Connors v. Fawn Mining Corp.

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
7-22-1994
Connors, et al. v. Fawn Mining Corp.
Precedential or Non-Precedential:
Docket 93-3304
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
N0. 93-3301
JOSEPH P. CONNORS, SR.; DONALD E. PIERCE; WILLIAM MILLER;
THOMAS H. SAGGAU; PAUL R. DEAN, as Trustee of the United Mine
Workers of America 1950 Pension Trust 1950 Benefit Plan and Trust
1974 Pension Trust, and 1974 Benefit Plan and Trust
v.
FAWN MINING CORPORATION,
a corporation,
v.
DISTRICT 5, UNITED MINE WORKERS OF AMERICA, AFL-CIO;
INTERNATIONAL UNION, UNITED MINE WORKERS OF AMERICA, AFL-CIO,
Third Party Defendants
FAWN MINING CORPORATION,
Appellant
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civil Action No. 92-00305)
Argued January 10, 1994
BEFORE: STAPLETON, COWEN and ALITO, Circuit Judges
(Opinion Filed July 25, 1994)
Michael J. Healey (Argued)
Healey, Davidson & Hornack
Fifth Floor
Law & Finance Building
Pittsburgh, PA 15219
1
Attorneys for Appellees
International Union, UMWA and
District 5, UMWA
Ralph A. Finizio
Houston Harbaugh
Two Chatham Center
12th Floor
Pittsburgh, PA 15219
and
David W. Allen, General Counsel
Margaret M. Topps, Deputy
General Counsel
Larry D. Newsome (Argued)
Assistant General Counsel
Kenneth M. Johnson
UMWA Health and Retirement Funds
Office of the General Counsel
4455 Connecticut Avenue, N.W.
Washington, DC 20008
Attorneys for Appellees
Joseph P. Connors, et al.
Allan L. Fluke (Argued)
Thomas E. Weiers, Jr.
Rich, Fluke, Tishman & Rich
220 Two Chatham Center
Pittsburgh, PA l5219
Attorneys for Appellant
Fawn Mining Corporation
OPINION OF THE COURT
STAPLETON, Circuit Judge:
The trustees of the United Mine Workers of America 1950
Pension Benefit Plan and Trust ("the 1950 Plan"), and the United
2
Mine Workers of America 1974 Pension Benefit Plan and Trust ("the
1974 Plan") (collectively, "the Plans"),0 claim that Fawn Mining
Corporation ("Fawn Mining") failed to fulfill its obligations
under the 1988 National Bituminous Coal Wage Agreement ("Wage
Agreement")0 when it failed to contribute to the 1950 Plan for
its employees for the period of May 24, 1990, through April 30,
1991.0 The trustees initiated this action pursuant to section
301 of the Labor Management Relations Act, 29 U.S.C. § 185, and
section 502(e) of the Employee Retirement Income Security Act of
1974 ("ERISA"), 29 U.S.C. § 1132(e), to collect these allegedly
delinquent contributions. Fawn Mining responded by filing a
third-party complaint against District 5, United Mine Workers of
America, AFL-CIO ("District 5"), and the United Mine Workers of
America International, AFL-CIO ("International") (collectively,
"the UMW"), alleging that it was not contractually obligated to
0
The Plans were established through collective bargaining between
the United Mine Workers of America and the employers in the
bituminous coal industry and have been maintained under
successive National Bituminous Coal Wage Agreements.
0
Article XX(d) of the Wage Agreement provides that:
During the life of this Agreement . . . each
signatory Employer engaged in the production
of coal shall contribute to the Trusts . . .
the amounts specified below based on cents
per ton on each ton . . . of bituminous coal
produced by such Employer for use or for
sale, and, in addition, each signatory
Employer . . . shall contribute to the Trusts
. . . the amounts specified below based on
cents per hours worked by each of the
Employer's Employees who perform classified
work under this Agreement.
0
The plaintiff calculates this sum as $344,785.90, to which it
also seeks to add "double interest" and costs and attorney's fees
pursuant to 29 U.S.C. § 1132(g)(2).
3
contribute to the 1950 Plan because the UMW had agreed to exempt
Fawn Mining from the portion of the Wage Agreement that required
contribution to this plan. Fawn Mining further claimed that if
it were responsible for contributions to the 1950 Plan, it would
be entitled to indemnification from the UMW.
