Unpublished Disposition, 869 F.2d 1497 (9th Cir. 1985)

MEMORANDUM^* 

The plaintiff trust funds (Funds) brought this action under section 502 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132 (1982), and section 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185 (1982), to collect allegedly delinquent fringe benefit contributions from Meekins, Inc. (Meekins). Following a one-day bench trial, the district court ruled in favor of the Funds and ordered that Meekins pay the Funds a total of $152,554.05 in delinquent contributions plus interest, costs, and attorney fees. On appeal, Meekins contends it should not be bound by the applicable collective bargaining agreement, which requires it to make contributions to the Funds based on the defense of "fraud in the execution," and also because it repudiated the collective bargaining agreement prior to the dates for which the Funds seek to collect the fringe benefit contributions. We affirm.

BACKGROUND

Meekins is engaged in the business of laying pipeline, and first began doing business in 1973. In October 1973, Meekins entered into a "short form" collective bargaining agreement (short form agreement) with Local 1184 of the Southern California District Council of Laborers and Affiliated Local Unions (District Council). Under the terms of the short form agreement, Meekins was bound to the conditions of the Master Labor Agreement (Master Agreement) between the District Council and the Associated General Contractors of California, Inc., and the "Declarations and Agreements of Trust" (Declarations) which established the Funds. The terms of the short form agreement, in conjunction with the Master Agreement and Declarations, required Meekins to pay fringe benefit contributions on an hourly basis for employees performing labor within the covered categories of the short form agreement. Meekins signed short form agreements similar to the 1973 agreement on December 12, 1974, March 29, 1978, August 18, 1980, and November 1, 1983.

Despite the fact that Meekins entered into the short form agreements, it bid exclusively on nonunion jobs. Meekins never called the District Council hiring hall for the dispatching of personnel. According to the undisputed testimony of both Charles and Larry Meekins, Sr., two of the primary principals of Meekins, they, as well as many of their employees, performed work covered under the short form agreements but never joined Local 1184. Throughout the 1973-1983 period, several conversations took place between Larry Meekins and Mr. Bell, a representative of Local 1184, in which Bell agreed not to require all Meekins's employees performing work covered under the short form agreements to join Local 1184 so that Meekins could remain competitive. In order to keep Local 1184 "happy," however, Meekins from time to time employed union laborers. If they hired a member of Local 1184 or if an employee joined Local 1184, Meekins paid the appropriate wage rates and fringe benefit contributions.

On November 29, 1984, Meekins filed an election petition with the National Labor Relations Board (NLRB) to conduct a representation election with respect to "All General Construction and Cleanup Laborers and All Employees employed in the classification of Laborers." The petition was dismissed by the Regional Director of the NLRB, and Meekins has appealed the dismissal to the NLRB. On December 20, 1984, Meekins's counsel sent a letter to the District Council purporting to repudiate any collective bargaining agreements between Meekins and the District Council.

During the early part of 1985, the Funds audited the payroll and related records of Meekins for the period between November 1, 1983, and November 30, 1984,¹  and concluded that Meekins failed to disclose a total of 10,443 hours in which Meekins's employees had performed labor covered under the November 1, 1983, short form agreement (Short Agreement). The Funds filed this action on July 25, 1985, to collect the alleged delinquent payments, together with interest, liquidated damages, and attorney fees.

The district court concluded that Meekins's conduct was not sufficient to put Local 1184 on notice of Meekins's intention to terminate the Short Agreement and Master Agreement prior to the December 20, 1984, letter of termination. The funds were awarded a judgment in the amount stipulated to by the parties, along with costs and attorney fees. This timely appeal followed. We have jurisdiction under 28 U.S.C. § 1291 (1982).

ANALYSIS

Meekins first contends that the district court's decision should be overturned because the terms of the contract were misrepresented to Meekins at the time the Short Agreement was signed.² 

We review the district court's findings of fact under the clearly erroneous standard. Southwest Adm'rs. Inc. v. Rozay's Transfer, 791 F.2d 769, 772-73 (9th Cir. 1986), cert. denied, 479 U.S. 1065 (1987); Fed. R. Civ. P. 52(a). Whether the defense of fraud is available in an action to recover delinquent trust fund contributions is a question of law to be reviewed de novo. Id. at 773.

