Unpublished Disposition, 881 F.2d 1084 (9th Cir. 1989)

MEMORANDUM^* 

Operating Engineers Pension Trust and other employee benefit trusts appeal the district court's order granting a motion in limine to preclude the trusts from relitigating issues previously decided. A.J. Construction Co., Inc. and other contractors cross-appeal the district court's order granting damages to the trusts. We affirm.

The trusts contend that the district court incorrectly applied the doctrine of collateral estoppel to preclude litigation of their claims for liquidated damages, audit costs, interest, and attorney fees. These claims were based on the trusts' interpretations of the collective bargaining agreement between the parties and the Employment Retirement Income Security Act. The district court held that the trusts had previously unsuccessfully litigated these issues in Gene Sapper v. Don Greene Contractor, Inc., No. CV 81-4586 TJH (C.D. Cal. 1986).

The trusts first contend that collateral estoppel is not available. We review de novo the district court's determination that collateral estoppel is available. Davis & Cox v. Summa Corp., 751 F.2d 1507, 1519 (9th Cir. 1985). Collateral estoppel precludes relitigation of issues actually litigated and necessarily determined by a court. Id. (citing Montana v. United States, 440 U.S. 147 (1979)). The trusts contend that the issues here were not "necessarily determined" by the Sapper court. Collateral estoppel is not available where "the decision could have been rationally grounded upon an issue other than that which the defendant seeks to foreclose from consideration." Davis & Cox, 751 F.2d at 1518-19 (citing Ashe v. Swenson, 397 U.S. 436, 444 (1970)).

The trusts claim that the Sapper court did not "necessarily determine" the issues of contractor liability for additional damages (costs, liquidated damages, attorney's fees, and interest) under the collective bargaining agreement and ERISA. The suit, the trusts contend, could have been disposed of based solely on the Sapper court's decision that the defendant contractors were jointly liable for the unpaid contributions of the delinquent subcontractor and that the amount already paid in settlement by various contractors exceeded the total liability of the delinquent subcontractor. The Sapper court did find that the amount paid in settlement by various contractors exceeded the delinquent subcontractor's total liability and that the general contractors were jointly liable for the subcontractor's liability. However, the court still had to determine whether the individual contractors were severally liable for additional damages. To resolve this issue, the Sapper court had to determine that neither ERISA nor collective bargaining agreement made the contractors liable for these additional damages. The Sapper court therefore "necessarily determined" these issues.

The trusts also contend that even if collateral estoppel was available, the district court should not have applied the doctrine. They assert that several cases interpret similar subcontracting clauses differently than Sapper. See Operating Eng'rs Pension Trust v. Silvergate Corp., CV83-1411R (D.C.C.D.Cal) (1983); Burke v. French Equipment Rental Inc., 498 F. Supp. 94 (C.D. Cal. 1976), rev'd, 687 F.2d 307 (9th Cir. 1982); Burke v. Ernest v. Hahn, Inc., CV75-2724 LTL (D.C.C.D. Cal.) (1975). Once we have determined that collateral estoppel is available, we review for abuse of discretion the district court's decision to apply the doctrine. Davis & Cox, 751 F.2d at 1519. We find no such abuse. Silvergate, French Equipment, and Hahn involved different subcontracting clauses and antedated Sapper. See Robi v. Five Platters, Inc., 838 F.2d 318, 322 (9th Cir. 1988) (applying "last-in-time" rule to choose among inconsistent cases for purposes of res judicata).

In their cross-appeal, the contractors claim that the provision in the collective bargaining agreement which provides that contractors who subcontract to a delinquent subcontractor are liable for the subcontractor's unpaid contributions is unenforceable because it is a penalty. The contractors cite no authority for the proposition that parties to a collective bargaining agreement cannot contract to impose liquidated damages on a breaching party. The liability imposed by this clause--requiring a contractor to guaranty the obligation of a delinquent subcontractor--is directly related to the harm caused by breach of the "no subcontracting" clause. Breach of the "no subcontracting" clause detracts from collection of delinquent contributions from subcontractors. Requiring a breaching contractor to guaranty a delinquent subcontractor's obligation merely replaces what the breaching contractor has impaired: the collectibility of the obligation.

The contractors also contend that the district court erred by refusing to apply California law regarding the liability of a guarantor. They claim they should have been exonerated from liability based on Cal.Civ.Code Sec. 2819 which exonerates a guarantor when the guarantor's obligation has been materially changed. "In considering actions or suits to enforce labor contracts ..., the court must apply federal substantive law." Seymour v. Hull & Moreland Engineering, 605 F.2d 1105, 1109 (9th Cir. 1979). State law may be considered, but only to the extent that it "effectuates the policy that underlies federal labor legislation." Kemmis v. McGoldrich, 706 F.2d 993 (9th Cir. 1983). Application of California law here would undermine the federal labor policies of facilitating collective bargaining and enforcing collective bargaining agreements according to the parties' intent. See Allis-Chalmers Corp. v. Lueck, 471 U.S 202, 211 (1985). The district court did not err in refusing to apply the California statute.

Each party will bear its own costs.

AFFIRMED.

KOELSCH, Circuit Judge, concurring:

I concur in the result.