Mealey's (June 15, 2016, 9:56 AM EDT) -- CHICAGO — A Seventh Circuit U.S. Court of Appeals panel on June 10 reversed the grant of summary judgment to four carpenter union fringe benefit funds that alleged violations of the Labor Management Relations Act (LMRA) and the Employee Retirement Income Security Act (Chicago Regional Council of Carpenters Pension Fund, et al. v. Schal Bovis Inc., Nos. 14-3413, 14-3336, 7th Cir.; 2016 U.S. App. LEXIS 10568).
(Opinion available. Document #54-160713-013Z.)
The panel remanded the case to the U.S. District Court for the Northern District of Illinois for further proceedings.
The Chicago Regional Council of Carpenters Pension Fund, the Chicago Regional Council of Carpenters Welfare Fund, the Chicago and Northeast Illinois Regional Council of Carpenters Apprentice and Training Program and the Labor/Management Union Carpentry Cooperation Promotion Fund sued Schal Bovis Inc., alleging that it filed to pay fringe benefits for work performed by nonunion labor, as required under a collective bargaining agreement.
Schal Bovis
Schal Bovis is a general contractor that builds large and small buildings in the Chicago metropolitan area and has been a party to collective bargaining agreements with the Chicago Regional Council of Carpenters since it first signed an agreement (the memorandum) in 1983. The memorandum and a commercial area agreement effective 2005 to 2008 bound Schal Bovis to several trust agreements that provided for the creation of the funds. The agreement also limited Schal Bovis’ ability to subcontract work “coming within the jurisdictional claims of the union,” that is, carpenter work.
According to the agreement, Schal Bovis could not subcontract carpenter’s work, which the parties refer to as “jurisdictional work,” to any subcontractor who had not signed the agreement (usually, a nonunion shop). If Schal Bovis did, then Section 3.5 obliged it to either require the nonunion subcontractor to sign the agreement itself, or keep track of the hours worked by the subcontractor and pay fringe benefit contributions to the funds for those hours.
In February 2009, the funds conducted an audit of Schal Bovis’ books covering the years 2006 and 2007. Based on the audit, the funds claimed and demanded $8 million in unpaid fringe benefit contributions, liquidated damages and interest for 36 claims of work that Schal Bovis allegedly subcontracted to nonunion shops. Over the next two years, through correspondence between the parties, the funds reduced their claims from 36 to eight for a total of $1.25 million in unpaid contributions, exclusive of interest and liquidated damages. In February 2011, the funds sued seeking payment for the eight claims. Early on, they withdrew four of the eight claims, leaving a total of $203,000 in allegedly unpaid contributions.
In a brief, two-page order, Judge Manish S. Shah granted summary judgment to the funds on the four remaining claims on the issue of liability only. The judge left the determination of damages for later, allowing Schal Bovis to present appropriate evidence on that issue. Only two of the four claims are at issue in this appeal, concerning work by Canac Kitchens and Edward Don & Co.
Cabinetry
The Canac claim involved the installation of cabinetry. Schal Bovis admitted that Canac did not have an agreement with the union but presented evidence that it had required Canac to use union labor and that Canac had used its sister company, Qualifit Kitchens, which had used union labor. Schal Bovis argued that under the single-employer doctrine, the judge should consider Schal Bovis to have contracted with a union shop because Canac and Qualifit were essentially the same company. Alternatively, Schal Bovis argued that by refusing to withdraw the Canac claim, the funds were administering their ERISA plans arbitrarily because the funds had withdrawn other claims under identical circumstances with no explanation for why they were treating the Canac claim differently.
Judge Shah acknowledged Schal Bovis’ single-employer argument but dismissed it by saying that Schal Bovis contracted with Canac, not Qualifit. The judge then held that Schal Bovis presented insufficient evidence to demonstrate that it had fulfilled its obligations under the agreement when hiring non-union labor, specifically, its obligations to keep track of the hours worked by the subcontractor and pay fringe benefit contributions to the funds for the hours worked. Judge Shah did not address Schal Bovis’ alternative argument that the funds were arbitrarily administering their ERISA plans.