Following discovery, all parties filed motions for
summary judgment. A magistrate considered these motions and
prepared a report and recommendation. The magistrate found that
even assuming that the UMW agreed to waive Fawn Mining's
contractual obligations regarding the 1950 Plan, this agreement
would not be binding on the trustees of the benefit plan. With
regard to the union's liability to Fawn Mining, the magistrate
concluded that there was no basis for requiring the UMW to
indemnify Fawn Mining. Thus, the magistrate judge recommended
that the court grant both the Plans' and the UMW's motions for
summary judgment, and deny Fawn Mining's motion for summary
judgment. The district court adopted the magistrate judge's
report and recommendation as the opinion of the court. Fawn
Mining now appeals.
I.
BethEnergy Mines, Inc. and Bethlehem Steel Corporation
(collectively, "BethEnergy") intended to terminate operations at
their Saxonburg, Pennsylvania coal mine facility and permanently
lay-off all employees who worked at this site. Those employees
were represented by District 5. When District 5 learned of the
planned closing, it began to actively solicit prospective buyers
4
of the mine so that operations could continue and the jobs of its
members could be saved. Donald Redman ("Redman"), president of
District 5, contacted principals of the CLI Corporation ("CLI")
in January, 1990, to ask if CLI was interested in purchasing the
mine. CLI expressed interest in arranging for Fawn Mining, one
of its subsidiaries, to purchase the mining assets from
BethEnergy.
After some investigation, however, Fawn Mining
representatives concluded that it would not be profitable for it
to purchase the mine if it would be bound by the terms of the
Wage Agreement, which BethEnergy and District 5 had previously
signed. This created a problem, however, because Article I of
the Wage Agreement stated that:
[E]ach employer promises that its operations
covered by this Agreement shall not be sold,
conveyed, or otherwise transferred or
assigned to any successor without first
securing the agreement of the successor to
assume the Employer's obligations under this
Agreement.
Fawn Mining thus knew that BethEnergy would not sell it
the mining operation unless it either agreed to assume the terms
of the Wage Agreement or gained concessions from the UMW
regarding the requirements of that agreement.0 As a result, Fawn
Mining representatives had numerous discussions with Redman
regarding the Wage Agreement. These discussions focused on the
possibility of exempting Fawn Mining from the provision of the
0
Because other subsidiaries of CLI had signed the 1988 Wage
Agreement, CLI was well aware of the language of Article I
prohibiting employers from selling their assets to successors
that did not agree to abide by the agreement.
5
Wage Agreement that required employer contributions to the 1950
Plan. Redman, who stated at his deposition that his biggest
concern was keeping the mine open and his members employed,
admitted to having lengthy discussions with Fawn Mining regarding
the possibility of granting Fawn Mining an exemption from
participating in the 1950 Plan.
Redman told representatives of Fawn Mining that other
companies that had purchased struggling mining operations were
granted exemptions by the UMW from some of the terms of the 1988
Wage Agreement, including the term requiring contribution to the
1950 Plan. Redman stated, either explicitly or implicitly, that
he favored granting Fawn Mining an exemption from the requirement
that it contribute to the 1950 Plan at some time down the road if
it would keep the mine open and UMW members employed. Fawn
Mining representatives knew, however, that Redman alone did not
have the authority to grant such an exemption.
The parties disagree about what exactly happened next.
According to Fawn Mining representatives, Redman told them that
he had spoken to the International President, and that the
president had given him the authority to grant Fawn Mining an
exemption from the 1950 Plan. Fawn Mining representatives
further testified that Redman promised them that if Fawn Mining
purchased BethEnergy's assets, it would be immediately exempt
from contributing to the 1950 Plan. In other words, the
collective bargaining agreement between Fawn Mining and the UMW
would be identical to the Wage Agreement, except that it would
not include a provision requiring contribution to the 1950 Plan.
6
Redman, however, remembered the negotiations somewhat
differently. According to him, he made it clear to Fawn Mining
representatives that he had no authority to grant an exemption
from the 1950 Plan. Furthermore, he claimed that he promised
only that he would seek the exemption from International
President Trumpka after Fawn Mining had operated the mine for one
year. Redman stated that he told Fawn Mining representatives he
wanted to wait a year before granting the exemption because if
operations continued for at least that much time, it would be
clear that Fawn Mining was serious about turning the mining
operations into a profitable business, and that it was possible
to do so. At that point, if it would help save the mine for the
long term, Redman would seek the exemption.
While these negotiations between Fawn Mining and the
UMW were taking place, BethEnergy issued a "WARN" notice
announcing that it would close the mine on May 25, 1990 unless a
purchaser who had a collective bargaining agreement with the UMW
was found by that time. Representatives of the UMW knew that
once the mine was shut down, it would be even more difficult to
find a purchaser and re-start operations. So, on May 24, 1990,
the day before the purchase deadline imposed by BethEnergy, Fawn
Mining Vice President Robert Irey ("Irey") and CLI Chief
Financial Officer William Stein ("Stein") met with Redman at the
District 5 office to reaffirm understandings reached in the prior
negotiations covering the mining operation.
