Trustees of the Operating Engineers Pension Trust v. Smith-Emery Company

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

Present: The Honorable CHRISTINA A. SNYDER

Catherine Jeang Laura Elias N/A

Deputy Clerk Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiffs: Attorneys Present for Defendants:

Marija Decker Jonathan Turner

John Hunter

Attorneys Present for Counter

Defendants:

Gabrielle Boutin

Proceedings: STATE AGENCY COUNTERDEFENDANTS’ MOTION TO

DISMISS COUNTERCLAIM (ECF No. 36 filed September 20,

2019)

TRUSTEES’ MOTION TO STRIKE AFFIRMATIVE DEFENSES

AND MOTION TO DISMISS COUNTERCLAIM (ECF No. 37

filed September 20, 2019)

I. INTRODUCTION

This case is the latest iteration of a labor dispute between plaintiff trustees

(“Trustees”) that administer several trusts and funds (“Trust Funds”) that provide benefits

to members of the International Union of Operating Engineers, Local Union No. 12 (“Local

12”), on the one hand, and Smith-Emery Company (“SEC”), a California corporation that

performs construction tests and inspections, on the other. In broad terms, the dispute

concerns allegations that SEC has failed, over the course of many years, to make payments

into certain trusts for the benefit of Local 12 members employed by SEC, which the

Trustees allege is required by labor agreements between SEC (or its bargaining agents) and

Local 12. The parties have filed several prior actions related to this general dispute in

federal and state courts, and these actions are discussed in more detail, to the extent

relevant, in the order below.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CoO.

Trustees initiated this latest action on May 9, 2019 by filing a complaint against SEC

in this Court. See ECF No. 1 (“Compl.”). The complaint states a single claim for relief

for breach of collective bargaining agreements, and violation of the Employee Retirement

Security Act of 1974 (“ERISA”). Compl., 9] 14-28. According to the Trustees, SEC

breached its collective bargaining agreements (“CBA’s”) with Local 12, and violated its

obligations pursuant to 29 U.S.C. § 1145 of ERISA, by, since April 2015, subletting

inspection and testing work to non-signatory employers and other non-bargaining unit

personnel without paying appropriate fringe benefit contributions into the Trust Funds,

which the Trustees allege is required by the parties’ CBAs and ERISA. Id. Trustees also

allege that SEC has failed to fulfill its CBA and ERISA obligations by underpaying its

share of mandatory contributions into the Trust Funds that arise from work performed by

Local 12 laborers in its employ, id. { 18, and that SEC has also breached its CBAs and

related trust agreements with Local 12 by failing to produce the necessary documentation

for the Trustees to audit SEC’s payroll and related business records from April 2015 to the

present. Id. § 19.

SEC filed an answer on July 15, 2019, asserting 13 affirmative defenses, and

attached a countercomplaint stating a single claim for relief. ECF No. 11 (“Answer” and

“CC”). The countercomplaint adds SEC’s principal, James E. Partridge (“Partridge’’), as

a counterclaimant, and, in addition to plaintiffs, lists three California state agencies—the

California Division of the State Architect (“DSA”), the California Office of Statewide

Health Planning and Development (“OSHPD”), and the California Building Standards

Commission (“BSC”) (collectively, the “State Agencies” or “the State’”)—as

counterdefendants. CC, §§[5-12. In the counterclaim, SEC and Partridge request a

declaration pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, that the Trustees’

claims “to recover pension, health and welfare contributions and other employee benefits

under SEC’s labor contracts with [Local 12]” are foreclosed by (1) “state public safety laws

regulating the building and construction industry” (the “Illegality Defense”), and (2)

Section 302 of the Labor Management Relations Act of 1947 (“LMRA”), 29 U.S.C. § 186

(the “LMRA Defense”). CC, § 1.

On September 20, 2019, the State Agencies filed a motion dismiss the counterclaim

as it applied to them. See ECF No. 36 (“State’s MTD”). That same day, the Trustees filed

a motion to dismiss the counterclaim as it applied to them, as well as a motion to strike all

of the 13 affirmative defenses asserted by SEC’s Answer. See ECF No. 37 (“Trustees’

MTD”). SEC filed oppositions, spread across three briefs, on October 7, 2019: an

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

opposition to the Trustees’ motion to dismiss, ECF No. 41 (“MTD Opp.”): an opposition

to the State Agencies’ motion to dismiss, ECF No. 43 (“State MTD Opp.”); and an

opposition to the Trustees’ motion to strike, ECF No. 44 (“MTS Opp.”). The State

Agencies and the Trustees filed replies on October 11, 2019. See ECF No. 45 (“State’s

Reply”), ECF No. 46 (“Trustees’ Reply’).

The Court held a hearing on October 28, 2019. Having considered the parties

arguments, the Court finds and concludes as follows.

Il. BACKGROUND

The following facts are alleged by the parties in this action, and/or are known to the

Court from its adjudication of the prior related actions discussed below.

A. The Parties

SEC performs construction inspection and testing work throughout California. SEC

employs building construction inspectors (“BCI”) to complete these inspection tasks. The

National Labor Relations Board certified SEC’s BCIs as a collective bargaining unit in

1969. Prior to 1999, SEC also employed laboratory technicians who performed different

material tests on construction projects. The laboratory technicians were not certified to

bargain collectively. In 1999, SEC spun off the laboratory division (and its non-union

employees) into a new corporate entity called Smith-Emery Laboratories (“SEL”).

Local 12 represents SEC’s field inspectors. The laboratory employees, all of whom

now work for the spun off SEL entity, are still not unionized. Through its bargaining agent,

the Southern California Contractors Association (“SCCA”), SEC has entered into a series

of three-year CBAs with Local 12. Pursuant to these agreements, SEC must pay a variety

of fringe benefit contributions into the Trust Funds administered by the Trustees for the

hours worked by covered employees performing covered work.

B. ‘The Parties’ Prior Litigation

On March 29, 2009, the Trustees filed suit against SEC to collect certain fringe

benefit payments that SEC allegedly failed to deposit into the Trust Funds pursuant to

CBAs covering the time period between March 1, 2003 and March 31, 2009. See Trustees

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AL. V. SMITH-EMERY CO.

of the Operating Engineers Pension Trust v. Smith-Emery Co., No. 09-CV-01476-CAS

(AJWx) (C.D. Cal. filed March 29, 2009) (“First Action”).

The dispute turned in large part upon who was a covered employee pursuant to the

CBA, and what work was covered. The Trustees alleged that “bolt testing work” was

covered work under the relevant CBAs, and that, pursuant to a subcontracting provision of

the those CBAs, SEC was obligated to make fringe benefit contributions to the Trust Funds

to benefit the BCIs represented by Local 12 for bolt testing work undertaken by

subcontracted personnel (including SEL employees) not represented by Local 12.! SEC

denied that it had this obligation, and, at various points in the litigation, contended that bolt

testing work could not be covered by the CBA since the organized BCIs employed by SEC

lacked the state licenses needed to perform the work, whereas the subcontracted workers

at SEL and elsewhere did hold those licenses (i.e., the Illegality Defense). See, e.g., First

Action, ECF Nos. 112-5 at 21-22, 274 at 11, 297-1 at 8-11, 323 at 19. According to SEC,

requiring SEC to make fringe benefits contributions on grounds that bolt testing work is

covered by the CBA would amount to an order requiring SEC employees to conduct bolt

testing work without a license, in violation of public policy. Id.

The First Action also turned 1n part upon the effect of a 2006 arbitration award that

resulted from a grievance that Local 12 had brought against SEC. See First Action, ECF

No. 353-5, Ex. E (‘the 2006 Arbitration Award”). In that proceeding, the arbitrator

concluded that bolt testing work was covered by the CBA. Id. at 5-6. SEC had advanced

its Illegality Defense to rebut this conclusion. Specifically, SEC had elicited testimony at

the arbitration proceeding that the “State of California requires that entities that do bolt

testing be appropriately licensed,” that SEC’s BCIs did not have an appropriate license,

and that, as a result, if “one of [SEC’s] employees performed Anchor Bolt Testing,” it

The relevant paragraph of the subcontracting provision provides that: “Regardless

of the source from which Building/Construction Inspectors or Sub-Employers are obtained,

the Employer agrees to pay each Building/Construction Inspector or Sub-Employer the

minimum wage, travel pay, mileage pay, subsistence and fringe benefits that are contained

in this Agreement.... All fringe contributions shall be paid on behalf of the sub-employer

employees to the Operating Engineers Health and Welfare Fund as described in Appendix

A, Fringe Benefit Contributions, contained within this Agreement.” CC § 37 (quoting

Article VII, § C of the current CBA, which is substantially the same).

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CIVIL MINUTES —- GENERAL ‘Oo’

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would be “a misdemeanor under the building code.” See First Action, ECF No. 112-5 at

4266. On this basis, SEC argued in its post-arbitration brief that:

[Ijt is clear that the Union and Smith-Emery never agreed to include [bolt

testing] in its Collective Bargaining Agreement with Local 12 [since] . . . it

would require Smith-Emery to violate the law and to commit a misdemeanor

by requiring employees of Smith-Emery (who are covered by the Local 12

Agreement) to conduct Bolt Testing when Smith-Emery is not licensed to

perform such Bolt Testing. Certainly, this is an absurd result.

