District Council 16 Northern California Health and Welfare Trust Fund v. Hulsey…

Background

The union benefit trust funds sued Hulsey Contracting Inc. to collect allegedly unpaid contributions under the Employee Retirement Income Security Act and the Labor Management Relations Act. Hulsey Contracting Inc. and Roberto Hulsey then filed a third-party complaint against District Council No. 16 of the International Union of Painters and Allied Trades and Jeffrey B. Roberts. They asserted a California fraud claim based on alleged misrepresentations about the amount Hulsey Contracting would owe in trust-fund contributions.

According to the third-party complaint, Hulsey Contracting contacted the union in 2017 about participating in Pacific Gas and Electric projects associated with Airgas. Hulsey Contracting alleged that Roberts agreed its association with the union would apply only to employees working on those projects, while other employees would remain nonunion. Hulsey Contracting signed a trust-fund agreement and two addendums, made approximately $100,000 in contributions through the end of 2018, and later received an invoice for more than $2 million based on the trust fund’s position that contributions were owed on its entire payroll.

Motion and arguments

The union and Roberts moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which addresses subject-matter jurisdiction, and Rule 12(b)(6), which tests whether a complaint states a legally valid claim. They argued, among other things, that the fraud claim was preempted under the National Labor Relations Act and the doctrine established in Garmon. Under that doctrine, claims involving conduct arguably subject to specified provisions of federal labor law must generally be handled exclusively by the National Labor Relations Board.

Hulsey Contracting argued that it had pleaded a valid California fraud claim, that supplemental federal jurisdiction was available, and that its allegations did not challenge the existence of a contract or assert a federal contract claim. It also argued that no recognized bargaining relationship existed and that Roberts could be held liable.

Court’s reasoning

The court held that the claim was preempted under Garmon. Hulsey Contracting alleged that the defendants misrepresented their contractual intentions during discussions about trust-fund contributions. The defendants offered an interpretation under which the arrangement could be viewed as a construction-industry “pre-hire agreement” under section 8(f) of the National Labor Relations Act. Such an agreement can establish employment terms with a union before the union has majority support among the employees.

The court concluded that this interpretation was not plainly contrary to the statute and had not been authoritatively rejected by courts or the National Labor Relations Board. The court emphasized that Hulsey Contracting had sought out the union, agreed to associate with it for certain projects, knew that some employees would join the union, and agreed to make trust-fund payments. On that basis, the alleged misrepresentation could arguably constitute bad-faith bargaining covered by section 8(b)(3) of the Act.

The court distinguished a Ninth Circuit decision relied on by Hulsey Contracting because, in that earlier case, the employer allegedly did not know that the agreement required union wages and trust-fund contributions. The court stated that the question at this stage was not whether a pre-hire agreement actually existed or whether the National Labor Relations Board would ultimately exercise jurisdiction. The question was whether the claim arguably fell within the Board’s exclusive jurisdiction, and the court found that it did.

Disposition

The court dismissed Hulsey Contracting’s fraud claim for lack of subject-matter jurisdiction. It granted the motion to dismiss, dismissed the claim without leave to amend in that court, and stated that the dismissal was without prejudice to pursuing a claim based on the same facts before the National Labor Relations Board. The dismissal was also without prejudice to any affirmative defense Hulsey Contracting might have to the trust funds’ claims. The court did not reach the defendants’ arguments concerning section 301 preemption, Roberts’s status as a third-party defendant, or the requested relief.