PLUMBERS GASFITTERS UNION LOCAL NO 75 HEALTH FUND v. MORRIS PLUMBING LLC (2024)

DECISION AND ORDER

The plaintiffs are health, pension, and other funds (“the Funds”) that provide benefits to members of the Plumbers & Gasfitters Union Local No. 75 (“Plumbers Local 75”). They allege that Morris Plumbing, LLC, failed to pay contributions to the Funds on behalf of its employees, and they seek relief pursuant to Section 502 of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132(a)(3)(B)(ii). Before me now is Morris Plumbing's motion to dismiss the complaint for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6).

I. BACKGROUND

According to the allegations of the complaint, on December 19, 2015, Morris Plumbing signed a “Memorandum of Labor Agreement” with Plumbers Local 75. (Compl. ¶ 10 & Decl. of Ronald Stadler Ex. C.¹ ) This agreement (the “Memorandum Agreement”) adopted and incorporated the collective bargaining agreements between Plumbers Local 75 and the Plumbing and Mechanical Contractors Association of Milwaukee and Southeastern Wisconsin that were effective from June 1, 2015 through May 31, 2018. The Memorandum Agreement used the capitalized term “Contracts” as shorthand for the relevant collective bargaining agreements that were adopted and incorporated. (Mem. Agreement ¶ 2.) That Agreement stated that “the Contracts and this adoption of the Contracts shall remain in effect up to and including the expiration date of the Contracts.” (Id.) The Agreement then included the following “evergreen” provision:

The Contracts shall continue in effect from year to year thereafter, and the parties hereby adopt any successor agreements entered into between the Union and the Plumbing and Mechanical Contractors Association of Milwaukee and Southeastern Wisconsin unless notice of termination or amendment is given no less than sixty (60) days prior to the expiration date of the Contracts.

(Id.) Pursuant to this provision, the Agreement was renewed when the collective bargaining agreement for the period June 2018 to May 2023 went into effect.

Under the terms of the collective bargaining agreement, Morris Plumbing was required to make contributions to the Funds on behalf of its employees. (Stadler Decl. Ex. B, §§ 11–15.² ) In this action, plaintiffs allege that Morris Plumbing violated the terms of the collective bargaining agreement, as incorporated into the Memorandum of Labor Agreement, by failing to remit contributions for its employees for the period between January 1, 2023 and May 31, 2023, and by failing to permit the Funds to audit its books and records for the period after May 31, 2023.

Morris Plumbing has filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The motion seeks dismissal of different parts of the complaint for different reasons. First, Morris Plumbing contends that the Funds’ claim for unpaid contributions for the period January 1, 2023 to May 31, 2023, is barred by the doctrines of claim preclusion and claim splitting. Here, Morris Plumbing contends that the Funds’ claims are barred because they previously filed a collection action against Morris Plumbing for unpaid contributions and should have included their current claim for unpaid contributions in that action.

Second, Morris Plumbing contends that, contrary to plaintiffs’ allegations, it had no obligation to contribute to the Funds or submit to an audit after May 2023 because it had provided timely notice of termination prior to the automatic renewal date. The Funds acknowledge in their complaint that Morris Plumbing sent the Local 75 a termination letter dated March 20, 2023. (Compl. ¶ 12.) However, the Funds contend that this letter did not have the effect of terminating the Agreement. The letter itself is in the record. (Stadler Decl. Ex. A.³ ) It was written by Paul Morris, defendant's owner, and was addressed to the Plumbers Local 75. The body of the letter provides as follows:

This letter serves as written notification of termination for Morris Plumbing LLC with the Plumbers Local 75 effective May 31, 2023. This action is pursuant to Article XXVI, Section 26.1(a) of the collective bargaining agreement under the 2018–2023 Labor Agreement and the Memorandum of Labor Agreement dated 12/19/2015.

In addition, I, Paul C. Morris owner of Morris Plumbing LLC is [sic] exercising my right to officially provide written notification to terminate my union membership with the Plumbers Local 75 effective May 31, 2023 as stated under Article XXVI, Section 26.1(a).

