Operating Engineers Pension Trust v. Wilson

• Citation: 915 F.2d 535
• Decision Date: 02 October 1990
• Docket Number: AFL-CI,T,No. 88-6559,88-6559
• Parties: 135 L.R.R.M. (BNA) 3057, 59 USLW 2351, 116 Lab.Cas. P 10,338, 6 Indiv.Empl.Rts.Cas. 1774 OPERATING ENGINEERS PENSION TRUST, et al., Plaintiffs, v. Carroll E. WILSON and Patricia J. Wilson, individually and dba Wilson Equipment, a partnership, Defendants-Third-Party Plaintiffs-Appellees, v. INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL NO. 12,hird-Party Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 535

915 F.2d 535

135 L.R.R.M. (BNA) 3057, 59 USLW 2351,

116 Lab.Cas. P 10,338,

6 Indiv.Empl.Rts.Cas. 1774

OPERATING ENGINEERS PENSION TRUST, et al., Plaintiffs, v. Carroll E. WILSON and Patricia J. Wilson, individually and dba Wilson Equipment, a partnership, Defendants-Third-Party Plaintiffs-Appellees, v. INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL NO. 12, AFL-CIO, Third-Party Defendants-Appellants.

No. 88-6559.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 31, 1989.

Decided Oct. 2, 1990.

Anthony R. Segall, Reich, Adell & Crost, Los Angeles, Cal., for third party defendants-appellants.

Richard M. Freeman, Dennis Childs, Sheppard, Mullin, Richter & Hampton, San Diego, Cal., for defendants-third party plaintiffs-appellees.

Appeal from the United States District Court for the Southern District of California.

Before HUG and CANBY, Circuit Judges, and EZRA, ^* District Judge.

HUG, Circuit Judge:

This case involves an action brought by various union welfare trust funds against the Wilsons, alleging that they failed to pay fringe benefit contributions under a collective bargaining agreement. The Wilsons answered, contending that the contract was void because the union business agent had induced Carroll Wilson to sign the agreement by fraudulent representations. The Wilsons also filed a third-party complaint against appellant International Union of Operating Engineers, Local No. 12 ("Local 12") on various state and federal law theories. After a jury responded to interrogatories and rendered a special verdict, the district judge entered judgment for the Wilsons against the union trust funds, invalidating the collective bargaining agreement and assessing attorneys' fees. A judgment against Local 12 for damages on a state law claim for fraudulently inducing the execution of the agreement, and a judgment against both for attorneys' fees was entered. Local 12 appeals; the trust funds do not. The principal issue in this appeal is whether the Wilsons' claim against Local 12 for fraudulent inducement to enter into a contract is preempted by section 301 of the National Labor Relations Act. We hold it is not and affirm the judgment.

I. FACTS

The Wilsons are owners of Wilson Equipment Company. Although Wilson Equipment Company was a non-union shop, Carroll Wilson had been a member of Local 12 for five years prior to the dispute at issue. In May, 1982, Carroll Wilson, acting in his capacity as co-owner of Wilson Equipment Company, was removing dirt from a local jobsite. Wilson had secured permission from the project's general contractor to remove the dirt from the jobsite. While in the process of removing the dirt, Wilson was approached by Hoss Kinsey, a business representative of Local 12. The conversation that ensued forms the basis of this litigation.

It is undisputed on appeal that Kinsey told Wilson that everyone working at the jobsite had to be "union," and that Wilson could not continue removing the dirt unless he signed certain forms. Wilson also asked Kinsey if signing the forms would change his status with Local 12. Kinsey told Wilson it would not. Wilson then signed the forms on the hood of Kinsey's car without reading them.

Both of Kinsey's statements were false. Wilson did not need to sign an agreement with Local 12 in order to continue removing the dirt from the jobsite. Further, the agreement signed by Wilson did, in fact, change his status with the union. The agreement made Wilson a party to an owner-operator agreement, requiring the Wilsons to pay their employees union wages and contribute to employee benefit trust funds. An owner-operator agreement allows a member of Local 12 to operate a piece of heavy equipment to which he holds title. When the owner-operator hires other employees, the agreement operates as a short-form collective bargaining agreement. At the time Wilson signed the owner-operator agreement, he had three full-time employees.

The Wilsons did not make the contributions to the trust funds as required by the agreement. As a result, the Operating Engineers Pension Trust, Operating Engineers Health and Welfare Fund, Operating Engineers Vacation-Holiday Savings Trust, and Operating Engineers Training Trust ("the Trusts") brought an action against the Wilsons to collect the delinquent contributions. The Wilsons answered and filed a third-party complaint against Local 12 and Kinsey. The claims against Kinsey were dismissed by stipulation of the parties before trial.

