Operating Engineers Health and Welfare Trust Fund v. JS Taylor Construction, Inc.

          ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, PARTIALLY GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT, AND ORDERING DEFENDANTS TO SHOW CAUSE WHY SUMMARY JUDGMENT AS TO THE SECOND AUDIT SHOULD NOT ISSUE DOCKET NOS. 47, 56

          EDWARD M. CHEN, UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         Plaintiffs are multiemployer benefits plans and their respective trustees, who have filed suit against JS Taylor Construction, Inc. (a corporation) and Joshua Thiel (a principal shareholder). The suit alleges a breach of the parties' collective bargaining agreement, and Plaintiffs seek unpaid contributions, interest, liquidated damages, and other relief. Defendants filed a Motion for Summary Judgment, arguing that Mr. Thiel cannot be held personally liable for the obligations of JS Taylor. Plaintiffs filed a Cross Motion for Summary Judgment, seeking an order from the Court directing Defendants to pay the outstanding benefit contributions, interest, and liquidated damages, as well as attorneys' fees and costs.

         II. BACKGROUND

         A. Factual Background

         “This action arises under the Employee Retirement Income Security Act of 1974 (‘ERISA') and out of an alleged breach of a collective bargaining agreement (‘CBA') for unpaid contributions.” Defendant's Motion for Summary Judgment (“Mot.”) at 1, Docket No. 47. “Plaintiffs are multiemployer employee benefit plans and their respective trustees” (collectively “Plaintiffs”). Opposition and Cross Motion for Summary Judgment (“Opposition”) at 2, Docket No. 56. Defendants are JS Taylor Construction, Inc., a California corporation, and Joshua Thiel, an individual. Complaint at 1, Docket No. 1. Mr. Thiel was the sole proprietor of JW Taylor (a sole proprietorship) and is now a principal shareholder of JS Taylor Construction (a corporation). Opposition at 10-11.

         In July 2014, Defendant Thiel entered into the Independent Northern California Construction Agreement (“Independent Agreement”) with the Union on behalf of JW Taylor Construction. Opposition at 2 (citing Declaration of Nate Tucker (“Tucker Decl.”) ¶ 2, Docket No. 60; Declaration of Dan Reding (“Reding Decl.”) ¶ 2, Docket No. 58). That Agreement “incorporates the Master [Bargaining] Agreement” between the Union and several contractor groups. Complaint at 3. The Master Bargaining Agreement in turn incorporates the Trust Agreements, under which Defendants were “required to pay certain contributions to: the Operating Engineers' Vacation and Holiday Pay Plan; Contract Administration Fund; Job Placement Center and Market Area Committee Administration Market Preservation Fund; Industry Stabilization Fund; and Business Development Trust Fund.” Id. at 4. The Agreement also “require[d] Defendants to pay . . . contributions to . . . the Union for union dues, . . . plus liquidated damages and interest on late-paid fringe benefit contributions, plus attorneys' fees and costs.” Opposition at 1. The debts allegedly owed were incurred only by JS Taylor, the corporate entity that JW later became.

         At the time he entered into the Independent Agreement (July 2014), Mr. Thiel “advised the Union that he would be incorporating his business and would notify the Union once he had incorporated.” Opposition at 2 (citing Tucker Decl., ¶ 3). In December 2014, “JW Taylor Construction stopped doing business.” Mot. at 3 (citing Haefele Declaration (“Haefele Decl.”), Exh. G (“Thiel Depo.”) at 53:10-25; 54:1-9, Docket No. 69). The following month, JS Taylor “started doing business” and Mr. Thiel informed the union that JS Taylor “was taking over for JW Taylor Construction.” Id. Defendants state that, upon receiving this information from Mr. Thiel, the Union “simply changed the employer name in their system . . . and began accepting monthly contribution payments from [JS Taylor]” rather than having Mr. Thiel “re-sign the Independent Agreement on behalf of [JS Taylor].” Id.

         During this transition, neither JS Taylor nor JW Taylor was purchased by or merged with the other entity. Defendant's Reply in Support of Motion for Summary Judgment (“Reply”) at 3, Docket No. 67. JS Taylor was never paid to complete work that JW Taylor was hired to perform. Thiel Depo. at 35. Nor did JS Taylor buy or acquire equipment or tools from JW Taylor. Id. at 30-32. However: (1) Mr. Thiel put the Union on “early notice that Mr. Thiel was going to be incorporating, ” Reply at 6; (2) he also stated in his deposition that “when JW ceased to exist, JS --JS took over, ” Thiel Depo. at 23; (3) Mr. Thiel also testified that employees were “transferred” from JW Taylor to JS Taylor, id. at 58; (4) Mr. Thiel believes that JS Taylor is obligated to make trust fund contributions because of the bargaining agreement [which had been signed previously only on behalf of JW Taylor], see Id. at 37; (5) ownership of the entities was largely identical: Mr. Thiel went from sole proprietor of JW Taylor to principal shareholder of JS Taylor, see Id. at 27; and (6) the addresses of the two entities were the same, namely Mr. Thiel's home address, see Id. at 54.

