Laborers' Pension Fund v. a & C Environmental, Inc.

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-1622
LABORERS’ PENSION FUND, LABORERS’ WELFARE
FUND OF THE HEALTH AND WELFARE DEPARTMENT
OF THE CONSTRUCTION AND GENERAL LABORERS’
DISTRICT COUNCIL OF CHICAGO AND VICINITY
and JAMES S. JORGENSEN,
Plaintiffs-Appellants,
v.
A & C ENVIRONMENTAL, INCORPORATED, and
BRYON CLARK, individually and doing business
as A & C ENVIRONMENTAL, INCORPORATED,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 8300—John W. Darrah, Judge.
____________
ARGUED DECEMBER 5, 2001—DECIDED AUGUST 19, 2002
____________
Before COFFEY, RIPPLE and DIANE P. WOOD, Circuit Judges.
RIPPLE, Circuit Judge. The Laborers’ Pension Fund and
the Laborers’ Welfare Fund of the Health and Welfare
Department of the Construction and General Laborers’
District Council of Chicago and Vicinity and the Funds’
administrator, James Jorgensen, (collectively, “the Funds”)
2 No. 01-1622
brought this action under ERISA section 515, 29 U.S.C.
§ 1145, and section 301 of the Labor-Management Rela-
tions Act (“LMRA”), 29 U.S.C. § 185, to recover delinquent
contributions and union dues allegedly owed to them by
A & C Environmental, Inc. (“A & C”). A jury returned a
verdict in favor of A & C. The district court denied the
Funds’ post-trial motion for judgment as a matter of law
and entered judgment on the verdict. For the reasons
set forth in the following opinion, we reverse the judgment
of the district court and remand the case for further pro-
ceedings consistent with this opinion.
I
BACKGROUND
A. Facts
A & C is a corporation specializing in the transportation
and disposal of hazardous and nonhazardous waste. In
April 1999, Kopper’s Industries asked A & C to bid on a job
involving the operation of a coal centrifuge in Gary, In-
diana. A & C is not a union company, and Kopper’s ex-
pressed some concern that, if the job were performed
by non-union employees, union workers from U.S. Steel
might picket and interrupt service. Bryon Clark, director
1
of field services for A & C, then contacted James Frattini,
the President of the Construction and General Laborers’
District Council of Chicago and Vicinity (“the Union”) Local
75, to determine whether the Union could represent only
the five A & C employees who would staff the Gary centri-
1
As director of field services, Mr. Clark quotes prices on
projects, issues invoices and oversees the work of employees on
projects.
No. 01-1622 3
fuge job. Mr. Clark had no previous interaction with Local
75 or Mr. Frattini; he located them by looking in a phone
book.
Mr. Frattini assured Mr. Clark that Local 75 could cover
his Gary employees and would not have to cover A & C’s
other employees. Mr. Clark testified that he “had quite a
bit of concern” because he knew “if someone goes union,
you know, it covers all their company operations.” Tr.V
at 187. He also testified that Mr. Frattini responded to his
concerns: “Well, the union doesn’t operate like that any-
more. We’re here to make money just like you.” Id. Mr.
Frattini subsequently met with Mr. Clark, Carl Grad
(President of A & C) and Tom Grad (A & C’s director of
transportation) and made the same assurances. Mr. Frat-
tini also met with Mr. Clark at A & C’s offices to register
the Gary employees with the Union. At the meeting, Mr.
Frattini and Mr. Clark answered the questions of the Gary
employees. While they were answering the questions,
Mr. Frattini gave Mr. Clark a one page document and
2
showed him where to sign. The document featured the
heading “Collective Bargaining Agreement,” centered and
in capital letters, and Mr. Clark filled in “A & C Environ-
mental Inc.” on a line directly below the heading. App.
of Appellants at 129. Nevertheless, Mr. Clark testified that
he did not know he was signing a collective bargaining
agreement (“CBA”). Mr. Clark believed the document re-
flected Mr. Frattini’s assurances that the Union would only
2
The parties dispute when Mr. Clark signed the collective
bargaining agreement with the Union. The Funds point out
that the document is dated April 23, 1999, but A & C insists
that the final meeting with Mr. Frattini at which Mr. Clark
signed the document did not occur until July and that Mr. Frattini
had Mr. Clark backdate the contract.
4 No. 01-1622
represent the Gary employees. Mr. Clark further testified
that he did not have an opportunity to read the document
because Mr. Frattini took it from him as soon as he had
finished signing. Although his offices had a copy machine,
Mr. Clark did not make a copy of the document because
he was busy answering his employees’ questions, and he
“trusted Mr. Frattini’s word.” Tr.V at 201.
The CBA that Mr. Clark signed states that A & C “affirms
and adopts the Collective Bargaining Agreements be-
tween the UNION and . . . the Illinois Environmental
Contractors Association,” and that A & C “agrees to pay the
amounts that it is bound to pay under said Collective
Bargaining Agreements to the HEALTH AND WELFARE
DEPARTMENT OF THE CONSTRUCTION AND GEN-
ERAL LABORERS’ DISTRICT COUNCIL OF CHICA-
GO AND VICINITY [and] the LABORERS’ PENSION
FUND . . . .” App. of Appellants at 129. The Union has
a CBA, the “Asbestos Agreement,” with the Illinois En-
vironmental Contractors Association. See App. of Appel-
lants at 132. That agreement, as well as the one page
CBA that Mr. Clark signed, require the employer—A & C,
once it signed on—to make to the Welfare and Pension
Funds contributions of a certain amount for each hour
worked by all employees performing work covered by the
agreements, not just those who would work on the Gary,
Indiana, job. The Asbestos Agreement provides, “The
branches of work covered by this Agreement are: asbestos,
abatement laborer duties including . . . the handling,
removal, abatement, or encapsulation of asbestos and/or
toxic or hazardous waste or materials.” App. of Appellants
at 152. Mr. Clark acknowledged at trial that A & C’s em-
ployees performed tasks involving the cleanup of hazard-
ous materials. The CBAs also require the employer to
deduct a certain amount from the pay of each employee
No. 01-1622 5
covered by the CBA and to remit those dues to the Union.