At the end of this meeting, Redman and Irey both signed
a single sheet of paper confirming their agreement. This paper
7
was a copy of the last page of the 1988 Wage Agreement, which is
the page that employers and local unions sign to indicate that
they are consenting to becoming parties to that agreement. At
the time Redman and Irey signed this page, however, it was not
attached to any other document. According to Irey and Stein,
when Irey signed this page, they and Redman had an understanding
that they were signing a commitment to be obligated by the terms
and conditions of the 1988 Wage Agreement, but with the promised
exemption from the 1950 Plan. Furthermore, Irey and Stein
claimed that all parties agreed that the signature page would be
sent to International President Trumpka for his signature. Then,
the signature page would be attached to a document identical to
the Wage Agreement except for the 1950 Plan exemption, and a copy
would be sent to Fawn Mining. Redman, however, denied that any
such agreement existed when he and Irey signed the signature
page. He stated that at the time of signing, he believed that
Fawn Mining was signing onto the entire Wage Agreement, including
the provision requiring contribution to the 1950 Plan, and that
the only understanding between the parties was that Redman would
seek the exemption in one year if it would increase the longevity
of the mine.
One day later, on May 25, 1990, Fawn Mining signed an
Asset Purchase Agreement for the acquisition of the mine from
BethEnergy. Article 3.1.5 of this Asset Purchase Agreement
stated that Fawn Mining would assume all of BethEnergy's
obligations and liabilities under the Wage Agreement, and it
acknowledged that it had copies of this agreement. The Asset
8
Purchase Agreement did not mention any exemption from the 1950
Plan. BethEnergy sent a letter to the UMW on June 4, 1990
announcing the sale of the mine to Fawn Mining, and stating that
Fawn Mining had agreed to accept BethEnergy's obligations under
the Wage Agreement. This letter also did not mention a waiver of
any of the agreement's provisions.
Once Fawn Mining took over operations it began to make
remittances to the 1974 Plan, as required by the Wage Agreement.
It did not, however, make any contributions to the 1950 Plan. In
August of 1990, the Plans informed Fawn Mining that they still
had not received a signed copy of the agreement reached between
it and District 5, and requested that they be sent one. Fawn
Mining responded to the Plans' request by sending them a file it
kept of information regarding the contract and a copy of the
signature page signed by representatives from District 5 and Fawn
Mining.
In October 1990, Fawn Mining began to receive notices
from the 1950 Plan that contributions were owed.0 However, Fawn
Mining did not respond to any of the Plans' notices. In fact, it
did not inform the Plans that it believed it was exempt from
contributing to the 1950 Plan until April 1992, when it sent the
Plans a memorandum. According to Fawn Mining representatives
Irey and David Chedgy (CLI's President), the reason for this
delay was that during this time they were attempting to obtain
from Redman a copy of the agreement showing that the 1950 Plan
0
Fawn Mining received from the Plans two delinquency notices in
October 1990, one in December 1990, and one in January 1992.
9
provision had been excluded, but that Redman was brushing them
off, stating simply that, "its coming."
On December 28, 1990, CLI sent Redman a letter
regarding the written exemption, which stated, in part:
With regard to the economics of the
operation, you will recall that before the
deal was cut with Bethlehem, the question of
payments to the UMWA Health and Retirement
Funds was discussed with you and we were
assured, verbally, that we would not have to
make any contribution to the "50's" Fund. We
recently received a demand from the UMWA
Health and Retirement Fund Administrators for
payment of overdue contributions to this fund
of $163,734 for the period June 1, 1990 to
October 31, 1990. . . .
. . . We believe it is fair to say that,
if we had not been given your assurance that
we would not have to pay into this fund, we
would not have proceeded with the deal.
With the [bleak economic] situation we
are now facing, it is even more important to
obtain clarification of the position. We
feel that it is absolutely essential that a
written amendment to the original agreement,
similarly dated, specifically exempting Fawn
from payments into the "50's" Fund, be drawn
up and signed by authorized UMWA officials.
App. 781-82.
Due to excessive losses, Fawn Mining ceased operations
at the mine in February, 1991, just ten months after it purchased
the mining assets from BethEnergy. On February 14, 1992, the
Plans initiated this action seeking delinquent contributions and
other statutory remedies.
