Central Pennsylvania Teamsters Pension Fund v. McCormick Dray Line, Inc.

Opinions of the United

1996 Decisions States Court of Appeals

for the Third Circuit

6-12-1996

Cent PA Teamsters v. McCormick Dray Line

Precedential or Non-Precedential:

Docket 95-1740

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UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 95-1740

CENTRAL PENNSYLVANIA TEAMSTERS PENSION FUND;

CENTRAL PENNSYLVANIA TEAMSTERS HEALTH & WELFARE FUND;

JOSEPH J. SAMOLEWICZ

v.

McCORMICK DRAY LINE, INC.; JAMES WEBB

Central Pennsylvania Teamsters

Health and Welfare Fund and

Joseph J. Samolewicz,

Appellants

Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil No. 93-2118)

Argued March 13, 1996

Before: NYGAARD, SAROKIN, and ALDISERT, Circuit Judges

(Filed June 12, 1996)

Frank C. Sabatino (argued)

Schnader, Harrison, Segal &

Lewis

1600 Market Street, Suite 3600

Philadelphia, PA 19103

Attorney for Appellants

Craig S. Hudson (argued)

Marshall, Dennehey, Warner,

Coleman & Goggin

1845 Walnut Street

Philadelphia, PA 19103

Attorney for Appellees

OPINION OF THE COURT

SAROKIN, Circuit Judge.

This case poses the question of whether a provision in a

collective bargaining agreement which establishes eligibility for

employee participation in a health and welfare plan can be

reformed as the result of mutual mistake by the contracting

parties. Because this case involves a multiemployer plan, we

conclude that reformation is not available and that third party

beneficiaries to the underlying agreement are entitled to rely on

its plain language notwithstanding that such language was the

result of the mistake or negligence of the contracting parties.

Here, the Central Pennsylvania Teamsters Health & Welfare

Fund ("Welfare Fund") seeks to recover delinquent funds from

McCormick Dray Lines, Inc. ("McCormick"). McCormick argues that

these funds are not delinquent because they are sought pursuant

to a clause in a collective bargaining agreement that McCormick

avers was the result of a "mutual mistake" or a "scrivener's

error." The district court agreed and ruled in favor of

McCormick. We reverse.

I.

McCormick is a trucking company employing approximately

sixty drivers, of whom twenty-two are union drivers. The union

drivers are represented by Teamsters Local Union No. 764 ("Local

764" or "the union"). From the 1970s until 1991, McCormick was a

party to a series of collective bargaining agreements with Local

764. During that period, Charles Greenawalt was the President

and Business Representative for Local 764, and he was the

principal negotiator for Local 764 in the collective bargaining

negotiations. James Webb has been President of McCormick since

1984, and in that role negotiated with the union on behalf of

McCormick.

Included in these bargaining agreements were provisions

requiring that McCormick make monthly contributions to the

Welfare Fund on behalf of the union drivers for purposes of

providing them with medical benefits for themselves and their

families. Typically, just before the time that a prior

collective bargaining agreement would expire, the Welfare Fund

would send to Local 764 "suggested" health and welfare language

for the collective bargaining agreement. Greenawalt would then

ask his secretary to incorporate the "suggested" language into a

draft of the new collective bargaining agreement. If the parties

to a collective bargaining agreement wanted changes made to this

"suggested" language, they would negotiate those changes

themselves and then submit them to the Welfare Fund for approval.

In 1983, McCormick and Local 764 negotiated a change in the

employee Eligibility Clause to the Health and Welfare portion of

their contract. Specifically, the Eligibility Clause in the 1983

Agreement was negotiated to include the following language:

Section 2. Eligibility of Employees

(A) An employee shall be deemed to be an eligible

member employee if such employee has worked at least 60

hours for the employer during the preceding month . . .

.

The Sixty

(B) Any newly hired employee shall qualify as an

eligible member employee after forty-five (45) working

days or on the sixtieth calendar day whichever comes

first.

Joint Appendix ("JA") at 484. Before this negotiated clause

could be included in the collective bargaining agreement,

Greenawalt had to obtain approval from the Welfare Fund. The

fund did agree, reluctantly, to approve the language. This same

language then also appeared in the 1985 collective bargaining

agreement.

Greenawalt testified that just before the Union's 1985

collective bargaining agreement was about to expire, he received

suggested language from the Welfare Fund, as per usual, and this

language was then incorporated into the draft contract.

Afterwards, Greenawalt and Webb negotiated over the dollar amount

McCormick would be required to contribute to the Welfare Fund.

Webb never made any requests to change any of the other Welfare

Fund language, including the Eligibility Clause.

Once Greenawalt and Webb agreed to the essential terms of

the contract, Greenawalt sent Webb a copy of the 1988 Agreement

accompanied by a letter asking that Webb "[p]lease review [the

Agreement] and get back to [him] with any additions or

corrections which [Webb] fe[lt] need[ed] to be made" prior to

signing the agreement. Webb testified that he never specifically

checked the Eligibility Clause of the contract because it had not

been the subject of specific negotiations. No changes were made

to the Fund's proposed language, and the 1988 Agreement was

formally executed.

About one year following the execution of the 1988

Agreement, Webb noticed that the language in the Eligibility

Clause of Article XII did not include the same language that had

appeared in the past two collective bargaining agreements.

Specifically, the Eligibility Clause in Article XII provided in

relevant part:

Section 2. Eligibility of Employees

A. Any newly hired employee shall qualify as an

eligible member employee as of the first day of the

month immediately following his employment if such

employee meets the requirements of Subsection (B) next

below.

B. An employee shall be deemed to be an eligible

member employee if such employee has worked at least 60

hours for the Employer during the preceding month.