The Union has authorized the Funds to serve as collection
agents for the Union with respect to unpaid dues. A & C
failed to contribute to the Funds or to remit all of the dues
that the Union claimed were due.
B. District Court Proceedings
The Funds brought suit against A & C and Mr. Clark
to recover the delinquent contributions and hired an
auditing firm to determine how much A & C owed. Count
I of the Funds’ complaint sought recovery of the contribu-
tions that A & C owed the Funds. In Count II, the Funds—as
the designated collection agents of the Union—sought to
recover the dues that A & C owed the Union.
The following details of the proceedings before the dis-
trict court are relevant to the determination of whether the
Funds’ claims on appeal are procedurally barred. The
Funds timely filed a motion for summary judgment. In that
motion, it submitted that ERISA entitles the Funds to ac-
cept a contract between employers and unions without
regard to any oral understandings between employers and
unions that conflict with the contract’s terms. The court, for
reasons undisclosed by the record, declined to rule on
the motion. The Funds thereafter filed a motion to convert
the summary judgment motion into a motion in limine
to exclude evidence relating to any contract formation
defense or defenses based on oral side agreements between
A & C and the Union. The court denied the motion. The
Funds then filed a motion in limine, accompanied by a
supporting brief, in which they again requested exclusion
of any evidence relating to side agreements. They sub-
mitted that our opinion in Central States, Southeast & South-
west Areas Pension Fund v. Gerber Truck Service, Inc., 870 F.2d
6 No. 01-1622
1148 (7th Cir. 1989) (en banc), rendered irrelevant any evi-
dence relating to the existence of oral understandings
between A & C and the Union that modified the terms of the
CBA. In their reply brief to A & C’s response to their mo-
tion in limine, the Funds specifically contended that Gerber
Truck foreclosed the defenses of fraud in the inducement
and fraud in the execution and that, even if fraud in the
execution remained a viable defense to a pension fund’s
efforts to collect delinquent contributions, A & C had not
made out the defense. The district court ultimately granted
the motion in limine to exclude evidence relating to the
3
defense of fraud in the inducement, but not evidence
3
In its response to the Funds’ motion in limine, A & C had
argued that fraud in the inducement was a viable defense to
the Funds’ claim in Count II for delinquent union dues even if
it was not a viable defense to the Funds’ claim in Count I for
delinquent pension and welfare fund contributions. When asked
by the district court just before trial whether A & C was per-
sisting in its defense of fraud in the inducement, A & C stated
that it was but only with respect to Count II, the Funds’ claim
for union dues. The district court reserved the issue then, but
returned to the matter the following morning and granted the
motion in limine with respect to the defense of fraud in the
inducement. The district court based its decision to dismiss
the affirmative defense of fraud in the inducement entirely on
section 515 of ERISA and cases applying it. Yet, A & C was
persisting in the defense only with respect to the Funds’ claim
in Count II for union dues, which the Funds brought not un-
der ERISA but under section 301 of the LMRA, 29 U.S.C.
§ 185. Nevertheless, our review of the record reveals that A & C
made no objection to the court’s ruling at that time.
Because A & C did not object to the district court’s decision
to bar evidence of fraud in the inducement with respect to
(continued...)
No. 01-1622 7
relating to the defense of fraud in the execution. At trial,
A & C presented its defense of fraud in the execution, seek-
ing to prove that Mr. Clark had not known that the contract
he signed with the Union obligated A & C to make contrib-
utions to the Funds and that his ignorance was excusable.
After A & C closed its case, the court heard motions by
counsel. The attorney for the Funds announced that they
had two motions to make and proceeded to explain the first,
a motion for leave to amend the complaint to conform to
the evidence. After hearing arguments from counsel, the
district court denied it and then added: “The motion for
a directed finding or a directed verdict is also denied.”
Tr.VI at 328. Counsel for the Funds asked if he could “make
a record with respect to that second motion,” id., and the
court invited the Funds to file something if they wanted.
The court made clear, however, that it was going to sub-
mit the case to the jury whether or not the Funds filed
additional material. After this colloquy, the Funds put on
rebuttal evidence, which consisted exclusively of a very
brief examination of Mr. Clark. At the end of the examina-
3
(...continued)
the suit for union dues and because A & C has not argued the
point on appeal, that issue is not before us. We note, however,
that our decision today does not hold that the protection against
certain defenses that ERISA provides in claims by funds for
delinquent fund contributions applies as well to claims by funds
for union dues.
The only defense that A & C sought to prove at trial with
respect to either of the Funds’ claims was fraud in the execu-
tion. Therefore, our decisions as to the viability of the defense
of fraud in the execution and as to whether A & C has proven
the defense pertain to both the claim for fund contributions and
the claim for union dues.
8 No. 01-1622
tion, the Funds voluntarily dismissed Mr. Clark from the
suit.