In his Report and Recommendation, the magistrate judge
pointed to case law holding that written contractual obligations
in collective bargaining agreements control over alleged oral
10
modifications. See Central States S.E. & S.W. Areas Pension Fund
v. Gerber Truck Serv., Inc., 870 F.2d 1148 (7th Cir. 1989) (en
banc); Trustees of Laborers Local Union #800 Health and Welfare
Trust Fund v. Pump House, Inc., 821 F.2d 566 (11th Cir. 1987);
Southwest Adm'rs, Inc. v. Rozay's Transfer, 791 F.2d 769 (9th
Cir. 1986), cert. denied, 479 U.S. 1065 (1987). Further, as
evidence of Fawn Mining's agreement to assume all of the
obligations in the Wage Agreement, the magistrate judge pointed
to its Asset Purchase Agreement with BethEnergy and to the fact
that Fawn Mining was aware of the Wage Agreement's requirement
that signatory employers such as BethEnergy could transfer the
mine only to parties who agreed to abide by the same collective
bargaining agreement.
The magistrate went on to say that even if there was a
local undisclosed side agreement between the UMW and Fawn Mining
to waive the 1950 Plan obligations, this type of agreement would
be irrelevant and not binding on the Plans, because they were not
a party to the side agreement. The magistrate judge, citing
Lewis v. Benedict Coal, 361 U.S. 459 (1960), stated that the only
potential impact of this side agreement would be on the liability
of the UMW to Fawn Mining. However, since he found no legal
basis for Fawn Mining's indemnity claim, the magistrate judge
recommended that the UMW's motion for summary judgment be
granted.
II.
11
We exercise plenary review over the district court's
decision to grant appellees' motions for summary judgment.0
Public Interest Research of N.J. v. Powell Duffryn Terminals,
Inc., 913 F.2d 64, 76 (3d Cir. 1990) ("In reviewing a grant of
summary judgment, we apply the same test as the district court
should have used initially.") (citing Erie Telecommunications,
Inc. v. City of Erie, 853 F.2d 1084, 1093 (3d Cir. 1988)), cert.
denied, 111 S. Ct. 1018 (1991).
Under the Federal Rules of Civil Procedure, a court may
grant a motion for summary judgment only if there is no genuine
issue of material fact and the moving party is subject to
judgment as a matter of law. Fed. R. Civ. P. 56(c). A dispute
is genuine "if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party." Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material when
it "might affect the outcome of the suit under the governing
law." Id. Any dispute over a fact which is irrelevant or
unnecessary will not preclude a grant of summary judgment. Id.The moving party has the initial burden of informing
the court of the basis for a motion of summary judgment and
pointing out those parts of the record which he or she believes
demonstrate the absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the
0
The district court had jurisdiction over this action pursuant to
§ 301 of the Labor Management Relations Act, 29 U.S.C.
§ 185(c), and also under § 502(e) of ERISA, 29 U.S.C. § 1132(e).
We have jurisdiction to review this final judgment of the
district court pursuant to 28 U.S.C. § 1291.
12
moving party can satisfy his or her initial burden, the nonmoving
party "'may not rest upon the mere allegations or denials of his
[or her] pleadings, but his [or her] response . . . must set
forth specific facts showing that there is a genuine issue for
trial.'" Gans v. Mundy, 762 F.2d 338, 341 (3d Cir.) (quoting
Fed. R. Civ. P. 56(e)), cert. denied, 474 U.S. 1010 (1985).
However, all reasonable inferences that can be drawn from the
record must be viewed in the light most favorable to the party
opposing the motion. Sorba v. Pennsylvania Drilling Co., Inc.,
821 F.2d 200, 202-03 (3d Cir. 1987), cert. denied, 484 U.S. 1019(1988).
III.
Fawn Mining's defense to the Plans' motion for summary
judgment was that it had been affirmatively led by the UMW to
believe that the agreement it was signing did not require it to
contribute to the 1950 Plan at any time. In other words, Fawn
Mining claimed that the UMW had fraudulently obtained the
agreement under which the contributions sought were allegedly
due. The district court rejected this defense, however, because
it felt that the Plans were not bound by any undisclosed "side
agreements" that may have existed between Fawn Mining and the
UMW. Apparently, the court believed that Fawn Mining's defense
to the Plans' summary judgment motion lacked merit regardless of
whether the UMW committed fraud. For the reasons that we set
forth below, however, we believe that the answers to the
13
questions of whether the UMW committed fraud, and, if so, what
type of fraud, are highly relevant here.