B. "Fraud in the Execution" or "Fraud in the Inducement"

Whether fraud is available as a defense in an action to recover delinquent trust fund contributions depends on the type of fraud alleged. Although fraud in the execution of a collective bargaining agreement may relieve an employer from having to make pension contributions required under an agreement, see, e.g., Operating Eng'rs Pension Trust v. Gilliam, 737 F.2d 1501, 1504-05 (9th Cir. 1984) (employer not obligated to make pension fund contributions because he had reasonably relied on the union's representation that he was signing a document of a wholly different nature), " [t]he 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 (footnote and citation omitted) (emphasis added).

The distinction between fraud in the execution and fraud in the inducement was described in Rozay's Transfer. Fraud in the inducement "induces a party to assent to something he otherwise would not have." Id. at 774. Fraud in the execution "induces a party to believe the nature of his act is something entirely different than it actually is," and "arises when a party executes an agreement 'with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms.' " Id. (quoting U.C.C. Sec. 305(2) (c) (1977)).

Meekins contends that the fraud perpetrated by Local 1184 was in the execution of the Short Agreement. In attempting to characterize the alleged fraud as fraud in the execution, Meekins argues that the Short Agreement and the Master Agreement do not embody the terms and conditions of the agreement that Meekins or Local 1184 intended to enter. Meekins apparently contends that the agreement between it and Local 1184 is comprised of and defined by the prior practices of the previous ten years in which Local 1184 allegedly interceded and made deals with the Funds.

Despite Meekins's somewhat clever attempt to reshape its fraud argument so that it might be construed as fraud in the execution, stripped to its essentials, Meekins's claim is a classic example of fraud in the inducement. Although Charles Meekins and the other principals of Meekins may not have seen the Master Agreement or Declaration prior to signing any of Local 1184's short form agreements, they were undoubtedly aware that the Master Agreement and Declarations required Meekins to make fringe benefit contributions on behalf of employees performing work covered under the short from agreements.³ 

Meekins's argument, therefore, is essentially that it relied on Local 1184's past practice of partial enforcement of the Master Agreement, Declarations, and short form agreements, and its ability to intercede with the Funds. Characterized in this fashion, Meekins's allegations of fraud constitute fraud in the inducement. In Rozay's Transfer the court characterized a fraudulent promise by the union that it could get the trust fund to waive previously unpaid contributions as fraud in the inducement. Rozay's Transfer, 791 F.2d at 775. The court recognized that there was no confusion concerning the actual contents of the agreement, but that the misrepresentation concerned only whether the fringe benefit provisions of the agreement would be enforced. Id. at 774. As in Rozay's Transfer, the principals of Meekins were aware of the fringe benefit contribution provisions contained in the Master Agreement and Declarations. The only question was whether they would be enforced.

Meekins's attempt to characterize the alleged fraud as fraud in the execution is also fundamentally flawed because the past practices of Local 1184 and Meekins, which Meekins's claims comprise the terms to which it agreed to be bound, are nothing more than attempted oral modifications of the written agreements.⁴  It is well settled in this circuit that oral representations that trust fund contribution provisions of an agreement will not be enforced are invalid. Waggoner v. Dallaire, 649 F.2d 1362, 1366 (9th Cir. 1981) (oral agreement between employer and union that trust benefit terms would not be enforced does not modify the written agreement); Rozay's Transfer, 791 at 775 n. 3 (citing Waggoner) .

The rule precluding oral modification of written benefit provisions is applicable to alleged modifications based on prior practices. First, there is no reason to distinguish between the two types of modifications. The alleged modification based on the prior practice of partial enforcement in this case is essentially a product of a series of oral agreements between Bell and Meekins. It would thus make little sense to distinguish between the two.

