Operating Engineers Pension Trust v. A-C Co.

• Decision Date: 10 November 1988
• Docket Number: A-C,No. 85-5998,85-5998
• Parties: , 109 Lab.Cas. P 10,624, 110 Lab.Cas. P 10,895 OPERATING ENGINEERS PENSION TRUST, Operating Engineers Health and Welfare Fund, Operating Engineers Vacation-Holiday Savings Trust and Operating Engineers Training Trust, Plaintiffs-Appellants, v.COMPANY, a California corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1336

859 F.2d 1336

57 USLW 2115, 109 Lab.Cas. P 10,624,

110 Lab.Cas. P 10,895

OPERATING ENGINEERS PENSION TRUST, Operating Engineers Health and Welfare Fund, Operating Engineers Vacation-Holiday Savings Trust and Operating Engineers Training Trust, Plaintiffs-Appellants, v. A-C COMPANY, a California corporation, Defendant-Appellee.

No. 85-5998.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 6, 1987.

Decided July 26, 1988.

As Amended on Denial of Rehearing and Rehearing En Banc Nov. 10, 1988.

Wayne Jett, Jett & Laquer, Pasadena, Cal., for plaintiffs-appellants.

Jerry D. Cluff, Pain, Cluff & Olson, San Diego, Cal., for defendant-appellee.

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

Before ALARCON, NELSON and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge:

In this case we consider several issues relating to the interpretation of an employee benefit trust fund agreement, including the question of how our prior decisions regarding that agreement can be reconciled. At least as important, we also consider significant questions pertaining to when the filing of a lawsuit may be deemed frivolous under Rule 11.

I. FACTS AND PROCEEDING BELOW

Plaintiffs/Appellants are four employee benefit trusts (collectively referred to as "Trusts"). The Trusts were established pursuant to written collective bargaining agreements and declarations of trust between the International Union of Operating Engineers, Local Union No. 12, and various multi-employer associations in the construction industry in Southern California. ¹

Defendant/Appellee A-C Company ("A-C") is a California corporation engaged in construction engineering projects in Southern California. Since approximately May of 1974, A-C has been a member of the San Diego Engineering Contractors Association. By virtue of this membership, A-C is bound by the terms and conditions of the San Diego County Master Labor Agreement ("San Diego MLA"). The Joint Conference Board ("JCB") was established by the San Diego MLA to determine issues of interpretation regarding the San Diego MLA. On May 1, 1980, the JCB adopted a Resolution ("JCB Resolution") interpreting the San Diego MLA. The JCB Resolution requires that

[w]hen an employee has been dispatched by the Union to a contractor and the employee performs any work whatsoever covered by the Agreement, the contractor shall be obligated to pay fringe benefit contributions to the Trusts at the required rate for each and every hour worked by the employee or paid by the contractor. In the event the payroll records of the contractor show that such an employee is paid by salary or any method other than hourly wages, then the employee shall be presumed to have worked for a minimum of forty (40) hours during each week of such employment and payment, and fringe benefit contributions shall be paid for all such hours.

(Emphasis added).

The Trusts audited the books and records of A-C for the period March 1, 1979 through December 31, 1982 to determine if A-C had paid the contributions required under the San Diego MLA. On the basis of this audit the Trusts filed a complaint in the Central District of California, claiming that A-C had made insufficient contributions to the Trusts during the audit period on behalf of three of its employees, Robert O. Conley ("Robert"), Ronald O. Conley ("Ronald"), and Virgil J. Koch, in violation of section 301 of the Labor-Management Relations Act ("LMRA"), 29 U.S.C. Sec. 185 (1982) and section 502 of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1132 (1980). Robert was President, Chief Executive Officer, and sole shareholder of A-C, while Ronald was Vice-President and Koch was Superintendent. A-C paid Robert, Ronald and Koch by a method other than hourly wages. Each of them periodically operated heavy construction equipment for A-C, which constitutes work covered by the San Diego MLA. A-C reported each individual to the Trusts as a covered employee.

Besides working for A-C, all three individuals also performed work for A-C Paving Company and A-C Asphalt Concrete Company (collectively referred to as "A-C Paving"). A-C Paving, a proprietorship, is a fictitious business name used by Robert to receive payments from A-C for rental of construction equipment that he owned. Robert is the sole owner of A-C Paving as well as A-C. In addition, Robert worked a ten hour week at A-C Union 76 ("A-C Union"), a gas station that he also owned, managed and operated. All three businesses were thus owned, managed and operated by Robert. Neither A-C Paving nor A-C Union was, or is, a signatory to the MLA. All three employees therefore split their time between MLA and non-MLA work, though all of their work was for businesses owned, managed and operated by Robert. Each of the three employees indisputably worked a total of 40 hours per week.

