Paul R. Peterson Const., Inc. v. Arizona State Carpenters Health and Welfare Trust Fund

• Decision Date: 10 February 1994
• Docket Number: No. 1,CA-CV,1
• Citation: Paul R. Peterson Const., Inc. v. Arizona State Carpenters Health and Welfare Trust Fund, 880 P.2d 694, 179 Ariz. 474 (Ariz. App. 1994)
• Parties: , 17 Employee Benefits Cas. 2624 PAUL R. PETERSON CONSTRUCTION, INC., and Paul R. Peterson, Plaintiffs-Appellees, Cross-Appellants, v. ARIZONA STATE CARPENTERS HEALTH AND WELFARE TRUST FUND, Defendant-Appellant, Cross-Appellee. 91-0203.
• Court: Arizona Court of Appeals

Page 694

880 P.2d 694

179 Ariz. 474, 17 Employee Benefits Cas. 2624

PAUL R. PETERSON CONSTRUCTION, INC., and Paul R. Peterson, Plaintiffs-Appellees, Cross-Appellants, v. ARIZONA STATE CARPENTERS HEALTH AND WELFARE TRUST FUND, Defendant-Appellant, Cross-Appellee.

No. 1 CA-CV 91-0203.

Court of Appeals of Arizona Division 1, Department B.

Feb. 10, 1994.

Reconsideration Denied March 30, 1994.

Review Denied Sept. 20, 1994.

[179 Ariz. 475] David F. Gomez, P.C. by David F. Gomez, Michael J. Petitti, Jr. and James Burr Shields II, Phoenix, for plaintiffs-appellees, cross-appellants.

Lee, Stegall & Katz, P.C. by Todd A. Schultz, Phoenix, for defendant-appellant, cross-appellee.

OPINION

JACOBSON, Presiding Judge.

This appeal involves an examination of the relationship between federal and state law regarding the viability of an equitable estoppel claim asserted against a union trust fund employee health and welfare benefits plan that is subject to the Employment Retirement Income Security Act (ERISA), under 29 U.S.C. § 1002(1). As a preliminary matter, we must determine whether law of the case established by a prior final appellate decision in this matter applies. The issues before us include the following:

1. May defendant assert in this appeal that an equitable estoppel claim against a union trust fund is barred as a matter of federal ERISA law when the prior final state appellate decision considered and rejected that argument?

2. Did the trial court's jury instruction on the elements of equitable estoppel, based on Arizona case law, constitute reversible error?

3. Was the evidence sufficient to establish the elements of equitable estoppel?

4. Did the trial court err in bifurcating the liability and damages issues?

Additionally, the cross-appeal raises the following issue:

5. Was plaintiff entitled to prejudgment interest on his equitable estoppel claim?

FACTS AND PROCEDURAL HISTORY

The following facts are taken from the prior appellate decision in this case, Paul R. Peterson Constr., Inc. v. Arizona State Carpenters Health & Welfare Trust Fund, 2 CA-CV 88-0085 (Ariz.App. mem. dec. Mar. 17, 1988), as well as from the trial record after remand from that appeal.

Plaintiff, Paul R. Peterson, a member of the Arizona State Carpenters' Union and a participant in its health and welfare benefits plan, incorporated his construction business in his own name in 1970, with himself as its sole shareholder, owner, and officer. His company was a signator to a Master Labor Agreement entered into with the union in 1977, which required the company to contribute payments for its union members to the union's health and welfare benefits plan (hereafter, "trust fund"). The construction company's collective bargaining agreement with the union expired in May 1982, and attempts to negotiate a renewal reached impasse in late 1982 or early 1983, thus terminating the parties' rights under the union contract. However, the trust fund contract provided that a member who was no longer working for a "participating employer" could continue to be eligible for coverage for a limited time based on accumulated credits in an "hour bank" that was determined by monthly reports by the member's employer; when the hour bank credits were exhausted, the member could continue eligibility for coverage on a "self-pay" basis for up to twelve months and thereafter convert to a private policy. However, a resolution of the trust fund trustees in January 1983 provided that no owner or officer of an employer could participate in the self-pay plan. There is no question Peterson was such an owner/officer. No notice of that resolution was provided to union members or their employers prior to the events giving rise to this litigation.

Beginning in January 1983, Peterson telephoned the trust fund benefits administrator on a monthly basis to ascertain his eligibility for medical benefits. He was informed that his hour bank credits provided coverage through June 1983, and that he could begin to self-pay for continued coverage in July 1983. On May 31, 1983, Peterson, as instructed, tendered a premium check of $96.00 for health coverage for July 1983, and on July 31, 1983, he tendered another check for $96.00 for August 1983. The trust fund accepted both checks and issued receipts.