Id. at 4266-67. The arbitrator considered and rejected this defense, concluding that

SEC could not “escape its responsibility” to employ Local 12 BCIs for the bolt testing work

by spinning off SEL just “because its sister entity, [SEL], has the proper licensing to do

this work while [SEC’s BCIs] do not.” First Action, ECF No. 353-5, Ex. E at 50. The

arbitrator determined that the “appropriate remedy” pursuant to the CBA “is that the Union,

Local 12, shall be made whole for the actual wages and benefits which would have been

paid to bargaining unit employees had not [SEC] violated the agreements by utilizing non-

unit personnel to perform the covered work.” Id.

The Trustees argued in the First Action that the 2006 Arbitration Award collaterally

estopped SEC from claiming that “the only work covered by the [CBA] is that work which

requires a license of a deputy building inspector,” since the arbitrator rejected this argument

and concluded that bolt testing work was covered by the CBA. First Action, ECF No. 129

at 8. The Court initially rejected this argument, concluding that collateral estoppel did not

apply because the arbitrator did not “necessarily decide” the issue. Id. After a bench trial

in which SEC again advanced the Illegality Defense, see First Action, ECF No. 181 at

5548-5551, the Court entered judgment in the Trustees’ favor on July 5, 2013 regarding

certain amounts owed, but ruled against the Trustees as to other amounts after concluding

that certain types of bolt testing work, including work performed by SEL, was not covered

by the CBA. First Action, ECF No. 186. Following the entry of judgment, Trustees filed

another action against SEC seeking to recover additional missed fringe benefit payments,

on the same theories, but from a subsequent time period. See Trustees of the Operating

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

Engineers Pension Trust v. Smith-Emery Co., No. 13-CV-09545-CAS (VBKx) (C.D. Cal.

filed Dec. 30, 2013) (“Second Action”).

The parties cross-appealed the Court’s judgment following the bench trial, and, after

review, the Ninth Circuit reversed the Court’s collateral estoppel conclusion and held that

the Court should have given preclusive effect to the arbitrator’s conclusion—reached by

rejecting the Illegality Defense—that the CBA covered bolt testing and inspection work.

First Action, ECF No. 366 at Ex. 2. The Ninth Circuit affirmed this conclusion, following

SEC’s petition for panel rehearing, in an amended memorandum disposition issued on

March 23, 2016. See Trustees of Operating Engineers Pension Tr. v. Smith-Emery Co.,

645 F. App’x 581, 582 (9th Cir. 2016) (also docketed as First Action, ECF No. 262 at 6).

After remand to this Court, Trustees filed a motion for judgment based on the Ninth

Circuit’s ruling on June 6, 2016. First Action, ECF No. 271. SEC opposed on grounds

that, notwithstanding the Ninth Circuit’s decision, the Illegality Defense precluded the

Court from ordering SEC to make payments into the Trust Funds pursuant to the

subcontracting provisions for work that Local 12 BCI’s could not lawfully perform. See

First Action, ECF No. 274 at 11 (“Numerous laws, regulations, and other requirements,

including the Building Code and the requirements of facility owners in the at issue hospital

projects, require the separation of duties between BCIs and Lab Techs and preclude the

BCls from performing the testing work.”).

Following a settlement conference in September 2016, the parties executed a

memorandum of understanding that appeared to resolve the disputes in both actions by

requiring SEC to make a series of payments to the Trust Funds over time. First Action,

ECF No. 291 at Ex. A. On January 19, 2017, the Court granted the Trustees’ motions to

enforce the settkement, over SEC’s objection that the settlement was not intended to be

binding. See First Action, ECF No. 301.

SEC subsequently filed motions for reconsideration, contending that the settlement

did not address the Illegality Defense, and asserting that the enforcing the settlement’s

obligations on SEC would require SEC to “risk[| sanctions against the company from

? Both the First and Second Actions were consolidated before this Court. Because

the material submissions in the two actions are identical, the Court will cite only to the

docket in the First Action, even when referring to both.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CoO.

government agencies that oversee [school and hospital] construction” by performing

testing that is not “permitted by state laws and regulations.” First Action, ECF No. 312-1

at 6-7. At the same time, SEC also advanced the Illegality Defense to oppose the Trustees’

motions for judgment in both actions, arguing that enforcing the settlement would violate

public policy because SEC’s BCIs “are not lawfully permitted to perform testing work.”

First Action, ECF No. 323 at 19.

On August 14, 2017, the Court granted the Trustees’ motions for entry of judgment,

and denied SEC’s motions for reconsideration. First Action, ECF No. 329. The order on

both motions squarely considered and rejected SEC’s Illegality Defense, concluding that it

did not preclude the Court from requiring SEC to make payments into the Trust Funds

pursuant to their settlement and the subcontracting provision of the CBA. Id. at 10. The

Court entered judgment in favor of the Trustees in both actions on August 21, 2017 totaling

$1.6 million, plus interest. First Action, ECF No. 330.

SEC immediately appealed the Court’s entry of judgment, as well as the Court’s

order enforcing the settlement agreement. First Action, ECF Nos. 307, 333. However,

SEC voluntarily dismissed its appeals on January 31, 2018. First Action, ECF No. 350.

While the First and Second Actions were pending, SEC filed a complaint for

declaratory relief in the Sacramento County Superior Court against the DSA, OSHPD,

Local 12, and the Trustees. See Smith-Emery Company v. State of California, Div. of State

Architect, No. 34-2017-00205865 (Sacramento Cnty. Sup. Ct. filed Jan. 5, 2017)

(“Declaratory Relief Action”). The action essentially sought to establish the Illegality

Defense as a matter of state law, by resolving that it was unlawful for SEC’s BCIs to

perform anchor bolt testing pursuant to California regulations. See First Action, ECF No.

297-1. SEC moved to stay the two federal actions before this Court pending resolution of

the Declaratory Relief Action, but the Court denied the stay motion “because the parties

had settled the action.” First Action, ECF No. 304 at 2-3. In so doing, the Court declined

to reach the question—raised by the Trustees in opposition to the stay motion—that either

the 2006 Arbitration Award or the Ninth Circuit’s decision acts as res judicata upon the

Illegality Defense. Id.

After dismissing the Trustees and Local 12 from the Declaratory Relief Action, and

after the Sacramento Superior Court granted OSHPD’s motion for judgment on the

pleadings, SEC and the remaining defendant—DSA—voluntarily stipulated to an entry of

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

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AL. V. SMITH-EMERY CO.

judgment that “[s|pecial inspectors employed by Smith-Emery Company cannot lawfully

perform testing work on school and hospital construction under the statutes and regulations

governing school and hospital construction, because Smith-Emery Company does not

operate a testing laboratory.” First Action, ECF No. 353-5, Ex. A.

On the basis of that stipulated judgment, SEC moved this Court in both federal

actions for an order vacating the Court’s prior entry of judgment on grounds that the

stipulated judgment from the state court established the Illegality Defense and rendered the

federal judgment “inconsistent with law.” First Action, ECF No. 353 at 2. On November

14, 2018, the Court denied the motions to vacate. See First Action, ECF No. 395. The

Court expressly rejected SEC’s argument that SEC should not “be required to pay

contributions by way of setthement when the work and workers on which those

contributions were calculated cannot be lawfully performed.” Id. at 10. The Court

explained that by settling the litigation, “SEC made a decision to forego further litigation,

including its pursuit of the argument that it would be somehow illegal or unlawful to

determine that bolt testing work was covered by the CBA,” that “[n]othing in the settlement

agreement requires or permits SEC’s BCIs to perform work without a proper license,” and

that “any issues regarding the supposed illegality of the settlement agreement could have

been, and indeed were, raised by SEC in its opposition to the Trustees’ motions for entry

of judgment,” which the Court rejected. Id. at 11.

Following that order, and pursuant to the parties’ settlement of the First and Second

Actions, SEC was obligated to make the required payments to the Trust Funds from the

subject periods relevant to those suits and submit records to the Trustees for audit to ensure

compliance. The Trustees’ filed a motion to enforce the settlement in June 2019 after they

alleged that SEC had failed to comply with its audit obligations, which the Court granted

on July 15, 2019. See First Action, ECF No. 412.

C. The Present Action

Trustees’ filed the present action on May 9, 2019. The complaint, like the

complaints in the First and Second Actions, alleges that SEC breached its CBA with Local

12 and violated its ERISA obligations by failing to make required fringe benefit payments

into the Trust Funds when it sublet inspection and testing work to non-signatory employers

and other non-bargaining units. Compl., | 14-28. The only material difference between

the present action and the prior actions is that the instant action addressees SEC’s alleged

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

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AL. V. SMITH-EMERY CO.

delinquencies during the time period from April 1, 2015 to the present, whereas the prior

actions only addressed SEC’s delinquencies through March 31, 2015. Id. 4 18.

SEC “denies and disputes that any such contributions are owed.” CC, § 18.