JA at 202-03. Unlike the Eligibility Clause that appeared in the

1983 and 1985 Agreements, this clause included no additional

requirement that the employee work at least 45 days prior to

eligibility.

Webb testified that he called John Kleinfelter, the

administrator of the Welfare Fund, to find out how the mistake

had occurred, and that "John kind of pooh-poohed and ha-ha'd and

laughed about it." JA at 302. Webb also contacted Greenawalt,

informing him that, unless Local 764 agreed to reform the

Eligibility Clause to be identical to that in the 1983 and 1985

Agreements, he would pursue a formal grievance under the parties'

collective bargaining agreement. Greenawalt testified that he

"was as surprised as [Webb] was" to learn of the actual language

in the Eligibility Clause. JA at 416. However, he further

testified that the point at which the error was discovered was so

long after the Agreement was signed that he was reluctant to

change it unilaterally because he feared the union could be held

liable by the Welfare Fund. Therefore, on August 18, 1989

Greenawalt formally advised Webb that Local 764 would not agree

to modify the Eligibility Clause and that McCormick should file a

grievance with the American Arbitration Association if it wished

to pursue the issue.

Webb did not pursue a formal grievance. Instead, McCormick

adopted a new practice of notifying each newly hired employee

that there had been an error in the 1988 Agreement, explaining to

each of them that they would become eligible for health and

welfare benefits only after they had completed their 45th work

day or their 60th calendar day and requiring them to sign a form

acknowledging that they were aware of this.

In 1991, auditors conducted a routine examination of

McCormick's payroll records on behalf of the Welfare Fund and the

Pension Fund. This payroll audit revealed that McCormick had not

been making contributions on behalf of newly hired employees in

accordance with the Eligibility Clause as it actually appeared in

the 1988 Agreement. In particular, the auditors discovered that

McCormick owed $27,930.00 in delinquent contributions to the

Welfare Fund. There is no dispute that under the plain language

of the 1988 Agreement, McCormick owes the $27,930.00.

Webb testified that after learning of the audit, he again

called John Kleinfelter at the Welfare Fund. He testified that

during his conversation, Kleinfelter told him "[W]e haven't come

after you for the money, have we? . . . [W]ell you know it was a

mistake." JA at 309. Greenawalt testified, however, that he

spoke to Kleinfelter about the language, too, and that

Kleinfelter never told him it was a mistake but that it was the

standard language they sent at the end of every contract and that

if McCormick had not wanted to agree to it, they should have gone

back to the Welfare Fund for approval to change it.

After failing in its efforts to recover the delinquent

funds, the Welfare Fund commenced this action against McCormick

on April 22, 1993. Meanwhile, in 1991, Donald Deivert replaced

Greenawalt as President of Local 764. On June 17, 1993 -- almost

two months after the Welfare Fund filed the instant action in

federal court -- Webb executed a Memorandum of Agreement with

Deivert, acknowledging that there was an error in the 1988

Agreement. Deivert's testimony, however, indicates that he

signed this Agreement out of fear that he and the Union would be

sued and the union drivers would lose their jobs if he did not.

In March of 1994, both parties filed cross-motions for

summary judgment. The district court granted summary judgment in

favor of McCormick, finding that the Eligibility Clause in the

1988 Agreement was subject to reformation because the language in

the clause was the result of a mutual mistake or a scrivener's

error. Central Pennsylvania Teamster Pension Fund, et al. v.

McCormick Dray Lines, Inc., No. 93-2118, slip op. at 16 (E.D. Pa.

Nov. 21, 1994) (hereinafter "Memorandum Opinion"). This appeal

followed.

II.

The district court had jurisdiction over this action brought

under the Employee Retirement Income Security Act ("ERISA"), 29

U.S.C. 1001 et seq. pursuant to 28 U.S.C. 1331. This court

exercises appellate jurisdiction pursuant to 28 U.S.C. 1291.

Our review of the district court's order for summary

judgment is plenary. Stroehmann Bakeries v. Local 776, 969 F.2d

1436, 1440 (3d Cir.), cert. denied, 506 U.S. 1022 (1992). We

thus apply the same test applied by the district court: (1) are

there no material facts in dispute; and (2) is one party entitled

to judgment as a matter of law? Id. at 1441 (citing Fed. R. Civ.

P. 56(c); International Union, United Mine Workers of Am. v.

Racho Trucking Co., 897 F.2d 1248, 1252 (3d Cir. 1990)).

III.

In this dispute, as in others in which welfare funds seek to

recover payments that are delinquent under the terms of

collective bargaining agreements with unions, the Welfare Fund

occupies the position of third-party beneficiary -- i.e. the

beneficiary of the agreement between the union and McCormick.

See, e.g., Agathos v. Starlite Motel, 977 F.2d 1500, 1505 (3d

Cir. 1992). Third-party beneficiaries are generally subject to

the same defenses that the promisor (here McCormick) could raise

in a suit by the promisee (here the union). See id. (citing J.

Calamari & J. Perillo, The Law of Contracts 17-10 (3d ed.

1987)). Such defenses include fraud in the inducement, breach of

contract and mutual mistake.

In 1960, however, the Supreme Court held that the rule is

different for employee benefit plans that are third-party

beneficiaries pursuant to collective bargaining agreements. In

Lewis v. Benedict Coal Corp., 361 U.S. 459, 470-71 (1960), the

Court held that an employer could not raise the union's breach of

a collective bargaining agreement as a defense against an

employee benefit plan suing for delinquent contributions unless

such a defense was preserved in "unequivocal words" in the

collective bargaining agreement.

