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Carpenters Health & Security Trust of Western Washington v. Northwest Drywall Services, Inc.

United States District Court, W.D. Washington, Tacoma

February 4, 2014

CARPENTERS HEALTH & SECURITY TRUST OF WESTERN WASHINGTON, et al, Plaintiffs,
v.
NORTHWEST DRYWALL SERVICES, INC., Defendant and Third Party Plaintiff,
v.
PACIFIC NORTHWEST REGIONAL COUNCIL OF CARPENTERS, UBC, a labor union, Third Party Defendant.

ORDER DENYING THIRD PARTY DEFENDANT'S MOTION TO DISMISS [DKT. #13]

RONALD B. LEIGHTON, District Judge.

I. BACKGROUND

THIS MATTER is before the Court on a Motion to Dismiss brought by Third Party Defendant Pacific Northwest Regional Council of Carpenters, UBC ("the Union") [Dkt. #13]. Plaintiffs are trust funds that provide benefits to Seattle-area union members. The Trusts are attempting to collect over $415, 000 in allegedly past due union contributions from Defendant and Third Party Plaintiff Northwest Drywall Services, Inc. The Trusts' claim is based on their interpretation of a union compliance agreement signed by John Willard on behalf of Pacific Northwest Drywall ("PNDW"). Willard owns and operates both PNDW and Northwest but they are separate entities. Northwest sued the Union for fraudulent inducement claiming that it did not intend to, and did not agree to, make Northwest a union shop. The Union claims that Northwest is required to arbitrate its claims under the Compliance Agreement and seeks dismissal of Northwest's third party claim against it. Because Northwest did not sign the Compliance Agreement and did not agree to arbitration, the Motion to Dismiss is DENIED.

A. Factual Summary

Northwest provides drywall and other surfacing services to residential and commercial customers. Northwest's president, John Willard, had consistently and repeatedly resisted any attempts to unionize his business. In 2010, a contractor approached Willard to see if Northwest could act as a subcontractor on a union job. Because he did not want to unionize his entire business, Willard was only willing to do the work if the Union would allow a single job contract for that project. Willard approached the Union about this possibility, because the Union had permitted single job contracts in the past. However, the Union told Willard that single job contracts were no longer permitted.

Ronald Turner, a Union Service Representative, proposed a workaround: Willard could form a separate union division of his corporation by obtaining a new trade name, bonding, license, and contractor's registration. The union division would have to pay union wages (including agreed-upon union benefits to the Trusts) for that work, but Northwest could continue to do non-union work under its existing contractor license. Simply put, the newly minted division would handle only union work while Northwest would continue to operate as a non-union shop. This arrangement is referred to as a "double-breasted operation" in the construction industry. Relying on Turner's representations, Willard obtained a separate contractor registration number, license, and bonding for PNDW. PNDW executed a Compliance Agreement with the Union that bound PNDW to the standardized terms that apply to an employer-union relationship. The agreement, a one page form document, was filled out by hand. Willard signed the Compliance Agreement as "President" of PNDW, [1] writing "Pacific Northwest Drywall" on the line titled "Employer" and using (only) PNDW's contractor registration number. See Dkt. #14, ex. 1. Northwest's name does not appear anywhere on the form.

The Compliance Agreement incorporates by reference a separate and more detailed Labor Agreement, which requires the employer and the Union to settle disputes using a four-step resolution process. Dkt. #14, ex.3.[2] The process is initiated with the filing of a grievance, which must take place within fifteen days of either party's knowledge of the incident but in no case more than thirty days after the actual incident. The settlement process then begins with Step One, a meeting between representatives of the Union and representatives of the employer, which must take place within fifteen days of the filing of a grievance. The settlement process escalates through two more steps, concluding with binding arbitration (Step Four).

After setting up the double-breasted operation and executing the Compliance Agreement on behalf of PNDW, Willard operated the two divisions the way he and Turner had contemplated. By all appearances the arrangement was a success. PNDW bid and won union work and paid the necessary contributions; the jobs that would employ union workers were sought and obtained using only PNDW's name and registration number. Meanwhile, Northwest continued to operate as a non-union shop. For three years the double-breasted operation continued without incident. But in November 2013 a Trust audit concluded that Northwest owed more than $415, 000 in past due contributions, plus late fees. The Trusts appear to claim- in direct contrast to the representations made by the Union- that the Compliance Agreement executed by PNDW was also binding on Northwest.[3] Therefore, according to the Trusts, all jobs performed after 2010 by both branches incurred union contributions. See Dkt. #1.

In the face of this unexpected demand from the Trusts, Willard and his son, Justin, claim that they repeatedly and fruitlessly attempted to contact the Union several times in November and December about the seemingly erroneous audit. They did not get a response (at one point, Union representatives were unable to meet because they were in Las Vegas). The Willards did manage to reach the auditors, who said the Union had specifically instructed them to include contributions for non-union jobs performed by Northwest. Despite the representations made by Turner, and after three years of express and implied approval (often in writing), the Union's position was now that double-breasted operations were invalid. The Trusts threatened a lawsuit on January 10, 2013. Finally, around mid-January, John and Justin Willard were able to arrange a meeting with the Union.

On January 22, 2013, the Willards met with four Union representatives (Turner was absent). According to Northwest, the representatives refused to acknowledge the validity of double-breasted agreements, and would not agree to any resolution of the matter. After the January meeting, Northwest claims, it was unable to get a satisfactory response from the Union despite repeated attempts. Meanwhile, the balance allegedly due to the Trusts was accruing late fees each day negotiations stalled. In April 2013, the Trusts sued Northwest. In turn, Northwest sued the Union for fraudulent inducement based on Turner's representations to Willard. The Union now moves to dismiss.

The Union's sole argument for dismissal is that because PNDW signed the Compliance Agreement, Northwest must exhaust the arbitral remedies provided for in the Labor Agreement before it may seek relief in the courts. Because Northwest did not exhaust the dispute resolution process, the Union claims, the Union may not properly be party to this suit.

Northwest offers two reasons for denying the Union's motion. First, Northwest denies that it failed to exhaust its remedies and contends that it made several efforts to resolve the dispute using the required arbitral process. Second, Northwest claims that, by sandbagging the attempts at arbitration, the Union has waived any right it may have had to use the arbitration requirement to avoid being sued.

II. DISCUSSION

A. The Union has not established that the Compliance Agreement is ...


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