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

> Court of Appeals for the Third Circuit · June 12, 1996 · 85 F.3d 1098

URL: https://www.frixlaw.com/law-library/cases/3010213

## Case

- **Full name:** 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
- **Court:** Court of Appeals for the Third Circuit
- **Decided:** June 12, 1996
- **Citations:** 85 F.3d 1098; 1996 WL 313470
- **Opinion:** Opinion
- **Judges:** Nygaard, Sarokin, Aldisert
- **Cited by:** 2 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/3010213

## How later opinions describe it (automated extraction)

- rejecting fraud-in-the- execution claim where employer failed to read the contract despite having opportunities to do so

## Opinion text

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Precedential or Non-Precedential: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

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996

Recommended Citation
"Cent PA Teamsters v. McCormick Dray Line" (1996). 1996 Decisions. Paper 150.
http://digitalcommons.law.villanova.edu/thirdcircuit_1996/150

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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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/3010213. Public record. Not legal advice.