AUDIT SERVICES INC v HARVEY BRO

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NO. 82-373 I N THE SUPREME COURT OF THE STATE OF MONTANA 1983 AUDIT S E R V I C E S , I N C . , a Nontana Corporation, P l a i n t i f f and A p p e l l a n t , HARVEY BROS. CONSTRUCTION, a Montana Corporation, D e f e n d a n t and ~ e s ~ o n d 6 r k . Appeal from: D i s t r i c t C o u r t of t h e F i f t h J u d i c i a l D i s t r i c t , I n and f o r t h e C o u n t y of B e a v e r h e a d H o n o r a b l e F r a n k B l a i r , Judge p r e s i d - i n a . C o u n s e l of P . e c o r d : For A p p e l l a n t : C u r e & B o r e r , G r e a t Falls, Montana F o r Respondent: C h r i s t i n e C. P a r k e r , D i l l o n , M o n t a n a S u b m i t t e d on b r i e f s Decided Filed: JUN 3 0 1983 Clerk A p r i l 1 5 , 1983 June 3 0 , 1 9 8 3 Mr. J u s t i c e L . C. G u l b r a n d s o n d e l i v e r e d t h e O p i n i o n of t h e C o u r t . T h i s a p p e a l stems from t h e judgment of t h e D i s t r i c t C o u r t of the F i f t h J u d i c i a l District, Beaverhead County, which declared t h e c o m p l i a n c e a g r e e m e n t s e n t e r e d i n t o b e t w e e n t h e c a r p e n t e r s and l a b o r e r s u n i o n s and H a r v e y B r o t h e r s C o n s t r u c t i o n (HBC) v o i d , and c o n c l u d e d t h a t t h e y c o u l d be r e s c i n d e d . Plaintiff, collect owed Audit delinquent by Services Inc., contributions, defendant commenced damages, plaintiff' s to C a r p e n t e r s and L a b o r e r s T r u s t Funds. this and action fees assignors, to allegedly the Montana A n o n j u r y t r i a l was h e l d on A p r i l 2 0 , 1 9 8 2 , a f t e r which t h e c o u r t h e l d i n f a v o r of d e f e n d a n t , HBC. The d e f e n d a n t i s e n g a g e d i n the construction business. e m p l o y s c a r p e n t e r s and l a b o r e r s . dant entered i n t o a s e r i e s of suant Beginning i n 1967, t h e defen- compliance agreements w i t h l o c a l c a r p e n t e r and l a b o r e r u n i o n s . porated The c o m p l i a n c e a g r e e m e n t s i n c o r - by r e f e r e n c e c o l l e c t i v e b a r g a i n i n g a g r e e m e n t s , to the terms d e f e n d a n t was of the required Montana C a r p e n t e r s It collective t o make bargaining specified and pur- agreements, contributions and L a b o r e r s T r u s t Funds. to the These a g r e e m e n t s w e r e renewed t h r o u g h t h e y e a r s . I n 1975, d e f e n d a n t n o t i f i e d t h e l a b o r unions t h a t it intended t o withdraw effective from at the the labor expiration agreements. of the Withdrawal existing was to agreements. be The e x i s t i n g a g r e e m e n t s were t h e 1975-1977 a g r e e m e n t w i t h t h e c a r p e n t e r s u n i o n , and t h e 1974-1976 a g r e e m e n t w i t h t h e l a b o r e r s u n i o n . I n 1979, d e f e n d a n t ' s p a y r o l l r e c o r d s were a u d i t e d on behalf of the Carpenters disclosed that $9,969 D e f e n d a n t r e f used penalties, billed. and the was t o pay interest and Laborers owed for Trust Funds. delinquent these delinquencies, costs due under the The audit contributions. along w i t h o t h e r agreements when The u n i o n s t h e r e a f t e r a s s i g n e d t h e i r c l a i m s t o p l a i n t i f f who t h e n commenced t h i s a c t i o n . Defendant, by amendment to the answer, alleged that the a g r e e m e n t s w e r e v o i d a s h a v i n g b e e n o b t a i n e d by d u r e s s , m e n a c e , and f r a u d . cerned Furthermore, defendant claimed