Sletten Construction Co. v. Audit

No. 79-78
IN THE SUPREME COURT OF THE STATE OF MONTANA
1980
SLETTEN CONSTRUCTION COMPANY,
A CORPORATION,
Defendant and Appellant,
AUDIT SERVICES, INC., A Montana Corporation,
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Appeal from: District Court of the Eighth Judicial District,
In and for the County of Cascade.
Honorable John McCarvel, Judge presiding.
Counsel of Record:
For Appellant:
Jardine, Stephenson, Blewett and Weaver, Great Falls,
Montana
Alexander Blewett I11 argued, Great Falls, Montana
For Respondent:
Cure and Borer, Great Falls, Montana
Max -argued, Great Falls, Montana
DL@&
Submitted: September 11, 1980
Decided: OCT 2 7 59@
Filed: &I 8 7 19jd
Mr. Justice Gene B. Daly delivered the Opinion of the Court.
This is an appeal from a judgment of the District Court
of the Eighth Judicial District of the State of Montana, in
and for the County of Cascade, the Honorable John M.
McCarvel presiding. Audit Services, Inc. (Audit Services) ,
the assignee of the trustees of several Laborers, Operating
Engineers and Teamster trust funds, filed a complaint
against Sletten Construction Co. (Sletten), attempting to
recover fringe benefit contributions for hours worked by
employees of Swartz Brothers Excavating, Inc. (Swartz), a
subcontractor of Sletten on fifteen different projects, from
the period of January 1 , 1977, through September 18, 1977.
Audit Services is also attempting to recover audit fees,
liquidated damages, interest and attorney fees.
During the subject period of this litigation, Sletten
was a party to and bound by several collective bargaining
and trust agreements with numerous contractors1 associations
and unions. All fifteen Sletten-Swartz projects were
covered by one of the collective bargaining agreements
(CBAs) . By the terms of the CBAs, Sletten agreed to make
fringe benefit contributions to the unions1 trust funds.
Each of these agreements also contain a subcontractors1
clause. Although the wording of the clauses vary slightly,
their purposes are the same. The clauses state that the
employer (Sletten) agrees that the contractors to whom
subcontracts are let shall be required to comply with all
the requirements, conditions and intents of the CBAs and
shall continue to do so throughout all parts of the
subcontract work. Any violation of the agreement would
constitute a breach of the agreement. One clause
specifically allows that controversies over the
interpretation of the agreement be subject to a grievance
arbitration procedure.
The Swartz business first came into existence in the
early 1970's when Robert Swartz began operating an
excavating business known as Robert Swartz Excavating, a
sole proprietorship. Subsequently, Robert's brother
Clarence joined the business, and the name was changed to
Swartz Brothers Excavating, which was a partnership. In
1975, the brothers incorporated their business which became
known as Swartz Brothers Excavating, Inc. During these
entity changes, the business carried on the same type of
work. In its capacity as a sole proprietorship, partnership
and corporation, the excavating business executed a series
of compliance agreements with the Laborers, Operating
Engineers and Teamster unions. The agreements incorporated
the terms of the existing CBAs negotiated by those unions
with the aforementioned contractors' a.ssociations of which
Sletten is a member. The compliance agreements also
incorporated the terms of the Montana Laborers, Operating
Engineers, and Teamster trust funds. A number of the
compliance agreements were executed prior to the
incorporation of Swartz Brothers Excavating, Inc.
While performing work for Sletten, Swartz Brothers
Excavating, Inc., observed all current CBAs by making
required fringe benefit contributions on behalf of its
Laborers, Operating Engineers and Teamster employees until
mid-1977, the subject period of this litigation. At that
time Swartz stopped making payments because it was having
cash-flow problems. Eventually all operations by Swartz
ceased, and a p e t i t i o n f o r b a n k r u p t c y was f i l e d i n O c t o b e r
1977.
A u d i t S e r v i c e s , u n d e r two t h e o r i e s o f l i a b i l i t y , filed
suit against S l e t t e n seeking the contributions S w a r t z had
failed t o make. Under the first theory, Audit Services
alleged Sletten breached its obligation under the CBAs.
Under t h e s e c o n d t h e o r y , A u d i t S e r v i c e s a l l e g e d S l e t t e n was
o b l i g a t e d t o p a y c o n t r i b u t i o n s u n d e r s e c t i o n 39-3-706, MCA.
Basing i t s d e c i s i o n on b o t h theories, the District Court
g r a n t e d j u d g m e n t i n f a v o r o f A u d i t S e r v i c e s i n t h e amount o f
$9,578.89 as fringe benefit contributions for Swartz's
employees, $426.19 as liquidated damages, interest of
$27.64, audit fees of $548.71, and attorney fees of
$2,925.00. S l e t t e n appeals.