In arriving at its conclusion, the Court explained that a

"collective bargaining agreement . . . is not a typical third-

party beneficiary contract." Id. at 468. Rather, the Court

noted the economic reality that many persons and entities have a

direct interest in the viability of a multiemployer plan: "If

Benedict and other coal operators having damage claims against

the union for its breaches may curtail royalty payments, the

burden will fall in the first instance upon the employees and

their families across the country." Id. at 469. Furthermore,

other employers would be required to increase their royalty

payments to maintain the planned schedule of benefits. Id.

The principle the Supreme Court set forth in Benedict Coal -

- i.e., that a breach by a union does not relieve the employer of

its obligations to make pension contributions to a multiemployer

welfare fund -- was ratified by Congress through the enactment of

section 515 of ERISA, which reads as follows:

Every employer who is obligated to make contributions

to a multiemployer plan under the terms of the plan or

under the terms of a collectively bargained agreement

shall, to the extent not inconsistent with law, make

such contributions in accordance with the terms and

conditions of such plan or such agreement.

29 U.S.C. 1145; see 126 Cong. Rec. 23,039 (1980) (remarks by

Rep. Thompson) (endorsing the reasoning of Benedict Coal in

passing section 515).

Congress's purpose in enacting section 515 was to allow

multiemployer welfare funds to rely upon the terms of collective

bargaining agreements and plans as written, thus "permit[ting]

trustees of plans to recover delinquent contributions

efficaciously, and without regard to issues which might arise

under labor-management relations law . . . ." 126 Cong. Rec.

23,039 (1980) (remarks by Rep. Thompson). Congress noted that

employer delinquency "detract[ed] from the ability of plans to

formulate or meet funding standards and adversely affect[ed] the

financial health of plans." Id. With the passage of section

515, Congress sought to ensure that benefit plans are able to

rely on contribution promises of employers "because plans must

pay out to beneficiaries whether or not employers live up to

their obligations." Benson v. Brower's Moving & Storage, Inc.,

907 F.2d 310, 314 (2d Cir. 1990) (citing Central States,

Southeast and Southwest Areas Pension Fund v. Gerber Truck Serv.,

Inc., 870 F.2d 1148, 1151 (7th Cir. 1989) (en banc)).

The Seventh Circuit has explained that under section 515,

"[t]he pension or welfare fund is like a holder in due course in

commercial law . . . [and thus] entitled to enforce the writing

without regard to understandings or defenses applicable to the

original parties." Gerber Truck, 870 F.2d at 1149.

Multiemployer welfare funds are not participants in collective

bargaining agreement negotiations and typically have no knowledge

of the nature of the original dealings between the union and the

employer. Instead, they rely upon the accuracy of the terms of

the collective bargaining agreements of all of their members in

making the actuarial calculations that produce their contribution

and payout systems for all of their members. See Robbins v.

Lynch, 836 F.2d 330, 333 (7th Cir. 1988).

Indeed, even if a multiemployer welfare fund has some

knowledge of the negotiating history leading up to the signing of

a collective bargaining agreement, it is evident from section 515

and Congress's intent in passing it that the fund should still be

able to rely on the language of the collective bargaining

agreement as written and agreed to by both the union and the

employer. Congress sought to minimize the administrative costs

of detecting and collecting delinquencies that "detract from the

ability of plans to formulate or meet funding standards and

adversely affect the financial health of plans" through the

passage of section 515. 126 Cong. Rec. 23,039 (1980) (remarks of

Rep. Thompson). If multiemployer welfare funds were required to

interpret the language in collective bargaining agreements based

upon information they may have regarding the negotiations

underlying the collective bargaining agreements, the chore of

preparing their actuarial calculations would be highly burdensome

and expensive, as well as risky; if the welfare fund

misinterpreted the actual underlying intention of the parties and

relied upon that misinterpretation in arriving at their actuarial

calculation, all of the members of the multiemployer fund would

suffer ultimately through the lower benefits and higher

contributions which would result from trying to correct these

errors. By enacting section 515, Congress sought to eliminate

such problems, leaving to employers and unions the simpler task

of ensuring that the plain language of their collective

bargaining agreements represents their intentions.

The courts of appeals which have had the opportunity to

review section 515, including this court, have all regarded it as

a limitation on the defenses available to an employer when sued

by a welfare fund. See, e.g., Agathos, 977 F.2d at 1505

(employer may not assert fraud in the inducement as a defense);

Trustees of Laborers Local Union # 800 Health and Welfare Trust

Fund v. Pump House, Inc., 821 F.2d 566, 568 (11th Cir. 1987) (per

curiam) (same); Southwest Administrators, Inc. v. Rozay's

Transfer, 791 F.2d 769, 775 (9th Cir. 1986) (same), cert. denied,

479 U.S. 1065 (1987); Gerber Truck, 870 F.2d at 1154 (employer

may not assert oral agreement with union not to enforce terms of

collective bargaining agreement as a defense); Bituminous Coal

Operators' Association, Inc. v. Connors, 867 F.2d 625, 632-36

(D.C. Cir. 1989) (employer may not assert mutual mistake of fact

in entering the collective bargaining agreement as a defense).

The Welfare Fund in the instant matter relies upon these

cases to support its argument that McCormick cannot avoid paying

its delinquent payments by arguing "mutual mistake" or

"scrivener's error." In particular, the Welfare Fund relies upon

Bituminous Coal. There, a multiemployer pension plan sued a

delinquent coal operator for contributions. Bituminous Coal, 867

F.2d at 627-28. The coal operator defended against the suit on

the ground that both parties to the collective bargaining

agreement had intended that the employer's contributions to the

fund would stop once the plan became so over-funded that its

contributions could no longer be deducted under federal income

tax laws. Thus, the operator presented the defense of

"unilateral" and "mutual mistake." Id. at 628. The D.C. Circuit

ruled that, under section 515, such a defense is not allowed:

"If it means nothing else, section 515 means that, at least when

the Trustees [of the fund] are not implicated in the alleged

misconduct, their suit cannot be thwarted by defenses not

apparent from the face of the [Collective Bargaining] Agreement."