The jury found for A & C on both counts, and the dis-
4
trict court entered judgment on the verdict. The court
denied the Funds’ post-trial motion for judgment as a
matter of law (“JMOL”) and motion for a new trial in which
the Funds argued that fraud in the execution was not a
viable defense to the Funds’ claim for delinquent con-
tributions and that, even if it was, the evidence did not
support the defense. The court held that the defense was
valid and that A & C had proven it because a reasonable
juror could have believed that Mr. Clark did not know
he was signing a collective bargaining agreement and
4
This court has jurisdiction to hear appeals only from “final
decisions” of the district courts. 28 U.S.C. § 1291. The entry of
judgment does not mention Mr. Clark, and there is no indication
whether the dismissal of the Funds’ claim against him was with
prejudice. “We have held,” however, “that an order that effec-
tively ends the litigation on the merits is an appealable final
judgment even if the district court did not formally enter
judgment on a claim that one party has abandoned.” Baltimore
Orioles, Inc. v. Major League Baseball Players Ass’n, 805 F.2d
663, 667 (7th Cir. 1986). The Funds have abandoned their claim
against Mr. Clark, voluntarily dismissing it before the dis-
trict court and stating at oral argument that the dismissal was
with prejudice. Thus, because the district court’s judgment
against the Funds and in favor of A & C effectively ends the
litigation on the merits, it constitutes a final judgment, and we
have jurisdiction to hear the appeal. See Baltimore Orioles, 805
F.2d at 667; Am. Nat’l Bank & Trust Co. of Chicago v. Bailey, 750
F.2d 577, 580-81 (7th Cir. 1984) (when district court issued or-
ders dismissing several claims against different parties but
neglected to rule on one, the orders constituted a final judgment
because it was apparent that the unmentioned claim had been
abandoned).
No. 01-1622 9
that he did not have a reasonable opportunity to review the
5
document.
II
DISCUSSION
The Funds submit on appeal, as they did before the
district court, that fraud in the execution is not a viable
defense to a pension fund’s efforts to collect delinquent
contributions. They further submit that, even if fraud in
the execution is a permissible defense, A & C did not
establish that defense at trial. In their view, the district
court should have granted their post-trial motion for
judgment as a matter of law. Before we can reach the mer-
its of this argument, however, we must address whether
this post-trial motion for judgment as a matter of law was
preceded by a motion for judgment as a matter of law at
the close of all the evidence.
5
The district court also held that the Funds’ post-trial motion
for JMOL was procedurally barred because it was not filed within
ten days of the judgment as required by Fed. R. Civ. P. 50(b).
According to the entry date on the docket, the district court
entered judgment on December 1, 2000, (it is the entry date
as listed in the docket that triggers the time for the filing of
the post-trial motion, not the date the judgment was signed,
which here was November 30, 2000, see Darne v. Wisconsin, 137
F.3d 484, 486 n.1 (7th Cir. 1998)), and the Funds filed their post-
trial motion for JMOL on December 13, 2000, twelve days later.
In computing periods of time prescribed by the Federal Rules
that are less than eleven days, however, intermediate Saturdays
and Sundays are excluded. See Fed. R. Civ. P. 6(a). Excluding
the weekends following December 1, 2000, the Funds’ motion
was due on December 15, 2000. The motion was therefore timely.
10 No. 01-1622
A. The Rule 50 Motion
The language of Rule 50 suggests that only a motion for
JMOL that is made at the close of all the evidence may be
renewed post trial. See Fed. R. Civ. P. 50(b); Szmaj v. AT&T
Co., 291 F.3d 955, 957 (7th Cir. 2002) (stating that the rule
“implies (no stronger word is possible) that a motion for
judgment as a matter of law must indeed be renewed
at the close of all the evidence”). The purpose of requir-
ing that the motion be made after the submission of all the
evidence, but before the case is given to the jury, is to af-
ford the opposing party an opportunity to cure any de-
fect in its case before the jury retires. See Szmaj, 291 F.3d
at 958; McKinnon v. City of Berwyn, 750 F.2d 1383, 1388 (7th
Cir. 1984).
As we noted in Downes v. Volkswagen of America, Inc.,
41 F.3d 1132 (7th Cir. 1994): “In the past, this and other
courts have not applied this rule rigidly, especially where
a directed verdict motion was made at the close of the
plaintiff’s case and no prejudice has resulted to the non-
moving party from the failure to renew.” Id. at 1139; see
Umpleby v. Potter & Brumfield, Inc., 69 F.3d 209, 212 (7th
Cir. 1995) (same). Downes also observed, however, that the
Advisory Committee had reevaluated and amended the
Rule in 1991 and “deliberately ‘retained the requirement
that a motion for judgment be made prior to the close
of the trial, subject to renewal after a jury verdict has
been rendered.’ ” Downes, 41 F.3d at 1139 (quoting Fed. R.
Civ. P. 50, Advisory Committee Notes, 1991 Amendment).
Because the Committee “had the opportunity to change
the requirements of Rule 50 in the 1991 Amendments,
and declined to do so,” we concluded in Downes that the
defendant was precluded from renewing its motion for
JMOL because it had failed to bring it at the close of all
the evidence. Id. at 1139-40.
No. 01-1622 11
We reaffirmed Downes’ strict application of the Rule 50
requirement in Umpleby and again in Mid-America Table-
wares, Inc. v. Mogi Trading Co., Ltd., 100 F.3d 1353 (7th Cir.
