The 32BJ North Pension Fund v. Nutrition Management Services Co.

          Argued: May 7, 2019

          Appeal from the United States District Court for the Southern District of New York. No. 15-cv-8680 - Katherine B. Forrest, Judge.

         Defendant-Appellant Nutrition Management Services Company ("NMSC") appeals from a final judgment of the United States District Court for the Southern District of New York (Forrest, J.). NMSC entered into a collective bargaining agreement ("CBA") in 1998 that required it to make pension contributions on behalf of its employees to Plaintiff-Appellee, the 32BJ North Pension Fund. After NMSC failed to make the required contributions from 2008 to 2015, the Fund brought this ERISA action seeking unpaid contributions. Following a bench trial, the district court awarded the Fund damages that included an interest rate set forth in a delinquency policy established pursuant to a trust agreement referred to in NMSC's 1998 CBA with the 32BJ union. The district court held that NMSC's mere reference bound NMSC to the trust agreement and its delinquency policy, without concluding that the reference demonstrated NMSC's intent to be bound. NMSC argues that, until it executed an amendment to the CBA in 2014, it did not agree to be bound to the trust agreement, and thus the delinquency policy's interest rate did not apply. We agree with NMSC. Accordingly, we VACATE the judgment of the district court and REMAND for the district court to redetermine the amount of damages, consistent with this opinion, and to reconsider the amount of its award of attorney's fees.

          John Houston Pope, Epstein Becker & Green, P.C., New York, NY, for Defendant-Appellant.

          Richard Scott Siegel (Jeffrey S. Swyers, on the brief), Slevin & Hart, P.C., Washington, DC, for Plaintiff- Appellee.

          Before: Newman, Jacobs, and Droney, Circuit Judges.

          Droney, Circuit Judge.

         This appeal primarily concerns whether, in an action brought under the Employee Retirement Income Security Act ("ERISA") against an employer for unpaid pension fund contributions, 29 U.S.C. §§ 1132(g)(2), 1145, ^[1] the employer was bound to a term established by an ERISA plan document where the collective bargaining agreement ("CBA") that the employer signed only referred to the plan document but the employer did not expressly agree to be bound by that document. The district court in this action so held, awarding to the Plaintiff-Appellee 32BJ North Pension Fund ("the Fund") damages for unpaid contributions from 2008 to 2015 that included a substantial interest component. The interest rate was established by a Delinquency Policy that was adopted by the Fund under a Trust Agreement. The district court held that the Defendant-Appellant employer, Nutrition Management Services Company ("NMSC"), was bound by the terms of the Trust Agreement because NMSC signed a 1998 CBA that, in the district court's words, "specifically reference[d]" the Trust Agreement. 32BJ N. Pension Fund v. Nutrition Mgmt. Servs., 15-cv-8680 (KBF), 2017 WL 4863095, at *7 (S.D.N.Y. 2017).

         On appeal, NMSC contends that it did not agree to be bound to the Trust Agreement until it entered into a 2014 Memorandum of Agreement ("MOA") that, in amending and extending the CBA, specifically adopted the Trust Agreement and its associated policies, retroactive to August 1, 2013. App'x 385. NMSC argues that the Trust Agreement's interest rate for unpaid contributions should have been applied only beginning on August 1, 2013, not from 2008 when the delinquent contributions began accruing. The result of the district court's error, NMSC contends, is that the damages awarded to the Fund overstate the amount NMSC owes by at least $200, 000.

         We clarify, consistent with our precedent and that of the Supreme Court, that an employer in an ERISA action for unpaid contributions is bound to the terms of an ERISA plan document (here, a Trust Agreement) only if the employer objectively manifests an intent to be so bound, as evaluated under ordinary principles of contract interpretation. Applying those familiar principles here, we conclude that NMSC did not bind itself to the Trust Agreement-and the interest rate established under its Delinquency Policy-until NMSC agreed to the MOA modifying the CBA in 2014.

         We also reject the Fund's alternative argument that applying ERISA-plan-based interest provisions is so fundamental to the functioning of a fund that its trustees may unilaterally impose such provisions on a delinquent employer.

         Accordingly, we vacate the judgment of the district court and remand for the district court to redetermine the amount of damages, consistent with this opinion, and to reconsider the amount of its award of attorney's fees in light of that redetermination.

         FACTUAL AND PROCEDURAL BACKGROUND

         I. The Pertinent Agreements and Other Documents

         NMSC provides food services to nursing homes in New York state. One of its nursing home clients is Hebrew Hospital Home of Westchester. NMSC's employees at that nursing home are members of union Local 32BJ of the AFL-CIO ("the union" or "Local 32BJ").

         On September 1, 1998, NMSC entered into a CBA with Local 32E, the predecessor union to Local 32BJ.^[2] Article 22 of the CBA required that NMSC "shall contribute to the . . . Pension Fund" a fixed sum for "all employees in the bargaining unit" who met certain conditions.^[3] App'x 412. Importantly, Article 22 also stated, "[t]he parties understand that the . . . Fund will be held and managed under the terms and provisions of an Agreement and Declaration of Trust to be executed in connection with the said Fund . . . ." Id.

         The operative "Agreement and Declaration of Trust" described in Article 22 of the CBA was, at all times relevant to this case, the "Amended and Restated Agreement and Declaration of Trust." App'x 416-39. We refer to that document as the "Trust Agreement," as do the parties. As pertinent to this appeal, Article VII, Section 8 of the Trust Agreement specifies that "[a]n Employer that does not pay Contributions when due shall be obligated to pay, in addition to any penalties required under any applicable Collective Bargaining Agreement or other contract," inter alia, "interest on the unpaid Contribution at such rate as the Trustees may fix from time to time." App'x 700, 432-33.^[4]

         In accordance with that interest provision in the Trust Agreement, the Fund's trustees in 2008 established the first version of the "Policy for Collection of Delinquent Contributions," which we and the parties refer to as the "Delinquency Policy." App'x 670-84. Article 2, Section 2.1, Part C of the Delinquency Policy established a 10% annual interest rate for delinquent contributions to the pension fund. Then, effective June 1, 2013, the trustees established a revised Delinquency Policy, which lowered the interest rate to 9%.

         On April 30, 2014, NMSC executed a Memorandum of Agreement ("MOA") with the union, which "continu[ed] in full force" the terms of the CBA "for the period from August 1, 2013 through July 31, 2014," and also, among other things, added a new Article applicable to NMSC's pension fund contributions.^[5] App'x 384-85. The new Article stated that "the Employer [NMSC] hereby adopts and shall be bound by the [Trust Agreement] as it may be amended and the rules and regulations adopted or hereafter adopted by the Trustees of each Fund in connection with the provision and administration of benefits and the collection of contributions." App'x 385 (emphasis added).

         II. The Fund's Action for Unpaid Contributions

         Between 2008 and 2015, NMSC failed to make its required contributions to the Fund. The Fund conducted two audits (the "First Audit" and "Second Audit") of NMSC's records, which discovered some of these unpaid contributions, after which the Fund filed this suit. The Fund then conducted another audit (the "Third Audit"), which increased the amount that it sought to recover in this action.^[6]

         The district court granted summary judgment to the Fund as to the unpaid contributions discovered by the Second Audit. The district court held a bench trial with regard to issues surrounding the remaining unpaid contributions discovered by the First and Third Audits. The district court also received post-trial briefing as to the interest NMSC was required to pay for its unpaid contributions.

         The district court issued its findings of fact and conclusions of law in an opinion on October 27, 2017. The district court held that the Fund was entitled to recover the remaining unpaid contributions not resolved at summary judgment, and NMSC does not challenge that ...