Midtown Express, LLC v Uptown Communications & Elec., Inc.

[*1] Midtown Express, LLC v Uptown Communications & Elec., Inc. 2012 NY Slip Op 50671(U) Decided on January 24, 2012 Supreme Court, Queens County Kitzes, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 24, 2012
Supreme Court, Queens County

Midtown Express, LLC, I, Plaintiff,

against

Uptown Communications & Electric, Inc., Defendant,



17347/11

Orin R. Kitzes, J.

The following papers numbered 1 to 10 read on this motion by defendant ("Uptown") for an order dismissing the complaint because the causes of action are preempted by federal law, or pursuant to CPLR 3211(a)(7), for failure to state a cause of action.

PAPERSNUMBERED

Notice of Motion-Exhibits-Memo..............................1 - 4

Memo of Law in Opp-Exhibits...................................5 - 7

Reply Memorandum-Exhibit.......................................8 - 10

Upon foregoing papers it is ordered that the this motion by Uptown for an order dismissing the complaint because the causes of action are preempted by federal law, or pursuant to CPLR 3211(a)(7), for failure to state a cause of action is decided as follows:

According to the complaint, this action involves plaintiff ("Midtown") and Uptown, both being engaged in the business of installing cable television, internet, and telephone services, both having contracted with Time Warner Cable, Inc. ("TWC") to provide these services, and TWC has always been their primary customer. Midtown and Uptown both employ members of the International Brotherhood of Electrical Workers, AFL-CIO, Local Union No. 3 (the "Union"). In or around early 2007, Midtown and Uptown participated in joint negotiations with the Union and each entered into an individual written agreement with the Union that is identical in all material respects. Each party's Union Agreement sets forth, among other things, the wages to be paid to each party's Union employees and that they are obligated to pay into joint benefits plans, which cover pension, medical, dental, and educational benefits, collectively known as the Joint Industry Board fund, or "JIB Fund."

The JIB Fund benefits both Midtown's and Uptown's employees. Each party's mandatory payments into the JIB Fund are calculated as percentage of the gross straight-time payroll of each party's Union employees for all hours worked, both regular time hours and overtime hours. Each party is required under its Union Agreement to pay 37.96% of such gross payroll into the JIB Fund. [*2]

Employees in the cable installation services industry, including Midtown's and Uptown's employees, are expected to and do regularly work overtime and also receive "incentive pay" for meeting certain work requirements. Uptown has taken the position that JIB Fund payments are not due on incentive pay, and the Union and/or the administrators of the JIB Fund have agreed to this position. Consequently, Uptown does not pay into the JIB Fund on its employees' incentive pay. Clearly, the mandatory JIB Fund payments represent a significant cost for both parties and erode a significant portion of each party's profit margins. Plaintiff claims that Uptown has for several years engaged in an unlawful scheme to avoid making full payments to the JIB Fund thereby giving it an unfair and unlawful economic advantage in competing with Midtown for additional work from TWC and resulted in Midtown losing work it otherwise would have gotten from TWC.

In or around February 2011, the parties entered into a new round of joint negotiations with the Union. During the course of negotiations with the Union, Uptown's executives made numerous admissions that Uptown had for several years intentionally and unlawfully misclassified and concealed its employees' straight-time wages and hours worked, and thereby wrongfully avoided JIB Fund payments and underpaid employees for hours worked. For example, on or about March 22, 2011, during a meeting between the parties and Metropolitan, Jonathan Smokler, an officer of Uptown ("Smokler") stated that Uptown's policy is to report that its employees have worked 40 hours per week regardless of the number of hours the employees have actually worked, and that Uptown instead pays any overtime wages due as "incentive pay" on which Uptown does not make JIB Fund payments. Another example occurred on March 31, 2011, when in a meeting between the parties and Metropolitan after a negotiation session with the Union, Smokler again confirmed that Uptown was unlawfully mis-classifying their employees' overtime wages, and stated that without concessions from the Union or TWC, Uptown "will be in the same boat as Midtown and not make any money," or words substantially to that effect. Midtown claims that prior to the Union negotiations beginning in March 2011, Midtown was not aware, and had no reason to be aware, that Uptown was wrongfully avoiding JIB Fund payments by unlawfully underreporting its employees' straight-time wages and hours worked, and concealing them from the JIB Fund. Uptown continues today to unlawfully misclassify and conceal all of its employees' straight-time wages and hours worked and to illegally calculate the gross wages that its employees earned.