Additionally, SEC and Partridge—who claims, in his personal capacity, that his civil

engineering license is threatened by the relief sought by the Trustees, see CC, J 43-51—

filed a counterclaim requesting an order declaring that the Illegality Defense, as well as the

LMRA, bar the Trustees’ claims in their entirety.

Il. LEGAL STANDARDS

A. Rule 12(b)(1)

A motion to dismiss an action pursuant to Federal Rule of Civil Procedure 12(b)(1)

raises the objection that the federal court has no subject matter jurisdiction over the action.

This defect may exist despite the formal sufficiency of the allegations in the complaint.

When considering a Rule 12(b)(1) motion challenging the substance of jurisdictional

allegations, the Court is not restricted to the face of the pleadings, but may review any

evidence, such as declarations and testimony, to resolve any factual disputes concerning

the existence of jurisdiction. See McCarthy v. United States, 850 F.2d 558, 560 (9th Cir.

1988).

Standing is a jurisdictional requirement, and the party invoking federal jurisdiction

has the burden of establishing it. Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992).

“To meet the constitutional threshold of Article III standing,” the party invoking federal

jurisdiction must allege that it “(1) suffered an injury in fact, (2) that is fairly traceable to

the challenged conduct of [the defendant], and (3) that is likely to be redressed by a

favorable judicial decision.” Daniel v. Nat’] Park Serv., 891 F.3d 762, 766 (9th Cir. 2018)

(citing Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016)). A party invoking federal

jurisdiction “must demonstrate standing separately for each form of relief sought.”

Mayfield v. United States, 599 F.3d 964, 969 (9th Cir. 2010) (quoting Friends of the Earth,

Inc. v. Laidlaw Envtl. Serv., Inc., 528 U.S. 167, 185 (2000)).

B. Rule 12(b)(6)

A motion pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal

sufficiency of the claims asserted in a complaint. Under this Rule, a district court properly

dismisses a claim if “there is a ‘lack of a cognizable legal theory or the absence of sufficient

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

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AL. V. SMITH-EMERY CO.

facts alleged under a cognizable legal theory.’” Conservation Force v. Salazar, 646 F.3d

1240, 1242 (9th Cir. 2011) (quoting Balisteri v. Pacifica Police Dep’t, 901 F.2d 696, 699

(9th Cir. 1988)). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does

not need detailed factual allegations, a plaintiffs obligation to provide the ‘grounds’ of his

‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation

of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 555 (2007) (internal citations omitted). “Factual allegations must be enough to

raise a right to relief above the speculative level.” Id. (internal citations omitted).

In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all

material allegations in the complaint, as well as all reasonable inferences to be drawn from

them. Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). The complaint must be read in

the light most favorable to the nonmoving party. Sprewell v. Golden State Warriors, 266

F.3d 979, 988 (9th Cir. 2001). However, “a court considering a motion to dismiss can

choose to begin by identifying pleadings that, because they are no more than conclusions,

are not entitled to the assumption of truth. While legal conclusions can provide the

framework of a complaint, they must be supported by factual allegations.” Ashcroft v.

Iqbal, 556 U.S. 662, 679 (2009); see Moss v. United States Secret Service, 572 F.3d 962,

969 (9th Cir. 2009) (“[F]or a complaint to survive a motion to dismiss, the non-conclusory

“factual content,’ and reasonable inferences from that content, must be plausibly suggestive

of a claim entitling the plaintiff to relief.”). Ultimately, “[d]etermining whether a

complaint states a plausible claim for relief will . . . be a context-specific task that requires

the reviewing court to draw on its judicial experience and common sense.” Igbal, 556 U.S.

at 679.

Unless a court converts a Rule 12(b)(6) motion into a motion for summary judgment,

a court cannot consider material outside of the complaint (e.g., facts presented in briefs,

affidavits, or discovery materials). In re American Cont’! Corp./Lincoln Sav. & Loan Sec.

Litig., 102 F.3d 1524, 1537 (9th Cir. 1996), rev’d on other grounds sub nom Lexecon, Inc.

v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998). A court may, however,

consider exhibits submitted with or alleged in the complaint and matters that may be

judicially noticed pursuant to Federal Rule of Evidence 201. In re Silicon Graphics Inc.

Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999): Lee v. City of Los Angeles, 250 F.3d 668,

689 (9th Cir. 2001).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

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AL. V. SMITH-EMERY CoO.

As a general rule, leave to amend a complaint which has been dismissed should be

freely granted. Fed. R. Civ. Proc. 15(a). However, leave to amend may be denied when

“the court determines that the allegation of other facts consistent with the challenged

pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well

Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986): see also Eminence Capital, LLC v.

Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (holding dismissal with prejudice 1s

appropriate only when the complaint could not be saved by amendment).

C. Rule 12(f)

A motion to strike material from a pleading is made pursuant to Federal Rule of Civil

Procedure 12(f). Pursuant to that rule, the Court may strike from a pleading any

“insufficient defense” or any material that is “redundant, immaterial, impertinent or

scandalous.” See Fed. R. Civ. Proc. 12(f). The essential function of a Rule 12(f) motion

is to “avoid the expenditure of time and money that must arise from litigating spurious

issues by dispensing with those issues prior to trial.” Fantasy, Inc. v. Fogerty, 984 F.2d

1524, 1527 (9th Cir. 1993), rev’d on other grounds, 510 U.S. 517 (1994).

Granting or denying a motion to strike lies within the discretion of the district court.

See Federal Sav. & Loan Ins. Corp. v. Gemini Mgemt., 921 F.2d 241, 244 (9th Cir. 1990).

Because of “the limited importance of pleadings in federal practice,” motions to strike

pursuant to Rule 12(f) are disfavored. Bureerong v. Uvawas, 922 F.Supp. 1450, 1478 (C_D.

Cal. 1996): see also RDF Media Ltd. v. Fox Broadcasting Co., 372 F.Supp.2d 556, 566

(C.D. Cal. 2005). Where a Rule 12(f) motion would not streamline litigation, a district

court has discretion to deny the motion. Harbor Breeze Corp. v. Newport Landing

Sportfishing. Inc., No. 17-CV-01613-CJC (DFMx), 2018 WL 4944224, at *3 (C.D. Cal.

Mar. 9, 2018) (citing cases).

IV. DISCUSSION

The Trustees and the State Agencies have each filed motions to dismiss. Each

motion is discussed in turn below.

A. Trustees’ Motion

The Trustees’ Motion contains three parts: (1) a motion to dismiss for lack of

standing pursuant to Rule 12(b)(1); (2) a motion to dismiss for failure to state a claim

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

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AL. V. SMITH-EMERY CO.

pursuant to Rule 12(b)(6); and (3) a motion to strike affirmative defenses pursuant to Rule

12(f).

1. Counterclaimants’ Standing

The Trustees contend that the counterclaim should be dismissed because neither

SEC nor Partridge have standing. For the reasons discussed below, the Court disagrees.

a) Partridge’s Standing To Obtain Declaratory Relief Against

The Trustees

The Trustees contend that Partridge should be dismissed from the action because he

lacks Article III standing to assert a claim for declaratory relief. See Trustees’ Mot. at 15;

Trustees’ Reply at 6-7. According to the Trustees, “there is no controversy between

Trustees and Partridge because Partridge is litigating [SEC’s| mghts,” and not his own.

Trustees’ Reply at 6. The argument, in essence, 1s that Partridge has failed to allege any

constitutionally cognizable injury that affects him individually. In response, Partridge

points to allegations in his countercomplaint claiming that his personal state engineering

license would be at risk were the Trustees to succeed on their claim against SEC, and that

this threatened injury is sufficient to establish his standing to seek a declaration neutralizing

that threat. See MTD Opp. at 18-19 (citing CC, 28, 43-51).

“To determine whether a declaratory judgment action presents a justiciable case or

controversy, courts consider whether the facts alleged, under all the circumstances, show

that there is a substantial controversy, between parties having adverse legal interests, of

sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Shell

Gulf of Mexico Inc. v. Ctr. For Biological Diversity, Inc., 771 F.3d 632, 635 (9th Cir.

2014). For the purposes of assessing the justiciability of Partridge’s claims, the Court must

assume the correctness of his legal arguments on the merits. See Stop the Beach

Renourishment, Inc. v. Fla. Dept. of Envtl. Prot., 560 U.S. 702, 729 n.10 (2010) (“accepting

[plaintiff's] version of Florida law as true” in the justiciability analysis, despite

subsequently rejecting the same substantive claims on the merits); United States v.

Antelope, 395 F.3d 1128, 1133 (9th Cir. 2005) (assessing the satisfaction of Article III

“from [plaintiffs] perspective, in whose shoes we stand when deciding this threshold issue

of justiciability” and therefore assuming “his legal argument is correct’): Flynt v.