The i s s u e p r e s e n t e d on a p p e a l i s w h e t h e r t h e D i s t r i c t
Court e r r e d i n finding t h a t t h e subcontractors' clauses in
t h e c o l l e c t i v e bargaining agreements c o n t r a c t u a l l y o b l i g a t e d
S l e t t e n C o n s t r u c t i o n Co. t o p a y f r i n g e b e n e f i t c o n t r i b u t i o n s
t o Audit Services, Inc., f o r h o u r s worked by S w a r t z B r o t h e r s
Excavating, Inc., a subcontractor of S l e t t e n Construction
Co.
Sletten contends that there is no contractual
obligation under the CBAs because the subcontractors'
c l a u s e s a r e u n e n f o r c e a b l e and v o i d i n a c c o r d a n c e w i t h T i t l e
29, U.S.C.A. §158(e). It argues that the clauses, in
e f f e c t , p r o v i d e t h a t S l e t t e n a g r e e s n o t t o s u b c o n t r a c t any
work to any contractor who is not a union contractor
employing union employees and, thus, are prohibited by
S158 ( e ) .
Respondent a r g u e s t h a t the subcontractors' clauses
merely require Sletten to apply the same terms and
conditions in its own union-signatory clauses; they are all
union-standards clauses and, therefore, fall outside the
scope of 29 U.S.C. S158(e).
Federal, rather than state, law principles of contract
construction apply in determining the meaning of the
subcontractors' clause since it is a provision of a
collective bargaining agreement. Application of federal
law is necessary to avoid the "possibility that individual
contract terms might have different meanings under state and
federal law." Walsh v. Schlecht (1977), 429 U.S. 401, 97
S. Ct. 679, 50 L. Ed. 2d 641.
The pivotal issue is whether the subcontractors'
clauses are union-signatory or union-standards clauses. We
agree with Judge Skelly Wright who held in Truck Drivers
Union Local No. 413, etc. v. NLRB (D.C. Cir. 1964), 334 F.2d
539, cert. denied, 118 U.S.App.D.C. 149, that union-
signatory clauses are secondary and, therefore, within the
scope of 29 U.S.C. S158(e) of the NLRA, while union-
standards clauses are primary as to the contracting
employer. The subject subcontractors' clause would be a
union-signatory clause if it required subcontractors to have
collective bargaining agreements with petitioner unions or
their affiliates or with unions generally.
We interpret the clause, however, as merely requiring
that subcontractors observe the equivalent of union wages,
hours, and the like. Since we find that this clause only
requires union standards, and not union recognition, we rule
it primary and, thus, outside the prohibition of S158(e).
The concept of a "union-standards" subcontracting clause has
r e p e a t e d l y been a p p r o v e d i n f e d e r a l c a s e s . Mine Workers v .
P e n n i n g t o n ( 1 9 6 5 ) , 381 U.S. 657, 85 S . C t . 1 5 8 5 , 1 4 L. Ed. 2d
626; see, e.g., NLRB v . N a t i o n a l M a r i t i m e Union (2nd C i r .
Having d e t e r m i n e d t h a t t h e c l a u s e s a r e n o t v o i d , it is
n e c e s s a r y t o d e c i d e i f t h e y impose c o n t r a c t u a l l i a b i l i t y on
Sletten. T h e r e i s no d i s p u t e t h a t t h e c l a u s e s i n c o r p o r a t e
the fringe benefits requirements of the underlying
agreement. The c l a u s e s s p e a k o f a c o n t i n u i n g o b l i g a t i o n t o
s e e t h a t t h e s u b c o n t r a c t o r a b i d e by t h e t e r m s and c o n d i t i o n s
of i t s CBA, including fringe benefits, and n o t m e r e l y t h e
o b t a i n i n g o f an i n i t i a l a g r e e m e n t . S i n c e t h e o b l i g a t i o n is
assumed by t h e p r i m a r y c o n t r a c t o r , when i t i s b r e a c h e d l o g i c
d i c t a t e s t h a t t h e remedy l a y a g a i n s t t h e p r i m a r y c o n t r a c t o r
i n f a v o r of t h e t r u s t e e s .
The N i n t h C i r c u i t r e c e n t l y d e c i d e d t h i s v e r y i s s u e i n
Seymour v . Hull & Moreland E n g i n e e r i n g ( 9 t h C i r . 1 9 7 9 ) , 605
F.2d 1 1 0 5 . I n t h a t c a s e t h e r e was a s u b c o n t r a c t o r s ' c l a u s e
similar in wording to those in issue here. It was
i n t e r p r e t e d i n t h e f o l l o w i n g manner:
" A r t i c l e V I I I o f t h e 1969-1974 M a s t e r S u r v e y
Agreement p r o v i d e s t h a t :
" ' [ i l t i s f u r t h e r a g r e e d t h a t s h o u l d a n y Employer
s u b l e t any p a r t o r p o r t i o n o f h i s work c o v e r e d by
t h i s A g r e e m e n t , t o a n y o t h e r Employer o r s u b -
e m p l o y e r , t h e p r o v i s i o n s o f t h i s Agreement s h a l l
be b i n d i n g upon and a p p l i c a b l e t o a l l work p e r -
formed by s a i d Sub-employer on t h e j o b s i t e . '
" A r t i c l e V I I I was b r o u g h t t o t h e t r i a l c o u r t ' s
a t t e n t i o n and no e x p r e s s r u l i n g on i t s e f f e c t
was handed down; h o w e v e r , i t i s o b v i o u s t h a t t h e
c o u r t could n o t have found t h e d e f e n d a n t s n o t
l i a b l e for Hardin's time without a l s o f i n d i n g
t h a t A r t i c l e V I I I imposed no o b l i g a t i o n .