records operated by of the Construction, ACE owners a of and defendant; t h a t t h e a u d i t con- partnership owned s i n c e ACE was and not a p a r t y t o t h e a g r e e m e n t s , i t c o u l d n o t be l i a b l e f o r t h e p a y m e n t s . The were the r e c o r d s b a s e d on t h e t e s t i m o n y of Mr. Howard S a n d s , proper plaintiff contends that the the a c c o u n t a n t who c o n d u c t e d t h e a u d i t . records audited H e s t a t e d t h a t a l l t h e per- s o n s , wages and h o u r s a p p e a r i n g on t h e a u d i t a l s o a p p e a r e d on t h e q u a r t e r l y r e p o r t d e a l i n g w i t h unemployment contributions, w i t h t h e Employment S e c u r i t i e s D i v i s i o n of t h e S t a t e of Montana under the name of Harvey Brothers Construction. filed further He s t a t e d t h a t some of h i s i n f o r m a t i o n was t a k e n from t h e i n d i v i d u a l payroll r e c o r d s which r e c a p a man's wages by week, month, and year. Three issues a r e presented for our review. They are as follows: Is t h e r e a n y c r e d i b l e e v i d e n c e t o s u p p o r t t h e f i n d i n g s of 1. f a c t and c o n c l u s i o n s of l a w upon which t h e D i s t r i c t C o u r t b a s e d i t s judgment? 2. Regardless is judgment, it of the evidentiary consistent with the foundation governing for principles the of f e d e r a l l a b o r law by which t h i s c a s e was s u p p o s e d t o be d e c i d e d ? Did t h e D i s t r i c t C o u r t a b u s e i t s d i s c r e t i o n by a l l o w i n g 3. the defendant leave believe We t o amend that the i t s answer second shortly before is issue trial? dispositive. I n a c a s e b r o u g h t t o e n f o r c e a c o n t r a c t between an employer and a l a b o r o r g a n i z a t i o n , which f a l l s u n d e r s e c t i o n 3 0 1 ( a ) of t h e Labor Management Relations Act ( 2 9 USC 1 8 5 ( a ) ) , it should be n o t e d t h a t t h e s t a t e c o u r t s have c o n c u r r e n t j u r i s d i c t i o n w i t h t h e federal courts. Contractors St.Rep. 928, Audit (1982), (and cases S t e w a r t and J a n e s ( 1 9 8 1 ) , Services Inc., v. Clark Mont* ---- , 6 4 5 P.2d cited therein); Mont. Audit , 953, Brothers 955, 39 Services v. 6 2 2 P.2d 2 1 7 , 219, 38 St.Rep. 41, (and cases cited therein); ( 1 9 7 3 ) , 1 6 3 Mont. 1 0 0 , 5 1 5 P.2d 6 7 7 , 678. Lowe v. O'Conner However, i n e x e r c i s i n g t h a t j u r i s d i c t i o n , t h e s t a t e c o u r t s must a p p l y f e d e r a l s u b s t a n t i v e law. A u d i t S e r v i c e s v. C l a r k B r o t h e r s C o n t r a c t o r s , S e r v i c e s v. S t e w a r t and J a n e s , The of application the Lowe v. supra; federal law to supra; Audit O'Conner, this case supra. warrants r e v e r s a l of t h e D i s t r i c t C o u r t ' s judgment. The f e d e r a l l a w on t h i s p o i n t is m o s t c o g e n t l y s e t o u t by t h e n i n t h c i r c u i t c o u r t of a p p e a l s i n Todd v. McNef f ( 9 t h C i r . 1 9 8 2 ) , 667 F.2d dealing 800. with In a section agreement, which never showing any m a j o r i t y of the t h a t case the for allowing (29 USC a p p e a l s was 1 5 8 ( f ) 1, pre-hire i s w h a t we h a v e h e r e a s t h e r e was unions t h e HBC e m p l o y e e s . rationale c i r c u i t c o u r t of 8 ( f ) , NLRA, i n essence that the in question represented a The Todd c o u r t c l e a r l y s e t o u t these types of agreements in the c o n s t r u c t i o n i n d u s t r y w h e r e it s t a t e d : "The l a b o r c o n t r a c t i