Rumsfeld, 355 F.3d 697, 702 (D.C. Cir. 2004) (“In order to test the . . . justiciability of

[plaintiff's] claims, we ... assume that they are otherwise valid.”).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

Here, Partridge alleges that he “stands to lose his license” as a civil engineer were

the Trustees to succeed on the merits of their adverse claim against SEC. MTD Opp. at 19

(citing CC, 9§ 43-51). Assuming the hypothetical correctness of Partridge’s legal

argument, and the truth of his factual allegations, the Court concludes that these allegations

establish an actual case or controversy sufficient to invoke federal jurisdiction pursuant to

Article III of the U.S. Constitution. Partridge’s interests are adverse to the Trustees, who

he claims are threatening his state engineering license. Those adverse interests have

produced a substantial controversy concerning whether or not SEC must take actions that,

Partridge alleges, would require him to risk his license. And the threatened injury to

Partridge is sufficiently immediate, given that Trustees have already filed this action to

compel the conduct that Partridge claims gives rise to the threat. See Pac. Gas & Elec. v.

State Energy Res. Conserv. & Dev. Comm’n, 461 U.S. 190, 201 (1983) (“One does not

have to await the consummation of threatened injury to obtain preventive relief. If the

injury is certainly impending, that is enough.”).

The Court accordingly DENIES the Trustees’ motion to dismiss Partridge for lack

of Article III standing.

b) SEC’s and Partridge’s Standing To Obtain Declaratory

Relief Pursuant to ERISA

Apart from Article III standing, the Trustees argue that neither SEC nor Partridge

have statutory standing to seek the declaratory relief they request pursuant to the

Declaratory Judgment Act and ERISA because neither SEC nor Partridge is a “participant,

beneficiary, or fiduciary” authorized by the ERISA statute to bring a civil action based

thereon. See Mot. at 16 (citing 29 U.S.C. § 1132).

While the Trustees correctly identify the classes of persons authorized by statute to

bring a direct claim pursuant to ERISA, the scope of persons permitted to seek declaratory

relief in connection with disputes pertaining to or arising out of rights and obligations

imposed by ERISA is broader. “A person may seek declaratory relief in federal court if

the one against whom he brings his action could have asserted his own rights there.”

3 Although the Trustees appear to have abandoned this argument in their reply brief,

the Court addresses it anyway.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘Oo’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CoO.

Standard Ins. Co. v. Saklad, 127 F.3d 1179, 1181 (9th Cir. 1997) (citing Franchise Tax Bd.

v. Construction Laborers Vacation Trust, 463 U.S. 1, 19, n. 19 (1983)).

The Ninth Circuit has accordingly held that a party not otherwise entitled to bring a

direct claim pursuant to ERISA may nevertheless bring a claim pursuant to the Declaratory

Judgment Act to define its rights and obligations pursuant to ERISA if the party “against

whom the declaratory relief is sought could have asserted his rights” pursuant to ERISA

“in a federal court.” Transamerica Occidental Life Ins. Co. v. DiGregorio, 811 F.2d 1249,

1253 (9th Cir. 1987) (holding that the plaintiff had standing to seek declaratory relief

regarding its ERISA obligations pursuant to the Declaratory Judgment Act, even if it was

not authorized to bring a direct ERISA claim, because “ERISA would have permitted [the

defendant] to sue on this claim in federal court’); Saklad, 127 F.3d at 1181 (holding same,

and stating that the party seeking the ERISA declaration raised “a classic case for

declaratory relief’). See also Callaway Golf Co. v. Screen Actors Guild, Inc., No. 07-CV-

0373-LAB (WMC), 2009 WL 10672729, at *4—5 (S.D. Cal. Mar. 30, 2009) (“Because the

Court would have jurisdiction over a suit brought by Defendants under ERISA § 502 and

515 to require contributions under the applicable agreements, the Court likewise has

jurisdiction by way of the Declaratory Judgment Act and 28 U.S.C. § 1331 to declare

Plaintiffs' obligations under those same agreements.”).

Transamerica is controlling. The Trustees have brought an ERISA action against

SEC to compel allegedly delinquent contributions to certain Trust Funds governed by

ERISA. The Trustees have standing to bring these claims. As in the cases cited above,

that is sufficient to establish SEC’s and Partridge’s statutory standing to seek the

declaratory relief they request with respect to their rights and obligations pursuant to

ERISA.

The Court accordingly DENIES the Trustees’ motion to dismiss □□□

countercomplaint for lack of statutory standing pursuant to ERISA.

2. Failure to State A Claim

Counterclaimants seek declarations that the subcontracting provision located at

“subparagraph C of Article VII contained in the [CBAs] is facially invalid and

unenforceable” because it (a) requires SEC and Partridge to undertake conduct that they

allege is outlawed by “state public safety laws regulating the building and construction

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

industry” (the Illegality Defense), and (b) is preempted by Section 302 of the LMRA (the

LMRA Defense). CC, {ff 1, 52.

The Trustees move to dismiss the counterclaims for both declarations pursuant Rule

12(b)(6). See Trustees’ MTD at 17-23. For the reasons discussed below, the motion is

granted as to both counterclaims.

a) Counterclaimants’ State Law Compliance Claim

Counterclaimants first seek a declaration that, in effect, establishes their Illegality

Defense to the Trustees’ ERISA and LMRA affirmative claims. The argument is familiar:

according to counterclaimants, the subcontracting provision of the CBA between Local 12

and SEC is illegal and unenforceable because it obligates SEC to pay substitute fringe

benefits to trusts benefiting Local 12 personnel employed by SEC for work done by

subcontracted non-union personnel that the Local 12 personnel could not have lawfully

performed since they do not possess the required state licenses. CC, 4] 36-40.

The Trustees move to dismiss the counterclaim seeking a declaration ratifying this

defense on grounds that it is barred by res judicata and/or collateral estoppel. See Trustees’

Mot. at 17-20. They argue that “SEC is precluded from relitigating its illegality argument”

because it was “considered and rejected by the arbitrator and the Ninth Circuit,” as well as

in the First and Section Actions. Id. at 18.

(1) Res Judicata

“Res judicata, also known as claim preclusion, bars litigation in a subsequent action

of any claims that were raised or could have been raised in the prior action.” Western

Radio Servs. Co. v. Glickman, 123 F.3d 1189, 1192 (9th Cir. 1997). The doctrine applies

equally to “defenses to[] recovery that were previously available to the parties, regardless

of whether they were asserted or determined in the prior proceeding.” Brown v. Felsen,

442 U.S. 127, 131 (1979): see also Wright & Miller, 18 Fed. Prac. & Proc. Juris. § 4407

(3d ed. 2019) (stating same) (“Wright & Miller’). Parties seeking to invoke res judicata to

bar the subsequent relitigation of a claim or defense must establish that “there is (1) an

identity of claims, (2) a final judgment on the merits, and (3) identity or privity between

parties” between the current and prior action (or actions). Tritz v. U.S. Postal Serv., 721

F.3d 1133, 1141 (9th Cir. 2013) (citing Glickman).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

SEC and Partridge do not contest the third element, but they argue that there is

neither an identity of claims, nor a qualified prior final judgment on the merits, and that res

judicata accordingly does not apply. See MTD Opp. at 8-9.

(a) Identity of Claims or Defenses

With respect to the first element, the Ninth Circuit weighs four factors to determine

whether two claims or defenses are identical: “(1) whether the two suits arise out of the

same transactional nucleus of facts; (2) whether rights or interests established in the prior

judgment would be destroyed or impaired by prosecution of the second action; (3) whether

the two suits involve infringement of the same right; and (4) whether substantially the same

evidence is presented in the two actions.” Mpoyo v. Litton Electro-Optical Sys., 430 F.3d

985, 987 (9th Cir. 2005): see also Wright & Miller at § 4407 n. 39 (comparing approaches).

These factors are “not appl{ied] mechanistically,” and the Ninth Circuit has “often held the

common nucleus criterion to be outcome determinative under the first res judicata

element.” Mpoyo, 430 F.3d at 987-88 (holding that while “the latter three criteria do[] not

yield a clear outcome,” the “first criterion controls” and established res judicata): see also

Int’] Union of Operating Engineers-Employers Const. Indus. Pension, Welfare & Training

Tr. Funds v. Karr, 994 F.2d 1426, 1430 (9th Cir. 1993) (stating that the “common nucleus”

transactional criterion “is the most important,” and listing cases where the Ninth Circuit

“previously applied the doctrine of res judicata on the ground that the two claims arose out

of the same transaction, without reaching other factors’’).

This action clearly arises out of the “same transaction, or series of transactions” that

gave rise to the 2006 Arbitration Award, the First Action, the Second Action, and the

relevant appeals of and motions to reconsider or vacate this Court’s decisions in those

actions. W. Sys., Inc. v. Ulloa, 958 F.2d 864, 871 (9th Cir. 1992) (internal quotation

omitted). Each of these cases derives from a dispute about whether CBAs between Local

12 and SEC require SEC to make payments into trust funds benefiting Local 12 members

employed by SEC for covered work performed by non-unionized subcontractors. And in

each of these cases, SEC argued that state licensing regulations preclude an interpretation

of the CBA obligating SEC to make those payments. See First Action, ECF No. 112-5 at

4266-67 (SEC argues the IIlegality Defense to the arbitrator); First Action, ECF No. 181

at 5548-5551 (SEC argues the Illegality Defense to this Court at the bench trial held in the

First Action); SEC’s Principal Br. and Response Br., Trustees of the Operating Engineers

Pension Trust v. Smith-Emery Co., No. 13-56830, ECF No. 24-1 at 59-60 (9th Cir. filed

July 2, 2014) (SEC challenges the part of the 2006 Arbitration Award that rejected the

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

Illegality Defense before the Ninth Circuit); First Action, ECF No. 274 at 11 (SEC argues

the Illegality Defense to oppose entry of judgment in the First Action); First Action, ECF

No. 353 at 2 (SEC argues the Illegality Defense in its motion to vacate the entry of

judgment).

