Board of Trustees for the Laborers Health and Welfare Trust Fund for Northern…

Background

The plaintiffs are boards of trustees for four Northern California laborers’ employee-benefit trust funds. Turner Group Construction entered into a one-job agreement with the Northern California District Council of Laborers in 2007 and later authorized the Associated General Contractors of California to execute the applicable collective bargaining agreement on its behalf. The collective bargaining agreement incorporated the trust agreements.

The agreement required Turner Group to pay contributions for covered work, with an exception for jobs Turner Group had bid before entering the agreement. It also required Turner Group to allow the trust funds’ auditors to examine relevant records. The trust funds repeatedly demanded an audit covering January 1, 2012 through the present. Turner Group did not allow the audit to proceed.

Turner Group described problems with an earlier audit covering June 2007 through December 2009. According to Turner Group, the trust funds repeatedly changed the amount they claimed was owed, made errors in their calculations, delayed responding to Turner Group, and continued billing after stating that they would take no further action on the earlier audit. Turner Group also raised concerns about the proposed scope and procedures for the new audit.

The trust funds sued under section 301 of the Labor Management Relations Act and section 502 of the Employee Retirement Income Security Act, or ERISA. They sought an order compelling the audit, damages, any unpaid contributions identified by the audit, and attorney fees and costs.

Summary-judgment motion

Summary judgment is a decision without a trial when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to win under the law. The trust funds argued that the collective bargaining agreement and trust agreements clearly required Turner Group to submit to the requested audit. They also sought attorney fees and costs and asked to add any delinquent contributions discovered by the audit to a judgment in their favor.

Turner Group argued that the requested audit period was too long under the applicable statute of limitations. The court rejected that argument. It explained that the ERISA limitations period for this type of claim follows California’s four-year period for contract claims, and that a claim accrues when the plaintiff knows or has reason to know of the injury. Because the trust funds did not yet know whether Turner Group had failed to make contributions during the requested period, an audit could reveal previously unknown underpayments. The court also found that the nine-year proposed period was not unreasonable on its own and noted that the agreement did not set a time limit for audits.

The court declined to decide Turner Group’s suggestion that the trust funds had waited too long to assert their rights because Turner Group did not adequately explain that argument or provide relevant authority.

Unclean-hands defense

Turner Group argued that the trust funds should not receive an order requiring an audit because of the equitable doctrine of unclean hands. This doctrine can prevent a party from obtaining equitable relief—such as an injunction—when that party engaged in unfair conduct directly related to the requested relief.

The court held that disputed facts existed about whether the doctrine applied. Viewing the evidence in Turner Group’s favor, a fact finder could conclude that the trust funds made numerous errors during the first audit, failed to correct them after Turner Group identified them, prolonged the audit, continued billing after saying they would stop pursuing it, made shifting or inconsistent demands concerning the second audit, and failed to address Turner Group’s concerns in good faith. The court found that this conduct could be directly related to the request for a second audit.

Disposition

The court denied the plaintiffs’ motion for summary judgment. Because the unclean-hands defense presented a factual issue for resolution, the court did not reach the questions of damages or attorney fees. The court scheduled a case-management conference for March 3, 2021.