n t h i s c a s e i s o n e u n d e r S e c t i o n 8 ( f ) of t h e N a t i o n a l L a b o r R e l a t i o n s A c t ( 2 9 U.S.C. S 1 5 8 [ £ ] ) . T h i s s e c t i o n is a n e x c e p t i o n t o t h e g e n e r a l l a b o r p o l i c y t h a t an employer can o n l y e n t e r i n t o a c o l l e c t i v e bargaining r e l a t i o n s h i p with a union t h a t represents a majority of the employer's employees. A s j o b s b e g i n and e n d , c o n s t r u c t i o n w o r k e r s f r e q u e n t l y c h a n g e e m p l o y e r s . Due t o t h i s , C o n g r e s s h a s s e e n f i t t o a l l o w soc a l l e d 'pre-hire' agreements i n t h a t industry. T h e s e a g r e e m e n t s may be s i g n e d b e f o r e t h e u n i o n r e p r e s e n t s a m a j o r i t y of t h e e m p l o y e r ' s employees, and may continue i n duration t h r o u g h more t h a n o n e of t h e e m p l o y e r ' s j o b s , even i f t h e employer goes through a h i g h employee t u r n o v e r . These a g r e e m e n t s a l l o w t h e e m p l o y e e s some of t h e wage and b e n e f i t advant a g e s of u n i o n r e p r e s e n t a t i o n , a s well a s r e l a t i v e wage s t a b i l i t y . The e m p l o y e r i s a s s u r e d a q u a l i f i e d p o o l of w o r k e r s t o c h o o s e f r o m when i t n e e d s them, p r o t e c t i o n a g a i n s t labor unrest during the period of the c o n t r a c t , and p r e d i c t a b l e l a b o r c o s t s , an invaluable t o o l i n the bidding process." 667 F.2d a t 8 0 1 , 8 0 2 . The Todd c o u r t went on t o s t a t e t h a t a s a m a t t e r of p o l i c y and b a s e d on t h e U n i t e d S t a t e s Supreme C o u r t ' s m a n d a t e i n NLRB v . L o c a l No. 1 0 3 , I r o n Workers ( H i g d o n C o n s t r u c t i o n Co.) U.S. 3 3 5 , 98 S . C t . 6 5 1 , 54 L.Ed.2d ( 1 9 7 8 1 , 434 5 8 6 , t h a t s e c t i o n 8 ( f ) (29 USC 1 5 8 ( f ) ) c o n t r a c t s " a r e v o i d a b l e by t h e e m p l o y e r u n t i l t h e u n i o n a t t a i n s majority support." However, t h e y a l s o made i t c l e a r t h a t s u c h c o n t r a c t s a r e e n f o r c e a b l e under s e c t i o n 301, 1 8 5 ( a ) ) u n t i l t h e e m p l o y e r r e p u d i a t e s them. F.2d a t 8 0 3 , 804. c o n t r a c t s were L R ( 2 9 USC MA Todd v. McNef f , 6 6 7 T h i s remedy of r e p u d i a t i o n a p p l i e s e v e n i f t h e case presently ( e . , t h r e a t s t o p i c k e t and of v i o l e n c e ) . before us, coerced, a s was alleged in the Todd v. McNeff, 667 F.2d a t 804. H e r e w e s e e no e v i d e n c e of r e p u d i a t i o n . A s a m a t t e r of fact i f HBC d i d a n y t h i n g , it r a t i f i e d t h e s e agreements w i t h t h e car- p e n t e r s and l a b o r e r s . W e have p r e v i o u s l y d e f i n e d r a t i f i c a t i o n i n Audit Services, Inc. v. F r a n c i s T i n d a l l C o n s t r u c t i o n ( 1 9 7 9 ) , 183 Mont. 4 7 4 , 600 P.2d 8 1 1 , w h e r e we s t a t e d : " ' " R a t i f i c a t i o n " i s d e f i n e d t o be t h e c o n f i r m a t i o n of a p r e v i o u s a c t d o n e e i t h e r by t h e party himself or by another. (Citing authority.) And a c o n f i r m a t i o n n e c e s s a r i l y s u p p o s e s knowledge of the thing ratified (Citing authority. ) It follows t h a t to c o n s t i t u t e a r a t i f i c a t i o n t h e r e m u s t be a n a c c e p t a n c e of t h e r e s u l t s of t h e a c t w i t h a n i n t e n t t o r a t i f y and w i t h f u l l knowledge of a l l the material circumstances. ' K o e r n e r v. N