Notwithstanding the above, SEC and Partridge argue that the transactional factor is

not satisfied here because the present action concerns alleged contractual obligations and

breaches from a time period subsequent to the time period that was relevant in any of the

prior actions where SEC unsuccessfully raised the Illegality Defense. See MTD Opp. at 9.

Citing Karr, 994 F.2d at 1429, they contend that, where res judicata is asserted in a contract

action, “the transactional test requires a showing that the alleged breach in that action ‘arose

prior to the filing of the original action for breach of contract.’” Id. (quoting Karr, internal

marks omitted). But that is not what Karr holds, and the quotation 1s taken out of context.

In Karr, the Ninth Circuit considered whether a labor trust’s action to compel an

audit of an employer’s ERISA payments into a fund for the period between April 13, 1988

and March 21, 1989 concerned facts that were part of the same transaction as a prior action

filed by the labor trust to recover delinquent ERISA payments for a prior but partially

overlapping period of time. Id. at 1429. Stating that “claims based on a breach of the same

contract” will be barred if in a subsequent action if “the alleged breaches antedate the

original action,” the court held that “the Trust’s claim for accurate payments arose out of

the same transactional nucleus of facts as the prior actions for delinquent payments,” and

was barred by res judicata, since the “second action was premised on [an] alleged breach

of the same [contract] and involved overlapping time periods.” Id.

The rule in Karr, and the authorities cited therein, merely establishes a condition that

is sufficient to conclude that a contract plaintiff’s claims for breach arise out of the same

transaction as a prior action, and are thus subject to res judicata. It does not establish, as

SEC and Partridge contend, a condition that 1s necessary to conclude that a contract

defendant’s defenses do the same—and particularly not here, where the defense at issue

(configured as a counterclaim for declaratory relief) raises a pure question of law that

relates back to the validity of the same static CBA term that has, in one agreement or

another, consistently operated on the parties for more than a decade.

That the Trustees’ present claims pertain to subsequent alleged breaches by SEC 1s,

accordingly, of no moment to the transactional factor analysis as it applies to SEC’s

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

reassertion of its Illegality Defense as a counterclaim for relief. Cf. MTD Opp. at 9. None

of the Trustees’ pending claims could have been brought as part of the First Action or the

Second Action, or raised in the 2006 arbitration, since the Trustees could not have known

that SEC would again, allegedly, fail to make required payments into the Trust Funds. But

SEC’s Illegality Defense could have been, and indeed was, asserted in each of those cases

to defend against analogous breach claims to those that the Trustees allege in the instant

case. For all of these reasons, the Court finds that the counterclaim requesting a declaration

establishing the Illegality Defense quite clearly arises out of the “same transaction, or series

of transactions” as the preceding actions discussed above.

Because this “most important” factor is clearly established, Karr, 994 F.2d at 1430,

the Court concludes that it is “outcome determinative” of the first res judicata element.

Mpoyo, 430 F.3d at 987-88. To be sure, however, the Court also finds and concludes that

the other factors pertinent to the first element also support the application of the doctrine:

(1) the present action and the prior actions each involve the same rights and obligations (1.e.

the Trustees’ rights under the CBA to collect what it contends are required payments,

SEC’s obligations to make those payments, as well as SEC’s nghts to be immune from an

illegal argument); (11) the interests established in the prior actions (i.e., the scope of covered

work established by the 2006 arbitration, and the Trustees’ rights to receive payment for

that work which is subcontracted out) would be curtailed if SEC (and Partridge) could

relitigate a principal defense to delay compliance; and (111) because the counterclaim raises

pure legal issues of contract interpretation and statutory preemption, the “evidence” in this

action will be no different from the prior actions where the Illegality Defense was rejected.

For all of these reasons, the Court concludes that the first res yudicata element is satisfied.

(b) Final Judgment On The Merits

The question is therefore whether any of the related prior actions in which SEC

raised the Illegality Defense produced a qualifying “final judgment on the merits.” Tritz,

721 F.3d at 1141. The Trustees identify two possibilities: (1) the 2006 Arbitration Award;

and (2) the Court’s entry of judgment in the First and Second Actions.

“{ A] valid and final award by arbitration has the same effects under the rules of res

judicata... as a judgment of a court.” NTICH-WA, Inc. v. ZTE Corp., 921 F.3d 1175,

1180 (9th Cir. 2019) (quoting Restatement (Second) of Judgments § 84(1) (1982)).

Nevertheless, SEC and Partridge contend that the 2006 Arbitration Award cannot have

preclusive effect because “the arbitrator’s decisional authority in that case was limited to

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

the contractual issues concerning CBA coverage,” and because, they argue more broadly,

“a labor arbitration award” cannot “define statutory or other extra-contractual public policy

rights and obligations.” MTD Opp. at 5-6. The Court disagrees.

As for the first argument, the arbitrator did not exceed his authority in rejecting

SEC’s Illegality Defense. The arbitrator was tasked to determine whether bolt testing is

work covered by the CBA that gives rise to SEC’s obligations pursuant to the

subcontracting provision, and if so, what the appropriate contractual remedy would be for

breach. In discharging that responsibility, the arbitrator was required to consider SEC’s

Illegality Defense: that the CBA could not be read to cover bolt testing because “it would

require Smith-Emery to violate the law and to commit a misdemeanor by requiring

employees of Smith-Emery (who are covered by the Local 12 Agreement) to conduct Bolt

Testing when Smith-Emery is not licensed to perform such Bolt Testing.” First Action,

ECF No. 112-5 at 4266-67. To conclude that bolt testing was covered by the CBA, as the

Ninth Circuit held he did, the arbitrator necessarily rejected this argument. See First

Action, ECF No. 353-5, Ex. E at 50 (discussed, supra, § Il). This decision was well within

the scope of his authority.

SEC and Partridge’s second argument—that the 2006 Arbitration Award cannot

have preclusive effect because, following the rule affirmed in Wright v. Universal

Maritime, 525 U.S. 70 (1998), “statutory rights cannot be litigated and decided” in an

arbitral forum pursuant to a labor contract unless the “waiver of right to litigate in court

was ‘clear and unmistakable,’” MTD Opp. at 6—also fails. SEC’s Illegality Defense is a

contract defense and it does not concern extracontractual “statutory rights” or “other legal

issues beyond contract coverage” that would trigger application of the rule in Wright. See

Wright, 525 U.S. at 79 (holding that presumption of arbitrability did not apply, and “clear

and unmistakable” waiver of federal forum was required, only because “[t|he dispute in

the present case . . . concerns not the application or interpretation of any CBA, but the

meaning of a federal statute,” such that “[t]he cause of action Wright asserts arises not out

of contract, but out of the ADA, and is distinct from any nght conferred by the collective-

bargaining agreement”). The question raised by the defense in the arbitration expressly

involved the intended coverage and interpretation of the CBA: whether one could

determine that “the Union and Smith-Emery . . . agreed to include [bolt testing] 1n its

Collective Bargaining Agreement” in light of SEC’s claim that doing so “would require

Smith-Emery to violate the law.” See First Action, ECF No. 112-5 at 4266-67.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

While the defense may have accordingly required the arbitrator to consider the

interaction between certain state regulations and the parties’ agreement, interpreting the

meaning of a bargained instrument within a statutory framework is not the same as forcing

a party to litigate a claim or defense that arises exclusively under a statute in an arbitral

forum. See, e.g.. Gray v. Petrossian, Inc., No. 17-CV-06870-PSG (PJWx), 2017 WL

8792671, at *3 (C.D. Cal. Nov. 20, 2017) (concluding that “the waiver requirement” in

Wright did not apply to plaintiffs state statutory claims since those claims were “within

the scope of the CBA”). The Court accordingly concludes that the 2006 Arbitration Award

is a qualified final judgment with preclusive effect. See NIT'CH-WA, Inc., 921 F.3d at

1180.4

The Court’s entry of judgment, enforcing the settlement in resolution of the First and

Section Actions, is also a qualified final judgment on the merits. “Court-approved

settlement agreements . . . have res judicata effect.” Tritz, 721 F.3d at 1141 (citing Reyn’s

Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746-47 (9th Cir. 2006)). Despite this

rule, SEC and Partridge argue that the Court’s entry of judgment (and denial of its motion

to reconsider and vacate that entry of judgment) cannot have preclusive effect because that

judgment did not “decide any of the underlying issues in the prior action.” MTD Opp. at

7. Even if that were the rule in this circuit, and the counterclaimants cite no authority

demonstrating that it is,* the argument rests on an incorrect factual premise. Entry of

* At oral argument, SEC’s counsel read from Amaro v. Continental Can Co., 724

F.2d 747 (9th Cir. 1984)—discussed at MTD Opp. at 6-7, and itself quoting Alexander v.