The policy reasons behind proscribing oral modifications to written agreements likewise counsel against permitting modification based on prior practices. The rule precluding an employer and union from modifying a written agreement is derived from section 302 of the LMRA, 29 U.S.C. § 186 (1982), and is designed to "inhibit corrupt practices between employers and unions." Id; see also Kemmis v. McGoldrick, 706 F.2d 993, 996 (9th Cir. 1983) (oral agreements between union representatives and employers regarding the meaning of a written trust fund agreement are difficult to prove and judicial recognition of such oral statements invites collusion and controversy to the detriment of the employee beneficiaries). The protection of the beneficiaries is no less necessary when a written trust agreement is modified by a series of oral agreements carried out in practice over a number of years than when the agreement is modified by a single oral agreement.

Meekins's reliance on Warehousemen's Health and Welfare Fund v. IT Corp., 524 F. Supp. 96 (C.D. Cal. 1981), in support of the proposition that bargaining history and the parties' past practices are relevant in determining the intent of the parties must be rejected for several reasons. First, the case is distinguishable because the court found bargaining history and past practices relevant in construing ambiguous terms of a pension agreement, not in modifying it. More fundamentally, IT Corp. is not applicable in light of the subsequent decisions of this court discussed above.

Accordingly, the alleged modification of the pension benefit provisions by Local 1184 based on its past practice of partial enforcement is invalid. The only fraud which may have taken place was fraud in the inducement, which, under Rozay's Transfer, is not a legitimate defense to the Funds' claim.⁵ 

Meekins also contends that the pension benefit provisions cannot be enforced because it repudiated the agreements. The Short Agreement and Master Agreement comprise a pre-hire agreement under section 8(f) of the National Labor Relations Act, 29 U.S.C. § 158(f) (1982). Until recently, an employer could unilaterally repudiate a pre-hire agreement unless and until an exclusive bargaining representative was selected by a majority of the employees. See, e.g., United Bhd. of Carpenters v. Endicott Enters. Inc., 806 F.2d 918, 922 (9th Cir. 1986), cert. denied, 108 S. Ct. 151 (1987).

In Mesa Verde Construction v. Northern California District Council of Laborers, 861 F.2d 1124 (9th Cir. 1988) (en banc), however, the court adopted the NLRB's decision in John Deklewa, 282 N.L.R.B. 184 (1987), enforced sub nom. International Association of Bridge, Structural & Ornamental Iron Workers, Local 3 v. NLRB, 843 F.2d 770 (3d Cir.), cert. denied, 109 S. Ct. 222 (1988), as the law of this circuit, holding that a pre-hire collective bargaining agreement "may not be unilaterally repudiated ... prior to its termination or absent an election among the appropriate bargaining unit's employees to reject the union."⁶  Mesa Verde, 861 F.2d at 1137. The case was remanded to the original panel to determine whether, under Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), the decision should be applied retroactively.

The pre-hire agreement in this case had not terminated prior to the period of time for which the Funds seek to collect delinquent pension contributions, and the employees have not elected to reject Local 1184. Meekins's argument that it repudiated the pre-hire agreement therefore fails under Mesa Verde.

Meekins argues that Mesa Verde should not be applied retroactively. We need not reach this question, however, since we find that Meekins's repudiation argument also fails under the standards that existed prior to Mesa Verde.

Prior to Mesa Verde, there were three distinct methods by which an employer could repudiate a pre-hire agreement:

(1) by calling for a repudiation election to show that the union does not enjoy majority support; (2) by giving actual notice (written or oral) to the union; or (3) by engaging in conduct so overtly inconsistent with contractual obligations that it is sufficient to put the union on notice of the employer's intent to repudiate.

International Bhd. of Elec. Workers, Local Union No. 441 v. KBR Elec., 812 F.2d 495, 498 (9th Cir. 1987). Meekins contends that it repudiated the pre-hire agreement (1) by its continued breach of the contract; (2) by written notice of June 26, 1984; and (3) on November 29, 1984, when it filed a petition with the NLRB.⁷ 

Meekins contends that Local 1184's knowledge that Meekins would not require all employees performing work covered under the short form agreements to become members of Local 1184, nor pay union scale wages or make pension benefit contributions on behalf of these employees constituted "material and perpetual breach." Meekins contends that the breach took place from the inception of its relationship with Local 1184.