o r t h e r n P a c . Ry. Co. ( 1 9 1 9 ) , 5 6 Mont. 5 1 1 , 5 2 0 , 1 8 6 P. 3 3 7 , 3 4 0 . " 600 P.2d a t 813. W e w e n t on i n T i n d a l l t o s t a t e t h a t " [ i l t i s t h e m a n i f e s t a t i o n of the ratifying party which controls. The respondent's e x p r e s s i o n s and a c t i o n s j u d g e of h i s i n t e n t i o n a t 813. ... outward 600 P.2d " H B C ' s o u t w a r d e x p r e s s i o n s and a c t i o n s c l e a r l y show t h e i r intention here. agreements with Earnest the two Harvey unions. admits The that they t e s t i m o n y of signed the accountant Howard S a n d s , who c o n d u c t e d t h i s a u d i t of HBC a s w e l l a s a p r e v i o u s o n e which c o v e r e d from 1 9 7 3 t o J u l y 1, 1 9 7 5 , shows t h a t HBC voluntarily contributed thousands t r u s t s b e t w e e n 1 9 7 3 and 1 9 7 5 . of dollars to the respective T h e s e c o n t r i b u t i o n s w e r e made i n s p i t e of t h e H a r v e y ' s c l a i m s t h a t t h e y w e r e c o e r c e d i n t o e n t e r i n g the a g r e e m e n t s by t h r e a t s of picketed. the t h r e a t of being Such v o l u n t a r y p a y m e n t s o v e r a p e r i o d of t i m e w i t h no e f f o r t s to rescind collective v i o l e n c e and h a v e b e e n h e l d t o r e s u l t i n r a t i f i c a t i o n of bargaining agreements. Tindall Construction, supra. Audit Services v. Francis ( S e e a l s o P i o v. ~ e 1 l . y( 1 9 7 6 ) , 2 7 5 5 8 5 , 552 P.2d 1 3 0 1 , w h e r e i t was s t a t e d : Or. ". . . t h a t an e m p l o y e r who h a s made c o n t r i b u t i o n s t o a t r u s t fund e s t a b l i s h e d under t h e terms of a c o l l e c t i v e b a r g a i n i n g a g r e e m e n t o v e r a s u b s t a n t i a l p e r i o d of time may n o t , when l a t e r s u e d by t h e u n i o n t o e n f o r c e s u c h a n a g r e e m e n t , c o n t e n d a t t h a t time t h a t t h e agreement is unenforceable by r e a s o n of duress." 552 P.2d a t 1 3 0 6 , 1 3 0 7 . (See also, Wash.App. 336, from denying Carr v. 522 P.2d Settle Construction, Inc. (1974), 11 8 4 9 , w h e r e e m p l o y e r h e l d t o be e s t o p p e d collective bargaining agreement where he had o p e r a t e d under its terms f o r 1 5 y e a r s . ) Finally, t h e l e t t e r s s e n t by HBC t o t h e l a b o r e r s and c a r p e n - t e r s u n i o n s w i t h d r a w i n g from t h e a g r e e m e n t s a r e f u r t h e r and more conclusive t e r m s of evidence that HBC those agreements, intended until to be bound, under t h e agreements expired. the Those l e t t e r s i n p e r t i n e n t p a r t read a s follows: "Gentlemen: " T h i s i s t o a d v i s e you t h a t t h i s f i r m h a s elected to withdraw from any Compliance A g r e e m e n t s t o which i t i s s i g n a t o r w i t h y o u r organization. " T h i s e l e c t i o n i s e f f e c t i v e upon t h e e x p i r a t i o n of t h e e x i s t i n g a g r e e m e n t o r a g r e e m e n t s , and t h i s n o t i c e i s g i v e n p u r s u a n t t o t h e withdrawal r i g h t s granted thereunder ." All the knowledge above of all set out actions the material tend f a c t s and to show t h a t HBC that it confirmed had the a g r e e m e n t s , t h u s , m e e t i n g t h e d e f i n i t i o n of r a t i f i c a t i o n from t h e T i n d a l l c a s e s e t o u t above. The f a c t t h a t HBC d i d n o t r e p o r t any h o u r s worked t o t h e c a r p e n t e r s from J u l y 1, 1 9 7 5 , t o A p r i l 3 0 , 1 9 7 7 , o r t o t h e l a b o r e r s f r o m J u l y 1, 1 9 7 5 t o A p r i l 3 0 , 1 9 7 6 , makes no d i f f e r e n c e . This was made c l e a r by t h e n i n t h c i r c u i t i n t h e Todd c a s e w h e r e t h e y s t a t e d noncompliance under some c i r c u m s t a n c e s may be s u f f i c i e n t t o r e p u d i a t e but is n o t s u f f i c i e n t under a l l c i r c u m s t a n c e s . 