Gardner-Denver _Co., 415 U.S. 36, 57 (1974)—for the proposition that since □□□□□□

specialized competence of arbitrators pertains primarily to the law of the shop, not the law

of the land,” the “resolution of statutory issues ‘is a primary responsibility of courts,’ not

arbitrators.” Id. at 750. But Amaro is not good law. In light of Wnght and other more

recent Supreme Court authority, the Ninth Circuit expressly overruled Amaro earlier this

year in Dorman v. Charles Schwab Corp., 934 F.3d 1107, 1111 (9th Cir. 2019) (overruling

Amaro and holding that “the Supreme Court has ruled that arbitrators are competent to

interpret and apply federal statutes.”). The case, and the specific proposition that SEC

asserts, accordingly has no application here.

SEC and Partridge’s sole legal authority for this proposition is a case from the

Western District of Virginia, Kollmorgen Corp. v. Yaskawa Electric Corp., 147 F. Supp.

2d 464, 465 (W.D. Va. 2001). The question in that patent case was whether a defendant’s

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

judgment in the First and Second Actions—and its affirmation after SEC subsequently

moved to vacate it—in fact required the Court to twice consider and reject the “underlying”

Illegality Defense that is now before the court as a claim for declaratory relief. See First

Action, ECF No. 329 at 10 (rejecting Illegality Defense to enter judgment); First Action,

ECF No. 395 at 10-11 (rejecting Illegality Defense to deny motion to vacate judgment).

The Court accordingly finds and concludes that the Court’s entry of judgment in the First

and Second Actions is also a qualified final judgment entitled to preclusive effect.

* * * * *

This Court and the arbitrator in the 2006 proceedings, in related actions stemming

from the same principal dispute between the same parties, have considered and rejected the

Illegality Defense as a bar to SEC’s obligation to make payments to the Trust Funds

pursuant to the subcontracting provision of the CBA. The defense—whether so styled, or

configured, as here, as a claim for declaratory relief—is therefore res judicata. The

Trustees’ motion to dismiss the counterclaimants’ request for a declaration establishing the

defense is therefore GRANTED. Because no amendment could cure the deficiencies in

the complaint, all of which exist as a matter of law, the dismissal is with prejudice and

without leave to amend.

prior settlement of a Markman claim construction issue in a Wisconsin federal court was a

“final judgment” with preclusive effect in the Virginia federal court. The court concluded

that it was not, but did so as a strict matter of patent law pursuant to the Federal Circuit’s

tule that “judicial statements regarding the scope of patent claims are entitled to

[preclusive] effect in a subsequent infringement suit only to the extent that determination

of scope was essential to a final judgment on the question of validity or infringement.”

A.B. Dick Co. v. Burroughs Corp., 713 F.2d 700, 704 (Fed. Cir. 1983) (emphasis added).

Because the Kollmorgen court found that the prior settlement of the Markman issue in the

Wisconsin action did not bear “on the question of validity or infringement,” it concluded

that A.B. Dick prevented the settlement from having any preclusive effect. Kollmorgen,

147 F. Supp. 2d at 469. Nothing about that case, however, suggests that the rule in A.B.

Dick has any application to non-patent settlements, in this circuit or any other. The Ninth

Circuit’s rule in Tritz, cited supra, controls.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

(2) Collateral Estoppel

The Trustees’ also argue that the Illegality Defense is barred by collateral estoppel.

Although the Court grants the Trustees’ motion to dismiss the claim for declaratory relief

establishing the defense since it 1s res judicata, the Court concludes that collateral estoppel

would also apply to the same effect.

“{C]ollateral estoppel applies to preclude an issue adjudicated in an earlier

proceeding if: (1) the issue was necessarily decided at the previous proceeding and is

identical to the one which is sought to be relitigated: (2) the first proceeding ended with a

final judgment on the merits; and (3) the party against whom collateral estoppel is asserted

was a party or in privity with a party at the first proceeding.” Granite Rock Co. v. Int’]

Bhd. of Teamsters, Freight, Constr., Gen. Drivers, Warehousemen & Helpers, Local 287

(AFL-CIO), 649 F.3d 1067, 1070 (9th Cir. 2011).

As discussed above in connection with the res judicata analysis, the second and third

elements are established or conceded, as is the question of “identical” claims or defenses

as it relates to the first element. See supra § IV.A.2.a.1. The question, for collateral

estoppel purposes, is whether the Illegality Defense was “necessarily decided” in either the

2006 arbitration or the First and Second Actions. The Court finds and concludes that it

was.

In each of those proceedings, as set forth above, SEC presented and the tribunal

heard evidence and argument from both sides on the question of whether or not state

licensing regulations precluded an interpretation of the CBA that requires SEC to make

payments into trust funds benefiting Local 12 members employed by SEC for covered work

performed by non-unionized subcontractors, even when the Local 12 members are not

licensed to perform the work. Both the arbitrator and this Court specifically concluded that

the state regulations did not bar this interpretation. This conclusion was necessary both to

the arbitrator’s decision that the CBA covered bolt testing, as well as this Court’s

determination that SEC could be required to make payments to the Trust Funds, pursuant

to the subcontracting provision, even when the Local 12 members for whom the payments

are made to benefit are not licensed to perform the work. The Ninth Circuit has held that

the “necessarily decided” element is established in these circumstances. See, e.g., United

States v. Weems, 49 F.3d 528, 532 (9th Cir. 1995) (holding that this element was satisfied

where “the district court heard evidence and argument from both sides on the question of

whether or not defendant knew of the marijuana grow,” “specifically concluded that he did

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

not,” and where that “conclusion was necessary to the court’s decision that the Puyallup

property was forfeitable”) (discussed in Wright & Miller at § 4421 n. 3, n. 17, n. 19); cf.

Smith-Emery Co., 645 F. App’x at 582 (holding that, in prior litigation involving the 2006

arbitration award, the arbitrator “necessarily decided” the closely related question

involving the scope of the CBA’s covered work provision).

For this reason, too, the Trustees’ motion to dismiss the counterclaimants’ request

for a declaration establishing the Illegality Defense is therefore GRANTED without leave

to amend.

b) Counterclaimants’ LMRA Preemption Claim

In addition to their request for a declaration that the subcontracting provision

requirements are illegal pursuant to state licensing regulations, SEC and Partridge request

a declaration that the provision is also invalid pursuant to § 302(c)(5) of the LMRA

(codified at 29 U.S.C. § 186(c)(5)). CC, 4 41. Specifically, the counterclaimants contend

that the subcontracting provision requires SEC to violate the LMRA by making

contributions for the benefit of subcontracted personnel and not, as the LMRA requires,

“for the sole and exclusive benefit” of SEC’s organized Local 12 employees. See MTD

Opp. at 12, 13 (quoting 29 U.S.C. § 186(c)(5)). The Trustees’ move to dismiss this claim

on grounds that it fails as a matter of law. See Trustees’ MTD at 20-23.

The subcontracting provision of the CBA requires SEC to make fringe benefit

payments into the Trust Funds, at rates established by the parties, for every hour of covered

work that SEC hires out to non-Local 12 subcontractors who are not signatories to the

CBA. CC § 37. The provision more specifically states that “fringe benefit contributions

shall be paid on behalf of the sub-employer employees to the [trust fund]” to the extent

SEC relies on the non-signatories. Id. SEC and Partridge allege that the provision is invalid

because the “on behalf of’ language indicates that the payments are not “for the sole and

exclusive benefit” of SEC’s organized Local 12 employees, but, SEC and Partridge claim,

actually for the benefit for the subcontracted personnel. See MTD Opp. at 13.

These allegations do not state a claim. To begin with, nowhere does SEC or

Partridge allege that the subcontracted employees are beneficiaries of the Trust Funds into

which SEC is obligated by the subcontracting provision to make payments. To the

contrary, everything that is alleged about the subcontracting provision indicates that it is

intended to collect payments for the benefit of SEC’s organized Local 12 employees in the

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

event that SEC elects not to hire them for work that 1s otherwise covered by their CBA.

See CC, § 11 (alleging that the CBA agreements between Local 12 and SEC “provided for

certain employee fringe benefits funded in part by contributions paid by SEC to trust funds

administered by the Trustees”) (emphasis added); § 36 (alleging that the Trustees’ rely on

that provision to collect benefits for the organized SEC employees). And SEC alleges no

facts—let alone plausible facts—to explain why Local 12 would have, as it claims,

counterintuitively bargained for fringe payments intended to benefit non-signatory, non-

union personnel. See Iqbal, 556 U.S. at 679 (“Determining whether a complaint states a

plausible claim for relief will . . . be a context-specific task that requires the reviewing court

to draw on its judicial experience and common sense.”).

