Sullivan, James T. v. William A. Randolph ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 06-1581, 06-2994
JAMES T. SULLIVAN, et al.,
Plaintiffs-Appellants,
v.
WILLIAM A. RANDOLPH, INC.,
Defendant-Appellee.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 04 C 2736—Samuel Der-Yeghiayan, Judge.
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ARGUED APRIL 6, 2007—DECIDED OCTOBER 5, 2007
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Before POSNER, FLAUM, and EVANS, Circuit Judges.
POSNER, Circuit Judge. This is a suit under ERISA and
the Taft-Hartley Act by the trustees of a multiemployer
pension plan for an accounting and damages. Section 515
of ERISA, 29 U.S.C. § 1145, requires an employer to make
contributions to a multiemployer plan that are called for
“under the terms of the plan or under the terms of a
collectively bargained agreement,” and section 502(g)(2)
makes the employer’s obligation enforceable by a suit
in federal court. Since the breach of a contract between a
union and an employer is actionable under section 301 of
the Taft-Hartley Act, 29 U.S.C. § 185(a), the trustees were
2 Nos. 06-1581, 06-2994
able to base their claim on this section as well as on ERISA.
(The remedies under the two statutes differ somewhat. See,
e.g., Laborers Health & Welfare Trust Fund for Northern
California v. Advanced Lightweight Concrete Co., 484 U.S. 539,
549 n. 16 (1988); Zielinski v. Pabst Brewing Co., 463 F.3d 615,
617 (7th Cir. 2006). That is the usual incentive to claim
under both. An illustration of the remedial differences is
the attorneys’ fee provision of ERISA, discussed later in
this opinion.) The district judge granted summary judg-
ment for the defendant and also awarded it some $56,000
in attorney’s fees.
The defendant, a construction company, was surprised to
be sued in respect of contributions that it was alleged to
owe under a collective bargaining agreement made in 2000
between local 130 of the technical engineers’ union and the
Lake County Contractors Association, to which the defen-
dant belongs. The defendant had not employed any
workers represented by the union since 1997, and while it
had subcontracted some work to such workers, the col-
lective bargaining agreement states that subcontractors
are not employees for whom contributions to the multi-
employer pension fund must be made.
Although the contractors association bargains collec-
tively on behalf of its members with the various construc-
tion unions, the agreements it negotiates must be accepted
by a member to be enforceable against him. Moriarty v.
Pepper, 256 F.3d 554, 556-59 (7th Cir. 2001); Trustees of UIU
Health & Welfare Fund v. New York Flame Proofing Co., 828
F.2d 79, 82-83 (2d Cir. 1987); Bennion v. NLRB, 764 F.2d 739,
742 (10th Cir. 1985). Since the defendant had rarely em-
ployed workers represented by the union in 1997, none
since, and before that none since a four-month period in
1977, it had little incentive to sign the 2000 agreement, and
it did not sign it. The plaintiffs argue that it manifested
Nos. 06-1581, 06-2994 3
acceptance by a “course of conduct.” If you behave in a
way that you would not have done had you not thought
you were bound on a contract—such as by making the
payments called for by it—the fact that you omitted to
sign it will not allow you to deny that you are bound.
Bricklayers Local 21 of Illinois Apprenticeship & Training
Program v. Banner Restoration, Inc., 385 F.3d 761, 766-69 (7th
Cir. 2004); Moriarty v. Larry G. Lewis Funeral Directors Ltd.,
150 F.3d 773, 777 (7th Cir. 1998); Southern California Painters
& Allied Trade Dist. Council No. 36 v. Best Interiors, Inc., 359
F.3d 1127, 1133 (9th Cir. 2004); Brown v. C. Volante Corp.,
194 F.3d 351, 355 (2d Cir. 1999); NLRB v. Haberman Con-
struction Co., 641 F.2d 351, 356 (5th Cir. 1981). Actions can
speak as loud as words. That is a general principle of
contract law rather than anything special to collective
bargaining agreements. “An agreement implied in fact is
‘founded upon a meeting of minds, which, although not
embodied in an express contract, is inferred, as a fact,
from conduct of the parties showing, in the light of the
surrounding circumstances, their tacit understanding.’ ”
Hercules Inc. v. United States, 516 U.S. 417, 424 (1986),
quoting Baltimore & Ohio R.R. v. United States, 261 U.S.
592, 597 (1923).