1996), when the defendants had moved for JMOL after the
plaintiffs’ cases but had failed to renew their motions af-
ter all the evidence had been presented. See Umpleby, 69 F.3d
at 212; Mogi Trading, 100 F.3d at 1364. When a defendant
moves unsuccessfully for JMOL at the close of the plain-
tiff’s case but does not renew the motion after it has put on
its own case, the plaintiff reasonably “may assume that the
denial was the end of the matter,” Szmaj, 291 F.2d at 958,
and so will not be alerted to the necessity of curing any
defect in its case before the jury retires. This situation was
6
the case in both Umpleby and Mogi Trading, and so a strict
application of the Rule 50 requirement well served the
purpose of the Rule. Here, by contrast, the Funds’ made
their motion—or, more precisely, the district court antici-
pated their motion and preemptively denied it—after both
parties had put on their cases, but before the Funds put
on their brief rebuttal evidence.
A & C points to only one case in which we have ap-
plied the Rule 50 requirement to block a party’s motion for
JMOL that had been made after both parties had put on
their evidence but not renewed after one of the parties put
on rebuttal evidence. See E. Natural Gas Corp. v. Aluminum
6
The opinion in Downes does not indicate when the defendant
last made its motion for JMOL, but as there is no indication
that either party offered rebuttal evidence, the motion was made
by the defendant and the court referred to this court’s prior
lenient application of the Rule “where a directed verdict motion
was made at the close of the plaintiff’s case,” Downes, 41 F.3d
at 1139, the motion was likely made at the close of the plaintiff’s
case and not renewed.
12 No. 01-1622
Co. of Am., (ALCOA), 126 F.3d 996, 1000 (7th Cir. 1997).
There, however, the moving party had chosen not to take
the position on appeal that the denial of its post-trial mo-
tion for JMOL had been improper; it conceded at oral ar-
gument that Umpleby applied. Because the party admitted
that it failed to preserve the Rule 50 argument, see id., the
court did not have occasion to examine the issue. Nor is
there any indication in ALCOA of the amount of rebuttal
evidence that was offered. Here, however, the rebuttal
evidence consisted only of a very brief examination of
Mr. Clark and primarily concerned his personal liability,
a matter rendered moot when the Funds voluntarily dis-
7
missed him as a defendant immediately after his testimony.
Furthermore, as a practical matter, the Funds had no
realistic opportunity to raise the motion for judgment as
a matter of law after the brief rebuttal testimony of Mr.
Clark. The district court already had taken the matter un-
der advisement and made crystal clear to the parties that
it did not wish to hear further on the matter prior to the
case’s being given to the jury. Under these circumstances,
7
The only testimony that the Funds elicited from Mr. Clark
that related to the Funds’ case against A & C, and not Mr. Clark,
addressed an allegation in the Funds’ complaint. Mr. Clark’s
previous testimony had pointed out that the Funds’ complaint
alleged delinquencies dating only from August 1999 and not
from April 23, 1999, the date the CBA was signed. During
rebuttal, the Funds asked Mr. Clark to look at the complaint
and to see if it referred to the conduct of a payroll audit dating
back to April 23, 1999, and Mr. Clark said that it did. That
paragraph of the complaint alleged that A & C failed to cooper-
ate with the audit. The testimony in this regard was insig-
nificant—neither the court nor the jury needed Mr. Clark to
tell it what the complaint alleged—and, in any event, it had no
bearing on the Funds’ motion for JMOL.
No. 01-1622 13
counsel can hardly be expected to have asked that the mat-
ter be revisited. Counsel attempted to raise the motion; the
court acknowledged its renewal and indicated that it did
not need further argument on the matter because, in any
event, the matter was going to be submitted first to the jury.
Cf. Wilson Sporting Goods Co. v. David Geoffrey & Assocs., 904
F.2d 677, 683 (Fed. Cir. 1990) (failure to make sufficiently
specific Rule 50 motion at the close of all the evidence was
not fatal when “the court cut short counsel’s statement,
making clear its view that the issue presented a jury ques-
tion and that it wanted to move on”). Most importantly,
the rationale that animates the need to renew the motion
at the close of all evidence—to permit the nonmoving par-
ty to cure the defect in its case—simply is not at stake
here. See McKinnon, 750 F.2d at 1388. In the unruled-upon
summary judgment motion, both the court and A & C
had been made well aware of the Funds’ view of the legal
deficiency in A & C’s case. Unlike in the cases of Downes,
Umpleby and Mogi Trading, application of the Rule 50
requirement here would serve no purpose but to “create
a trap for the unwary.” Szmaj, 291 F.3d at 958. Therefore,
because the purpose of the requirement that a motion for
JMOL be made at the close of all the evidence has been
served here, the Funds’ motion for JMOL made at the
close of both parties’ cases but before the very brief and
largely irrelevant rebuttal evidence served as an ade-
quate basis upon which to renew the motion post trial. In
none of our cases have we adopted a mechanistic ap-
proach to Rule 50 unsupported by its rationale. We have
been insistent on strict compliance with the rule when
the reason for the rule is served. We have not demon-
strated that same insistence when the rationale of the rule
is not well served by such an application. See Szmaj, 291
F.3d at 958 (failure to make motion for JMOL at close of all
the evidence does not bar post-trial motion for JMOL when
14 No. 01-1622
the court has taken the initial motion under advisement
because the Rule’s “rationale collapses” in such a case).
“Cessante ratione legis, cessat et ipsa lex.” Lockhart v. Fretwell,
506 U.S. 364, 373 (1993); Goss Graphics Sys., Inc. v. DEV
Indus., Inc., 267 F.3d 624, 627 (7th Cir. 2001).
