Twin City Pipe Trades Serv. Ass'n, Inc. v. Wenner Quality Servs., Inc.

• Citation: 869 F.3d 672
• Decision Date: 29 August 2017
• Docket Number: No. 16–1791,16–1791
• Parties: TWIN CITY PIPE TRADES SERVICE ASSOCIATION, INC., Plaintiff–Appellee, v. WENNER QUALITY SERVICES, INC., a Minnesota corporation, doing business as Mr. Rooter of South Central MN, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

869 F.3d 672

TWIN CITY PIPE TRADES SERVICE ASSOCIATION, INC., Plaintiff–Appellee,
v.
WENNER QUALITY SERVICES, INC., a Minnesota corporation, doing business as Mr. Rooter of South Central MN, Defendant–Appellant.

No. 16–1791

United States Court of Appeals, Eighth Circuit.

Submitted: May 9, 2017
Filed: August 29, 2017

William Allan Cumming, Laura Allyn Lindsay, Hessian & McKasy, Minneapolis, MN, for Plaintiff–Appellee.

Brock P. Alton, Gislason & Hunter, Minneapolis, MN, for Defendant–Appellant.

Before SMITH, Chief Judge, COLLOTON and KELLY, Circuit Judges.

869 F.3d 675

COLLOTON, Circuit Judge.

Twin City Pipe Trades Service Association is attempting to recover unpaid fringe-benefit contributions allegedly due under a collective bargaining agreement. The district court granted summary judgment for the Association on the ground that Wenner Quality Services, Inc., was precluded by a previous lawsuit from disputing liability for the contributions as an alter ego of a signatory of the agreement. The court then awarded damages and injunctive relief to the Association. We agree that the Association was entitled to judgment on liability, but we conclude that the court erred in awarding certain damages to the Association. Accordingly, we affirm in part and reverse in part.

I.

In 2004, Shawn and Sara Wenner purchased Mankato Plumbing & Heating, Inc. The Wenners were Mankato Plumbing's only shareholders. Mankato Plumbing was party to a collective bargaining agreement with two local unions for plumbers and pipefitters. In 2006, the Wenners purchased a Mr. Rooter franchise and signed the franchise agreement individually as the designated franchisees. They operated the franchise using Mankato Plumbing's facility, employees, and equipment, while Mankato Plumbing paid fringe-benefit contributions pursuant to the CBA on behalf of Mr. Rooter.

In 2010, the Wenners reorganized their businesses. At the end of January, Mankato Plumbing ceased operations, and the Wenners formed S&S Thermo Dynamics, Inc., to take over the commercial plumbing operations. Around that same time, the Wenners formed Wenner Quality Services, Inc., (WQS) to provide residential plumbing services. Shawn wrote to the unions that Mankato Plumbing was ceasing operations, but that S&S would assume Mankato Plumbing's responsibility under the CBA. In a separate letter, Shawn informed the unions that Mr. Rooter would be discontinuing its operations; in fact, however, WQS continued to use the Mr. Rooter name in its residential plumbing operations.

In 2011, the Association, which served as a trustee responsible for collecting the fringe-benefit contributions due under the CBA, discovered that Mr. Rooter was still operating. It sued S&S, Mankato Plumbing, and Shawn Wenner under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1132, 1145, alleging that they had failed to pay fringe-benefit contributions arising from work performed for Mr. Rooter from February 2010 onward. The Association did not sue WQS in the S&S Litigation, because it was not aware of WQS until Shawn Wenner disclosed that entity's existence after the deadline to amend pleadings had passed.

The defendants in the S&S Litigation moved for summary judgment, and the district court held a hearing. The court granted summary judgment for Mankato Plumbing, because Mankato Plumbing was no longer doing business, and there was no claim that the entity failed to make contributions before it ceased operations in January 2010. The court, however, denied S&S's motion for summary judgment and effectively granted summary judgment for the Association on the issue of liability. The court concluded that S&S, as the successor signatory to the CBA, and WQS, as Mr. Rooter's operator, were alter egos of one another. In other words, the court determined that the companies were independent of each other in form only, and that they were used as a subterfuge to justify wrongdoing. On that basis, the court held S&S liable for the past-due contributions on behalf of Mr. Rooter.

869 F.3d 676

In a subsequent order, the district court clarified that "[h]aving resolved the liability issue in favor of [the Association], ... the only outstanding issue before the Court is the amount of damages owed to [the Association]." The court never made an award of damages, however, because S&S and Shawn Wenner filed for bankruptcy, and the case was administratively terminated.

In 2014, the Association brought this action under ERISA against WQS and Sara Wenner. The complaint sought the same unpaid fringe-benefit contributions that the Association pursued in the S&S Litigation, plus injunctive relief. The district court dismissed Sara Wenner pursuant to a stipulation after she filed for bankruptcy. On cross-motions for summary judgment, the district court then determined that issue preclusion prevented WQS from disputing its liability as an alter ego of S&S.

The court awarded the Association unpaid fringe-benefit contributions, interest, and attorney's fees and costs, but denied its request for liquidated damages. The court also enjoined WQS from refusing to submit monthly fringe-benefit contributions to the Association for Mr. Rooter employees or other covered employees for so long as WQS has a contribution obligation. The court ordered WQS to post a bond of $18,000 "as a security for three months' future contributions." The court later issued an order amending its judgment, clarifying its previous judgment and stating more broadly that WQS was enjoined from failing to comply with its obligations under the CBA. The injunction forbade WQS from refusing to submit monthly reports of hours worked by Mr. Rooter employees or other covered employees, and refusing to submit monthly fringe-benefit contributions for so long as WQS has a contribution obligation.

II.

WQS argues on appeal that the district court erred by applying offensive collateral estoppel on the issue of alter ego liability. The general rule on issue preclusion, also known as collateral estoppel, is that "[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim." B & B Hardware, Inc. v. Hargis Indus., Inc. , –––U.S. ––––, 135 S.Ct. 1293, 1303, 191 L.Ed.2d 222 (2015) (alteration in original) (quoting Restatement (Second) of Judgments § 27 (1982) ). A court should not, however, apply offensive collateral estoppel when it would be unfair to a defendant. See Parklane Hosiery Co. v. Shore , 439 U.S. 322, 331, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979).

Two elements of issue preclusion are undisputed: WQS does not dispute that the issue of alter ego liability is the same in both cases or that the alter ego determination was essential to the prior judgment. A third element is identity of the parties. Although WQS was not a party in the S&S Litigation, issue preclusion can apply "when it can be said that there is ‘privity’ between a party to the second case and a party who is bound by an earlier judgment." Richards v. Jefferson County , 517 U.S. 793, 798, 116 S.Ct. 1761, 135 L.Ed.2d 76 (1996). A closely held corporation is in privity with its shareholder, see Restatement (Second) of Judgments § 59(3)(b) & cmt. e (1982), and WQS conceded at oral argument that it is in privity with Shawn Wenner, who was a party in the S&S Litigation. Shawn Wenner, in turn,...