1998 U.S. Dist. LEXIS 13300, *

MASON TENDERS DISTRICT COUNCIL WELFARE FUND, et al., Plaintiffs, -against- LIBERTY CONTRACTING CORP., et al., Defendants.

97 Civ. 5568 (HB)

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

1998 U.S. Dist. LEXIS 13300


August 25, 1998, Decided  
August 27, 1998, Filed

DISPOSITION:  [*1]  Defendants' motion for summary judgment DENIED. Plaintiffs' motion for summary judgment GRANTED.

CORE TERMS: duress, fringe benefit, collective bargaining agreement, delinquent, void, voidable, summary judgment, matter of public policy, counterclaims, matter of law, obligated, obligation to pay, collection, genuine, organized crime, audit, issues of material fact, federal common law, employee benefit, nonmoving party, reasonable jury, viable defense, valid defense, naked promise, common law, pay money, unenforceable, quotations, coal, actions to recover

COUNSEL: For MASON TENDERS DISTRICT COUNCIL WELFARE FUND, PENSION FUND, ANNUITY FUND, TRAINING FUND, INDUSTRY FUND, LEGAL SERVICES FUND, VACATION FUND, NEW YORK STATE LABORERS-EMPLOYERS COOPERATION AND EDUCATION TRUST FUND, NEW YORK LABORERS' HEALTH AND SAFETY TRUST FUND, BUILDING CONTRACTORS ASSOCIATION INDUSTRY ADVANCEMENT PROGRAM, JOHN J. VIRGA, STEVE HAMMOND, plaintiffs: Sally L. Schneider, Gorlick, Kravitz & Listhaus, P.C., New York, NY.
 
For LIBERTY CONTRACTING CORP., LIBERTY CONTRACTING OF NEW YORK CORP., LIBERTY EXTERIORS, LTD., K.W. ASSOCIATES, INC., defendants: Franklin B. Velie, Christy & Viener, New York, NY.
 
For LIBERTY CONTRACTING CORP., LIBERTY CONTRACTING OF NEW YORK CORP., LIBERTY EXTERIORS, LTD., K.W. ASSOCIATES, INC., counter-claimants: Franklin B. Velie, Christy & Viener, New York, NY.
 
For MASON TENDERS DISTRICT COUNCIL WELFARE FUND, PENSION FUND, ANNUITY FUND, TRAINING FUND, INDUSTRY FUND, LEGAL SERVICES FUND, VACATION FUND, NEW YORK STATE LABORERS-EMPLOYERS COOPERATION AND EDUCATION TRUST FUND, NEW YORK LABORERS' HEALTH AND SAFETY TRUST FUND, BUILDING CONTRACTORS  [*2]  ASSOCIATION INDUSTRY ADVANCEMENT PROGRAM, JOHN J. VIRGA, STEVE HAMMOND, counter-defendants: Sally L. Schneider, Gorlick, Kravitz & Listhaus, P.C., New York, NY.

JUDGES: Harold Baer Jr., U.S.D.J.

OPINIONBY: Harold Baer Jr.

OPINION: OPINION and ORDER
 
HAROLD BAER, JR., District Judge:

Plaintiffs Mason Tenders District Council of Greater New York ("Mason Tenders"), its allied benefit funds (the "Funds") and Steve Hammond, the trustee of Mason Tenders, commenced this action to recover delinquent fringe benefits and other contributions allegedly owed by the defendants. Defendants Liberty Contracting Corp. ("Liberty Contracting"), Liberty Contracting of New York Corp. ("Liberty Contracting New York"), Liberty Exteriors, Ltd. ("Liberty Exteriors"), Liberty Realty, L.L.C. ("Liberty Realty") and K.W. Associates, Inc. ("K.W. Associates") move for summary judgment. Plaintiffs cross-move for summary judgment. For the reasons discussed below, the defendants' motion is DENIED and the plaintiffs' motion is GRANTED.

I. Background

Mason Tenders is a labor organization that represents workers engaged in employment such as bricklaying, masonry and asbestos removal. Defs. Rule 56.1 Stmt. P 1.  [*3]  The Funds provide a variety of employment benefits funded through contributions by employers pursuant to collective bargaining agreements executed between Mason Tenders and these employers. Id. at P 4. The Funds are governed by a Board of Trustees that consist of two employer representatives and two representatives from Mason Tenders. Id. at P 5.