The Plans are third-party beneficiaries of the Wage
Agreement. Agathos v. Starlite Motel, 977 F.2d 1500, 1505 (3d
Cir. 1992) (citing Southwest Adm'rs, Inc. v. Rozay's Transfer,
791 F.2d 769, 773 (9th Cir. 1986), cert. denied, 479 U.S. 1065(1987)). "The rights of third-party beneficiaries typically are
subject to any defenses that the promisor could assert in a suit
by the promisee." Id. (citing John D. Calamari & Joseph M.
Perillo, The Law of Contracts § 17-10 (3d ed. 1987)). However,
third-party beneficiaries are subject to a more limited number of
defenses when the contract at issue is a collective bargaining
agreement. Agathos, 977 F.2d at 1505. For example, the Supreme
Court has held that "the parties to a collective bargaining
agreement must express their meaning in unequivocal words before
they can be said to have agreed that the union's breaches of its
promises should give rise to a defense against the duty assumed
by an employer to contribute to a welfare fund." Lewis v.
Benedict Coal Corp., 361 U.S. 459, 470-71 (1960), cited in
Agathos, 977 F.2d at 1505.
Moreover, section 515 of ERISA, 29 U.S.C. § 1145,
speaks to the recoverability of contributions from an employer in
the position of Fawn Mining. Section 515 states:
Every employer who is obligated to make
contributions to a multi-employer plan under
the terms of the plan or under the terms of a
collectively bargained agreement shall, to
the extent not inconsistent with law, make
such contributions in accordance with the
14
terms and conditions of such plan or
agreement.
The courts have interpreted section 515 as severely
limiting the defenses available to an employer who has signed an
agreement which commits it to make contributions to a benefit
fund. Agathos v. Starlite Motel, 977 F.2d 1500 (3d Cir. 1992).0
Our review of the case law in the Agathos case, for example,
revealed that "an employer may not assert defects in the
formation of the collective bargaining agreement, such as . . .
fraud in the inducement or oral promises to disregard the text of
the agreement." Id. at 1505 (citations omitted). Indeed, we
concluded that the cases recognized only three defenses. One of
those defenses, however, is possibly relevant here. Claims for
contributions delinquent under the terms of a collective
bargaining agreement can be defeated if it is shown that "the
collective bargaining agreement is void ab initio, as where there
is fraud in the execution, and not merely voidable, as in the
case of fraudulent inducement." Id.Accordingly, the crucial issue in this case is whether
the defense that Fawn Mining has asserted is one of fraud in the
inducement or fraud in the execution. If we decide that the
claim is one of fraud in the inducement, we must affirm the
decision of the district court to grant the Plans' motion for
summary judgment, as this is an invalid defense for an employer
0
See also, Rozay's Transfer, 791 F.2d at 773 ("In recognition of
the fact that millions of workers depend upon employee benefit
trust funds for their retirement security, Congress and the
courts have acted to simplify trust fund collection actions by
restricting the availability of contract defenses, which make
collection actions unnecessarily cumbersome and costly.").
15
to use in response to a benefit plan's claim for delinquent
contributions. However, if we find that Fawn Mining has asserted
a claim of fraud in the execution, and, furthermore, that there
exists a genuine issue of material fact as to whether the UMW
committed such fraud, we must reverse the summary judgment in
favor of the Plans.
As stated by the Court of Appeals for the Ninth
Circuit, the distinction between fraud in the inducement and
fraud in the execution is that, "[t]he former induces a party to
assent to something he otherwise would not have; the latter
induces a party to believe the nature of his act is something
entirely different than it actually is." Rozay's Transfer, 791
F.2d at 774 (citing 12 Walter H.E. Jaeger, Williston on Contracts
§ 1488, at 332 (3d ed. 1970)). The court went on to explain
that, "'[f]raud in the execution' arises when a party executes an
agreement 'with neither knowledge nor reasonable opportunity to
obtain knowledge of its character or its essential terms.' . . .
Fraud in the execution results in the agreement being void ab
initio, whereas fraud in the inducement makes the transaction
merely voidable." Id. (quoting U.C.C. § 3-305(2)(c)) (other
citations omitted).