"The t r u s t e e s c o n t e n d on a p p e a l t h a t A r t i c l e
V I I I i s s u b j e c t t o o n l y one l a w f u l i n t e r p r e t a -
t i o n , and t h a t t h i s c o u r t m u s t g i v e i t t h a t
interpretation in accordance with the principle
that a contract provision should not be inter-
preted in a fashion which renders it meaningless.
According to the trustees, the only lawful inter-
pretation that can be given Article VIII is that
it requires the defendants to make contributions
to the fringe benefit funds measured by hours
worked by nonsignatory subcontractors, but that
such contributions are not to be on behalf of
such subcontractors. The trustees thus propose
an interpretation somewhat analogous to an ex-
clusive listing arrangement in the real estate
brokerage field: regardless of who actually
does the work the union's fringe benefit fund
will be compensated.
"The language of Article VIII is reasonably
susceptible to the trustees' interpretation.
Even though the language does not speak in
terms of affirmatively requiring the employer
to bind subcontractors to the Master Survey
Agreement, it does say that the provisions of
the agreements 'shall be binding upon and
applicable to' work performed by subcontractors.
If the agreement is 'applicable' to subcon-
tractors' work, then it is reasonable to infer
that the employer must make contributions to
the fringe benefit funds based upon non-
signatory subcontractors' work.
"This ambiguous provision, however, is sus-
ceptible to several interpretations. The
trustees maintain that under federal labor
legislation theirs is the only lawful inter-
pretation. The trustees cite Walsh v. Schlecht,
429 U.S. 401, 97 S. Ct. 679, 50 L. Ed. 2d 641
(1977), for the proposition that so-called
'subcontractors' clauses' calling for payment
of fringe benefits to union trust funds are
legal only if they require payments to the
fund generally, based upon hours worked by
subcontractors, and not to make payments on
behalf of employees not covered by the agree-
ment. The restrictive interpretation of such
clauses, according to Schlect, is mandated by
5302 of the Labor Management Relations Act,
29 U.S.C. 5186. 5302 makes unlawful the pay-
ment of anything of value by an employer to
. .. any representative of his employees who
are employed in an industry affecting commerce
. . . ' 29 U.S.C. §186(a)(l). 5302 was intended
to prevent bribery of union officials by
employers. Among the exceptions to this rule,
however, is a provision which allows payments
to trust funds ' ... for the sole and exclu-
sive benefit of the employees of such employer
... 29 U.S.C. §186(c)(5). Walsh held that
one side effect of 5302 is that employers may
make contributions only to trust funds estab-
lished for their own employees, and not for
the benefit of a non-employee independent con-
tractor. Accordingly, subcontractors' clauses
may require only that contributions be made
measured by the hours worked by such non-
employees.
"(8) It is well-settled that ambiguously-worded
contracts should not be interpreted to render
them illegal and unenforceable where the word-
ing yields a construction which is both legal
and enforceable. Walsh v. Schlect, 429 U.S.
401, 408, 97 S. Ct. 679 (1977); cf. In re Wonder-
fair Stores, Inc. of Arizona, 511 F.2d 1206
(9th Cir. 1975); Washington Capitols Basketball
Club, Inc. v. Barry, 419 F.2d 472 (9th Cir.
1969). Unless Article VIII be given the con-
struction mandated by Walsh, it has no logical
or legally enforceable meaning. If the union
cannot compel payments to fringe benefits funds
based upon Article VIII, then there is little
that it can enforce under that article. With
all the signposts pointing so forcefully in the
direction of one interpretation, we have no
choice but to give the contract that interpreta-
tion. . ." Seymour v. Hull & Moreland Engineering,
605 F.2d at 1114-1115.
Appellant contends, and respondent agrees, that the
subcontractors' clauses merely state that all subcontractors
to whom Sletten subcontracts work shall be required to
comply with the terms of the CBAs or that Sletten shall not
subcontract work to contractors who do not agree with the
agreements. Both parties fail to mention that, if a
subcontract is so let, the employer (Sletten) agreed to be
responsible to see that the subcontractors comply with the
requirements of the CBA, including the payment of fringe
benefits in accordance with the schedules in the rear of the
CBAs. It is, therefore, reasonable to infer that, if the
subcontractor fails to make the payments, it is the primary
contractor's obligation to live up to his agreement and do
so. We hold that the subcontractors' clauses, the payment
schedules and the compliance agreements constitute a legal
and enforceable promise to pay on the part of Sletten.
L d %+
A£ f i r m e d .
Justice
W e concur:
Chief J u s t i c e
Justices