Liberty Contracting is a demolition contractor. Frank Cali is the president of Liberty Contracting. In the summer of 1990, Cali contends that he was called into the office of the Mason Tenders president, Frank Lupo. Lupo Aff. P 4. According to Cali, in addition to Frank Lupo, James Lupo, Baldo Mule and Joseph Loiacono, Jr. were also present in the office. Id. at P 5. Cali "believed that each of these men were connected with organized crime" through the Genovese Organized Crime Family. Id. at PP 5-6. He alleges that Frank Lupo, while sitting behind a desk, "shoved [a contract] across the desktop" and requested that he sign. Id. at PP 5, 7. Initially, Cali asked for time to have the contract reviewed by a lawyer. Id. at P 8. Needless to say, Cali contends, this request was met with a frosty response. Id. at P 9.  [*4]  Indeed, Loiacono allegedly "moved his arm to rest it against the wall," in the process revealing a "shoulder holster with a pistol inside it." Id.

Rather persistently, perhaps to a fault, Cali again asked to consult with his attorney. Id. at P 10. In response, Loiacono allegedly advised Cali that the better course would be to "sign now." Id. Fearing for his life, Cali claims that he signed the contract and left the office. Id. at P 11. The contract Cali signed constituted a collective bargaining agreement governing 1990-1993. n1 Id. Pursuant to this agreement, Cali asserts that he directed his office manager to pay fringe benefit contributions regularly into the Funds. Id. at P 12. Thereafter, "in order to avoid any face-to-face dealings with these men," Liberty Contracting joined the Building Contractors Association (the "BCA"), an employer association consisting of over one hundred employers in the construction industry. Id. at P 13; The Funds Rule 56.1 Stmt. P 3. The BCA executed a collective bargaining agreement with Mason Tenders that obligated Liberty Contracting to, among its other responsibilities, provide fringe benefit contributions between 1993-1996  [*5]  (the "BCA agreement").
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 Cali also believes that he "may have signed two contracts at that time, one for the 1987-1990 period and one for the 1990-1993 [time period]." Cali Aff. P 11.
 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

The plaintiffs commenced this action on July 29, 1997 alleging that Liberty Contracting failed to pay $ 23,828.93 in fringe benefit contributions to the Funds, in violation of § 515 of the Employee Retirement Income Security Act ("ERISA"). Compl. P 23. The plaintiffs also seek "such other and further amounts found due and owing pursuant to an audit" of the books and records for the 1993-1996 period. Id. According to the plaintiffs, Liberty Contracting New York, Liberty Exteriors, Liberty Realty and K.W. Associates are jointly and severally liable given that these entities are mere alter egos of Liberty Contracting. Id. at PP 28, 33, 38, 43, 234. Defendants assert four counterclaims for violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), conversion and unjust enrichment. Amended Answer and Counterclaims  [*6]  PP 103-124.

II. Discussion

On a motion for summary judgment, the burden is on the moving party to establish that there are no genuine issues of material fact that prevent a judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Fed. R. Civ. P. 56(c). A dispute regarding a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Aldrich v. Randolph Cent. Sch. Dist., 963 F.2d 520, 523 (2d Cir. 1992) (citation and internal quotations omitted). When determining how a reasonable jury would decide the issue, the court resolves all ambiguities and draws all inferences in favor of the nonmoving party. See Aldrich, 963 F.2d at 523.

The defendants contend that no enforceable obligation to pay the fringe benefit contributions exists since the BCA agreement is voidable on the ground of duress and void as a matter of public policy. In response, the plaintiffs argue that both the duress and void as a matter of public policy defenses fail as a matter of law given statutory limitations on defenses in actions to recover delinquent fringe benefit  [*7]  contributions. I consider the viability of the duress and public policy defenses in turn.
 
A. Duress

Under New York law, "[a] contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will." First Nat. Bank of Cincinnati v. Pepper, 454 F.2d 626, 632 (2d Cir. 1972) (citations and internal quotations omitted); see also In re Guttenplan, 222 A.D.2d 255, 634 N.Y.S.2d 702, 703 (1st Dep't 1995). To raise a viable defense, "a party seeking to repudiate a contract procured by duress must act promptly lest he be deemed to have elected to affirm it." Sheindlin v. Sheindlin, 88 A.D.2d 930, 450 N.Y.S.2d 881, 882 (2d Dep't 1982) (citations omitted). However, no obligation to repudiate exists where a party remains under continuing duress. See Sosnoff v. Carter, 165 A.D.2d 486, 568 N.Y.S.2d 43, 47 (1st Dep't 1991).