(Id.) According to Morris Plumbing, this letter provided timely and unequivocal notice of termination and thus served to terminate the Agreement and Morris's obligation to remit contributions to the Funds after May 31, 2023. The Funds disagree, contending that the letter was “vague and confusing” and therefore insufficient to terminate the parties’ agreement. (Br. in Opp. at 7.)

II. DISCUSSION

Section 502 of ERISA empowers a fund fiduciary to bring a civil action in a district court to enforce a contractual obligation to contribute to a multiemployer plan. 29 U.S.C. § 1132(a)(3)(B)(ii). Defendant moves to dismiss the Funds’ claims for enforcement of the relevant contracts on the grounds that (1) it sent timely notice of termination prior to the renewal date and (2) for contributions owed prior to termination, the Funds’ claims are barred by the defenses of claim preclusion and/or claim splitting. I address each ground for dismissal in turn.

A. Termination

Defendant's first argument for dismissal is that any claim based on a contractual right to contributions after May 31, 2023 fails as a matter of law because Morris Plumbing sent timely notice of termination and therefore ended its obligation to make contributions as of that date. This argument requires interpretation of an evergreen clause, which is a provision stating that a contract will automatically continue for another term unless it is terminated. See Cent. States, Se. & Sw. Areas Pension Fund v. Transervice Logistics, Inc., 56 F.4th 516, 525 (7th Cir 2022). Under ERISA and the federal common law, a court must “strictly interpret[ ] evergreen clauses according to their terms.” Id. The court must look to the language of the evergreen clause establishing the method of termination and analyze whether the alleged notice of termination complied. Id. For the notice to be effective, it must express the party's intent to terminate a collective bargaining agreement unequivocally. Id. at 526.

In the present case, the Memorandum Agreement states that “notice of termination” must be given no less than 60 days prior to the expiration of the collective bargaining agreements whose terms are incorporated into the Memorandum Agreement. (Mem. Agreement ¶ 2.) There is no dispute that Morris Plumbing's termination letter was received by the Plumbers Local 75 more than 60 days prior to the renewal date and thus was timely. The Funds, however, take the position that the letter was not an unequivocal expression of Morris Plumbing's intent to terminate the Memorandum Agreement. According to the Funds, because Morris Plumbing referenced both the collective bargaining agreement and the Memorandum Agreement and stated that the termination was “with the Plumbers Local 65,” the letter was unclear as to whether it was purporting to terminate Morris's bargaining relationship with Local 75, the collective bargaining agreement, or the Memorandum Agreement. However, I conclude that the termination letter was unequivocal.

First, the evergreen clause does not require that a notice of termination reference the Memorandum Agreement specifically. Instead, it states that “[t]he Contracts”—meaning the collective bargaining agreements—will remain in effect and that the parties will adopt any successor collective bargaining agreements “unless notice of termination or amendment is given.” (Mem. Agreement ¶ 2.) In effect, then, the Memorandum Agreement pretends that, for purposes of continuation or termination, the operative agreements are the relevant collective bargaining agreements. Those are the agreements that are specified as the ones that may be continued or terminated, and the times of renewal and giving notice of termination are determined by the dates specified in those agreements. For these reasons, it was entirely understandable for Morris Plumbing to specify that it wanted to terminate both the collective bargaining agreement and the Memorandum Agreement, and to cite the termination provision (Article XXVI) of the collective bargaining agreement. Any reasonable person who received the letter would have understood that Morris Plumbing was terminating the contractual obligations created by the collective bargaining agreement and incorporated into the Memorandum Agreement.⁴