Id. at 634. The court found that the terms of the collective

bargaining agreement at issue obligated the employer to make

contributions to the fund beyond the point of full funding, and

concluded that "[t]he requirement of section 515 that [the

employer] make its contributions 'in accordance with the terms or

conditions of such . . . agreement' thus precludes any defense

that would avoid that obligation." Id. at 636.

A.

The district court considered the Welfare Fund's arguments

and its reliance upon Bituminous Coal and the other cases

interpreting section 515. It concluded, however, that the facts

of this case presented a "mutual mistake" that could be asserted

as a defense. Memorandum Opinion at 16. The court ultimately

premised its conclusion that McCormick need not pay its

delinquency on International Union v. Murata Erie North America,

Inc., 980 F.2d 889 (3d Cir. 1992). We will discuss this case in

some detail.

The Murata case arose when a company terminated two company-

run pension plans. Because the pension plans were over-funded,

nearly $7 million remained in the plans after annuities were

purchased for all employees. Id. at 897. Both the company and

the union representing the employees argued that they were

entitled to recoup this excess, and the union ultimately sued the

company to resolve this dispute. This court was called upon to

determine whether the company itself or the union representing

the employees was entitled to the excess funds remaining in the

pension plans following termination. Id. at 893.

Under the laws in place at the time, the company could not

recoup the excess unless the plan documents explicitly authorized

it to do so. Id. at 895. The union argued that the plan

documents did not contain any such provision; the company

countered that the drafters had intended for the document to

contain a provision allowing the company to recoup excess and

that its absence was the result of a "scrivener's error," i.e.

the mistake of a scrivener in drafting the document.

We initially noted that allowing for reformation of the

document based on a scrivener's error is in some tension with the

statutory purposes of ERISA:

[O]ne statutory goal of ERISA is to insure that "every

employee may, on examining the plan documents,

determine exactly what his rights and obligations are

under the plan." See Frank v. Colt Indus., Inc., 910

F.2d 90, 97 (3d Cir. 1990). Allowing the doctrine of

scrivener's error to apply in ERISA cases would seem at

odds with this statutory purpose. A plan document

containing a scrivener's error might mislead an

employee into believing he had rights or obligations

that he did not, in fact, have.

Id. at 907.

We concluded, however, that under the facts of "this

particular case," application of the scrivener's error doctrine

was appropriate. Id. Specifically, we noted that the alleged

error related to what was "admittedly a 'windfall' for either

Murata or the [employees]," and thus the employees' "reasonable

reliance on the . . . Plan documents would probably not have led

them to believe that there would be any excess funds remaining."

Id. "Nor is it likely," we continued, "that reading the plan

documents would have led participants to believe that if any

excess funds remained after termination, that excess would be

distributed to them." Id. Thus, ERISA's statutory goal of

insuring that employee's may rely upon the plan documents was not

undermined by allowing reformation of the scrivener's error.

Having determined that there was a genuine issue of material fact

regarding whether or not there was such an error, we remanded the

case for further proceedings. Id. at 907-08.

The district court in the instant matter relied upon our

decision in Murata to conclude that reformation of the language

in the Eligibility Clause of the 1988 Agreement to reflect the

true agreement of the parties "would not frustrate the purpose of

ERISA," noting that "[t]here is no evidence that any plan

participant or beneficiary relied upon the Eligibility Clause in

the 1988 Agreement to determine his or her benefits under the

plan." Memorandum Opinion at 17.

We find the district court's reliance upon Murata misplaced.

Murata did not involve a suit by a multiemployer fund, nor did it

involve a claim for delinquent contributions. Rather, it

concerned efforts by an employer to retain the excess funds

remaining in the company's own terminated pension plan.

Therefore, section 515 and the concern that led Congress to enact

it -- namely that multiemployer plans must be able to rely on the

plain language of collective bargaining agreements or plans in

order to ensure that they have sufficient funds to pay out

required benefits -- were not at issue. Instead, we were

concerned only with ensuring that employees could reasonably rely

upon the language of the plan. It was these employees with whom

the agreement was made and who, through their union, presumably

had some knowledge of the original intent of the parties.

In the instant case, however, it is not relevant to our

inquiry whether the newly hired employees relied upon the

Eligibility Clause. Neither the union nor any individual workers

are parties to this lawsuit. Instead, the question is whether,

under section 515, the multiemployer Welfare Fund, and in turn

its members -- third-party beneficiaries who were not parties to

the collective bargaining agreement -- should be able to

reasonably rely upon the language in the collective bargaining

agreement as written. Murata provides us no guidance in this

area.

B.

Having concluded that Murata is inapposite to the question

before us, we must assess whether under section 515 a mutual

mistake made between the employer and the union in agreeing to

collective bargaining agreement language can be a defense to a

delinquency action by a multiemployer welfare fund. While this

court has never specifically endorsed the D.C. Circuit's decision

in Bituminous Coal, which held that mutual mistake cannot be

asserted as a defense, we have clearly endorsed the decisions of

other courts of appeals in concluding that traditional contract

defenses normally available against third party beneficiaries are

not available against welfare funds. See Agathos, 977 F.2d at

1505-06 (citing with approval to Benson, 907 F.2d at 316; Rozay's

Transfer, 791 F.2d at 775; Gerber Truck, 870 F.2d at 1154). In

fact, we have explicitly held that there are only three

recognized defenses which may be asserted by an employer as a

means of avoiding contributions to an employee benefit plan as

required under the terms of a collective bargaining agreement:

(1) the pension contributions themselves are illegal .