Midtown also claims that in addition to fraudulently concealing its employees' wages from the JIB Fund, thereby avoiding substantial mandatory JIB Fund payments, Uptown's two-paycheck method of paying employees, their scheme to avoid the payments, is in direct and clear violation of the federal Fair Labor Standards Act ("FLSA"). Under sections 7(a)-(e) of the FLSA, codified at 29 U.S.C. § 207(a)-(e), employers are required to include incentive payments as part of the employee's "regular rate" when calculating overtime. By segregating its employees' base pay (on the first, "on the books" paycheck) from their supposed incentive and overtime pay (on the second, "off the books" paycheck), Uptown has intentionally violated the FLSA's overtime provisions and has significantly underreported hours worked and underpaid its employees.

After discovering Uptown's improper payments to employees and the JIB Fund, Midtown commenced the instant action which alleges in its complaint three causes of action sounding in [*3]common-law tort. The first cause of action is for tortious interference with plaintiff's prospective economic advantage. It states, in pertinent part, that Uptown was aware of Midtown's business relationship with Times Warner Cable ("TWC") and was aware that Midtown desired to conduct additional business with TWC. However, Uptown acted wrongfully and in willful violation of the law in mis-classifying and concealing its employee's earnings and hours worked on TWC projects in order to, among other things, reduce its payments into the JIB Fund into which Uptown and Midtown were required to make payments, and to gain an unfair competitive advantage over Midtown. This wrongful conduct was intended to interfere, and did so interfere, with Midtown's business relations with TWC by enabling Uptown to contract for cable installation work from TWC that otherwise would have gone to Midtown. But for Uptown's wrongful conduct, Midtown would have contracted with TWC to perform all of the cable installation work that Uptown performed.

The second cause of action is for unjust enrichment. It states, in pertinent part, that, Midtown and Uptown are not in a contractual relationship and they both have the same obligations to pay into the JIB Fund, which exists for the benefit of both of their employees. While Midtown has correctly paid all money it owes to the Fund, Uptown has not paid a significant amount it owed to the Fund. Despite its failure to pay into the Fund, Uptown has made full use of the Fund to pay its employee's benefits. As a result, Midtown has paid for Uptown's employee's benefits to the extent Uptown has failed to meet its obligations to pay into the Fund and Uptown has not compensated Midtown for the benefit thus conferred. The third cause of action is for conversion. It states, in pertinent part, that by failing to make the proper payments into the Fund, Uptown has intentionally and wrongfully interfered with Midtown's property rights to the money in the Fund to the exclusion of Midtown's superior property rights. Plaintiff seeks to recover compensatory damages on the three causes of action in an amount not less than $5,700.000.00 and for costs and reasonable attorneys' fees.

Uptown now moves for an order dismissing the complaint on the following grounds: the first cause of action must be dismissed because it is preempted by two federal statutes: § 301 of the Labor Management Relations Act ("LMRA") and § 514(a) of the Employee Retirement Income Security Act ("ERISA"). These statutes govern the interpretation and enforcement of collective bargaining agreements and the administration and enforcement of multi-employer benefits funds, and displace state law. Uptown also claims that even if preemption did not apply, the first cause of action still must be dismissed because Midtown did not allege an essential element of the tort: that Uptown interfered with Plaintiff's prospective business relationship solely to harm Plaintiff or interfered therewith by use of wrongful means directed at a third party.

Uptown also claims that the two other causes of action seek to collect for Midtown, rather than for the funds' benefit — the contributions that Midtown alleges are due to the funds by Uptown. These claims are similarly preempted by the aforementioned federal statutes, and thus dismissal is required. Finally, even if preemption did not apply, Midtown fails to state cognizable causes of action because it has no right to the monies at issue.