Likewise, I reject the Funds’ claim that the letter could reasonably be understood as a request to terminate Morris Plumbing's “bargaining relationship” with the Plumbers Local 75 rather than the Agreement. By “bargaining relationship,” the Funds mean Morris Plumbing's obligation under the National Labor Relations Act to continue recognizing the Plumbers Local 75 as the exclusive representative of its employees until the union loses majority support. See 29 U.S.C. § 159(a). The Funds attempt to derive an intent to terminate the bargaining relationship from the letter's stating that Morris Plumbing was giving notice of termination “with the Plumbers Local 75.” But this reading of the letter is contrived and unreasonable. The letter expressly references the termination provision of the collective bargaining agreement and the Memorandum Agreement, thus indicating an intent to terminate those contracts. A bargaining relationship is not a contract, nor is it something that an employer can unilaterally “terminate” under the National Labor Relations Act. See 29 U.S.C. § 158(a)(5) (making it unlawful for an employer “to refuse to bargain collectively with the representatives of his employees”); RiverStone Grp., Inc. v. Midwest Operating Eng'rs, 33 F.4th 424, 429 (7th Cir. 2022). Thus, a letter giving notice of intent to terminate contracts cannot reasonably be understood as an expression of intent to illegally disregard the union's status as the exclusive bargaining representative of its workers.

For these reasons, I conclude that Morris Plumbing's letter of March 20, 2023, was timely and unequivocal notice of its intent to terminate the Memorandum Agreement. Therefore, the Funds’ claims for breach of the Memorandum Agreement based on the period after May 31, 2023, will be dismissed for failure to state a claim.

B. Preclusion and Claim Splitting

As for the claim for unpaid contributions for the period January 1, 2023 to May 31, 2023, Morris Plumbing contends that it is barred because the Funds filed a prior lawsuit in which it sought to collect contributions for a different period. The prior suit was filed in this court on May 16, 2023.⁵ See Plumbers & Gasfitters Union Loc. No. 75 Health Fund et al. v. Morris Plumbing LLC, No. 23-C-0616 (E.D. Wis.). The complaint sought unpaid contributions for the period February 1, 2020 to December 31, 2022. (First Am. Compl. ¶¶ 30, 33.) The prior litigation ended on May 21, 2024, when the parties filed a stipulation of dismissal with prejudice under Federal Rule of Civil Procedure 41(a)(1)(A)(ii). The parties filed the stipulation only after the Funds successively moved the court to enforce a settlement agreement the parties had reached via email exchanges. (Order of April 18, 2024.) Under that settlement agreement, as enforced by the court, the Funds granted Morris Plumbing a release of all claims that they might have had against it through December 31, 2022. (Id. at 15–16.)

Morris Plumbing contends that even though the prior action and settlement agreement involved only contributions for the period ending on December 31, 2022, the Funds’ current claim for unpaid contributions for the period January 1, 2023 to May 31, 2023 is barred by either claim preclusion or claim splitting. The doctrine of claim preclusion (formerly known as res judicata) bars any claims that were litigated or could have been litigated in a previous action when three requirements are met: (1) an identity of the causes of action; (2) an identity of the parties or their privies; and (3) a final judgment on the merits. Bell v. Taylor, 827 F.3d 699, 706 (7th Cir. 2016).⁶ The doctrine of claim splitting is similar, except that a final judgment in the prior action is not required. Scholz v. United States, 18 F.4th 941, 952 (7th Cir. 2021). In the present case, the prior litigation ended with a final judgment when the parties filed their stipulation of dismissal with prejudice. See McCall-Bey v. Franzen, 777 F.2d 1178, 1185 (7th Cir. 1985). Because a final judgment was entered, the doctrine of claim splitting is inapplicable here, and I will focus on claim preclusion only. Further, because we have a final judgment on the merits and there is no dispute that the parties to both actions are identical, only the first element of claim preclusion—an identity of the causes of action—is at issue.

As to that element, causes of action will be the same when they are based on the same, or nearly the same, factual allegations. Herrmann v. Cencom Cable Assocs., Inc., 999 F.2d 223, 226 (7th Cir. 1993). Although this test is not precise, see id., I conclude that it is not met here. That is so because the suits concern unpaid contributions for different time periods and are based on different audits of the employer's books and records. The only fact that the two suits have in common is that the employer's obligation to pay contributions arises out of the same collective bargaining agreement. But that agreement spanned five years and imposed continuing obligations on the parties. Defendant's alleged breaches occurred at different times, as did the Funds’ discovery of the breaches through its audits. Therefore, the Funds’ injuries in the two cases are distinct, as are the facts relevant to establishing the breaches.