A & C also submits that the Funds’ pre-verdict motion
for JMOL did not preserve its arguments because the mo-
tion was not sufficiently specific. Rule 50(a) requires pre-
verdict motions for JMOL to “specify the judgment sought
and the law and the facts on which the moving party is
entitled to the judgment.” Fed. R. Civ. P. 50(a)(2). Of course,
the purpose of the rule is to allow the responding party
an opportunity to cure any defect in its case before it is
submitted to the jury. See Fed. R. Civ. P. 50, Advisory
Committee Notes, 1991 Amendment. A & C was made well
aware of the grounds for the Funds’ motion for JMOL by
the Funds’ various pre-trial motions. The Funds argued in
their motion for summary judgment and in their motion
in limine that fraud in the inducement and fraud in the
execution were not viable defenses to their action to col-
lect the delinquent contributions. They further argued in
their reply brief in support of their motion in limine
that, even if fraud in the execution remained a viable de-
fense, A & C had not come forward with sufficient evi-
dence to prove it. In short, as counsel for A & C stated at
oral argument, and as the record reflects, the Funds had
made their arguments “over and over again.” Audio Tape
of Oral Arguments, No. 01-1622 (Dec. 5, 2001). Therefore,
because A & C was made well aware of the bases of the
Funds’ motion, “the function of Rule 50 has been served
and the issue preserved for appeal.” Urso v. United States,
72 F.3d 59, 61 (7th Cir. 1995) (Government did not forfeit
argument for judgment as a matter of law even though it
had failed to support its pre-verdict Rule 50 motion with
argument, because the same arguments had already been
presented to the district court).
No. 01-1622 15
A & C submits that this court’s opinion in EEOC v.
AIC Security Investigations, Ltd., 55 F.3d 1276 (7th Cir.
1995), signaled an end to our previously lenient application
of the rule by which we “allowed something other than a
motion for a directed verdict at the close of evidence to
preserve the objection.” Id. at 1286. We note, however, that
Urso, cited above, was decided several months after our
opinion in AIC Security. Nevertheless, in both AIC Security
and the lenient case whose result the Advisory Committee
intended to alter with its 1991 amendment to Rule 50,
Benson v. Allphin, 786 F.2d 268 (7th Cir. 1986); see Fed. R.
Civ. P. 50, advisory committee notes, 1991 Amendment, the
parties seeking JMOL had failed altogether to make timely
pre-verdict motions for JMOL. Here, by contrast, a timely
motion for JMOL has been made, and the opposing party
and the district court were well aware of the grounds sup-
porting the motion. Therefore, the Funds’ arguments for
judgment as a matter of law have been preserved for appeal,
and we may consider them on the merits.
B. Claims for Delinquent Contributions and Dues
1.
The Funds submit that fraud in the execution is not a valid
defense to a multiemployer pension plan’s efforts to collect
on delinquent contributions. ERISA section 515, which the
Funds seek to enforce, provides:
Every employer who is obligated to make contributions
to a multiemployer 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 terms and
conditions of such plan or such agreement.
16 No. 01-1622
ERISA § 515, 29 U.S.C. § 1145. Congress enacted section
515 because the failure of employers to make promised
contributions imposes costs on plans that adversely affect
beneficiaries. It determined that earlier law for collecting
delinquent contributions had been “ ‘insufficient and un-
necessarily cumbersome and costly. Some simple collec-
tion actions brought by plan trustees have been converted
into lengthy, costly, and complex litigation concerning
claims and defenses unrelated to the employer’s prom-
ise and the plans’ entitlement to the contributions.’ ” Cent.
States, Southeast & Southwest Areas Pension Fund v. Gerber
Truck Serv., Inc., 870 F.2d 1148, 1152-53 (7th Cir. 1989)
(en banc) (quoting 126 Cong. Rec. 23039 (statement of
Rep. Thompson)). Section 515 was intended to “ ‘permit
trustees of plans to recover delinquent contributions ef-
ficaciously, and without regard to issues which might arise
under labor-management relations law . . . .’ ” Id. (quot-
ing 126 Cong. Rec. 23039 (statement of Rep. Thompson)).
We therefore concluded in Gerber Truck that, with re-
spect to documents in which employers promise to make
contributions to pension funds on behalf of their employ-
ees, section 515 allows pension funds to enforce the writ-
ings according to their terms “without regard to under-
standings or defenses applicable to the original parties
[the employer and the union].” Gerber Truck, 870 F.2d at
1149. That is, where, as here, an employer has signed a
CBA in which it promises to contribute to a pension fund,
the “pension fund’s reliance upon the terms of the CBA may
not be thwarted . . . by defenses that may defeat enforce-
ment of the CBA between the employer and the union.”
Cent. States, Southeast & Southwest Areas Pension Fund v.
Kroger Co., 73 F.3d 727, 731 (7th Cir. 1996). Thus:
If the employer simply points to a defect in [the con-
tract’s] formation—such as fraud in the inducement,
No. 01-1622 17
oral promises to disregard the text, or the lack of ma-
jority support for the union and the consequent inef-
fectiveness of the pact under labor law—it must still
keep its promise to the pension plans.
Anything less may well saddle the plans with un-
funded obligations.
Gerber Truck, 870 F.2d at 1153.
As we concluded in Gerber Truck, section 515 clearly
forecloses the defense of fraud in the inducement. A & C
submits, however, that Gerber Truck does not foreclose the
defense of fraud in the execution. “Fraud in the induce-
ment” occurs when fraud induces a party to assent to
a commitment that the party understands but to which
the party would not otherwise have assented; the prom-
isor knows what it is signing but its assent is induced
by fraud. “Fraud in the execution,” by contrast, entails
deceiving a party to an agreement as to the very nature
of the instrument it signs so that the party “actually does
not know what he is signing, or does not intend to enter
into a contract at all.” Rosenthal v. Great Western Fin. Sec.
