A group of union benefit funds that claimed an employer violated a collective bargaining agreement filed a timely appeal, the 1st U.S. Circuit Court of Appeals has found in a case of first impression.
The plaintiff funds had appealed the judgment on the merits outside the 30-day window but within 30 days of a subsequent judgment on attorneys’ fees.
The employer, which allegedly violated its CBA by underpaying benefit remittances to the funds, argued that under the U.S. Supreme Court’s 1988 decision in Budinich v. Becton Dickinson & Co., attorneys’ fees are not considered part of the merits of a case. Thus, according to the employer, the U.S. District Court judge’s initial judgment ended all litigation on the merits, rendering the appeal untimely.
The 1st Circuit disagreed.
“We do not believe that Budinich should be read narrowly to apply to all claims for attorneys’ fees, whatever their genesis,” Judge Bruce M. Selya wrote for the court. “Where, as here, an entitlement to attorneys’ fees derives from a contract rather than a statute, the critical question is whether the claim for attorneys’ fees is part of the merits.”
In the case before the court, Selya continued, “[the CBA] provided for the payment of attorneys’ fees as an element of damages in the event of a breach. … It follows that when the district court entered judgment only for the unpaid remittances and explicitly left open the claim for attorneys’ fees, the damages award was incomplete and the judgment was not final.”
In a second issue of first impression, the panel found that where ERISA-protected benefit plans, in seeking to enforce remittance requirements in a CBA, show evidence that employees performed covered work not reported to the plan and that the employer failed to maintain adequate records, the employer is saddled with a rebuttable presumption of liability for all hours potentially representing covered work.
The 21-page decision is Central Pension Fund of the International Union of Operating Engineers and Participating Employers, et al. v. Ray Haluch Gravel Co.
Line appropriately drawn?
Kenneth L. Wagner of Blitman & King in Syracuse, N.Y., represented the funds. He said that while Budinich draws a bright line in its interpretation of the timeliness of an appeal, the question remains as to the appropriate place to draw the line when there are contractually based damages that include attorneys’ fees.
“We think the 1st Circuit drew the line in the appropriate spot, which rendered our entire appeal timely,” he said. “This is an issue that will come up from time to time, and now the law is clear in the 1st Circuit.”
Nonetheless, Wagner said, “the better practice [for attorneys] is to appeal early. Sometimes that doesn’t happen for whatever reason and you find yourself in the situation where you have to make that kind of argument.”
Marc B. Gursky, a lawyer in North Kingstown, R.I., who represents unions and union benefit funds, said the ruling has “important ramifications” for other cases — such as job discrimination and civil rights suits — that involve fee awards.
“Ironically, the decision could lead to more appeals, since lawyers might appeal the decision on the merits to leverage a settlement of the fee award, or to protect themselves if they’re unhappy with the award later,” said Gursky, who was not involved in the case.
Gursky added that not all CBAs have attorneys’ fee provisions and that practitioners often rely on ERISA fee provisions for an award.
“Obviously, the fee award can be an important component of the decision whether to appeal, so the better practice in light of this decision is to draft an attorneys’ fee provision into a CBA,” he said.
Jose A. Aguiar of Doherty, Wallace, Pillsbury & Murphy in Springfield, Mass., represented the defendant. He could not be reached for comment prior to deadline.
Beginning in 1988, defendant Ray Haluch Gravel Co., a landscape supply business in Ludlow, Mass., entered into a series of collective bargaining agreements with the International Union of Operating Engineers, Local 98, which maintains a hiring hall where employers can seek union referrals or hire union workers.
Under the CBA at issue, which was in effect from May 2005 through April 2011, the defendant remitted contributions to the plaintiffs, a variety of union-affiliated benefit funds that were regulated by ERISA.
In 2007, based on an audit of the defendant’s books, the plaintiffs demanded additional remittances for previously unreported work allegedly covered by the CBA.
When the defendant objected, the plaintiffs filed suit in U.S. District Court seeking recovery of unpaid remittances and attorneys’ fees.
On June 17, 2011, U.S. District Court Judge Michael A. Ponsor entered judgment on the claim for unpaid remittances, awarding the plaintiffs approximately $27,000 referable to work performed by a specific employee, Martin Jagodowski, but denied recovery for any other work.
While the plaintiffs provided evidence that covered work previously performed by Jagodowski was still performed after he left, the judge found that there was insufficient evidence that any “classified” employee under the CBA had performed the covered work to shift the burden to the defendant to show which hours represented covered work and which did not.
The court entered a separate judgment on the claim for attorneys’ fees on June 25, awarding $34,000 to the funds. At the end of its order, the court declared, for the first time, that the case was closed.
On Aug. 15, 2011, the plaintiffs appealed both decisions, arguing that Ponsor misconstrued the CBA and thus failed to properly resolve the claim for unpaid remittances.
The defendant argued that the plaintiffs’ appeal on that issue was untimely since it was filed more than 30 days after judgment on that issue.
The 1st Circuit found that the first judgment was not, in fact, a final judgment and thus the plaintiffs’ appeal was timely.
“The defendant insists that Budinich is controlling here: in its view, the Budinich court drafted a bright line rule,” Selya said. “But this characterization begs the question of where and how the line should be drawn. We must explore that conundrum.”
In doing so, the court found that Budinich should not be read to apply to all claims for attorneys’ fees as the defendant suggested.
“Such a mechanical reading overlooks the Supreme Court’s acknowledgement that ‘[i]f one were to regard the demand for attorney’s fees as itself part of the merits, the … merits would not have been concluded, and … [judgment finality] would not exist,’” Selya said. “This acknowledgment unmistakably signals that, although the Budinich Court determined that attorneys’ fees generally should be considered a collateral matter, they may sometimes be considered part of the merits.”
Haluch Gravel was such a case, Selya said.
“Throughout the litigation, the plaintiffs, pursuant to the terms of the CBA, sought to recoup the attorneys’ fees incurred as part of their collection efforts,” Selya said. “These included legal services rendered prior to suit. Viewed through this prism, the attorneys’ fees must be considered an element of the plaintiffs’ contractual damages.”
Accordingly, when the trial judge entered judgment only for unpaid remittances, leaving open the claim for attorneys’ fees, the damages award was incomplete and the judgment not final, Selya stated.
“Because no final judgment entered until the district court resolved the contract-based claim for attorneys’ fees, the plaintiffs’ appeal is timely as to all the issues raised,” he wrote.
The court also vacated the remittance award, finding that Ponsor should have ordered additional payments with respect to certain unidentified employees.