667 F.2d a t 8 0 4 . J u s t a s t h e n o n c o m p l i a n c e t h e r e f e l l s h o r t of repu- diation, also it discussed letters of does circumstances withdrawal. so here, showing Those in light of ratification, l e t t e r s made all the above- especially it clear the t h a t HBC intended t o a b i d e by t h e t e r m s of t h e agreements entered into w i t h t h e two u n i o n s u n t i l t h e y e x p i r e d . F o r t h e f o r e g o i n g r e a s o n , we b e l i e v e t h a t t h e D i s t r i c t C o u r t e r r e d and t h e c a s e w i l l h a v e t o be r e t r i e d . t h i s case As would like to requires clarify reversal two and points. remand First, for we retrial, would we like to b r i e f l y d i s c u s s t h e a r g u m e n t p u t f o r t h by t h e H a r v e y ' s t h a t t h e payroll r e c o r d s a u d i t e d w e r e t h o s e of T h i s may be of HBC. C o n s t r u c t i o n and n o t ACE l i t t l e s i g n i f i c a n c e i f t h e two e n t i t i e s o n r e t r i a l a r e found t o be a l t e r e g o s . T h i s c o n c e p t i s c l e a r l y d e f i n e d i n J M Tanaka C o n s t r u c t i o n v. NLRB (9th Cir. 1 9 8 2 ) , 675 F.2d 1029. The T a n a k a c o u r t s e t o u t t h e f o u r f a c t o r s t o be used i n d e t e r m i n i n g i f e n t i t i e s a r e a l t e r e g o s where t h e y s t a t e d : " I n d e t e r m i n i n g w h e t h e r two b u s i n e s s e s a r e alter egos, a court must consider the (1) c e n t r a l i z e d c o n t r o l of following factors: l a b o r r e l a t i o n s , ( 2 ) common management, ( 3 ) i n t e r r e l a t i o n of o p e r a t i o n s , and ( 4 ) common o w n e r s h i p and f i n a n c i a l c o n t r o l . Radio Union v . B r o a d c a s t S e r v i c e , 380 U.S. 255, 256, 8 5 S . C t . 8 7 6 , 8 7 7 , 1 3 L.Ed.2d 7 8 9 , ( 1 9 6 5 ) ; NLRB v . L a n t z , 607 F.2d a t 295; NLRB v. Don B u r g e s s C o n s t r u c t i o n C o r p . , 596 F.2d 3 7 8 , 384 ( 9 t h C i r . 1 9 7 9 ) . " 675 F.2d a t 1 0 3 3 . A l l of t h e s e f a c t o r s need n o t be p r e s e n t . J M Tanaka C o n s t r u c t i o n v . NLRB, s u p r a . The other point is the argument that the agreements were o r a l l y l i m i t e d i n s c o p e t o two c o n s t r u c t i o n p r o j e c t s . ment cannot a s 29 USC S e c t i o n 1 8 6 ( c ) ( 5 ) ( B ) stand T h i s argurequires the d e t a i l e d b a s i s on which p a y m e n t s a r e t o be made t o t h e t r u s t t o be specified employees. in a written agreement between the employer and T h u s , t h e b u s i n e s s a g e n t and e m p l o y e r c a n n o t s e t down a n a g r e e m e n t i n t h e c o n t r a c t and t h e n d e p a r t from i t s e s s e n c e and make t h e f i n a l a g r e e m e n t o r a l l y . To a l l o w s u c h o r a l m o d i f i c a - t i o n s t o s t a n d would d e f e a t t h e p r o t e c t i o n s p r o v i d e d beneficiaries by 29 C i r . 1 9 8 1 ) , 649 F.2d USC 1 8 6 ( c ) ( 5 ) . Waggoner v. the t r u s t Dallaire (9th 1362. F o r t h e f o r e g o i n g r e a s o n s , t h i s c a s e i s r e v e r s e d and remanded f o r f u r t h e r p r o c e e d i n g s t o be nion. W e concur:

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