Corp., 926 P.2d 1061 (Cal. 1996); see Southwest Adm’rs, Inc.
v. Rozay’s Transfer, 791 F.2d 769, 774 (9th Cir. 1986); 12
Williston on Contracts § 1488, at 332 (3d ed. 1970). “Fraud in
the execution results in the agreement being void ab initio,
whereas fraud in the inducement makes the transac-
tion merely voidable.” Rozay’s Transfer, 791 F.2d at 774;
see Rosenthal, 926 P.2d at 415; 12 Williston on Contracts § 1488,
at 332.
Several circuits have recognized fraud in the execution
as a viable defense to suits by funds to collect delinquent
contributions under ERISA because fraud in the execu-
tion renders the collective bargaining agreement void
rather than merely voidable. See Louisiana Bricklayers &
18 No. 01-1622
Trowel Trades Pension Fund & Welfare Fund v. Alfred Miller
Gen. Masonry Contracting Co., 157 F.3d 404, 408 (5th Cir.
1998); Agathos v. Starlite Motel, 977 F.2d 1500, 1505 (3d Cir.
1992); Benson v. Brower’s Moving & Storage, Inc., 907 F.2d
310, 314 (2d Cir. 1990); Rozay’s Transfer, 791 F.2d at 774 (9th
Cir.). The distinction between void and voidable contracts
and a fund’s ability to enforce a contract makes sense, be-
cause when a contract is void, it is as if it never existed. See
Operating Eng’rs Pension Trust v. Gilliam, 737 F.2d 1501, 1505
(9th Cir. 1984) (where employer’s signature on CBA is pro-
cured by fraud in the execution, it is as though “no collec-
tive bargaining agreement exists”).
Where a person is fraudulently induced to sign or en-
dorse a bill or note in the reasonable belief that he is
signing something else, he cannot really be said to have
made or indorsed the bill or note; hence the ancient plea
of non est factum is applicable. He is in effect stating
that this is not his contract; in fact, it is not a contract
at all.
12 Williston on Contracts § 1488, at 333.
A promisor’s signature procured by fraud in the execu-
tion gives no more effect to a contract than a promisor’s
signature that has been forged. In either case the contract
is void; it has never had any legal effect. See Andrews v.
Tallman, 131 A. 50, 51 (R.I. 1925) (“[U]nder the plea of non
est factum [a defendant] may be entitled to prove fraud in
the execution of the bond whereby the instrument never
had a legal existence as in cases of forgery . . . .”); Crocker
v. Bellangee, 6 Wis. 645, 1858 WL 2281, at 11 (Wis. 1858)
(“[A void contract] is null ab initio, and the subject of it
may be bought, sold, or otherwise dealt with, in all re-
spects precisely as though it had never been—for it never
hath been of any force. Instance, a forged or stolen deed,
or a deed obtained by fraud in the execution . . . .”). Con-
No. 01-1622 19
gress surely did not mean to allow pension funds to col-
lect contributions from employers whose signatures had
been forged on instruments containing collective bargain-
ing agreements, and it is no more likely that it intended to
allow funds to collect on contracts that are void because
of fraud in the execution.
This principle is consistent with our observation in Ger-
ber Truck that “[t]he pension or welfare fund is like a hold-
er in due course in commercial law, . . . entitled to en-
force the writing without regard to understandings or
defenses applicable to the original parties.” Gerber Truck,
870 F.2d at 1149. Fraud in the execution is a viable de-
fense to collection efforts by a holder in due course. See
U.C.C. § 3-305(a)(1)(iii) (1991). Because an employer’s as-
sent procured by fraud in the execution renders the agree-
ment void and the purported contract between the em-
ployer and the Union nonexistent, section 515 does not
foreclose the defense of fraud in the execution to actions
by pension funds to collect delinquent contributions.
2.
Although fraud in the execution is a viable defense un-
der ERISA section 515, A & C has not made out the de-
fense. In order to establish the defense of fraud in the ex-
ecution, A & C had to prove that it did not know that it was
signing a collective bargaining agreement that obligated
it to make contributions to the Funds and that its igno-
rance was excusable because it had reasonably relied up-
on the representations of the union representative. See Ill.
Conf. of Teamsters & Employers Welfare Fund v. Steve Gil-
bert Trucking, 71 F.3d 1361, 1365-66 (7th Cir. 1995); Rozay’s
Transfer, 791 F.2d at 774; see also U.C.C. § 3-305(a)(1)(iii)
(negotiable instruments). The Funds do not contest that the
20 No. 01-1622
Union representative, Mr. Frattini, misrepresented the na-
ture of the contract to Mr. Clark. They submit, however,
that Mr. Clark’s ignorance of the nature of the contract
was inexcusable because he had a reasonable opportunity
to review the document. A & C, on the other hand, sub-
mits that Mr. Clark did not have a reasonable oppor-
tunity to review the contract because Mr. Frattini asked
him to sign the contract while Mr. Clark was answering
the questions of eager employees and then took the con-
tract from Mr. Clark as soon Mr. Clark had finished sign-
ing it. The agreement was in front of Mr. Clark for only
one or two minutes.
A & C submits that the Ninth Circuit found fraud in the
execution under what it believes are very similar circum-
stances. In Gilliam, an owner-operator of a construction
company, Gilliam, wanted to join the union so that he
could operate his bulldozer on a job on which the workers
were unionized. See 737 F.2d at 1502-03. The union repre-
sentative gave Gilliam several documents to sign and
represented that they were standard owner-operator forms
for becoming a member of the union. See id. at 1504. In
fact, however, the documents contained a collective bar-
gaining agreement that obligated his company to make
pension fund contributions for its workers. Gilliam did
not read the documents, but merely relied on the union
representative’s word. The Ninth Circuit concluded that
no binding agreement was created because Gilliam did
not know what he signed and his ignorance was reasonable.