But the only “course of conduct” evidence in this case
is that after 1997, though no longer employing anyone
represented by the union, the defendant continued filing
the monthly contribution reports required by the collec-
tive bargaining agreements negotiated by the contractors
association. Of course in each report it put “0” in the space
for the amount of contributions due. There is no evidence
to contradict its contention that the continued filing of
the reports was a clerical oversight rather than a mani-
festation of consent to be bound by successor agreements.
There is no contention that the filing of the monthly reports
4 Nos. 06-1581, 06-2994
induced reliance on the part of the pension fund that might
estop the defendant to deny that it was a party to the 2000
agreement or that the filing of the reports conferred any
benefit on the defendant. It would be different if instead
of just filing a report the defendant had made contribu-
tions. Paying money over a period of years is less likely
to be the result of a mistake than filing a report that denies
any obligation to pay.
The only complication is that in its initial answer to the
complaint the defendant admitted that it was bound by
the 2000 agreement. It was later permitted by the district
court to file an amended answer in which it withdrew
the concession. An admission made in a pleading is a
“judicial admission,” and ordinarily is binding. Murrey v.
United States, 73 F.3d 1448, 1455 (7th Cir. 1996); Higgins v.
Mississippi, 217 F.3d 951, 954-55 (7th Cir. 2000); Bright v.
QSP, Inc., 20 F.3d 1300, 1305 (4th Cir. 1994). But the fact
that it is binding unless withdrawn does not prevent its
being withdrawn, if the judge allows the filing of an
amended pleading, Fed. R. Civ. P. 15(a), unless with-
drawal would work a hardship on the opposing party.
E.g., Quintanilla v. Texas Television Inc., 139 F.3d 494 (5th
Cir. 1998). There is nothing to suggest that the initial
admission was anything other than an error, like the fil-
ing of the monthly contribution forms. If the error put
the plaintiffs to additional expense, they would be en-
titled to compensation, Mid Valley Bank v. North Valley
Bank, 764 F. Supp. 1377, 1390-91 (E.D. Cal. 1991), or perhaps
other relief, but they did not seek any.
The plaintiffs argue that the withdrawal of the admission
caught them unawares and as a result they were unable to
complete discovery before the judge ruled on summary
judgment. They had asked the judge to extend the dead-
Nos. 06-1581, 06-2994 5
line for completion of discovery, but he had refused. If
that was an error, it was harmless. For by the time the
plaintiffs filed their summary-judgment brief, they had
discovered that the defendant had since 2000 employed as
subcontractors workers represented by the union and
that if contributions were due for them the defendant
owed the pension fund some $31,000. The defendant
denied liability not only because it was not a party to the
agreement but also because of the agreement’s exclusion
of subcontractors. If the judge was correct that even if the
defendant was a party to the 2000 agreement it was never-
theless sheltered from having to make contributions by
the subcontractor exclusion, it is irrelevant whether the
defendant was a party to the agreement. And the judge was
correct, because subcontractors are excluded. The plaintiffs
contend, it is true, that another agreement between the
union and the contractors association (they call this the
Standard Agreement) narrowed the subcontractor exclu-
sion. But since the defendant did not sign or even know of
the Standard Agreement, it was not bound by that agree-
ment either.
The plaintiffs complain that the defendant failed to
produce the documents they needed in order to be able to
determine the subcontractors’ status. If the defendant
refused a proper discovery request, the plaintiffs could
have moved the district judge for an order compelling
production, and they didn’t do that.
They also argue that the investigation which they con-
ducted after filing their complaint to determine what the
defendant owed placed on the defendant the burden of
proving that the subcontractors were not covered by the
multiemployer plan. We do not understand the argument.
The “postcomplaint audit” as they call it was premised on
6 Nos. 06-1581, 06-2994
their belief that the Standard Agreement had brought
subcontractors under the plan, and we have seen that the
defendant was not bound by that agreement.
So the appeal has no merit. But the postcomplaint audit
remains pertinent to whether the district judge com-
mitted a reversible error in awarding attorneys’ fees to
the defendant. The plaintiffs argue that they had to sue
just to be able to discover whether the defendant owed
contributions, because the defendant had refused to
cooperate in their request for a precomplaint audit; so if
the suit lacked a substantial justification, it is the defen-
dant’s fault.
One cannot sue, without courting sanctions, unless one
has grounds to believe that one has been injured by a
wrong committed by the person one wants to sue. So what
is a prospective plaintiff to do when the prospective
defendant takes steps to thwart a precomplaint investiga-
tion essential to determining whether there are grounds?