. . ; (2) the collective bargaining agreement is void

ab initio, as where there is fraud in the execution,

and not merely voidable, as in the case of fraudulent

inducement . . . ; and (3) the employees have voted to

decertify the union as its [sic] bargaining

representative, thus prospectively voiding the union's

collective bargaining agreement.

Agathos, 977 F.2d at 1505 (citations omitted); see also Connors

v. Fawn Mining Corp., 30 F.3d 483, 490 (3d Cir. 1994). A "mutual

mistake" between the union and the employer in drafting their

collective bargaining agreement is not one of those recognized

defenses, and we do not recognize it as such today.

McCormick argues, however, that we should affirm the

district court's decision that mutual mistake may be asserted as

a defense because the actions of the Welfare Fund itself were

implicated in the mistake. In essence, McCormick urges that we

carve out a fourth defense which may be asserted by employers

seeking to defend against actions by welfare funds to collect

delinquent payments, namely that the welfare fund itself was

responsible for a mistake in the collective bargaining agreement.

It does appear that Bituminous Coal itself, the D.C. Circuit

decision holding that mutual mistake may not be asserted as a

defense, leaves room for the defense of mutual mistake in cases

where the welfare fund has engaged in misconduct causing the

mistake:

When the trustees of a pension plan created pursuant to

collective bargaining agreement sue an employer for

contributions required by the plan, the employer may

not defend on the ground of union misconduct in

negotiating the agreement. If it means nothing else,

section 515 means that, at least when the Trustees [of

the fund] are not implicated in the alleged misconduct,

their suit cannot be thwarted by defenses not apparent

from the face of the Agreement.

Bituminous Coal, 867 F.2d at 634 (emphasis added).

Such a defense also does not appear to be inconsistent with

Congress's concern in passing ERISA section 515, namely that

"trustees of plans [be permitted] to recover delinquent

contributions efficaciously, and without regard to issues which

might arise under labor-management relations laws," and that

plans be able to meet funding obligations that are hindered by

delinquent funds. 126 Cong. Rep. 23,039 (1980) (remarks of Rep.

Thompson). If the Welfare Fund itself engaged in fraud or

misconduct causing incorrect language to be injected into a

collective bargaining agreement, it might be subject to the

defense because it would no longer be in the role of a holder in

due course. However, we make no such holding.

McCormick does not allege that the Welfare Fund committed

fraud or engaged in misconduct. It merely makes sweeping

statements in its brief before this court that "it is not

disputed that it was the Welfare Fund's conduct which caused the

mysterious modification of the eligibility terms" and that "the

present delinquency action could have been avoided if the Fund

had acted in a forthright manner," Appellee's Brief at 18.

McCormick appears to place blame upon the Welfare Fund for simply

providing the suggested language to the union when this language

was different from the language of the previous two collective

bargaining agreements. It suggests that if a Welfare Fund

"contemplates changing established and previously negotiated

terms in a collective bargaining agreement, the Welfare Fund has

to notify the parties of the modification," Appellee's Brief at

19, and that its failure to do so should be viewed as misconduct

which it, as the employer, can point to in defense of the

delinquency claim.

We decline to consider as misconduct the failure on the

part of a multiemployer welfare fund to notify employers of

changes in the language it suggests for inclusion in the health

and welfare benefit clauses of their collective bargaining

agreements. First, the absence of any provision in ERISA

mandating such notification suggests that Congress did not intend

to require it. ERISA includes many provisions which require

benefit funds or their administrators to notify participants and

beneficiaries of particular facts or events. Given "ERISA's

interlocking, interrelated, and interdependent remedial scheme,

which is in turn part of a 'comprehensive and reticulated

statute,'" "[t]he assumption of inadvertent omission is rendered

especially suspect." Massachusetts Mut. Life Ins. Co. v. Russell,

473 U.S. 134, 146 (1985) (citing Nachman Corp. v. Pension Benefit

Guaranty Corporation, 446 U.S. 359, 361 (1980)). If Congress

considered such notification necessary, we think it would have

included a provision requiring it.

Second, such a notification requirement would impose an

undue burden on multiemployer welfare funds, hindering their

effective operation. Multiemployer welfare funds would be

required to review the collective bargaining agreements of each

of their members individually prior to sending out new suggested

language, as well as to keep up with all of their other

notification requirements and administrative obligations. This

seems an unduly harsh burden when it is not mandated by the

statute, and more importantly, when its purported aim -- ensuring

that plan participants are aware of their rights and obligations

under the terms of their collective bargaining agreements -- can

be more easily and efficiently met if the employer simply reads

the language of the collective bargaining agreement prior to

signing it.

We thus conclude that a multiemployer welfare fund has not

engaged in any misconduct in failing to notify employers when

language it suggests for inclusion in new collective bargaining

agreements differs from language used in the employers' past

collective bargaining agreements. Indeed, there is no evidence

and there is no allegation that the Welfare Fund in the instant

matter surreptitiously included its suggested language in the

collective bargaining agreement unbeknownst to either party.

Rather, it submitted its suggested language to the union, and

when the language appeared unchanged in the collective bargaining

agreement that was ultimately signed -- and presumably read and

approved -- by both the employer and the union, the Fund relied

upon it, as it was entitled to do under section 515.

IV.