Midtown in opposition, asserts Uptown's motion to dismiss is premised on two related and fundamental misconstructions of the Complaint. First, this case is about Uptown's fraudulent record keeping with regard to its employees' basic hourly straight-time pay. [*4]Midtown does not challenge Uptown's contributions based on incentive pay. Second, Midtown is not seeking to "collect" any monies that Uptown should have paid into the JIB Fund, nor is it attempting to enforce Uptown's obligation to pay into the Fund. Rather, Midtown seeks the profits it lost due to Uptown's tortious interference with Midtown's ability to contract to perform TWC's installation work, as well as those funds that Midtown has paid into the JIB Fund that Uptown has unlawfully converted and used for its own benefit, and the elements for these causes of action are made out. Midtown also argues that the Complaint's allegations are at most tangentially related to the undisputed terms of a CBA or an ERISA plan and such are not preempted by federal law. Moreover, Midtown claims it is seeking under the unjust enrichment and conversion theories reimbursement for its own spent money, not Uptown's unpaid money, and has adequately stated claims for relief. Furthermore, Midtown points out that, the Complaint alleges that Uptown and Midtown are both direct competitors in an extremely small market for a single customer's business in New York City, employ workers from the same Union, and have substantially identical CBAs imposing the same obligations with regard to those workers. Uptown's acts of fraud were intended to have the effect — and indeed under the facts of this case necessarily had the effect — of interfering with Midtown's prospective business relationship with TWC. As such, Midtown has set forth a cause of action for this tortious interference with Midtown's prospective economic gain.

The Supremacy Clause of the United States Constitution "vests in Congress the power to supersede not only State statutory or regulatory law but common law as well" (Guice v Charles Schwab & Co., 89 NY2d 31, 39, [1996], cert denied 520 US 1118 [1997]). As a general rule, the question of preemption is ultimately one of congressional intent, which may be express or implied (id.). In order to determine that intent, the United States Supreme Court has identified three types of preemption: (1) "express preemption," where Congress explicitly defines the extent to which its enactment preempts state law, (2) "field preemption," where Congress regulates a field so pervasively that an intent to occupy the field exclusively may be inferred, and (3) "conflict preemption," where the state and federal law actually conflict so that it is impossible for a party to simultaneously comply with both, or the state law stands as an obstacle to the execution of the full purposes and objectives of Congress (see Barnett Bank v Nelson, 517 US 25 [1996]; Hines v Davidowitz, 312 US 52 [1941]; City of New York v Job-Lot Pushcart, 88 NY2d 163 [1996], cert denied sub nom. JA-RU v City of New York, 519 US 871 [1996]; Rosario v Diagonal Realty, LLC, 8 NY3d 755 [2007]; Guice v Charles Schwab & Co., supra.)

In addition, federal administrative agency regulations promulgated pursuant to the congressional delegation of quasi-legislative authority may also preempt state law (see Guice v Charles Schwab & Co., supra.) Although it is settled that preemption of State law by Federal statute or regulation is not favored absent persuasive reasons to the contrary (see Guice v Charles Schwab & Co., supra), a State law can be deemed preempted if it conflicts with Federal law or frustrates the accomplishment of the purposes of the Federal scheme (see Malone v White Motor Corp., 435 US 497, 504 [1978]; Florida Avocado Growers v Paul, 373 US 132, 142-143 [1963]; Brenner v Nomura Sec. Int'l, 228 AD2d 67, 70 [1996]).

Here, Section 301 of the Labor Management Relations Action governs disputes arising from contracts "between an employer and a labor organization representing employees." 29 [*5]U.S.C. § 185(a). Section 301 preempts claims alleging that a party has violated a provision of a collective bargaining agreement, as well as all state law claims that require interpretation of the terms of a collective bargaining agreement in order to adjudicate such claims. Lingle v. Nogre Div. of Magic Chef, Inc., 486 U.S. 399, 405-06 (1988.) Preemption occurs when state law claims are inextricably intertwined with rights under a collective bargaining agreement. Dougherty v. Am. Tel. & Tel. Co., 902 F.2d 201, 203 (2d Cir. 1990). It has been stated that, "[w]hen resolution of a state-law claim is substantially dependent upon analysis of the terms of an agreement made between the parties in a labor contract, that claim must either be treated as a § 301 claim, or dismissed as pre-empted by federal labor-contract law." Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 220 (1985).