Defendant cites cases in which courts found that claims for unpaid contributions for different periods formed part of the same cause of action because they were based on a single contract. See Serv. Emps. Int'l Union Lo. 1 v. Digby's Detective & Sec. Agency, Inc., No. 08-C-5544, 2009 WL 721003, at *4 (N.D. Ill. March 18, 2009); Chicago Dist. Council of Carpenters Pension Fund v. Pientka, No. 84-C-6307, 1985 WL 2320, at *3–4 (N.D. Ill. Aug. 17, 1985). But these cases were decided by district courts and are not precedential. Moreover, I do not find their reasoning persuasive here. The cases are largely based on the idea that the obligation to make contributions to a fund pursuant to a collective bargaining agreement is no different than the obligation to pay rent under a lease. See Pientka, 1985 WL 2320, at *3. According to these cases, because a landlord could not split its claim for unpaid rent into separate suits—e.g., one suit for each month of unpaid rent—a benefits fund cannot split its claim for unpaid contributions into separate periods. But this overlooks a fundamental difference between the obligation to make contributions under a collective bargaining agreement and the obligation to pay rent under a lease. Under a lease, a tenant will ordinarily be expected to make fixed monthly payments in amounts specified in the lease, and therefore the landlord can easily tabulate the full amount of prior unpaid rent in a single action. In contrast, a collective bargaining agreement typically will not specify a sum certain that the employer must contribute each month. Rather, the collective bargaining agreement will specify that the employer must make contributions based on the number of hours worked by its employees each month. See, e.g., 2018–2023 Collective Bargaining Agreement § 11.1(a)(1). To determine how much the employer owes for a particular period, the fund must rely on the employer to report the number of hours worked, subject to the fund's right to audit the employer's books and records to ensure that the reports are accurate. See Central States, Se. and Sw. Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 562–63 (1985). Until an audit for a period reveals a discrepancy between what the employer reported and what the employer owes, the fund cannot file a collection action for the difference. See I.A.M. Nat'l Pension Fund v. Indus. Gear Mfg. Co., 723 F.2d 944, 948 (D.C. Cir. 1983). Thus, each audit period gives rise to a distinct claim for relief under the collective bargaining agreement. Id. at 947–49.

The Funds’ prior suit against Morris Plumbing was based on an audit completed on March 6, 2023, which covered the period February 1, 2020 to December 31, 2022. (First Am. Compl. ¶¶ 23–24.) In contrast, the Funds’ present claim is based on an audit completed on June 19, 2024, which covered the period January 1, 2023 to May 31, 2023. (Compl. ¶ 27.) Because each audit gave rise to distinct claims, and because the Funds brought only one of those claims in the prior litigation, their remaining claim is not barred by principles of claim preclusion.

Defendant contends that the Funds should have completed their audit of the January-to-May period in time to include their claim for unpaid contributions for this period in the prior litigation. Here, defendant suggests that the Funds both failed to act with diligence by not completing the second audit sooner and acted with too much diligence by filing a lawsuit to collect underpayments before the second audit was completed. (Reply Br. at 8–9.) However, as explained above, the audits gave rise to distinct claims, and therefore the Funds had no obligation to coordinate their audits and suits in this fashion. In any event, defendant's proposal to delay suit until all audits are finished is impractical when the employer's obligation to make contributions extends over a multi-year period. The Funds were not required to wait until the expiration of the five-year collective bargaining agreement to enforce Morris Plumbing's obligation to make contributions. Indeed, the agreement might have renewed had Morris Plumbing not terminated it, and of course the Funds were not required to wait until whenever the contract was terminated to collect unpaid contributions. Defendant also suggests that had the Funds completed the second audit while the prior lawsuit was pending, principles of preclusion would have required them to supplement their complaint in the prior lawsuit to include the claim based on the second audit. However, “[m]ost cases rule that an action need include only the portions of the claim due at the time of commencing that action, frequently observing that the opportunity to file a supplemental complaint is not an obligation.” 18 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 4409 (3d ed. 1998). Further, if the Funds were required to continually supplement their complaint each time a new audit was completed, a lawsuit seeking to collect unpaid contributions might never end. The more efficient approach is to allow the Funds to conduct periodic audits and bring independent suits based on the results of each audit.

