various kinds, caused mainly by misreporting an employee's status as part-time or full-time, recently hired or terminated, or laid off or on sick leave. The misreporting was not caused by any particular systemic error in the reporting system used by Muir, and the parties agree that the errors were common and unintentional.

In August 1990, three multi-employer benefit funds ² filed this action to recover alleged employer underpayments to the Funds pursuant to §§ 502(a)(3) and 515 of ERISA, 29 U.S.C. §§ 1132(a)(3) and 1145. On cross-motions for summary judgment, the district court held that the Funds' claims had accrued no later than July 15, 1984, more than six years before the funds filed suit in August 1990, and were therefore barred by the applicable Michigan statute of limitations, Mich.Comp.Laws Ann. § 600.5807(8). From a judgment in favor of the defendants, only the Welfare Fund has appealed.

II.

A.

The Welfare Fund argues that the district court erred in granting summary judgment to the defendants. Summary judgment is appropriate where "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Federal Rule of Civil Procedure 56. A district court's grant of summary judgment is reviewed de novo. Pinney Dock & Transp. Co. v. Penn Cent. Corp., 838 F.2d 1445, 1472 (6th Cir.), cert. denied, 488 U.S. 880, 109 S.Ct. 196, 102 L.Ed.2d 166 (1988). In its review, this court must view all facts and inferences drawn therefrom in the light most favorable to the nonmoving party. 60 Ivy Street Corp. v. Alexander, 822 F.2d 1432, 1435 (6th Cir.1987).

In concluding that the six-year statute of limitations had run in this case, the district court relied upon the "discovery rule" and held that

[i]n an ERISA action for alleged underpayment of employer contributions, a claim accrues and the limitations period begins to run when the "plaintiff discovers, or with due diligence should have discovered, 'the injury that is the basis of the action.' " Connors v. Hallmark & Son Coal Co., 935 F.2d 336, 341 (D.C.Cir.1991) (citing ...