Here, the defendants contend that the BCA agreement is voidable given that Cali allegedly signed the 1990-1993 agreement under threat of death, and therefore the duress defense applies. Even though Cali had no subsequent  [*8]  contact with the four individuals that allegedly coerced him in the summer of 1990, the defendants contend that he was under continuing duress as a result of the extensive involvement by these individuals in organized crime. At best, there are issues of fact with respect to whether Cali remained under continuing duress during the period that governed Liberty Contracting's obligation to make fringe benefit contributions to the Funds under the BCA agreement. Nonetheless, assuming arguendo that genuine issues of material fact exist, the plaintiffs argue that the duress defense must fail as a matter of law. I agree.

Pursuant to ERISA § 515, an employer is obligated to make contributions to a multiemployer plan or with respect to a collectively bargained agreement "to the extent not inconsistent with law . . . [and] in accordance with the terms and conditions of such plan or such agreement." 29 U.S.C. § 1145. Congress enacted § 515 to "permit trustees of plans to recover delinquent contributions efficaciously." Benson v. Brower's Moving & Storage, Inc., 907 F.2d 310, 314 (2d Cir. 1990) (quoting 126 Cong. Rec. 23,039 (1980) (remarks by Representative Thompson)). There  [*9]  is an interest in enabling benefit plans to rely on contribution promises made by employers since payments must be made to beneficiaries regardless of whether employers satisfy their obligations. See Benson, 907 F.2d at 314. Accordingly, there are only two defenses available to employers in actions to recover delinquent contributions: (1) the contributions themselves are illegal; and (2) the collective bargaining agreement is void -- not simply voidable. See Benson, 907 F.2d at 314; National Elec. Ben. Fund v. Heary Bros. Lightning Protection Co., Inc., 931 F. Supp. 169 180 (W.D.N.Y. 1995) [hereinafter "National Electrical"]; see also Southwest Administrators, Inc. v. Rozay's Transfer, 791 F.2d 769, 775 (9th Cir. 1986) ("In recognition of the fact that millions of workers depend upon employee benefit trust funds for their retirement security, Congress and the courts have acted to simplify trust fund collection actions by restricting the availability of contract defenses, which make collection actions unnecessarily cumbersome and costly.") [hereinafter Southwest Administrators].

Initially, the defendants argue that since under the Hobbs Act it is a federal  [*10]  crime to use threats of physical violence in furtherance of a plan to affect commerce, the fringe benefit contributions sought by the plaintiffs are illegal. See Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 78-79, 70 L. Ed. 2d 833, 102 S. Ct. 851 (1982). In Kaiser, the Supreme Court held that benefit plan contributions conditioned on a promise to purchase coal from certain employers were illegal under federal labor and antitrust laws. Id. at 79. In reaching this conclusion, the court reasoned that the defendant "did not make a naked promise to pay money to the union funds." Id. Instead, the defendant was obligated to make contributions only in the event that it purchased coal from certain employers. Id. In this limited context, the court found that a valid defense to the delinquent contributions existed on the basis of the illegal nature of the payments. Id. The instant case, however, is distinguishable.

To begin with, the alleged physical threats were not made with respect to the 1993-1996 BCA agreement -- the contract under which the delinquent contributions are being sought by the plaintiffs. Rather, the physical threats pertained to an earlier 1990-93  [*11]  collective bargaining agreement executed by Liberty Contracting. More significantly, there is no evidence that the alleged physical threats were made for the isolated and specific purpose of obligating Liberty Contracting to make fringe benefit contributions. Quite to the contrary, the alleged perpetrators of the physical threats had a more general mission -- the execution of a collective bargaining agreement between Mason Tenders and Liberty Contracting. This collective bargaining agreement is more akin to "a naked promise to pay money to the union funds." Id. Absent a specific link to the fringe benefit contributions, the physical threats described by Cali do not render these contributions illegal for the purposes of a defense under § 515. See National Electrical, 931 F. Supp. at 181 (illegality defense rejected since there were no allegations that unlawful payments made by the employer in exchange for job-site access "were earmarked by the union to be used as employee benefit fund contributions," even though the collective bargaining agreement sued under was entered into only as a result of these unlawful payments).

Alternatively, the defendants argue that there is no  [*12]  obligation to pay the fringe benefit contributions sought by the plaintiffs since the BCA agreement is unenforceable on the ground of duress. This argument also fails as a matter of law, however, since even if the facts alleged by Cali were proven true the BCA agreement would be rendered voidable and not void. See DiRose v. PK Management Corp., 691 F.2d 628, 634 (2d Cir. 1982) (contract is voidable, not void, when induced by duress). An obligation to pay delinquent contributions is excused on the basis of an unenforceable collective bargaining agreement only where that agreement is void. See Benson, 907 F.2d at 315 (obligation to contribute not dependant on the existence of a valid collective bargaining agreement) (citation omitted); see also Southwest Administrators, 791 F.2d at 775.