The Trusts allege that the San Diego MLA by virtue of the JCB Resolution requires that employers report and contribute to the Trusts on the basis of 40 hours per work week for all salaried or non-hourly employees who perform any MLA covered work whatsoever. The Trusts contend that the presumption set forth in that Resolution is conclusive, not rebuttable, and that because the employees performed some MLA work, A-C is required to contribute to the Trusts based on a 40 hour work week. The Trusts also contend that even if the presumption may be rebutted in the case of employees who work less than full time, the employer must still make contributions based on a 40 hour week in this case since the employees all worked a total of 40 hours a week, when both MLA and non-MLA work are included.

The Trusts claim unpaid contributions of $62,967.58, calculated on the basis of 40 hours per week minus the number of hours A-C reported and paid on behalf of the three employees during the audit period. The Trusts also seek recovery of liquidated damages, attorney's fees, audit expenses and interest on the unpaid contributions.

After a bench trial during which the district court ruled that it would not consider any evidence regarding the intended meaning of the JCB Resolution, the court held that the presumption contained in the Resolution is rebuttable and that the Trusts were entitled to only a small part of the amount claimed. It did so based on our holding in Sapper v. Lenco Blade, Inc., 704 F.2d 1069 (9th Cir.1983), where we construed the presumption language of a different resolution--i.e., the Labor Management Adjustment Board Resolution ("LMAB Resolution")--interpreting a different agreement--the Southern California Master Labor Agreement ("So. Cal. MLA"). In Lenco Blade, we held that under the So. Cal. MLA an employer may rebut the presumption that an employee worked a minimum of 40 hours a week. The presumption language of the LMAB Resolution is identical to the presumption language of the JCB Resolution, and there is no significant difference between the trust provisions of the So. Cal. MLA and the San Diego MLA.

Although this case is the first to require a court to interpret the presumption language of the JCB Resolution, the district court held that the Trusts were collaterally estopped from litigating its effect because the Trusts are essentially the same plaintiffs as in Lenco Blade where the issue regarding the presumption language of the LMAB Resolution was litigated. ² The district court also held that A-C successfully rebutted the presumption that the three employees worked 40 hours per week because it proved that they worked less than that number of hours on MLA work, except for a sixteen month period during which A-C failed to rebut the presumption as to Robert. Accordingly, the court held that A-C owed the Trusts $10,110.40, the amount of contributions due for Robert, but that otherwise no contributions were owing. In reaching its decision, the district court did not include as hours worked the time the employees worked on non-MLA covered work.

Because the district court held that A-C owed the Trusts only a fraction of the nearly $63,000 of unpaid contributions claimed by the Trusts, the court denied the Trusts' request for attorney's fees. Furthermore, the district court held that in light of Lenco Blade, the Trusts' arguments were neither "warranted by existing law or good faith arguments for the extension, modification, or reversal of existing law", as required by Fed.R.Civ.P. 11. It then ordered the Trusts to pay A-C $10,000 as sanctions, which amount, according to the court, represented A-C's reasonable expenses, including attorney's fees.

The Trusts appeal. We reverse.

II. ISSUE PRECLUSION

The district court held that the Trusts were precluded from litigating whether under the San Diego MLA, as interpreted in the JCB Resolution, there exists an irrebutable presumption that an employee who performs some MLA work has worked 40 hours per week. The court did so because of our Lenco Blade decision in which we construed the So. Cal. MLA and the LMAB Resolution. The district court was in error.

Issue preclusion prohibits relitigation of issues actually litigated and necessarily determined by a court. Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979); Davis & Cox v. Summa Corp., 751 F.2d 1507, 1518 (9th Cir.1985); United States v. Geophysical Corp., 732 F.2d 693, 697 (9th Cir.1984). If the decision could have been rationally grounded upon an issue other than that which the defendant seeks to foreclose from consideration, issue preclusion does not prohibit relitigation of the asserted issue. Davis & Cox v. Summa Corp., 751 F.2d at 1518-19 (citing Ashe v. Swenson, 397 U.S. 436, 444, 90 S.Ct. 1189, 1194, 25 L.Ed.2d 469 (1970)).

Because the issue presented in this lawsuit involves an interpretation of the JCB Resolution, which applies to the San Diego MLA, and not the LMAB Resolution, which applies to the So. Cal. MLA, the issue was neither...