The Court finds that Midtown's claims must be resolved by analyzing the terms of the Collective Bargaining Agreement ("CBA") Contrary to Midtown's claim, any resolution of their causes of action involve a determination if Uptown violated the terms of its labor agreement regarding its calculations and contributions into the JIB Fund. Griffiths v. Triangle Servs., Inc., 59 AD3d 278, 278-79 (1st Dep't 2009.) In essence, Midtown disagrees with Uptown's and the Union's/Fund's alleged interpretation of the CBA. To adjudicate Midtown's state law claims, this Court must interpret the CBA and resolve the question of CBA interpretation: does the CBA require contributions in respect of incentive payments (as Midtown alleges), or does it not (as Midtown alleges that Uptown and the Union/Fund contend). The requirement that the Court interpret the federal labor contract to determine Plaintiff's state law claims renders those claims pre-empted, and subject to dismissal under § 301 preemption.

The Court also finds that Midtown's claims are preempted by ERISA for essentially the same reason that they are preempted by LMRA § 301, and thus must be dismissed on this independent basis. The Supreme Court has repeatedly held that ERISA § 514(a) is a sweeping preemption provision that is "conspicuous for its breadth. It establishes as an area of exclusive federal concern the subject of every state law that relate[s] to' an employee benefit plan governed by ERISA." FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990.) "A law relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983). ERISA therefore preempts, among other things, a state law that "regulates the matters regulated by ERISA: disclosure, funding, reporting, vesting, and enforcement of benefits plans." Iron Workers Mid-South Pension Fund v. Terotechnology Corp., 891 F.2d 548, 553 (5th Cir. 1990) (citations omitted), cert. denied, 497 U.S. 1024, 110 S. Ct. 3272 (1990). Such preemption also extends to state common law claims. Alday v. Container Corp. of Am., 906 F.2d 660, 664 (11th Cir. 1990.) Here, in resolving this action, this Court would be required to rule that the Fund requires contributions to be calculated in the manner as Midtown urges, and that Uptown should be held liable for its alleged failure to make the alleged "proper" contributions. However, because the Fund is a multi-employer pension and welfare plan regulated by ERISA, this action unquestionably "relates to" the ERISA-governed Fund, and intrudes upon an area already regulated by the enforcement provisions of ERISA. Section 502(a)(3) of ERISA provides the exclusive method for enforcing the employer's contribution obligation under ERISA. Accordingly, any state law cause of action that duplicates, supplements, or supplants [*6]the ERISA civil enforcement remedy, as done here providing an alternate cause of action to define and collect benefits contributions, conflicts with the clear congressional intent to make the ERISA remedy exclusive, and is therefore preempted.

Based on the above findings, Midtown's three causes of action seek redress for alleged conduct that is exclusively the province of Federal Law. As such the causes of action are preempted by the Federal Law and Midtown can only seek redress for the alleged wrongs by use of the Federal Law. Accordingly, the branch of the motion seeking to dismiss the complaint because the causes of action are preempted by federal law is granted. Based on this finding the Court need not address the branch of the motion seeking to dismiss pursuant to CPLR 3211(a)(7). Finally, the Court notes that another basis to dismiss this action is Midtown's lack of standing to assert these claims. The alleged improper conduct was not directed toward Midtown, but rather the JIB fund and Midtown is not a beneficiary of that Fund; only its employees. As such, Midtown has no standing to bring an action relating to the lack of proper contributions into the Fund. Moreover, any alleged damages suffered by Midtown are extremely speculative and do not suggest a basis to bring this action.

Dated: January 24, 2012

ORIN R. KITZES, J.S.C.