Northern California Retail Clerks Unions v. Jumbo Markets, Inc.

906 F.2d 1371, 1990 WL 88813

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 2, 1990
• Docket: No. 89-15039
• Status: Published

Opinions

NOONAN, Circuit Judge:

The six plaintiffs (the Trust Funds) brought this action against the defendant (Jumbo Market) seeking the recovery of monies due the Trust Funds that Jumbo Market failed to pay. Jurisdiction for the action was conferred by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132 (1982). From a decision of the district court on cross-motions for summary judgment the Trust Funds appeal only the judgment as to their claim for unpaid vacation hours. We reverse.

FACTS

Jumbo Market had entered into a collective bargaining agreement with United Food and Commercial Workers Local 588 and its predecessor, Retail Clerks Union Local 588, an agreement in effect at all times relevant to this action. By the terms of the agreement Jumbo Market agreed to be bound by the terms of the trusts which set up the Trust Funds. The trusts provide pension, vacation and health benefits to employees in the retail trade throughout Northern California. Jumbo Market’s contributions are to be made on the basis of “all straight time hours worked, including all hours compensated such as vacations and holidays.”

The trustees of the Trust Funds are four nominees of the unions and four nominees of the employers. The trust agreements restate the employers’ obligation of each employer to contribute the amount required by its collective bargaining agreement and restate the obligation to determine the hours worked by including the hours paid for but not worked, as in the case of holidays and vacations. If an employer fails or refuses to pay any of the contributions required under the trust, the trustees at their option have the right to make contributions for the employer from the Trust Fund and, if they do so, the amount is immediately due and payable from that employer to the trustees. The trustees have the right to require reports necessary to the fulfillment of the plan and the employers agree to supply such reports. The trustees also have the power to construe the provisions of the trust agreements and any construction adopted by the trustees in good faith is binding upon all persons concerned.

In September 1984 Jumbo Market discovered a mistake in the way vacation hours were computed. The mistake was corrected, and Jumbo Market began to report the hours per month correctly. Jumbo Market, however, did not inform the Trust Funds that the earlier reporting had been erroneous and Jumbo Market did not correct the past errors. In August 1986 the Trust Funds conducted a full audit of Jumbo Market for the period January 1, 1982 to December 31, 1985. The auditors reported random errors totaling 543 unreported hours; unreported hours for retired employees totaling 4,055 hours; and unreported vacation hours during the first 34 months of the audit period totaling 33,774 hours.

On September 21, 1987 Jumbo Market tendered the Trust Funds $38,752.22 representing the sum of money it believed due as a result of the audit. The Trust Funds disagreed with Jumbo Market’s estimate of what was due and brought this action on February 1, 1988.

PROCEEDINGS

On cross-motions for summary judgment the district court reduced the number of unreported random hours for which recovery could be had to 102.54. The district court found that all of the hours relating to retirees should have been paid for. As to the vacation hours, the district court found that 33,774 hours had not been reported because of a computer error. Of the total, the district court held that 8,940.18 hours occurred after February 1, 1984 and, therefore, were not barred by the applicable statute of limitations. The remaining hours the district court held to be barred by the four-year California statute. No tolling of the statute was found.

The Trust Funds appeal.

ANALYSIS

The district court was correct in finding that the statute of limitations was the four-year statute provided by California law for breach of a written contract. Cal. of Civ.Proc.Code § 337 (West 1982). In ERISA actions the federal courts employ a state statute of limitations. Hawaii Carpenters Trust Fund v. Waiola Carpenter Shop, 823 F.2d 289, 298 (9th Cir.1987).

Because the cause of action is federal, however, federal law determines the time at which the cause of action accrues. Under federal law that time is when the plaintiff knows or has reason to know of the injury that is the basis of the action. Pierce County Hotel Employees and Restaurant Employees Health Trust v. Elks Lodge, 827 F.2d 1324, 1328 (9th Cir.1987). Neither the parties nor the district court focused on the time at which the Trust Funds had reason to know of the underpayment. The record is unclear as to when they did have reason to know. It will be necessary for this date to be determined.

In determining the date the Trust Funds had reason to know, the district court may consider evidence showing that the shift in September 1984 to reporting the correct number of hours was so great a change that the Trust Funds should have been alerted to the fact that the previous reporting had been erroneous. The question centered on the facts known to the Trust Funds from which they reasonably should have known that there was past substantial error.

There was, however, no duty under the trust agreement on the Trust Funds to make an independent verification in September 1984 if the facts known to them did not give them reason to know of the error. The employer-contributors were engaged in a program with the Union for the benefit of the retail clerks who were their employees. The employers and the Union were not in all respects hostile, arm’s length parties to a contract. In a variety of situations a person or entity who is not an express trustee may take on responsibilities of another which impose a fiduciary obligation. See 5 A. Scott & W. Fratcher, The Law of Trusts, § 495 (1989). The employers in ascertaining and reporting the hours worked put themselves in such a fiduciary relation.

The notion that the employers were free to cheat their employees or bury their reporting mistakes is repugnant to the mutual character of the enterprise. Bringing this action, the trustees of the Trust Funds (trustees who include an equal number of employer representatives) have in effect construed the reporting obligation of the employers under the trust declarations to be a fiduciary obligation. We cannot say that this determination was arbitrary.

It may be argued that Jumbo Market had not taken on a fiduciary obligation because the trustees of the Trust Fund have the duty of policing the employer contributors. Central States, Southeast & Southwest Areas Pension Fund v. Central Trans. Inc., 472 U.S. 559, 573, 105 S.Ct. 2833, 2841-42, 86 L.Ed.2d 447 (1984). That the trustees of the Trust Funds have their own duties to verify the basis of employer contributions does not diminish the responsibilities of the employers. It is common to audit fiduciaries; they remain fiduciaries.

To the extent that there is law on the point in this circuit, a district court has held that pension funds do place trust and confidence in the employer-contributors, Seymour v. Hull & Moreland Eng’g, 418 F.Supp. 190, 197 (C.D.Cal.1976), and this court accepted the finding of the district court without comment. 605 F.2d 1105, 1113 (9th Cir.1979) (Anderson, J.). We are not bound by this incidental reference to the district court’s holding, but we do take it as an indication that there is nothing arbitrary in finding that, in taking on the obligation to report the basis on which contributions will be made to an ERISA fund, the employer undertakes a fiduciary obligation which must be faithfully and punctiliously observed.

By keeping secret its substantial un-derreporting, Jumbo Market failed to observe its fiduciary reporting duty. The statute of limitations did not begin to run until the Trust Funds had reason to know of the underpayment.

REMANDED for proceedings consistent with this opinion.