We need not worry the question in this case, because both
the collective bargaining agreement that the plaintiffs think
the defendant a party to, and ERISA itself, authorize
the pension plan to examine the books of an employer
claimed to be a signatory. Central States, Southeast &
Southwest Areas Pension Fund v. Central Transport, Inc., 472
U.S. 559, 572 (1985). If an employer refuses, the plan can
seek an order from a federal district court under the
same provisions of ERISA and Taft-Hartley that authorize
a suit for contributions. Id. at 563-64 and n. 4; Northwestern
Ohio Administrators, Inc. v. Walcher & Fox, Inc., 270 F.3d
1018, 1023 (6th Cir. 2001). The plaintiffs did not follow
that route. But more fundamentally, they presented no
evidence that the defendant refused to permit a
precomplaint audit. They have confused assertion with
evidence.
Nos. 06-1581, 06-2994 7
ERISA authorizes the award of a reasonable attorney’s
fee to the prevailing party. 29 U.S.C. § 1132(g)(2). In Bittner
v. Sadoff & Rudoy Industries, 728 F.2d 820, 828-30 (7th Cir.
1984), we held that either party—plaintiff or defen-
dant—who prevails is entitled to such an award unless
the loser’s position, though unsuccessful, had substantial
justification. This is a departure from the common ap-
proach to the interpretation of fee-shifting statutes, which
creates a presumption in favor of awarding fees to a
prevailing plaintiff but allows fees to be awarded to a
prevailing defendant only if the suit was frivolous. Inde-
pendent Federation of Flight Attendants v. Zipes, 491 U.S. 754,
760 (1989); Hensley v. Eckerhart, 461 U.S. 424, 429 and n. 2
(1983). That asymmetry, emphasized in civil rights cases, is
defended by reference to the disparity in resources in
the typical litigation governed by a fee-shifting statute
and to a belief that the usual purpose of fee shifting is to
make it easier for plaintiffs to obtain relief. Id. at 429;
Newman v. Piggie Park Enterprises, Inc., 390 U.S. 400, 401-02
(1968) (per curiam). Neither consideration is present
when a pension or welfare fund is suing an employer
without substantial justification, in this case because of the
fund’s failure to conduct an adequate precomplaint
investigation. The presumption of the civil rights cases has
therefore been rejected for ERISA by most courts (see
the helpful summary in Martin v. Arkansas Blue Cross and
Blue Shield, 299 F.3d 966, 969-72 (8th Cir. 2002); see also
Carolina Care Plan Inc. v. McKenzie, 467 F.3d 383, 390 (4th
Cir. 2006); Moore v. LaFayette Life Ins. Co., 458 F.3d 416, 440-
41 (6th Cir. 2006); Janeiro v. Urological Surgery Professional
Ass’n, 457 F.3d 130, 143-44 (1st Cir. 2006); Brown v. Aventis
Pharmaceuticals, Inc., 341 F.3d 822, 828 (8th Cir. 2003))—
including, of course, ours. E.g., Lowe v. McGraw-Hill Cos.,
8 Nos. 06-1581, 06-2994
361 F.3d 335, 339 (7th Cir. 2004); Perlman v. Swiss Bank Corp.
Comprehensive Disability Protection Plan, 195 F.3d 975, 980
(7th Cir. 1999); Bittner v. Sadoff & Rudoy Industries, supra,728 F.2d at 829.
Bittner’s simple test of substantial justification was
offered as an alternative to, rather than a substitute for,
the “five factor” test theretofore applied to fee-shifting
issues under ERISA and described in Bittner as follows:
Janowski v. International Brotherhood of Teamsters, 673
F.2d 931, 940 (7th Cir. 1982), vacated on other grounds,
is illustrative of a number of cases that list five factors
for a district judge to consider in evaluating a fee
request under section 1132(g)(1): “(1) the degree of
the offending parties’ culpability or bad faith; (2) the
degree of the ability of the offending parties to
satisfy personally an award of attorneys’ fees;
(3) whether or not an award of attorneys’ fees against
the offending parties would deter other persons act-
ing under similar circumstances; (4) the amount of
benefit conferred on members of the pension plan as a
whole; and (5) the relative merits of the parties’ posi-
tions.”
728 F.2d at 828-29. The five-factor test continues to be
intoned in this circuit, often in conjunction with the Bittner
test. E.g., Lowe v. McGraw-Hill Cos., supra, 361 F.3d at 339.
Two tests to govern the same issue might well seem—even
though they are not inconsistent—one too many, Eddy v.
Colonial Life Ins. Co. of America, 59 F.3d 201, 210 (D.C. Cir.