McCormick urges this court to affirm the district court's

opinion on various other grounds as well. Although we may affirm

a correct decision of the district court on grounds other than

those relied upon by the district court, see University of

Maryland v. Peat Marwick Main & Co., 923 F.2d 265, 275 (3d Cir.

1991) (citing PAAC v. Rizzo, 502 F.2d 306, 308 n.1 (3d Cir.

1974)), we decline to do so here for the reasons that follow.

A.

McCormick first urges this court to affirm the district

court on the theory that the 1988 Agreement was the result of

fraud in the execution and is thus void. As noted above, this

court has recognized that fraud in the execution of a collective

bargaining agreement may serve as one of the three possible

defenses against a delinquency action by a welfare fund. SeeFawn Mining,

30 F.3d at 490; Agathos, 977 F.2d at 1505.

"'[F]raud in the execution' arises when a party executes an

agreement 'with neither knowledge nor reasonable opportunity to

obtain knowledge of its character or its essential terms.'" Fawn

Mining, 30 F.3d at 490 (quoting Rozay's Transfer, 791 F.2d at 774

(other citations and internal quotation marks omitted)).

In our recent decision in Fawn Mining we found that fraud in

the execution was available as a defense because the union

affirmatively led Fawn Mining to believe that the collective

bargaining agreement it was signing would not require it to

contribute to a pension fund and Fawn Mining had no opportunity

to determine otherwise:

Fawn Mining's defense is equivalent to a claim of

"excusable ignorance of the contents of the writing

signed."

* * *

If an employer reviews a document reflecting the

agreements reached in collective bargaining and the

union surreptitiously substitutes a materially

different contract document before both sides execute

it, we think it clear that there has been a fraud in

the execution of the contract and that the agreement

reflected in the executed document is void ab initio

and unenforceable by the union. The employer has never

manifested an assent to the terms of the alleged

contract, and the written document purporting to

evidence the agreement has been obtained by fraud.

Fawn Mining, 30 F.3d at 492-93 (emphasis added).

Fawn Mining makes clear that McCormick cannot assert fraud

in the execution as a defense here because the undisputed facts

indicate that Webb had several opportunities to review the

language of the agreement prior to its execution. Specifically,

the record reflects that Webb had the opportunity to review the

language in the Eligibility Clause twice. First, Greenawalt

provided him with the suggested language during the negotiations.

Then, following the negotiations but before the formal execution

of the agreement, Greenawalt supplied Webb with a complete draft

of the 1988 Agreement instructing Webb to "review it and get back

to [him] with any additions or corrections." Had Webb reviewed

the agreement, he would have found the alleged error in the

document and this entire dispute could have been averted. There

is thus no evidence of any fraud or indication that Webb executed

the Agreement "'"with neither knowledge nor reasonable

opportunity to obtain knowledge of its character or its essential

terms."'" Fawn Mining, 30 F.3d at 490 (quoting Rozay's Transfer,

791 F.2d at 774 (quoting U.C.C. 3-305(2)(c))) (other citations

omitted). Accordingly, McCormick may not assert fraud in the

execution as a defense.

B.

McCormick further argues on appeal that the Welfare Fund

inexcusably delayed in bringing the instant action until 1993

because it knew in August 1989 that McCormick was making

contributions to the fund in accordance with the eligibility

clause language from the 1983 and 1985 Agreements, and that

accordingly, the Welfare Fund is precluded from recovering the

delinquent funds under the doctrines of laches and waiver. We

reject both contentions.

1.

The doctrine of laches consists of two essential elements:

(1) inexcusable delay in instituting suit; and (2) prejudice

resulting to the defendant from such delay. See University of

Pittsburgh v. Champion Products, Inc., 686 F.2d 1040, 1044 (3d

Cir.), cert. denied, 459 U.S. 1087 (1982). We conclude that it

does not apply here. Within 19 months of its audit revealing the

delinquency, the Fund formally began its efforts to collect the

delinquency, and it filed suit in federal district court on April

22, 1993, less than two years after the audit and well within the

three year statute of limitations for bringing this type of

action. See Vernau v. Vic's Market, Inc., 896 F.2d 43, 45 (3d

Cir. 1990). There is no evidence that this delay was dilatory.

Furthermore, there is no evidence that McCormick was in any

way prejudiced by this reasonable delay. McCormick alleges it

has been prejudiced because the amount it owes would have been

smaller than that now claimed and that McCormick would not be

facing liquidated damages, penalties and attorneys' fees. In

essence, McCormick asks this court to assume that it would have

behaved differently and actually paid the delinquent amount if it

had known that suit would be filed. We have no basis for

accepting this claim and we decline to do so.

2.

McCormick further claims that the Welfare Fund has waived

its opportunity to seek recovery of the delinquent funds because

it failed to respond to McCormick's notification that it intended

to follow the terms of the eligibility clause of the 1983 and

1985 Agreements instead of the clause in the 1988 Agreement.

This court has explained that waiver is the "intentional

relinquishment of a known right." Paradise Hotel Corp. v. Bank

of Nova Scotia, 842 F.2d 47, 51 (3d Cir. 1988). The Supreme

Court has held that in order to find waiver of a statutory right,

"the waiver must be clear and unmistakable." Metropolitan Edison

Co. v. NLRB, 460 U.S. 693, 708 (1983). There is no evidence in

the record of any waiver, let alone a "clear and unmistakable

one," and accordingly the doctrine of waiver does not apply here.

C.

McCormick further urges that we affirm the district court on

the ground that the Welfare Fund would be unjustly enriched if it

were to prevail on its claim. In essence, McCormick claims that,

because there is no evidence that the Fund provided coverage for

any new employees for whom McCormick did not pay benefits until

they met the 45-day eligibility language under the 1983/1985

Agreements, the Fund should not receive the delinquent funds.