         Plaintiffs assert that “by early 2017, Defendants had become delinquent in their contribution payments.” Mot. at 3-4 (citing Haefele Decl., Ex. I, Plaintiffs' Response to Defendant's Interrogatories, Set One (“PRDI”) at 7-8, Docket No. 69). Specifically, Plaintiffs allege unpaid contributions now at issue were owed by JS Taylor for “February through April, and July through November 2016; and January 2017.” Complaint at 5. Plaintiffs assert one cause of action against Defendants, Mot. at 2, contending that Defendants have “breached the Bargaining and Trust Agreements and are in violation of ERISA § 515, 29 U.S.C. § 1145, and [the Labor Management Relations Act (“LMRA”)] § 301(a), ” Complaint at 5.

         Plaintiffs seek “any unpaid contributions, due at time of Judgment, ” “liquidated damages on all late-paid and unpaid contributions, ” “interest on all late-paid and unpaid contributions, ” and “reasonable attorneys' fees and costs of this action, including any audit fees.” Complaint at 6-7. Defendants, on the other hand, argue that Mr. Thiel has no liability for JS Taylor's unpaid contributions or any related payments because he only signed the Independent Agreement on behalf of JW Taylor, a sole proprietorship, which ceased doing business in 2014. Mot. at 4. Because Mr. Thiel never signed a new Agreement with the Union after JS Taylor incorporated and began doing business, he argues that he is not personally liable for the unpaid contributions owed by JS Taylor. Id.

         Plaintiffs contend that Mr. Thiel “personally guaranteed all amounts” owed, i.e., the contributions and other moneys which accrued against JS Taylor, pursuant to the Independent Agreement. Complaint at 4; Mot. at 2. They rely on Paragraph 12 of the Independent Agreement, which states:

If the Individual Employer is a corporation, its principal shareholder(s) or if the individual Employer is a partnership, its general partners personally guarantee all payment of wages and fringe benefits, including fringe benefit contributions, liquidated damages, interest and collection costs, including, but not limited to, attorney's fees and auditor/accountant fees.

         Tucker Decl., Exh. A at 1, Docket No. 60-1. However, Mr. Thiel disputes the imposition of personal liability because JW Taylor was never a corporation or a partnership, and Paragraph 12 does not impose individual liability on sole proprietors. Mot. at 6-8. In addition, Mr. Thiel never signed a subsequent agreement subjecting himself to personal liability for JS Taylor's corporate obligations. Id. at 4.

         III. DISCUSSION

         A. Legal Standard

         1. Motion for Summary Judgment

         Federal Rule of Civil Procedure 56 provides that summary judgment shall be rendered on a claim or defense, or part of a claim or defense, “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is material if it could affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A dispute is genuine “if the evidence is such that a reasonable jury could return a verdict” for either party. Id. “The mere existence of a scintilla of evidence . . . will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Id. at 252. On a summary judgment motion, a court must view the evidence in the light most favorable to the non-moving party, drawing all justifiable inferences in that party's favor. Id. at 255.

         The party moving for summary judgment always bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). When the movant also bears the ultimate burden of proof at trial, it can meet this initial burden of production by “com[ing] forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000). This requires the movant to affirmatively demonstrate that there is no genuine dispute as to every essential element of its claim. See River City Mkts., Inc. v. Fleming Foods W., Inc., 960 F.2d 1458, 1462 (9th Cir. 1992). In contrast, where the movant does not bear the ultimate burden of proof, it can meet its initial burden by demonstrating the non-moving party's failure “to make a showing sufficient to establish the existence of an element essential to [the non-moving party's] case.” Celotex, 477 U.S. at 322. Once the movant meets its initial burden of production, the burden shifts to the non-moving party to “produce evidence to support its claim or defense.” Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1103 (9th Cir. 2000). “If the nonmoving party fails to produce enough evidence to create a genuine issue of material fact, the moving party wins the motion for summary judgment.” Id. (citing Celotex, 477 U.S. at 322). Conversely, if the nonmoving party “produces enough evidence to create a genuine issue of material fact, the nonmoving party defeats the motion.” Id.