But notwithstanding these pleading deficiencies, the Court interprets the text of the

subtracting provision to indicate, on its face, that these benefits are not available to anyone

other than covered SEC employees. See CC, 37. While the subcontracting provision’s

“on behalf of” language could have been more precise, that is not a basis to graft an entirely

different and counterintuitive meaning onto the CBA.° In Walsh v. Schlect, 429 U.S. 401

(1977), which both parties cite favorably in their moving papers, the U.S. Supreme Court

rejected precisely this argument in connection with another subcontracting provision.’ The

At oral argument, SEC’s counsel directed the Court to review Item 10 from a

separate Master Labor Agreement between Local 12 and the Southern California

Contractors Association that, SEC argues, demonstrates that Local 12 could have, but did

not, use different language in its CBA with SEC if it had intended to prevent SEC from

hiring subcontractors. See ECF No. 42-1, Ex. 2 at 26. The Court takes judicial notice of

Item 10 in that other agreement, but finds that it 1s entirely irrelevant. Whether or not SEC

is permitted to hire subcontractors for covered work is not at issue. No one disputes that

SEC is permitted by the relevant CBAs to do so. Rather, the material question is whether,

having hired subcontractors to perform covered work, SEC is obligated to make certain

payments to the Trust Funds, and if so, whether—per the instant LMRA analysis—those

payments benefit SEC employees. The fact that Local 12 negotiated for the unrelated

language in Item 10 in this agreement sheds no light on any of those issues.

’ The provision there provided that: “[E]mployer shall require [a] subcontractor to

be bound to all the provisions of this Agreement, or such employer shall . . . be liable for

payment of these employees wages, travel, Health-Welfare and Dental, Pension, Vacation,

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

Supreme Court there concluded that, “although inartfully worded,” the subcontracting

clause “lends itself to a construction that ties signatory employer contributions to the trust

funds as measured both by hours worked by his own employees and hours worked by his

nonsignatory subcontractor’s employee.” Id. at 408. “[S]o construed,” the Supreme Court

held that the provision “does not violate” the LMRA. Id.

The Ninth Circuit has read Walsh for the proposition that subcontracting provisions

“should not be interpreted to render them illegal and unenforceable” pursuant to the LMRA

“where the wording yields a construction which is both legal and enforceable.” Seymour

v. Hull & Moreland Eng’g, 605 F.2d 1105, 1115 (9th Cir. 1979). Seymour involved

another subcontracting provision challenged pursuant to the LMRA on the same grounds

that the provision allegedly provided benefits for non-employees. In rejecting the LMRA

invalidation argument, the Ninth Circuit held that the provision must “be given the

construction mandated by Walsh,” or else it would have “no logical or legally enforceable

meaning.” Id. at 1115. “Ifthe union cannot compel payments to fringe benefit funds based

upon” the subcontracting provision, “then there is little that it can enforce under that

article.” Id. Considering this an absurd result, and with “all signposts pointing so

forcefully in the direction” of a lawful construction, the court held that the provision was

valid, and ordered the employer to make the required payments. Id.

Following Walsh and Seymour, the Court concludes that the correct and only

plausible construction of the subcontracting provision requires SEC to make payments into

the trust funds for the benefit of SEC’s own employees, and not the non-signatory

subcontracted personnel. There is accordingly no plausible basis to conclude from SEC’s

allegations, or any set of allegations, that the required payments as set forth by the

subcontracting provision are barred by the LMRA. The Trustees’ motion to dismiss the

LMRA claim is accordingly GRANTED without leave to amend. See Velazquez v.

GMAC Mortg. Corp., 605 F. Supp. 2d 1049, 1069 (C.D. Cal. 2008) (concluding that “the

resolution of contractual claims on a motion to dismiss may be proper if the terms of the

contract are unambiguous’).

Apprenticeship and CIAF contributions in accordance with this Agreement.” See Pet. Br.,

Walsh v. Schlecht, No. 75-0906, 1976 WL 181410, at *11 (US. filed May 15, 1976).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

3. Motion To Strike Affirmative Defenses

The Trustees move to strike all of the affirmative defenses asserted in SEC’s Answer

on grounds that those defenses are either unavailable to an employer defendant in an

ERISA and LMRA action to collect allegedly delinquent payments to an employee trust

fund, or else meritless “as a matter of law.” See Trustees’ Mot. at 9-13.

The Trustees are correct that “traditional contract law does not apply in full force in

suits brought under the LMRA and ERISA to collect delinquent trust fund contributions,”

such that “the range of defenses to such a suit is severely limited.” S. California Retail

Clerks Union & Food Employers Joint Pension Tr. Fund v. Bjorklund, 728 F.2d 1262, 1265

(9th Cir. 1984) (holding that allegedly delinquent employer defendant could not, according

to this rule, assert that it was fraudulently induced into forming the subject CBA as a

defense to the payment obligations it assumed pursuant to that CBA). This rule might bar

SEC from advancing some of the affirmative defense theories it asserts in its Answer, and

it might not bar others. Compare Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 88 (1982)

(holding that, as SEC argues here, an employer can defend a suit for delinquent

contribution by showing that the promise to make contributions was itself illegal).

But it would be premature to foreclose any of the challenged defense theories at the

pleading stage. The parties have not yet had the opportunity to fully develop their litigation

positions, and SEC has not even made clear which of its affirmative defenses it actually

intends to rely upon. And the Court’s ruling on SEC’s counterclaim might, or it might not,

affect SEC’s defense strategy moving forward. See, e.g., Harbor Breeze Corp., 2018 WL

4944224. at *3 (district court exercised its discretion to deny motion to strike pursuant to

Rule 12(f) where it was not clear how granting the motion would streamline issues for

trial). Because the motion to strike, for this reason, does not definitely streamline the

litigation of this action, the Court concludes that the Trustees’ motion to strike should be

denied. Once the parties have had an opportunity to refine their arguments, engage in

discovery, and settle upon their litigation positions, the Trustees’ arguments, if still

relevant, may be addressed by way of a motion for summary judgment.

Accordingly, the Court DENIES plaintiff's motion to strike without prejudice to

considering those same arguments at proceedings on summary judgment.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

B. State Agencies’ Motion

SEC and Partridge also name the State Agencies as counterdefendants in their

counterclaim. CC, §§ 8-10. The State Agencies move to dismiss on grounds that the

counterclaims are barred by the State of California’s sovereign immunity. See State’s

MTD at 6-13. Although the Court dismisses SEC and Partridge’s claims with prejudice on

their merits, see supra IV.A.2, out of an abundance of caution, the Court will also address

the State Agencies’ sovereign immunity dismissal arguments.®

1. Sovereign Immunity

The Eleventh Amendment bars suit against the several states and_ their

instrumentalities for legal, equitable, or declaratory relief “unless they consent to it in

unequivocal terms or unless Congress, pursuant to a valid exercise of power, unequivocally

Counterclaimants’ also assert that the State Agencies are necessary parties to their

counterclaims pursuant to Federal Rule of Civil Procedure 19. See MTD Opp. at 10-11.

Although the Court need not reach these arguments in light of its conclusion that sovereign

immunity would bar suit against the State Agencies even if counterclaimants’ claims were

not already subject to dismissal without leave to amend, the Court nevertheless also

concludes that the State Agencies are not necessary parties pursuant to either of the asserted

provisions of Rule 19. First, Rule 19(a)(1)(A) does not apply because the Court can afford

SEC and Partridge all of their claimed declaratory relief without the State Agencies in the

case. Second, Rule 19(a)(1)(B) does not apply because the State Agencies do not “claim| □

an interest relating to the subject of the action,” and have in fact expressly disavowed any

interest in the litigation whatsoever. See Fed. R. Civ. Proc. 19(a)(1)(B). Moreover,

subdivision (a)(1)(B) does not apply because there is no risk of an “inconsistent obligation”

(which could require joinder), even if there may be some risk of “inconsistent results”

(which does not require joinder). See Cachil Dehe Band of Wintun Indians of the Colusa

Indian Cmty. v. California, 547 F.3d 962, 976 (9th Cir. 2008) (explaining the difference).

Even if the Trustees prevail in this action and secure an order requiring SEC to make

claimed payments into the Trust Funds, SEC would be capable of complying with that

order “without breaching” the stipulated order entered by the Sacramento Superior Court,

including by continuing to outsource bolt testing work to SEL (or another non-union

licensed contractor) and making continued payments into the Trust Funds. Id. The State

Agencies are therefore not properly joined pursuant to Rule 19, either.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

expresses its intent to abrogate the immunity.” Green v. Mansour, 474 U.S. 64, 68 (1985).

In the absence of Congressional abrogation, “|w]here a suit has not been consented to...

dismissal of the action is required.” Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir.

1985). The Supreme Court created an exception to this general principle in Ex □□□□□

Young, 209 U.S. 123 (1908). The Ex parte Young exception permits private parties to

bring suits for “prospective declaratory and injunctive relief against state officers, sued in

their official capacities, to enjoin an alleged ongoing violation of federal law.” Agua

Caliente Band of Cahuilla Indians v. Hardin, 223 F.3d 1041, 1045 (9th Cir. 2000).

The State Agencies contend that sovereign immunity bars the counterclaims for

declaratory relief in this action because (1) the State Agencies have not consented to suit

and no federal statute abrogates their immunity, and (11) the Ex parte Young exception does

not apply since the counterclaim “does not name as counterdefendants any state officers in

their official capacities.” See State’s MTD at 6-7. SEC and Partridge apparently concede

that their counterclaims do not fit the exception established by Ex parte Young, but respond

that “the state has expressly and explicitly waived its constitutional immunity” by enacting

a waiver provision in the Government Claims Act (Cal. Govt. Code § 814.). See State

MTD Opp. at 4.

