Employer’s equitable defenses no bar to multiemployer funds’ unpaid contribution claims

A district court erred when it permitted an employer to raise equitable defenses, including laches and estoppel, to defeat the efforts of nine multiemployer pension and welfare funds to collect allegedly delinquent plan contributions, the U.S. Court of Appeals in Cincinnati (CA-6) has ruled.

Nine multiemployer pension and welfare funds sued a construction company and its president to recover delinquent plan contributions under a contract between the company and an Operating Engineers union local. The company (and its president, also a defendant, whom the funds sought to hold personally and jointly liable) raised a number of affirmative defenses including laches and estoppel, based on the alleged conduct of the union and the benefit funds. The funds moved to strike, arguing that ERISA §515 bars equitable defenses to a collection action. The district court denied the motion to strike, but certified the case for interlocutory appeal.

Written instrument

Under ERISA §402, an employee benefit plan must be maintained pursuant to a written instrument. In the union context, this principle is reinforced by Section 302 of the Labor Management Relations Act, which bars an employer from contributing to union benefit trusts unless the payments are “made in accordance with a written agreement with the employer.” Consequently, the appellate court explained, multiemployer funds seeking to recover unpaid contributions “may rely on the literal terms of written agreements between the employer and the union.”

In the interest of collecting delinquent contributions in a streamlined fashion, the court continued, ERISA §515 has been understood to limit “unrelated” and “extraneous” defenses to such claims. This provision arose out of Congressional concerns that what should be simple collection actions by plan trustees had become “lengthy, costly and complex litigation concerning claims and defenses unrelated to the employer’s promise and the plans’ entitlement to the contributions.” In order to simplify the collection of delinquent funds, “governing law restricts the defenses employers may raise to suits brought to collect delinquent contributions to ERISA funds.”

Equitable defenses

Given these policy considerations, courts generally permit only a few defenses in suits to collect delinquent contributions, the appeals court noted. These include: the contributions were illegal or the union was subsequently decertified. In this case, however, the employer claimed other equitable defenses, including laches and estoppel, to assert that the conduct of the union and the benefit funds barred the instant action.

Laches. Even outside the ERISA context, the Sixth Circuit recognizes “a strong presumption against asserting a laches defense to shorten a statute of limitations.” Also, the Supreme Court has recently held that laches may not be invoked to bar damages if a suit was brought within a limitations period established by Congress. That holding came in a Copyright Act action but, according to the appeals court, its reasoning supports the holding here that laches cannot bar an action to collect unpaid contributions when an ERISA §515 action is brought within the applicable statute of limitations (in this case, six years, under Michigan’s statute of limitations for contract actions).

Equitable estoppel: union conduct. The employer also alleged that the union had led it to believe that contributions were due only for union members. It also noted that in previous audits, the fund never sought fringe benefits for nonunion members, thus affirming the employer’s belief that fringe benefits weren’t payable for nonmembers. The defendants said they acted in reliance on this understanding when bidding construction work. Given the “special status” accorded ERISA funds, “any conduct of the Union that is contrary to the written provisions of the agreements cannot affect the funds’ right to collect contributions that are due and owing to the funds.” Thus, employers may not assert a defense of equitable estoppel based on union conduct in ERISA §515 actions, and to the extent the equitable estoppel defense was asserted on this basis, it was barred.

Equitable estoppel: funds’ conduct. Previously, the Sixth Circuit has declined to decide whether equitable estoppel against a benefit fund is generally available as a defense to collection actions (although it did indicate its leanings on the issue, quoting favorably its observation in a prior decision that, “as a matter of policy… equitable estoppel of third party enforcement of collective bargaining agreements governed by ERISA may well conflict with Congress’s objectives in enacting ERISA, i.e., that establishment of employee benefits funds by such plans be in writing and that the funds’ fiscal health remain secure.” Nonetheless, the defendants in the case at hand failed to establish the common-law elements of the defense, so the appeals court had no reason to decide the issue here.

Source: Operating Engineers Local 324 Health Care Plan v. G&W Construction Company (CA-6).

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