On several prior occasions, courts have been required
to apply this distinction in order to determine whether an
employer's asserted defense to a benefit fund's claim for
delinquent contributions was valid. In Agathos v. Starlite
Motel, 977 F.2d 1500, 1505 (3d Cir. 1992), for example, the
employer argued before us that he was not responsible for
16
payments to a benefit fund as the fund had claimed, because even
though the collective bargaining agreement specified that all
employees would be included in the benefit fund, the employer and
the union had orally agreed that only two of the employees would
be covered. This court held that this defense was one of fraud
in the inducement rather than fraud in the execution, and,
therefore, that it was an invalid defense under the
circumstances. According to the court, "[t]o prevail on a
defense of fraud in the execution, a party must show 'excusable
ignorance of the contents of the writing signed.'" Id. at 1505-
06 (citing Rozay's Transfer, 791 F.2d at 774 (quoting U.C.C. § 3-
305 cmt. 7); Calamari & Perillo, supra, § 9-22 (party claiming
fraud in the execution must show that he "signed an instrument
that is radically different from that which [he] is led to
believe that he is signing")). The court concluded that in the
case before it, the employer made no such showing because it did
"not argue that it thought the collective bargaining agreement it
signed was a different document[,] [n]or did [it] contend that
the Union misrepresented the nature of the document it was asked
to sign." Id. at 1506.
In Central States, Southeast and Southwest Areas
Pension Fund v. Gerber Truck Service, Inc., 870 F.2d 1148 (7th
Cir. 1989) (en banc), the Court of Appeals for the Seventh
Circuit was faced with a virtually identical situation and
reached the same conclusion. According to the benefit fund, the
employer had made contributions for only three of his employees
rather than all of them. The employer's defense was that
17
although the collective bargaining agreement stated that all
employees would be included in the benefit fund, it and the union
had orally agreed that only three specific employees would
participate in the fund. The court held that the employer was
liable for benefit fund contributions for all of his employees,
as stated in the contract. In so holding, the court rejected the
employer's defense because it found it to be one of fraud in the
inducement, which is an invalid defense to a claim for
contributions by a benefit fund. Id. at 1153 ("If the employer
simply points to a defect in its formation--such as fraud in the
inducement, oral promises to disregard the text, or the lack of
majority support for the union and the consequent ineffectiveness
of the pact under labor law--it must still keep its promise to
the pension plans.").
As yet another example, in Rozay's Transfer, a benefit
fund had filed a claim against the employer for delinquent
contributions that had accrued after the previous collective
bargaining agreement had expired but before a new agreement had
been reached. The employer's defense was that the union had
promised it that the benefit fund would waive these contribution
requirements, and that it had signed the collective bargaining
agreement under the belief that this waiver had been approved.
The benefit fund had rejected the union's request for such a
waiver, however, and the union had failed to convey this
rejection to the employer. The court held that the employer's
defense was one of fraud in the inducement, and not one of fraud
in the execution. Specifically, the court stated that:
18
Rozay's Transfer cannot persuasively
contend that fraud in the execution is
presented on the facts of this case. Rozay
acknowledged at trial that he was fully aware
that the document he signed was a collective
bargaining agreement and that the agreement
was effective as of [the day that the
original agreement expired], thus obligating
the payment of contributions to the trust
fund for the disputed period.
To maintain a defense of fraud in the
execution, Rozay's Transfer would have to
establish "excusable ignorance of the terms
of the contents of the writing signed." See
Uniform Commercial Code § 3-305 comment 7.
But there simply was no confusion as to the
actual contents of the agreement. Instead
the misrepresentation concerned whether the
express provisions of the agreement would in
fact be enforced--an example of fraud in the
inducement, as the district court found.
791 F.2d at 774-75. The Rozay's Transfer court rejected the
employer's defense, citing Southern California Retail Clerks
Union and Food Employers Joint Pension Trust Fund v. Bjorklund,
728 F.2d 1262, 1266 (9th Cir. 1984), for the proposition that "a
claim that a promise to make contributions was fraudulently
induced is not a legitimate defense to a trust fund's action to
recover delinquent contributions." Rozay's Transfer, 791 F.2d at
775.
The court in Rozay's Transfer distinguished its facts
from those of a prior Ninth Circuit case, Operating Engineers
Pension Trust v. Gilliam, 737 F.2d 1501, 1503 (9th Cir. 1984). In
Gilliam, an employer claimed that he had signed a document which
the union had told him was an application to become a union
member as an owner-operator. In actuality, however, the document
was a collective bargaining agreement covering all of his
19
employees, which required him to make contributions to a trust
fund on their behalf. The trust fund later filed a claim against
the employer for delinquent contributions due under the
agreement. The court held that the employer "was not obligated
to make such payments as he had reasonably relied on the union's
representation that he was signing a document of a wholly
different nature." 791 F.2d at 774 (citing Gilliam, 737 F.2d at
1504-05). The Rozay's Transfer court said that the key
distinction between its facts and the facts of Gilliam was that
the employer in Gilliam had asserted the valid defense of fraud
in the execution, while the employer in Rozay's Transfer had
asserted the invalid defense of fraud in the inducement.