On August 1, 1983, Peterson's wife was diagnosed with breast cancer, and a hospital called the trust fund administrator's office to verify health insurance coverage. By letter dated August 4, 1983, the trust fund's attorneys instructed the administrator to deny coverage; on August 16, 1983, the trust fund reimbursed Peterson for his August premium with a note stating, "According to the Fund rules, you are not eligible to self-pay since you are an owner/officer of Peterson Construction." Peterson requested review of the denial of benefits, and the trust fund issued its final decision in March 1985 denying his benefits under the self-pay plan because of his status as an owner/officer of his company. The medical bills for Peterson's wife's treatment totalled more than $80,000 before her death in July 1985.

In February 1985, the trust fund and other plaintiffs filed suit against Peterson and his company, alleging that, as a signatory to the Master Labor Agreement, Peterson had failed to meet his obligation to pay all contributions due for his employees. Peterson filed an answer, counterclaim, and third party complaint, asserting an offset and that the trust fund had wrongfully denied benefits for his wife's illness. The counts in the counterclaim/third party complaint included intentional infliction of emotional distress, conspiracy to induce breach of contract, and violations of ERISA under 29 U.S.C. § 1002(4) and 29 U.S.C. § 1140.

The trust fund moved for dismissal of the counterclaim/third party complaint on the basis that Peterson was not an "employee" under ERISA, and that the tort claims were preempted as a matter of federal law. In response, Peterson argued that, even if he were not covered by the plan under its provisions, "the past dealings between the parties would estop [the trust fund] from asserting such a position," because he "individually relied upon the representations of the trustees, to his detriment, that he would be covered by the plan's insurance." In reply, the trust fund responded that the doctrine of estoppel could not be invoked because it would compel an illegal act under ERISA by requiring payment of benefits to a non-participating employer.

The trial court dismissed Peterson's counterclaim/third party complaint, finding that the conduct stated would not form a basis for an emotional distress claim; preemption of the claim by ERISA; and that, as a matter of law, Peterson was not entitled to benefits because of his status as owner, officer, and employer. Peterson appealed, and Division Two of this court affirmed the trial court's conclusions that Peterson was an employer, ineligible for benefits under ERISA, and that the trust fund's decision to deny him benefits was not arbitrary or capricious. However, the court of appeals reversed and remanded on the basis that Peterson had stated a claim for equitable estoppel.

On remand, the trial court set Peterson's estoppel claim for a bench trial with an advisory jury to consider several liability issues. ¹ The advisory jury returned the following responses to the court's interrogatories:

1. Did employees of the Trust Administrator's Office make telephonic representations to Peterson that he was entitled to Trust benefits? Yes

2. Did the Trust Fund employees, who accepted Peterson's May 31, 1983 self-pay premium check know that Peterson was an owner/officer when they accepted it? No

3. Did Peterson know at the time the alleged representation was made that, as an owner/employer, he was not entitled to Trust benefits? No

4. Did Peterson know that he was ineligible for self-pay because he was working for a non-signatory contractor? No

5. Did Peterson actually rely on words or conduct of the Trust employees? Yes

6. If these were telephonic representations, was it reasonable for Peterson to rely on them? Yes

7. Was it reasonable for Peterson to rely on the acceptance of his self-pay premium checks by employees at the Trust Fund office? Yes

8. Did Peterson act with unclean hands in his dealings with the Trust? No

9. Does the doctrine of equitable estoppel apply so as to allow the plaintiff benefits under the plan? Yes

The trial court ruled that Peterson was entitled to damages in the amount that his benefits would have been if he were eligible for coverage, and ultimately awarded stipulated unreimbursed medical expenses in the amount of $66,345.67 plus attorneys' fees and costs. The court denied the trust fund's post-trial motions and also denied Peterson's motion for prejudgment interest. The trust fund appealed from the judgment and Peterson cross-appealed from the denial of his post-trial claim for prejudgment interest.

LAW OF THE CASE

After trial, the trust fund filed a "Post-Trial Memorandum, Request for Judgment," arguing, for the first time, that "recent dispositive authority from the Ninth Circuit requires that Peterson's claim for estoppel be denied as a matter of law." The trust fund noted that, although the court of appeals had previously held that this estoppel claim was permitted under Ellenburg v. Brockway, 763 F.2d 1091 (9th Cir.1985), more recent ninth circuit case law specifically precluded estoppel claims against jointly administered ERISA trust funds as a matter of federal law. See Davidian v. Southern California Meat Cutters Union, 859 F.2d 134 (9th Cir.1988); Hansen v. Western Greyhound Retirement Plan, 859 F.2d 779 (9th Cir.1988). Thus, the trust fund contended, despite the court of appeals' ruling allowing the estoppel claim in this case, "the Ninth Circuit has now put the issue to rest."

Peterson countered by contending that the Division Two decision became law of the case; thus, the trust...