In Southwest Administrators, the Ninth Circuit rejected the argument that a fraudulently induced promise to make benefit fund contributions constituted a valid defense to a delinquent contribution action. Id. According to the court, fraud in the inducement, where a party is manipulated into assenting to a transaction it otherwise would not have agreed to, merely renders the contract  [*13]  voidable and therefore does not vitiate the obligation to make contributions. Id. at 774-75. In a similar vein, the defendants contend that under threat of death Cali executed a collective bargaining agreement and joined the BCA when he otherwise would not have taken such actions. As in Southwest Administrators, this contention also must be rejected since a successful duress defense would only render the BCA agreement voidable. Accordingly, the defendants' motion for summary judgment on the ground of duress is denied. See Agathos v. Starlite Motel, 977 F.2d 1500, 1506 (3d Cir. 1992) (since economic duress ordinarily renders a contract voidable "even a meritorious claim of duress would not relieve [the defendant] of its contractual obligation to make fund contributions under ERISA section 515") (citation omitted).
 
B. Void as a Matter of Public Policy

Finally, the defendants contend that there is no obligation to pay the allegedly delinquent fringe benefit contributions because the BCA agreement is void as a matter of public policy. Consistent with public policy and morality, under New York law a party will be denied recovery on a facially valid contract if  [*14]  that party "resorted to gravely immoral and illegal conduct in accomplishing its performance." McConnell v. Commonwealth Pictures Corp., 7 N.Y.2d 465, 199 N.Y.S.2d 483, 487, 166 N.E.2d 494 (1960). Pursuant to McConnell and its progeny, the defendants urge this Court to declare that the BCA agreement is void as a matter of public policy because it was executed under threat of death.

However, when an action is commenced under ERISA, absent federal statutory law, federal common law should be applied. See Reid v. Connecticut General Life Ins. Co., 17 F.3d 1092, 1098 (8th Cir. 1994) (district court inappropriately applied Missouri common law to resolve ERISA dispute) (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 95 L. Ed. 2d 39, 107 S. Ct. 1549 (1987). Consequently, there is no basis to apply New York common law to void the BCA agreement as a matter of public policy because federal common law sets forth the available defenses in collection actions. See Benson, 907 F.2d at 314. Parenthetically, one might wonder why no complaint was made by Cali -- at any time -- to law enforcement authorities. Nonetheless, I reach this result not without pause  [*15]  since the defendants are essentially foreclosed from arguing that the illegal acts of organized crime figures resulted in the obligation to make fringe benefit contributions. Perhaps, in a different factual context, a contrary result would be merited. But here, the threatening behavior occurred on one occasion, did not directly pertain to the execution of the collective bargaining agreement at issue in this litigation and happened years ago. On these facts, I am compelled "to enforce Congress' desire that benefit plans be able to rely on the written agreements presented to them." See Benson, 907 F.2d at 316 (defendant obligated to make pension fund contributions despite the recognition that the "result in this and similar cases may seem quite harsh"). The defendants, therefore, present no viable defense to the failure to pay fringe benefit contributions. Accordingly, the defendants' motion for summary judgment is denied and the plaintiffs' motion for summary judgment is granted.

III. Conclusion

For the reasons discussed above, the defendants' motion for summary judgment is DENIED. The plaintiffs' motion for summary judgment is GRANTED. The defendants are jointly and severally  [*16]  liable for $ 23,828.93 in past due fringe benefit contributions. This decision and order negates the viability of the counterclaims. Should the defendants believe that the counterclaims can survive they may submit a two page letter by Friday, August 28, 1998 and the plaintiffs may respond with a two page letter by Tuesday, September 1, 1998. Otherwise, the counterclaims will be dismissed. The plaintiffs are permitted to conduct an audit of the respective books and records of the defendants from June 1, 1993 to the present to determine whether there are any other delinquent contributions that must be paid to the Funds. Upon completion of the audit within 60 days from the date of this decision and order, the parties are directed to submit proposed judgments on notice awarding appropriate monetary damages and injunctive relief.
 
SO ORDERED.
 
Dated: August 25, 1998
New York, New York

Harold Baer Jr.

U.S.D.J.