With these cases in mind, we turn to the facts at hand.
As pointed out by Fawn Mining, on the day that the signature page
was signed embodying the existence of an agreement between the
parties, there was significant time pressure on both sides due to
the fact that the mine was set to close the next day. The only
document that the parties physically had before them was a
signature page of a standard Wage Agreement. Although no
document was attached to this page at the time, Fawn Mining
claims that both sides intended the signing of this page to
symbolize their agreement to all terms of the Wage Agreement
other than the 1950 Plan provision and that both contemplated
that this page, when formally executed by an appropriate official
of the International, would be appended to a copy of the Wage
Agreement with the 1950 Plan provision deleted. According to
Stein:
20
[There was a] need to sign the agreement
because of the impending closing on the asset
purchase agreement the next day. Mr. Irey
was very hesitant to sign that agreement
because it did not -- we had no written . . .
documentation of our waiver from the '50's
funds. Mr. Redman assured him that that had
been approved by Mr. Trumpka and it would be
forthcoming with the signed agreement by Mr.
Trumpka.
App. 609-10.
Unlike the employers in the fraudulent inducement
cases, Fawn Mining does not claim there was an oral modification
of a written collective bargaining agreement it had signed.
According to Fawn Mining, it did not knowingly enter into an
agreement to contribute to the 1950's Fund with the expectancy
that the agreement would not be enforced or the obligation later
waived. Rather, Fawn Mining and Redman signed the unattached
signature page the day before Fawn Mining's closing with
BethEnergy to permit the transfer of the mine assets and to avoid
mine closure. The parties' agreement and understanding at the
time the page was signed was that there was no contractual
obligation on the part of Fawn Mining to contribute to the 1950
Benefit Fund.
We hold that Fawn Mining is asserting a defense of
fraud in the execution, which, if proven, would be a valid
defense to the Plans' claim. Fawn Mining's defense is equivalent
to a claim of "excusable ignorance of the contents of the writing
signed." Furthermore, because both Fawn Mining and the UMW admit
that the 1950 Plan provision was an important issue to both
parties, if Fawn Mining was in fact led to believe that it was
signing an agreement that did not include this provision, an
21
agreement that did contain this provision would be "radically
different" from one which did not require contribution to the
plan. Therefore, Fawn Mining's defense falls within the
definition of fraud in the execution that this court laid out in
Agathos. Additionally, we believe that the facts of this case
more closely resemble those of Gilliam than they do those of
Gerber or Rozay's Transfer because here Fawn Mining is claiming
that it was misled as to what the actual language of the contract
would be. It is not asserting that it signed a contract, the
terms of which were as it intended them to be, but did so only
because it was misled about the existence of a side agreement.
If an employer reviews a document reflecting the
agreements reached in collective bargaining and the union
surreptitiously substitutes a materially different contract
document before both sides execute it, we think it clear that
there has been a fraud in the execution of the contract and that
the agreement reflected in the executed document is void ab
initio and unenforceable by the union. The employer has never
manifested an assent to the terms of the alleged contract, and
the written document purporting to evidence the agreement has
been obtained by fraud.
We believe the situation before us is not materially
different. Under the facts here alleged by Fawn Mining, the
Plans are suing on what purports to be a written contract. The
employer has never manifested assent to the terms contained in
that contract, however, and the document itself has been procured
by fraud. In our view, the fact that the union allegedly
22
substituted the body of the contract document after the execution
of the signature page, rather than before, does not convert this
suit from a fraud in the execution case into a fraud in the
inducement one.
Because Fawn Mining is asserting a fraud in the
execution defense and because the conflicting deposition
testimony raises genuine issues of material fact regarding this
defense (i.e. whether the UMW actually did lead Fawn Mining to
believe that the 1950 Plan provision would not be included in the
language of the agreement), we will reverse the summary judgment
in favor of the Plans.0
The UMW argues that even if we find that Fawn Mining's
defense is valid in theory because the parties intended this
agreement to exclude the 1950 Plan provision, we must still
reject it because any evidence of such an intent would be
0
It is true, as the district court stressed, that the Asset
Purchase Agreement specifically committed Fawn Mining to assume
all obligations of the Wage Agreement, and that Fawn Mining
failed promptly to notify the Plans that the collective
bargaining agreement it had signed with the UMW did not include
the 1950 Plan provision. While these two facts provide a basis
for an inference adverse to Fawn Mining, they would not preclude
a trier of fact from accepting the version of the facts reflected
in the depositions of Irey and Stein. Even though Fawn Mining
obligated itself to BethEnergy to assume all of its obligations
under the 1988 Wage Agreement, including that to the 1950 Plan,
Fawn Mining could well have negotiated with the UMW with the view
that a concession by it regarding the 1950 Plan would render
insignificant its commitment to BethEnergy concerning that Plan.
