Operating Engineers Health And Welfare Trust Fund for Northern California v. JS…

Background

The plaintiffs were multiemployer employee-benefit plans and their trustees. They sued JS Taylor Construction, Inc. and Joshua Thiel under the Employee Retirement Income Security Act of 1974 (ERISA), section 515, and section 301(a) of the Labor Management Relations Act. The plaintiffs alleged that the defendants breached collective-bargaining and trust agreements by failing to make required benefit contributions and sought unpaid contributions, interest, liquidated damages, attorneys’ fees, costs, and audit fees.

In July 2014, Mr. Thiel signed an Independent Northern California Construction Agreement with the union on behalf of JW Taylor Construction, a sole proprietorship. The agreement incorporated a master bargaining agreement and trust agreements requiring contributions to several benefit funds. It also required liquidated damages and interest on late-paid contributions and allowed recovery of attorneys’ fees and costs.

JW Taylor stopped doing business in December 2014. JS Taylor began doing business in January 2015. The entities were not purchased by or merged with each other, and JS Taylor did not take over JW Taylor’s projects or acquire its equipment or tools. But the record showed that Mr. Thiel had notified the union that he planned to incorporate, testified that JS Taylor took over when JW Taylor ceased to exist, stated that employees transferred from JW Taylor to JS Taylor, and became JS Taylor’s principal shareholder. The two entities also used the same address. After incorporation, JS Taylor made contributions to the trust funds.

Personal Liability

The court denied defendants’ motion for summary judgment. Summary judgment is a decision without a trial when the evidence shows no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law.

The court explained that, ordinarily, when a sole proprietorship incorporates and stops being the employer, the corporation is responsible for contributions arising after it becomes the employer. The court found, however, that the agreement’s paragraph 10 required a buyer or transferee taking over operations to recognize the union and assume the agreement. The undisputed evidence showed a transfer of JW Taylor’s core operations to JS Taylor: the new entity continued the same type of business under substantially similar ownership and leadership, had overlapping employees, operated at the same address, and made contributions under the agreement.

The court also found that JS Taylor’s conduct independently established a contractual obligation because conduct by both parties can show that they recognized an agreement. Once the agreement applied to JS Taylor, paragraph 12 made the corporation’s principal shareholder personally guarantee payment of wages, fringe-benefit contributions, liquidated damages, interest, and collection costs. The court found that Mr. Thiel was JS Taylor’s principal shareholder and that his lack of a new formal signature on behalf of JS Taylor did not eliminate his liability because he had signed the original agreement and knew about its personal-liability provision.

Plaintiffs’ Motion for Summary Judgment

The court granted in part and denied in part the plaintiffs’ cross-motion for summary judgment.

For claims based on the plaintiffs’ internal records, the court granted the motion regarding liquidated damages for contributions that were late but paid before the lawsuit was filed, assessed at 10%, in the amount of $16,785.06. It also granted the motion regarding liquidated damages for contributions that were unpaid when the lawsuit was filed, assessed at 20%, in the amount of $39,298.31. The court further granted the motion regarding liquidated damages for contributions that became due and remained unpaid after the lawsuit was filed, in the amount of $65,075.74.

The court awarded $36,548.84 in unpaid contributions for September, October, and November 2018. It also awarded the interest requested based on the plaintiffs’ internal records, but stated that it would issue a further order addressing the amount of interest. The court rejected defendants’ evidentiary objections to a declaration supporting the records because the information could likely be presented in admissible form at trial.

First Audit

The plaintiffs sought additional amounts based on two payroll inspections. For the first audit, the audit identified $24,067.23 in unpaid obligations, but the records also showed that JS Taylor was owed a $26,015.37 credit. The defendants argued that the credit should be applied before liquidated damages and interest; the plaintiffs argued that damages and interest should be calculated first.

The court applied the credit to the contribution balance before adding penalties. Because the credit more than offset the contribution underpayments identified by the first audit, the court concluded that no liquidated damages or interest were appropriate for that audit. It denied the plaintiffs’ motion as to the first audit.

Second Audit

The second audit concerned payments reported on Internal Revenue Service Form 1099 for work by non-signatory subcontractors. The auditor concluded that $437,491.84 in contributions had not been reported for hours worked by those subcontractors. JS Taylor argued that the payments were mainly for equipment rentals and materials rather than labor.

The court found that defendants had not produced the 1099 forms, supporting documents, or testimony from the recipients showing that the payments were not for covered labor. The court concluded that the plaintiffs’ audit evidence raised questions about the accuracy of JS Taylor’s records and that JS Taylor had not supplied evidence showing the precise amount of work performed, as required under the governing burden-shifting rule for benefit-fund audits.

Because of the large amount allegedly owed and defendants’ contention that the payments mainly concerned equipment and materials, the court allowed defendants to submit specific evidence showing the precise number of hours worked under the disputed 1099 forms. The court ordered defendants to show cause why summary judgment should not issue as to the second audit. It held the plaintiffs’ requests for attorneys’ fees, costs, liquidated damages, and interest connected to the second audit under submission until that issue was resolved.

Disposition

Judge Edward M. Chen denied Defendant’s Motion for Summary Judgment. He granted in part and denied in part Plaintiffs’ Motion for Summary Judgment: the court granted the specified categories of liquidated damages, the $36,548.84 in unpaid contributions, and interest based on internal records; denied the motion as to the first audit; ordered defendants to show cause concerning the second audit; and held related fees, costs, liquidated damages, and interest under submission. Where relevant, liability was imposed on both JS Taylor and Mr. Thiel individually.