The counterclaimants misread the relevant provision. Section 814 of the

Government Claims Act, formerly titled the Tort Claims Act, states: “Nothing in this part

affects liability based on contract or the right to obtain relief other than money or damages

against a public entity or public employee.” Cal. Govt. Code § 814. The “part” referenced

in § 8141s the Government Claims Act itself (Cal Govt. Code §§ 810-895.8), which waives

the state liability for a series of identified torts. The California Supreme Court made clear

that the purpose of § 814 “is not to expand the mghts of plaintiffs in suits against

governmental entities, but to confine potential governmental liability to rigidly delineated

circumstances” involving the identified torts. Brown v. Poway Unified School Dist., 4 Cal.

4th 820, 829 (1993). Far from waiving the state’s immunity to a broad range of suits, § 814

stands for the opposite proposition that “immunity 1s waived” by the act “only if the various

requirements of the act” involving the torts it identifies “are satisfied.” Id. In other words,

§ 814 clarifies that the Government Claims Act only waives the state’s immunity for the

tort claims it addresses—for example, tort claims against the state involving “dangerous

conditions of public property,” Cal. Govt. Code §§ 830-840.6, “fire protection,” Cal Govt.

Code §§ 850-850.8, and state operated “unmanned aircraft,’ Cal Govt. Code §§ 853-

853.5—and no other claims.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

Section 814 is accordingly not a waiver of the state’s immunity to this declaratory

judgment action, and certainly not an “unequivocally expressed” waiver to federal

jurisdiction in particular. See BV Eng’g v. Univ. of California, Los Angeles, 858 F.2d

1394, 1396 (9th Cir. 1988) (“[F]or a state statute or constitutional provision to constitute a

waiver of eleventh amendment immunity, it must specify the State’s intention to subject

itself to suit in federal court.”) (emphasis original) (quoting Atascadero State Hosp. v.

Scanlon, 473 U.S. 234, 241 (1985)); Doe v. Regents of the Univ. of California, 891 F.3d

1147, 1152 (9th Cir. 2018) (“A state’s waiver of Eleventh Amendment immunity and

consent to suit must be “unequivocally expressed.’”). The Court therefore finds and

concludes that the Eleventh Amendment tmmunizes the State Agencies from the

counterclaims asserted against them, and accordingly GRANTS the State Agencies’

motion to be dismissed from this action.

2. Dismissal Without Leave To Amend

The remaining question is whether the Court’s dismissal of the counterclaims against

the State Agencies should be with or without leave to amend. Dismissal without leave to

amend is only appropriate when a claim cannot be saved by any amendment consistent

with the remaining allegations. See Eminence Capital, 316 F.3d at 1052; Schreiber, 806

F.2d at 1401. Because the Court grants the State Agencies’ motion to dismiss on grounds

that the state entities named in the counterclaim have not waived their sovereign immunity,

counterclaimants could still theoretically amend to name the relevant state officers as

counterdefendants, and bring suit against them for prospective declaratory relief in their

official capacities pursuant to the exception established by Ex parte Young. If such an

amendment were not futile, it would be appropriate to grant counterclaimants leave to

pursue those claims.

The State Agencies contend that such an amendment would be futile, however, since

“there is no ‘actual controversy’ between Smith-Emery and the State Agencies” sufficient

to establish an Article III injury. State’s MTD at 7. Counterclaimants respond that the

State Agencies “clearly have an interest at stake in the outcome .. . that clearly affects

SEC’s legal interests” because the State Agencies could later prosecute them for state

regulatory violations, even if the State Agencies have forsworn any intent to do so now.

State MTD Opp. at 6-9.

“{T |he threatened enforcement of a law creates an Article III injury” when the party

asserting the claim “alleges an intention to engage in” some proscribed “course of conduct”

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

and “there exists a credible threat of prosecution thereunder.” Susan B. Anthony List v.

Driehaus, 573 U.S. 149, 159 (2014) (quoting Babbitt v. Farm Workers, 442 U.S. 289, 298

(1979)). “In evaluating the genuineness of a claimed threat of prosecution,” courts in this

circuit consider “whether the plaintiffs have articulated a ‘concrete plan’ to violate the law

in question,” “whether the prosecuting authorities have communicated a specific warning

or threat to initiate proceedings,” and “the history of past prosecution” under the challenged

law. Thomas v. Anchorage Equal Rights Comm’n, 220 F.3d 1134, 1139 (9th Cir. 2000).

A claimant bears the burden to establish all three elements 1n order to allege an actual case

or controversy that survives a motion to dismiss. See Sacks v. Office of Foreign Assets

Control, 466 F.3d 764, 773 (9th Cir. 2006) (dismissing claim on these grounds even though

two out of three prongs of the Thomas test were satisfied).

The counterclaimants’ arguments fail Thomas. First, counterclaimants have alleged

no “plan” to violate any of the state regulations they identify, and no court has ordered

counterclaimants to commit any such violations. To the contrary, counterclaimants have

disclaimed all intention of violating the identified regulations. They have in fact fought,

repeatedly, to avoid undertaking any conduct that, in their view, would require them to

violate these rules. At most, counterclaimants allege that they may have to comply with

some hypothetical future court order, should one be handed down, that requires

counterclaimants to violate these regulations. CC, §] 42, 50-52. But that is speculation,

with several layers, not a concrete plan to undertake or continue conduct that violates any

regulatory proscription, even assuming that their conduct would be proscribed in the first

place. See Thomas, 220 F.3d at 1139 (holding that there is no justiciable controversy where

the “alleged injury is too ‘imaginary’ or ‘speculative’ to support jurisdiction”) (quoting

Babbitt).

Second, the State Agencies evince no intent to initiate enforcement proceedings

against counterclaimants, and take no position on counterclaimants’ argument that the State

Agencies would even have cause to initiate enforcement proceedings against them should

they be required to make the contested payments into the Trust Funds. See State’s MTD

at 8-9, State’s MTD Reply at 3-4. That is insufficient to establish an actionable threat of

prosecution. See, e.g., Loyd’s Aviation, Inc. v. Ctr. for Envtl. Health, No. 11-CV-01078

AWI, 2011 WL 4971866, at *3 (E.D. Cal. Oct. 19, 2011) (concluding that there was no

justiciable case or controversy in pre-enforcement action where “State Defendants have

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

been unequivocal that there is no intention to bring any suit under [the subject law] against

Plaintiffs”).°

Third, counterclaimants allege no facts indicating that the State Agencies have

historically enforced the subject state regulations, let alone against an employer for merely

making payments into a trust fund pursuant to a labor agreement to benefit unlicensed

employees for work performed by licensed subcontractors. Absent allegations of “active

enforcement” that “render[s] the plaintiffs fear of prosecution reasonable’—even

assuming, per Stop the Beach and Antelope, discussed in § IV.A.1, that the regulations at

issue are even enforced in the manner feared at all—the Court does not find that there is a

“credible threat” of prosecution that gives rise to an actual justiciable controversy.

Thomas, 220 F.3d at 1140-41.

For these reasons, the Court concludes that permitting amendment per Ex parte

Young would be futile since there is no justiciable controversy between the State Agencies

and the counterclaimants, in any case. The State Agencies’ motion to dismiss is

accordingly granted with prejudice, and without leave to amend.

V. CONCLUSION

For the foregoing reasons, the Court:

(1) DENIES the Trustees’ motion to dismiss pursuant to Federal Rule of Civil

Procedure 12(b)(1):;

° Counterclaimants’ reliance on Stormans, Inc. v. Selecky, 586 F.3d 1109 (9th Cir.

2009) is misplaced. In that case involving two pharmacists’ challenge to rules promulgated

by the Washington State Pharmacy Board, the court found a justiciable controversy even

though the Pharmacy Board had taken no action against the plaintiffs because the plaintiffs

would have otherwise been forced to comply with rules despite their contention that the

rules were unconstitutional. Here, neither SEC nor Partridge challenge the state

engineering regulations at issue—in fact, they stand on the proposition that those rules are

generally valid and enforceable. There is accordingly no actual or imminent dispute

between the State Agencies and the counterclaimants, as there was in Stormans.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES —- GENERAL ‘O’

Case No. 2:19-CV-04058-CAS-AFM Date October 28, 2019

Title TRUSTEES OF THE OPERATING ENGINEERS PENSION TRUST ET

AL. V. SMITH-EMERY CO.

(2) GRANTS the Trustees’ motion to dismiss pursuant to Federal Rule of Civil

Procedure 12(b)(6) without leave to amend;

(3) DENIES the Trustees’ motion to strike pursuant to Federal Rule of Civil

Procedure 12(f), without prejudice to raise the same objections at proceedings on summary

judgment; and

(4) GRANTS the State Agencies’ motion to dismiss pursuant to Federal Rule of

Civil Procedure 12(b)(1) without leave to amend.

IT IS SO ORDERED.

00:55

CMI