         In resolving a summary judgment motion, the court “rel[ies] on the nonmoving party to identify with reasonable particularity the evidence that precludes summary judgment”; it is not the court's task “to scour the record in search of a genuine issue of triable fact.” Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996) (citation omitted).

         2. Contract Interpretation

         The Court applies federal common law when deciding cases under ERISA. See, e.g., Menhorn v. Firestone Tire & Rubber Co., 738 F.2d 1496, 1500 (9th Cir. 1984) (“The courts are directed to formulate a nationally uniform federal common law to supplement the explicit provisions and general policies set out in ERISA, referring to and guided by principles of state law when appropriate, but governed by the federal policies at issue.”); see also Hamner v. Unum Life Ins. Co. of Am., No. C 96-1973 TEH, 1997 WL 257515, at *4 (N.D. Cal. May 6, 1997) (recognizing “uniform federal common law informing interpretation of ERISA governed insurance contracts” (internal quotation marks omitted) (citing Saltarelli v. Bob Baker Group Medical Trust, 35 F.3d 382, 386 (9th Cir.1994))). “Interpretation of a contract is a matter of law, including whether [a] contract is ambiguous.” United States v. King Features Entm't, Inc., 843 F.2d 394, 398 (9th Cir. 1988); see also Brobeck, Phleger & Harrison v. Telex Corp., 602 F.2d 866, 871 (9th Cir. 1979) (“the determination of whether a written contract is ambiguous is a question of law that must be decided by the court”).

         A court seeking “to ascertain the meaning of [an ambiguous] collective bargaining agreement” must “first examine its express written terms.” Nw. Administrators, Inc. v. B.V. & B.R., Inc., 813 F.2d 223, 225 (9th Cir. 1987). When that language is unclear, “the court must determine the ‘parties' actual intent' at the time of the agreement's execution.” Id.at 226. “When a plan is ambiguous a court may, and usually does, consider extrinsic evidence to interpret it.” Hamner v. Unum Life Ins. Co. of Am., No. C 96-1973 TEH, 1997 WL 257515, at *4 (N.D. Cal. May 6, 1997). The Ninth Circuit has explained: “If we find a contract to be ambiguous, we ordinarily are hesitant to grant summary judgment because differing views of the intent of parties will raise genuine issues of material fact. This circuit has not, however, adopted a rigid rule prohibiting reference to extrinsic evidence in resolving a contractual ambiguity on a summary judgment motion.” San Diego Gas & Elec. Co. v. Canadian Hunter Mktg. Ltd., 132 F.3d 1303, 1307 (9th Cir. 1997). Where the parties' “actual intent raises issues of material fact” even after reference to extrinsic evidence, summary judgment is improper. Nw. Administrators at 226. However, as San Diego Gas & Electric instructs, in the absence of ambiguity which persists after considering the extrinsic evidence, summary judgment may be appropriate.

         B. Analysis

         1. Mr. Thiel's Personality Liability for JS Taylor's Obligations

         The first key issue is whether Mr. Thiel can be held personally liable for the obligations of JS Taylor, the corporation. Normally, when a sole proprietorship incorporates and “cease[s] to be the employer, ” the corporation alone becomes “responsible for the unpaid contributions after it became the employer.” Operating Engineers Pension Tr. v. Reed, 726 F.2d 513, 515 (9th Cir. 1984). Here, JW Taylor-the sole proprietorship-stopped doing business in December 2014. Thiel Depo. at 53, 54. It also ceased having employees at that time. Id. at 53-54.^[1] JS Taylor- the corporation-began performing work the following month in January of 2015. Id. at 25. JS Taylor did not take over any projects from JW Taylor. Around the time JS Taylor began performing work, Mr. Thiel notified the Union that his business had been incorporated and was changing its name to JS Taylor Construction. Id. at 57. Thus, it would appear at first blush that Mr. Thiel-in his role as sole proprietor of JW Taylor-bears no responsibility for the unpaid contributions of JS Taylor.

         However, the Ninth Circuit has recognized that “special circumstances” (such as a contract that modifies the normal rules) may sometimes compel a different outcome. Reed, 726 F.2d at 515. Here, the parties disagree as to the effect of the Independent Agreement. The parties focus on the text of Paragraph 10 of the Independent Agreement. That paragraph provides:

If the Individual Employer sells or transfers any or all of its assets, stock, and/or operations, it will provide as a term of the sale or transfer that the buyer or transferee shall recognize the Union as the ...