However, a welfare fund is not unjustly enriched simply because

it has received benefit payments on behalf of particular

employees who have not made claims, because they presumably would

have received coverage had they submitted claims. A benefit

payment is made for coverage in case a claim is submitted. As

such, a lack of actual claims is irrelevant. Furthermore, the

welfare fund expected to have those funds at hand for payout of

benefits on behalf of other employees, including employees of

other employers who are members of the multiemployer Welfare

Fund.

D.

Finally, McCormick urges that, should we decide, as we do,

to reverse the order of the district court in favor of McCormick,

we not reverse the judgment in favor of Webb. We note that the

district court did not specifically address this issue.

This court has held that there is no indication that

Congress intended to hold corporate officers liable for a

corporation's failure to contribute to benefit funds when there

is no basis for piercing the corporate veil. See Solomon v.

Klein, 770 F.2d 351, 353 (3d Cir. 1985). Appellants made no

allegations in their complaint that the corporate veil should be

pierced, but apparently sought judgment against Webb only on the

basis of his position as a corporate officer. Accordingly, we

will dismiss the claim against Webb.

V.

For the foregoing reasons we reverse the decision of the

district court granting summary judgment in favor of defendants

and denying plaintiffs' cross-motion for summary judgment; issue

summary judgment in favor of plaintiffs; and dismiss the claim

against James Webb.

CENTRAL PENNSYLVANIA TEAMSTERS

v.

McCORMICK DRAY LINE, INC.

No. 95-1740

ALDISERT, Circuit Judge, Dissenting

Until this case came along, I thought that this court was

bound by our careful and important opinion holding that the

equitable doctrine of contract reformation due to a scrivener's

error is consistent with the purposes of ERISA. See

International Union v. Murata Erie North America, 980 F.2d 889,

907 (3d Cir. 1992). Four years later, the majority gut that

decision.

In so doing, the majority embrace arguments from the

Pennsylvania Teamsters Health and Welfare Fund that torture the

canons of good reason and assault the cardinal axiom of ERISA

that the rights and obligations of health and welfare funds stand

or fall on what parties agree to in a collective bargaining

agreement.

Before us, the Fund argues form over substance and trumpets

that it has been prejudiced, even though it has not paid out one

penny in accordance with the erroneous written language. Before

us, the Fund asserts that theoretical concepts of reliance inhere

in the language of the agreement, when in fact the collective

bargaining history of the parties since 1983 unquestionably

reveals that both the parties to the labor agreement and the Fund

have operated on the basis of the intended formula, which the

parties have since restored. The Fund's claim of reliance

therefore amounts to an argument aptly described, in the words of

the Immortal Bard, as "full and sound and fury and signifying

nothing."

I.

The facts in this case are simple and undisputed. McCormick

Dray is a trucking company that employs union drivers represented

by Teamsters Local 764. McCormick Dray and the Local negotiated

a series of collective bargaining agreements. Each of these

agreements included a provision that McCormick would pay premiums

to the Appellant Fund for the purpose of providing medical

benefits to the drivers and their families. Pursuant to these

agreements, the employees would become eligible for benefits

after they worked a specified period of time at McCormick. Prior

to 1983, that specified period of time was 30 days.

In 1983, due to the spiraling cost of premiums and the fact

that many McCormick employees left after 30 calendar days but

before 60 calendar days, McCormick and the Local negotiated a

change in the eligibility clause from 30 to 45 days. The Health

and Welfare Fund approved the new language. Both McCormick Dray

and the Local believed that this eligibility clause was

controlling unless subject to further negotiations. Indeed, the

next agreement, in 1985, repeated the 45-day eligibility

language, as did the 1991 agreement.

Several months before the expiration of the 1985 agreement,

however, McCormick and the Local began to negotiate terms for the

1988 agreement. The eligibility clause was never discussed in

these negotiations, nor was any change in the clause contemplated

by the parties. A contract offer was prepared by McCormick and

submitted to the Local, which approved. Thereafter, during the

Local's preparation of the final agreement, the 45-day

eligibility language was replaced with language providing for

coverage "as of the first day of the month immediately following

[an employee's] employment." JA 202-03.

Notwithstanding this change in the eligibility period, both

parties assumed that the eligibility clause had remained intact;

McCormick continued to make contributions to the Fund on behalf

of newly hired employees under the conventional 45-day

eligibility requirement, and the Fund made no payments in

accordance with the erroneous language.

In August of 1989, the company discovered the error and

advised the Local and new employees hired thereafter. Principals

of the Local were as surprised as McCormick that the eligibility

period in the agreement was not 45 days; indeed, in 1993, the

Local and McCormick agreed in writing that the 1988 language did

not reflect either parties' intent. When the 1988 agreement came

up for renewal in 1991, the 45-day eligibility requirement again

was included, and without negotiation. Thus, the clause under

consideration was contained in the original labor agreements of

1983, 1985 and 1991, and, according to a written agreement, was

"inadvertently misstated" in the 1988 agreement. These are more

than historical facts; this sequence looms large in the

subsequent discussion of reliance by the Fund.

The Fund conducted an audit in 1991 and did not attempt to

recoup any alleged deficiency until 1993. The filing of its

complaint followed on the heels of two developments: McCormick

withdrew from the Fund in 1992 when the premium jumped from $277

a month to approximately $400; and the Local requested action by

the Fund as a method of putting pressure on McCormick to resolve

an unrelated labor dispute.

II.