See id. at 1505.
We think that the situation before us is significantly
different. As the Ninth Circuit noted at the beginning of
its discussion, the facts of that case are “unusual.” Gilliam,
737 F.2d at 1502. There, the signing party was totally mis-
lead as to the nature of the document he was signing. The
No. 01-1622 21
employer was given several documents to sign that had
already been filled out by the union representative, and he
was told that the documents were standard forms signed
by owner-operators who wanted to join the union, when
in fact the documents covered an entirely different sub-
ject matter—a collective bargaining agreement. Here, by
contrast, Mr. Clark was given a one-page form, which he
filled out himself, writing the name of the company directly
below the caption, “COLLECTIVE BARGAINING AGREE-
MENT.” App. of Appellants at 129. Moreover, the rec-
ord reveals that Mr. Clark was well aware of the fact that
the act he was undertaking usually entailed the very result
that occurred—the inclusion of all of the company’s opera-
tions, not just the work of a few employees, under any
contract with the Union. That possibility had been the
subject of a previous discussion in which he expressed
his concerns to Mr. Frattini that if a company “goes
union . . . it covers all their company operations.” Tr.V
at 187. Mr. Clark, therefore, should have been on the look-
out for just such a clause in the document he was sign-
ing. It was not reasonable for Mr. Clark to forego the
opportunity to review the document. A & C points out that
Mr. Clark only had a high school education, but as a rep-
resentative of A & C with the power to enter into con-
tracts for the company, Mr. Clark ought to have known
not to sign something on behalf of the company without
reading it first. See Hill v. Gateway 2000, Inc., 105 F.3d 1147,
1148 (7th Cir. 1997) (“A contract need not be read to be
effective; people who accept take the risk that the unread
8
terms may in retrospect prove unwelcome.”).
8
In Paper Express, Ltd. v. Pfankuch Maschinen, 972 F.2d 753
(7th Cir. 1992), this court enforced the terms of a forum selec-
(continued...)
22 No. 01-1622
Here, Mr. Clark signed a one-page document written in
English and entitled “Collective Bargaining Agreement.”
A & C maintains that Mr. Clark did not know what a collec-
tive bargaining agreement was; he should have found out.
See Paper Express, Ltd. v. Pfankuch Maschinen, 972 F.2d 753,
757 (7th Cir. 1992) (“[E]ven though Paper Express may not
be fluent in German, we are confident that with the aid
of a German-English dictionary, or, even better, a trans-
lator, Paper Express could have mastered the rules of
[the forum selection clause].”). A & C insists that Mr. Clark
did not understand that the contract would require the
company to contribute to the pension funds; if he had
reviewed the single page he would have learned that it
did. In short, Mr. Clark’s ignorance of the nature of the
contract was not excusable. Thus, as a matter of law, A & C
did not prove fraud in the execution; it simply has failed
to show that there was any reasonable basis for Mr.
Clark’s reliance on the earlier representations of the union
representative.
8
(...continued)
tion clause where the party opposing its enforcement had not
read the clause before signing the contract. There, the only
reference in the contract to the forum selection clause was in a
brief warranty clause referring to another document and the
forum selection clause was written in German and in extremely
fine print. Id. at 754. Nevertheless, the court noted that “it is a
fundamental principal of contract law that a person who signs
a contract is presumed to know its terms and consents to be
bound by them.” Id. at 757. Even the fact that the rules were in
German did not preclude enforcement. “In fact, a blind or
illiterate party (or simply one unfamiliar with the contract
language) who signs the contract without learning of its contents
would be bound.” Id.
No. 01-1622 23
3.
A & C also submits that the jury reasonably could have
concluded that A & C’s employees had not performed work
covered by the Asbestos Agreement. We disagree. Para-
graph 4(a) of the Asbestos Agreement, entitled “Scope
of Work,” provides that the “branches of work covered
by this Agreement” include “the handling, removal, abate-
ment, or encapsulation of asbestos and/or toxic or haz-
ardous waste or materials.” App. of Appellants at 152.
Covered work further includes “the operation of all tools
and equipment: including, but not limited to, gener-
ators, compressors, and vacuums used in the removal and
abatement of toxic or hazardous waste or materials,” and
“all other work incidental to the handling, removal, control,
abatement, disposal and/or encapsulation of asbestos
and/or toxic or hazardous waste or materials.” Id. Para-
graph 4(b) defines hazardous waste duties to include
“overpacking . . . and general clean-up of leaked materials
or chemicals . . . .” Id. Although Mr. Clark testified that
A & C has never employed asbestos laborers, he also
testified that A & C employees handle hazardous mate-
9
rials, that they have done overpacking, that they have
cleaned spilled materials off of floors and that they use
air compressors to clean walls, floors and vessels with a
“C O 2 blaster.” Tr.VI at 240.
Judgment as a matter of a law is appropriate on a particu-
lar issue if “there is no legally sufficient evidentiary basis
for a reasonable jury to find for [the non-moving] party on
that issue . . . .” Fed. R. Civ. P. 50(a). The Asbestos Agree-
9
Overpacking entails “taking a drum that is leaking or bent or
in bad shape and putting it inside a larger plastic drum so
in transportation it doesn’t leak.” Tr.VI at 242 (testimony of Mr.
Clark).
24 No. 01-1622
ment unambiguously covers work with hazardous mate-
rials other than asbestos. No reasonable juror could have
concluded, therefore, that A & C’s employees did not
perform work covered by the Asbestos Agreement. The
Funds have presented uncontroverted evidence that A & C
signed the CBA, that the CBA obligated A & C to contrib-
ute a certain amount of money to the Funds based on the
amount of covered work performed by A & C’s employ-
ees, and that A & C employees performed work covered
by the CBA.