1995) (dissenting opinion), especially when one is a
multifactor test; such tests tend to be “redundant, incom-
plete, and unclear.” Palmer v. City of Chicago, 806 F.2d 1316,
1318 (7th Cir. 1986); see also Exacto Spring Corp. v. Commis-
Nos. 06-1581, 06-2994 9
sioner, 196 F.3d 833, 834 (7th Cir. 1999); Stevens v. Tillman,
855 F.2d 394, 399-400 (7th Cir. 1988). Consider: Factor 1
(bad faith) identifies a basis for awarding (or refusing to
award) attorneys’ fees that owes nothing to the fee-shifting
provision of ERISA, because, as we noted in Bittner v. Sadoff
& Rudoy Industries, supra, 728 F2.d at 828, courts have
inherent authority to award attorney’s fees as a sanction for
conducting litigation in bad faith. Chambers v. NASCO, Inc.,
501 U.S. 32, 46-47, 50 (1991); Stive v. United States, 366 F.3d
520, 521 (7th Cir. 2004); Brown v. Aventis Pharmaceuticals,
Inc., 341 F.3d 822, 828 (8th Cir. 2003). Factor 2 (ability
to pay) is a general point about sanctions rather than any-
thing specific to awarding attorneys’ fees; there is not much
use trying to squeeze water out of a stone. And since there
is federal insurance (though capped at a fairly modest
level) of vested pension benefits, Nachman Corp. v. Pension
Benefit Guaranty Corp., 446 U.S. 359, 375 and n. 23 (1980);
Lowe v. McGraw-Hill Cos., supra, 361 F.3d at 339, and since
an award of attorneys’ fees will rarely be big enough to
affect a pension plan’s solvency, rarely will there be cause
for concern that an award of attorneys’ fees may reduce
the benefits of the innocent participants and beneficiaries
of the plan.
Factor 3 (deterrence) is empty because while a practice
of awarding fees to a winning party will tend to deter
the filing of groundless suits and the interposing of
groundless defenses to meritorious suits, whether the
award of fees in a particular case will have a deterrent
effect cannot be determined.
Factors 4 and 5 go to the merits of the claim or defense,
and thus to the issue of substantial justification flagged
by Bittner. If the ERISA plaintiff prevails, but obtains
10 Nos. 06-1581, 06-2994
meager relief, this either indicates that the defendant had
a substantial justification for opposing the suit (the defen-
dant was successful in getting the amount sought by the
plaintiff cut down), or disentitles the plaintiff to a generous
award because attorneys’ fee awards should be propor-
tional to the degree of success that the suit achieves.
Finally, the “relative merits of the parties’ positions” is an
oblique way of asking whether the losing party was
substantially justified in contesting his opponent’s claim
or defense.
At most the five-factor test is a checklist of factors for the
district judge to consider to make sure he hasn’t over-
looked anything that might be relevant to the appropriate-
ness or size of the award. As we put it in Lowe v. McGraw-
Hill Cos., supra, 361 F.3d at 339, “the factors in the [five-
factor] test are used to structure or implement, rather
than to contradict, the ‘substantially justified’ standard,
described in Little v. Cox’s Supermarkets, 71 F.3d 637, 644
(7th Cir. 1995), as the ‘bottom-line’ question to be answered
even when the more elaborate test is used.” See also
Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574, 592-93 (7th
Cir. 2000). It adds little, though, to the simpler test, and
perhaps has outlived its usefulness. American law is
needlessly complex, and occasions for simplification
should be embraced.
The present suit was not substantially justified, and so
the judge was right to award a reasonable attorney’s fee
to the defendant. The plaintiffs do not contest the amount
of the fee. The defendant asks us to award fees for its
defense of the appeal. Although the issues discussed in this
opinion are sufficiently uncertain to have justified the
plaintiffs in seeking appellate review, affirmance entitles
an appellee who has properly been awarded an attorney’s
Nos. 06-1581, 06-2994 11
fee in the district court to an attorney’s fee for success-
fully defending the district court’s judgment in the court
of appeals. Helfrich v. Carle Clinic Ass’n, P.C., 328 F.3d
915, 919 (7th Cir. 2003). Otherwise the purpose of the
initial award—to shift the cost of litigation to the losing
party—would be imperfectly achieved. Rickels v. City of
South Bend, 33 F.3d 785, 787 (7th Cir. 1994).
So the defendant is awarded his reasonable attorney’s
fees for defending the appeal; and the judgment for the
defendant, and the award of attorneys’ fees by the dis-
trict court, are affirmed.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-5-07