Under the doctrine of scrivener's error, a clerical mistake

made in drafting a document may be reformed on the basis of parol

evidence, provided that the evidence of the mistake is "clear,

precise, convincing and of the most satisfactory character" and

that the mistake does not reflect the intent of the parties. SeeIn re

Estate of Duncan, 426 Pa. 283 (1967); see also Easton v.

Washington County Ins. Co., 391 Pa. 28 (1957). Here, there is no

dispute between the signatories that a mistake has occurred, and

the collective bargaining agreement clearly does not reflect the

parties' intent.

We must then inquire whether importing the equitable

doctrine of reformation of contract due to a scrivener's error is

available to McCormick here, in an action brought under ERISA by

a third party beneficiary to a collective bargaining agreement.

To be sure, Section 515 of ERISA requires an employer to

contribute to a multiemployer benefit plan in accordance with the

"terms and conditions" set forth in the collective bargaining

agreement. 29 U.S.C. 1145. And there is no dispute that,

literally construed, the terms and conditions of the 1988

agreement make eligible any employee "as of the first day of the

month immediately following his employment." JA 202-03. Yet

applying rules with unfailing technical accuracy is not the

aggregate of our responsibility. As Judge Cudahy eloquently

stated in Central States, Southeast and Southwest Areas Pension

Fund v. Gerber Truck Services, Inc., 870 F.2d 1148, 1158 (7th

Cir. 1989) (Cudahy, J., dissenting), "all rules must admit of

equitable exception and modification in appropriate cases lest

the tyranny of theory over reality bring about obnoxious

results." And indeed, we have recognized several exceptions to

ERISA's mandate that contract defenses traditionally available

against third party beneficiaries are not available against

welfare funds. See Agathos v. Starlite Motel, 977 F.2d 1500,

1505-06 (3d Cir. 1992) (recognizing three exceptions to this

general rule).

This was the philosophy that undergirded our Muratadecision, in which

Judge Becker, writing for the court,

acknowledged that a scrivener's error exception "would seem at

odds with [the statutory purpose of] insur[ing] that 'every

employee may, on examining the plan documents, determine exactly

what his rights and obligations are under the plan.' Murata, 980

F.2d at 907 (citing Frank v. Colt Indus., Inc., 910 F.2d 90, 97

(3d Cir. 1990)). Even so, we decided to cast our die on the side

of an equitable exception. Thus there is nothing in our

jurisprudence governing labor relations or ERISA, as expressed by

Agathos and Murata, that endorses the majority's "tyranny of

theory over reality" in bringing about results that are obnoxious

to parties of a labor agreement. The precise inquiry that

remains, then, is whether the facts in this case should persuade

us to eviscerate the central teachings of Murata.

III.

The majority dismiss the Murata holding because that case

"did not involve a suit by a multiemployer fund, nor did it

involve a claim for delinquent contributions." Opinion at 16.

Neither of these distinctions is tenable.

The reason for disallowing the scrivener's error exception

in a multiemployer context, say the majority, is that

"multiemployer plans must be able to rely on the plain language

of collective bargaining agreements or plans in order to ensure

that they have sufficient funds to pay out required benefits."

Opinion at 16. The majority's reluctance stems from a

multiemployer plan's concept of multiple fiduciaries with control

over a common fund: to allow one employer to bind a fund to pay

benefits outside the strict terms of a plan would force all the

employers to pay for one employer's reformation, and insofar as

such payments damage the actuarial soundness of the plan, they

burden the employees of many other corporations as well.

Whatever may be the legitimacy of this reasoning in the

abstract, it is not relevant to the undisputed facts here.

Neither other companies in the multiemployer consortium nor the

Fund itself were forced to expend one cent, directly or

indirectly, on the basis of the 1988 contract reformation. Thus,

the basis of the concept in theory had no adverse effect in

reality. The reason asserted for artificially engrafting an

multiemployer exception to the teachings of Murata is simply not

warranted here. The double maxim says it all: cessante ratione,

cessat ipsa lex, the rule follows where its reason leads; where

the reason stops, there stops the rule.

The Fund neither collected premiums from McCormick nor

provided compensation to employees based on a scrivener's error

now subject to equitable reformation. Indeed, McCormick

contributed to the Fund consistent with the conventional 45-day

eligibility, and the Fund made only corresponding outlays to

employees. Thus the Fund here could not possibly demonstrate

reliance -- whether a kind of de jure actuarial reliance, or a de

facto we-paid-out-benefits-in-reliance-on-the-error. Logicians

refer to such an argument as the fallacy of irrelevant

conclusion, or ignoratio elenchi.

IV.

The majority's additional reason for not following Murata is

that we accepted the doctrine of scrivener's error in that case

because what was at stake was a "windfall." The majority argue

that, because the Fund will entertain claims brought by any

McCormick employee who was eligible for benefits under the

erroneous eligibility clause, no "windfall" is at stake here.

This argument flies in the face of basic economic reality.

I reiterate that the Fund has not made any payments in

accordance with the erroneous language. Surely, with the benefit

of more than six years of hindsight, the Fund is now fully aware

of any potential claims; it can thus calculate effortlessly

whether the company's additional contributions would exceed the

Fund's additional payouts to the employees. Indeed, the filing

of this action surely indicates that the simple math has been

computed. There have been no payouts whatsoever. Therefore,

when, without reliance on the error in the agreement, the Fund

seeks to recover additional contributions from McCormick, that's

a windfall.

V.

The Fund never relied on the scrivener's error, nor does it

deserve a windfall. Moreover, in Murata we resolved the

fundamental tension between recognizing an exception for

scrivener's error and satisfying the purposes of ERISA. The

circumstances presented here provide no reason for decimating a

well-reasoned decision of this court.

Accordingly, I would affirm the judgment of the district

court. I dissent.