With respect to the delinquent union dues, A & C does
not challenge the evidence showing that the CBA obli-
gated it to remit dues to the Union, that A & C failed to
do so, and that the Funds have authority to collect the
delinquent dues. Therefore, because A & C has not contro-
verted the evidence establishing its liability to pay contribu-
tions and union dues, and, because it cannot prove the
defense of fraud in the execution, the Funds were entitled
to judgment as a matter of law on both claims.
4.
The Funds submit that they are entitled to judgment
not only on the question of A & C’s liability but on the
amount of damages as well. According to the Funds, the
auditor’s report detailing the amount of delinquent contri-
butions that A & C owes is entitled to a presumption
of correctness, which A & C has the burden to rebut, be-
cause A & C failed to maintain records adequate to estab-
lish the precise number of hours of covered work that its
employees performed. The Funds rely on cases from three
other circuits holding that if a pension or welfare fund
has proven that an employer is liable for delinquent con-
tributions, and the employer has failed to keep records
No. 01-1622 25
that would allow the fund to calculate the precise amount
of contributions owed, then the burden shifts to the em-
ployer to come forward with evidence of the precise
amount of covered work (work covered by the CBA) per-
formed by its employees or to come forward with evidence
to challenge the accuracy of the fund’s calculations. See
Mich. Laborers’ Health Care Fund v. Grimaldi Concrete, Inc.,
30 F.3d 692, 695-96 (6th Cir. 1994); Brick Masons Pension
Trust v. Indus. Fence & Supply, Inc., 839 F.2d 1333, 1337-39
(9th Cir. 1988); Combs v. King, 764 F.2d 818, 825-27 (11th
Cir. 1985). The rule operates to relieve the plaintiff fund
of its burden to prove precisely how much of the work
performed by the defendant’s employees was covered work
when the employer has failed to keep records that would
have allowed the fund accurately to calculate such dam-
ages. See Brick Masons, 839 F.2d at 1338-39. For example,
in Brick Masons and Grimaldi, the funds had proven that
at least some of the total amount of work performed by
the defendants’ employees was covered work, but it was
impossible to determine how much work because the
employer had breached its statutory duty to keep records
from which such a determination could have been made.
See Grimaldi, 30 F.3d at 694; Brick Masons, 839 F.2d at 1336.
The remedy in such a case is to award the fund contribu-
tions for all of the hours worked, unless the employer can
show that some of the hours were not spent doing cov-
ered work. See Grimaldi, 30 F.3d at 696-97; Brick Masons, 839
F.2d at 1339. The court explained the rationale behind the
burden-shifting rule in Brick Masons:
The records that employers are required to keep by . . .
ERISA may be the only evidence available to employ-
ees to prove that their employers have failed to com-
pensate them in accordance with the statute. An em-
ployer cannot escape liability for his failure to pay his
employees the wages and benefits due to them under
26 No. 01-1622
the law by hiding behind his failure to keep records
as statutorily required.
Id. at 1338.
The rule prevents summary judgment against a fund
when the fund is unable to prove damages with specificity
because of the employer’s failure to keep adequate rec-
ords. We previously have held, however, that this rule
does not apply to compel judgment against an employer
when the employer raises a genuine issue of material fact
as to the accuracy of the fund’s calculation. See Illinois
Conference of Teamsters and Employers Welfare Fund v.
Steve Gilbert Trucking, 71 F.3d 1361, 1367 (7th Cir. 1995)
(employer’s failure to come forward with documentary
evidence establishing amount of covered work performed
was not fatal in effort to oppose fund’s motion for sum-
mary judgment when factual issues remained as to the
amount owed).
Unlike the situation in Combs, Brick Masons and Grimaldi,
the entirety of the award of contributions that the Funds
seek is based on what the auditor determined to be cov-
ered work. Neither the Funds nor A & C claim that A & C’s
records were inadequate to allow the auditor to deter-
mine whether the hours included in the report were spent
10
on covered work. Therefore, because A & C’s records
were adequate to permit the Funds’ auditors to determine
10
The Funds claim that A & C’s records were inadequate be-
cause some documents—a cash disbursement journal, pos-
sibly some work orders, and a certain payroll register—were
missing and these documents might reveal the existence of
additional workers, not included in the auditor’s report, who
performed covered work. Because the Funds only seek the
amount of delinquent contributions identified in the report,
however, these supposed inadequacies have no bearing on the
amount of contributions they hope to recover.
No. 01-1622 27
the amount of covered work that A & C employees per-
formed and based on which the Funds seek contribu-
tions, the Combs-Brick Masons burden-shifting rule does not
apply.
The Funds have made no other argument in support of
their position that they are entitled to judgment as a mat-
ter of law on the issue of damages. The question of how
much of the work performed by A & C employees was cov-
ered under the collective bargaining agreements is a ques-
tion of fact appropriately resolved in the district court. We
therefore remand the case to the district court for the
determination of damages.
Conclusion
Because A & C has not controverted the evidence estab-
lishing its liability to the Funds for the delinquent contribu-
tions and union dues, and because A & C did not prove
the defense of fraud in the execution, the Funds are en-
titled to judgment as a matter of law. We therefore re-
verse the district court’s denial of the Funds’ motion for
judgment as a matter of law and remand the case to the
district court for the determination of damages. The Funds
may recover their costs of this appeal.
REVERSED AND REMANDED
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-97-C-006—8-19-02