Accordingly, defendant's motion to dismiss the Funds’ claim for unpaid contributions for the period January 1, 2023 to May 31, 2023 will be denied.⁷

III. CONCLUSION

For the reasons stated, IT IS ORDERED that defendant's motion to dismiss the complaint (ECF No. 7) is GRANTED IN PART and DENIED IN PART. The motion is denied as to the claim for unpaid contributions for the period January 1, 2023 to May 31, 2023, and granted as to the Funds’ claim that Morris Plumbing was required to make contributions or otherwise comply with the collective bargaining agreement after May 31, 2023.

Dated at Milwaukee, Wisconsin, this 12th day of December, 2024.

FOOTNOTES

1.   Plaintiffs did not attach the Memorandum of Labor Agreement to the complaint, but defendant provided it with the motion to dismiss. Because the Agreement is referred to in the complaint, central to plaintiffs’ claim, and concededly authentic, I may consider it without converting the motion to dismiss into one for summary judgment. See, e.g., Santana v. Cook Cnty. Bd. of Rev., 679 F.3d 614, 619 (7th Cir. 2012).

2.   Plaintiffs did not attach the collective bargaining agreement to the complaint, but defendant has provided it. As with the Memorandum of Labor Agreement, I may consider the collective bargaining agreement because it is referred to in the complaint, central to plaintiffs’ claim, and concededly authentic. Santana, 679 F.3d at 619.

3.   Like the contracts at issue, defendant supplied the termination letter along with its motion to dismiss. And again, I may consider the letter because it is referred to in the complaint, concededly authentic, and central to plaintiffs’ claim. Santana, 679 F.3d at 619.

4.   It is true that, as the Funds point out, Morris Plumbing was not a party to the collective bargaining agreement and therefore had no right to terminate it. But this did not make the letter ambiguous, since the effect of the Memorandum Agreement was to adopt the collective bargaining agreement and thus bind Morris Plumbing to its terms. So again, as a practical matter, termination of the Memorandum Agreement was termination of the collective bargaining agreement, at least insofar as the latter agreement specified the terms of the relationship between the Local 75 and Morris Plumbing.

5.   The facts relating to the claim preclusion and claim splitting defenses are not alleged in the complaint, nor were they required to be. See U.S. Gypsum Co. v. Indiana Gas Co., 350 F.3d 623, 626 (7th Cir. 2003) (“Complaints need not anticipate or attempt to defuse potential defenses.”). However, I may take judicial notice of the public filings in the prior litigation. Fosnight v. Jones, 41 F.4th 916, 922 (7th Cir 2022). Further, if these judicially noticeable facts show that the Funds’ claims are barred by an airtight affirmative defense, I may dismiss the complaint under Rule 12(b)(6). John K. Maciver Inst. for Pub. Pol'y, Inc. v. Schmitz, 885 F.3d 1004, 1014 (7th Cir. 2018).

6.   Because the prior judgment was rendered by a federal court, I apply federal principles of preclusion. Cannon v. Armstrong Containers, 92 F.4th 688, 706 (7th Cir. 2024).

7.   Because I conclude that the judgment in the prior litigation does not preclude the Funds’ current claim, I do not consider the Funds’ alternative argument that the preclusive effect of the prior judgment should be limited by the terms of the release in the parties’ settlement agreement.

LYNN ADELMAN United States District Judge