The Funds characterize Meekins's conduct as nothing more than a mere breach of the contract, which is insufficient to put the union on notice that it intended to repudiate the contract. The Funds maintain that to hold otherwise would elevate every breach of contract to the status of a repudiation.

The Supreme Court has declined to decide what type of conduct may be sufficient to constitute repudiation. Jim McNeff, Inc. v. Todd, 461 U.S. 260, 270 n. 11 (1983). Although this circuit had also refrained from delineating a test for repudiation by conduct, we did state in Todd that, "in some circumstances noncompliance can be so bald as to put the union on notice of the employer's intent to repudiate." Todd v. Jim McNeff, Inc., 667 F.2d 800, 804 (9th Cir. 1982), aff'd, 461 U.S. 260 (1983). We concluded, however, that McNeff's failure to make contributions to the trust fund as required under the terms of the collective bargaining agreement was insufficient to put the union on notice that McNeff intended to repudiate the contract. Id.

In two other cases, however, we have found an employer's refusal to comply with any terms of the pre-hire agreement coupled with a failure to utilize any of the benefits of the agreement sufficient notice of its intent to repudiate. KBR Elec., 812 F.2d at 498; Endicott, 806 F.2d at 922-23.

Meekins's recognized opposition to full performance of the pre-hire agreement was not sufficient to put Local 1184 on notice that Meekins wished to repudiate the agreement. As discussed in Section I above, Meekins entered into the agreement based on the assumption that it would not be fully enforced by Local 1184. Local 1184 was aware that Meekins's ability partially to perform the agreement was essential to Meekins's decision to sign the agreement. The basis for signing the agreement cannot also be considered to have put the union on notice that Meekins repudiated the agreement.

Admittedly, Meekins, like Endicott and KBR, did not attempt to utilize the benefits that accrued from signing the pre-hire agreement. With one exception, Meekins never bid on any union jobs nor did it rely on Local 1184 to supply it with subcontractors or workers.⁸  Nevertheless, unlike Endicott or KBR, Meekins did not completely refuse to hire union employees or pay them union wages and contribute to their pension fund. Although, as Meekins contends, it may have "honored the agreement more in the breach," it did partially satisfy the terms of the agreement from the inception of the parties' relationship in 1973.

C. Repudiation by Written Notice of June 26, 1984

Meekins's contention that sufficient notice of repudiation was provided by its June 26, 1984, letter repudiating the pre-hire provisions contained in Article V, Paragraph C of the Master Agreement must also be rejected. Article V, Paragraph C required a signatory contractor to enter into a short form agreement with other trade unions. The June 26, 1984, letter does not sufficiently indicate that Meekins intended to repudiate the entire agreement. That Meekins did not intend to repudiate the entire agreement is supported by the fact that Meekins continued to pay its employees belonging to Local 1184 union wages and make pension contributions on their behalf after the June 26, 1984, letter.

Finally, we reject Meekins's contention that its filing of the November 29, 1984, election petition was sufficient to notify Local 1184 of its intention to repudiate the contract. It is unclear from the record whether November 30 was included in the audit. This question need not be resolved, however, because Local 1184 cannot be charged with notice of the intent to repudiate less than 24 hours after the petition was filed. There is no evidence in the record that the petition was served on Local 1184 the same time it was filed. Even if the filing of the petition was sufficient to repudiate the agreement therefore, the alleged repudiation took place after the audit period had ended.

CONCLUSION

Meekins was required under the Short Agreement, Master Agreement, and Declarations to make fringe benefit contributions on behalf of its employees performing work covered under the Short Agreement. The defense of fraud is unavailable to Meekins. Additionally, it did not sufficiently repudiate the pre-hire agreement under the pre-Mesa Verde standards.

The judgment of the district court is therefore AFFIRMED.