Moreover, the fact that Fawn Mining contributed to the 1974 Plan,
which was the other plan specified in the Wage Agreement,
evidences that Fawn Mining was not trying to shirk all
obligations to contribute to a welfare or pension fund, thereby
providing some support for Fawn Mining's claim that it was led to
believe from the start that the 1950 Plan provision was excluded
from its agreement with the UMW.
23
inadmissible under the parol evidence rule. For support, it
cites Wilkes Barre Printing Pressman and Assistants' Union, No.
137 I.P.P. & A.E. v. Great Northern Press, 522 F.Supp. 106, 109
(M.D. Pa. 1981), which held that, "[o]nce the existence of a
binding contract has been established, [parol evidence to
challenge the stated terms of a collective bargaining agreement]
will be disallowed as part of a general policy to protect workers
from collusive oral agreements between management and the union
leadership." The UMW also points to Lewis v. Seanor Coal, 382
F.2d 437, 441-45 (3d Cir. 1967), cert. denied, 390 U.S. 947(1968), which held that parol evidence of oral modifications to
written contractual terms is inadmissible.
The UMW's parol evidence argument is unpersuasive.
While the parol evidence rule generally prohibits the admission
of evidence that contradicts the terms of an integrated,
unambiguous writing, the "rule does not apply to evidence
introduced to show that a contract was void or voidable." Coleman
v. Holecek, 542 F.2d 532, 535 (10th Cir. 1976). Therefore,
"events antecedent to the making of a contract which negate
mutuality of assent, such as duress or fraud, or demonstrate a
condition to be fulfilled before the obligations of the contract
are to vest, may also be the subject of parol evidence." 4
Walter H.E. Jaeger, Williston on Contracts § 631, at 950 (3d ed.
1961). In the case at hand, Fawn Mining has tendered evidence
which it claims would show the existence of fraud in the
24
execution, thereby making the contract void. Such evidence is
not prohibited by the parol evidence rule.0
IV.
Finally, we turn to Fawn Mining's claim for indemnity
from the UMW. Paragraph 23 of Fawn Mining's Third Party
Complaint against the UMW alleges as follows:
23. Any liability of Fawn Mining to
Plaintiffs for contributions allegedly due to
the 1950 Benefit Plan, which is denied, is
the result of the UMW and District 5's
negligent or fraudulent representations which
induced Fawn Mining to purchase the
BethEnergy mine assets under the assumption
and agreement that Fawn Mining would not be
required to contribute or to otherwise
participate in the 1950 Benefit Plan.
0
Contrary to the UMW's assertion, the general rule that a signer
of an instrument is bound by its terms regardless of whether the
signer read the instrument is inapplicable here. This is so
because Fawn Mining is claiming that the UMW led it to believe
that the parties were signing an instrument which was completely
different from that which the UMW claims Fawn Mining signed. See
Gilliam, 737 F.2d at 1504 ("We recognize that a party who signs a
written agreement generally is bound by its terms, even though he
neither reads it nor considers the legal consequences of signing
it. This proposition, however, is qualified by the principle
that he who signs a document reasonably believing it is something
quite different than it is cannot be bound to the terms of the
document. For example, one who signs a promissory note
reasonably believing he only gave his autograph is not liable on
the note." (citations omitted)).
25
App. 77.
While Fawn Mining asserts a fraud in the execution
defense to the Plans' claim against it for contribution, it here
alleges, in the alternative, fraud in the inducement of its asset
purchase contract with BethEnergy as a basis for an indemnity
claim against the UMW in the event it is held liable to the
Plans. As we have indicated, there is a material dispute of fact
as to precisely what role the UMW played in the negotiations
leading to Fawn Mining's acquisition of the mine facility. Based
on the current record, we believe a trier of fact could choose
not to credit Fawn Mining's contentions with respect to the
significance of the signing of the unattached signature page and
could still conclude that it was induced to sign the Asset
Purchase Agreement by the UMW representation that contributions
to the 1950 Plan would be waived. In that event, it seems to us
that Fawn Mining could be held liable to the Plans and, at the
same time, could be entitled to indemnity from the UMW for the
contributions it would have to pay. Accordingly, we conclude
that summary judgment for the UMW on the Third Party Complaint
was inappropriate.
V.
For these reasons, we will reverse the district court's
summary judgments in favor of the Plans and the UMW and remand
for further proceedings consistent with this opinion.
26