The work for the Edward Don claim involved the installation of fire protection systems and stainless steel kitchen equipment — cooking equipment, hoods and ventilation systems, counters and tops and freezers. Edward Don subcontracted the work to Reid’s Fire and Safety Equipment. The stainless steel kitchen equipment was installed by Reid’s sister company, RB Hoods, a union signatory with the Sheet Metal Workers. RB Hoods used union labor from the Sheet Metal Workers and paid fringe benefit contributions to the Sheet Metal Workers.
Not Liable
Schal Bovis argued that it was not liable for fringe benefit contributions because the work subcontracted to Edward Don was not jurisdictional work, defined in the union’s collective bargaining agreement as broad enough to encompass the installation of stainless steel kitchen equipment. However, Schal Bovis argued that the union was prevented from claiming the installation of stainless steel kitchen equipment as jurisdictional work because the work was an existing practice of the Sheet Metal Workers. Schal Bovis argued in the alternative that by insisting on contributions for the Edward Don work, the funds were administering their ERISA plans arbitrarily.
Judge Shah found that the work in the Edward Don claim fit the union’s broad definition of jurisdictional work. The judge acknowledged that Schal Bovis had raised the possibility that the funds had exempted other similar claims so as not to interfere with other unions. Still, the judge found that Schal Bovis’ evidence of the circumstances of those exemptions was insufficient to demonstrate that the funds were required to exempt the Edward Don claim.
After the issue of liability was decided at summary judgment, the parties agreed to determine damages by a bench trial on written submissions. On Oct. 9, 2014, Judge Shah entered judgment for damages of $312,621.13. Both parties appealed.
Canac Claim
Schal Bovis argued that the judge erred by granting summary judgment to the funds on the Canac claim because Canac and Qualifit should have been considered the same employer under the single-employer doctrine, which provides that “when two entities are sufficiently integrated, they will be treated as a single entity for certain purposes.” If the two companies were a single entity, then Schal Bovis would not have violated the agreement because Canac used Qualifit for the work and Qualifit was a signatory to the agreement.
“The district court ruled that Schal Bovis could not rely on the single-employer doctrine solely because Schal Bovis’ subcontract was with Canac, not Qualifit. This was an error of law,” the appeals court ruled in an opinion written by Circuit Judge Daniel A. Manion. “The single-employer doctrine can be used defensively to determine that a company has subcontracted with a union signatory despite having signed an agreement with a non-signatory, just as it can be used offensively to determine that a non-signatory is liable for the obligations of a union signatory, despite the lack of a union agreement.”
Because Canac and Qualifit were a single employer, and because Qualifit was covered by a collective bargaining agreement with the union, it did not violate the agreement by assigning the work to Canac, the panel said. Therefore, Schal Bovis was not required to keep track of the hours worked by the installers and pay fringe benefit contributions to the funds for those hours.
Don Edward Claim
On the Don Edward claim, Schal Bovis presented undisputed evidence that the installation of stainless steel kitchen equipment was the existing practice of the Sheet Metal Workers, the panel said. It does not matter whether the union has been assigned the installation of stainless steel kitchen equipment in the past or is assigned such work presently. It does not even matter whether the work is exclusively the work of the Sheet Metal Workers, which the union disputes.
“What matters is whether it is the existing practice of the Sheet Metal Workers to install stainless steel kitchen equipment,” Judge Manion wrote. “It is undisputed that the work is the existing practiced of the Sheet Metal Workers to install stainless steel kitchen equipment. . . . Consequently, the limiting provision of Section 1.1 of the Agreement prevents the Funds from demanding contributions for the work in the Edward Don claim.”
Circuit Judges Joel M. Flaum and Ilana Diamond Rovner concurred in the opinion.
The funds are represented by Kevin J. McJessy of McJessy, Ching & Thompson in Chicago. Schal Bovis is represented by Michael W. Duffee of Thompson Coburn in Chicago.
(Additional documents available. Appellant brief. Document #54-160713-014B. Appellee brief. Document #54-160713-015B.)...