Local 12 filed various motions, seeking dismissal of the Wilsons' fraud claim because it was preempted by federal labor law. In ruling on Local 12's preemption motions, the district court distinguished between the two misrepresentations made by Kinsey to Wilson during their conversation at the jobsite. The court found that Kinsey's first statement, that Wilson had to be "union" in order to remove dirt from the jobsite, was properly characterized as fraud in the inducement. The court went on to hold that the Wilsons' action for fraud in the inducement was not preempted by federal labor law and found this claim to be a proper subject of a pendent state law claim. The court next characterized Kinsey's second statement, that the agreement would not affect Wilson's status with the union, as fraud in the execution. Unlike the Wilsons' fraud in the inducement claim, the district court found that this claim was preempted by section 301 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. Sec. 185(a) and, thus, was treated as a section 301 claim.

The jury was instructed accordingly and was given a series of interrogatories and a special verdict, upon which the judge based his judgment. The responses to the interrogatories, pertinent to this appeal, were as follows:

QUESTION NO. 5: Do you find that Carroll Wilson was induced to sign the "Owner-Operator Short Form Collective Bargaining Agreement" by an intentional false representation knowingly made by Earvin Kinsey, or by another person in his presence and intentionally adopted by Earvin Kinsey with knowledge of its falsity, that Carroll Wilson could not remove dirt from the site unless he signed the agreement? (Emphasis in original.)

Answer: YES

QUESTION NO. 6: Do you find that Carroll Wilson actually and justifiably relied on the representation you have found in Question No. 5 above?

Answer: YES

QUESTION NO. 8: Do you find that the Wilsons sustained damages as a proximate result of the conduct you have found in Question No. 5 above in any one or more of the following categories: lost time defending trusts claims, emotional distress, indemnity for trusts claims, or attorney's fees in defense of trusts claims?

Answer: YES

QUESTION NO. 9: What damages do you find will compensate the Wilsons for the conduct you have found in Question No. 5 above? This amount should only include lost time and emotional distress, if any, sustained by the Wilsons. (The court will determine any award for indemnity and/or attorney's fees, depending upon your answers to these questions.)

Answer: $200,000

The district judge entered a judgment against the Trusts on their claim for contributions to the employee benefit funds, and a judgment of $200,000 on the Wilsons' claim against Local 12 for fraudulent inducement. A judgment was also entered against the Trusts and Local 12 for $137,600 in attorneys' fees. The Trusts have not appealed the judgment against them. Local 12 appeals the judgment against it.

The claim, based upon Kinsey's statement that signing the forms would not change his status with Local 12, categorized as a fraud in the execution claim, was held to be preempted by section 301 and was also submitted to the jury with interrogatories under pertinent instructions. We need not delve into the issues concerning this claim because the judgments entered by the district court were based upon the fraud in the inducement claim. Thus, we direct our attention to that claim. ¹

II. DISCUSSION

We consider whether the Wilsons' state tort claim for fraud in the inducement was preempted by federal labor law. We review this question of law de novo. Bale v General Tel. Co. of Cal., 795 F.2d 775, 778-79 (9th Cir.1986).

1. Section 301 Preemption

Local 12 contends that the Wilsons' claim for fraud in the inducement was preempted by section 301 of the LMRA. It is well-settled that state law claims concerning conduct covered by the terms of a collective bargaining agreement are preempted by section 301 of the LMRA. Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 210, 105 S.Ct. 1904, 1910-11, 85 L.Ed.2d 206 (1985). In Lueck, the Supreme Court framed the test for preemption of a state tort claim as whether the tort "confers nonnegotiable state-law rights on employers or employees independent of any right established by contract." Id. at 213, 105 S.Ct. at 1912. More recently, the Court held that "application of state law is pre-empted by Sec. 301 ... only if such application requires the interpretation of a collective-bargaining agreement." Lingle v. Norge Div. of Magic Chef Inc., 486 U.S. 399, 413, 108 S.Ct. 1877, 1885, 100 L.Ed.2d 410 (1988).

Based upon these principles, the district court found that the Wilsons' tort action for fraud in the inducement was not preempted by section 301 because it did not require reference to the owner-operator agreement signed by Wilson. We agree.

The Wilsons' action for fraud in the inducement is predicated upon Kinsey's assertion that Wilson had to sign the owner-operator agreement in order to continue removing dirt from the jobsite. To show fraud the Wilsons' had to put forth sufficient facts to prove "(1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage." Cicone v. URS Corp., 183 Cal.App.3d 194, 201, 227 Cal.Rptr. 887, 890 (Cal.Ct.App.1986). See also Cal.Civ.Code Sec. 1710 (West 1985). Each of these inquiries did not require...