United States District Court, Eastern District of New York
September 24, 1999
CEMENT AND CONCRETE WORKERS DISTRICT COUNCIL WELFARE FUND, PENSION FUND, LEGAL SERVICES FUND AND ANNUITY FUND AND THOMAS MADERA, IN HIS FIDUCIARY CAPACITY AS ADMINISTRATOR OF THE CEMENT AND CONCRETE WORKERS DISTRICT COUNCIL WELFARE FUND, PENSION FUND, LEGAL SERVICES FUND AND ANNUITY FUND, AND CHARLES DOLCIMASCOLO, AS PRESIDENT OF THE CEMENT AND CONCRETE WORKERS DISTRICT COUNCIL, PLAINTIFFS,
ANTHONY FRASCONE, CONTRACTORS CASUALTY AND SURETY COMPANY, TRATAROS CONSTRUCTION, INC., AND SEABOARD SURETY COMPANY, DEFENDANTS.
The opinion of the court was delivered by: Glasser, District Judge.
MEMORANDUM and ORDER
Plaintiffs are four pension and benefits funds (the "Funds")
maintained on behalf of the members of the Cement and Concrete
Workers District Council (the "Union"), together with Thomas
Madera, in his fiduciary capacity as the administrator of those
funds, and Charles Dolcimascolo, President of the Union. On
November 12, 1997, plaintiffs brought suit to recover
contributions to the Funds owed under collective bargaining
agreements with Sovereign Building Corp., and Anthony Frascone,
as principal of Sovereign (the "Agreements").*fn1
In their Complaint, Plaintiffs assert a claim against Frascone
under Section 502(g)(2) of the Employee Retirement Income
Security Act ("ERISA"), 29 U.S.C. § 1132(g)(2), for unpaid
benefit contributions, plus statutory damages and interest,
attorneys' fees, and costs.*fn2 (Complaint at ¶ 19.) Plaintiffs
also assert a claim against Contractors Casualty and Surety
Company ("CCSC") based on a surety bond issued by Contractors
Casualty in favor of Sovereign in the amount of $10,000, insuring
Sovereign's obligations to contribute to the Funds under the
Agreements.*fn3 Finally, plaintiffs assert claims against
Trataros Construction, Inc., and Seaboard Surety Company, based
on the provisions of a surety bond issued by Seaboard, which will
be discussed below. Trataros was the general contractor on a
public improvement contract with the New York City Housing
Authority for the rehabilitation of the Williamsburg Housing
Project in Brooklyn, New York. Sovereign was a subcontractor with
Trataros on that project, and it was for the purpose of
fulfilling obligations under that subcontract that Sovereign
entered into the Agreements (to which, however, neither Trataros
nor Seaboard was a party).
Trataros and Seaboard advance several defenses. First, they
argue that plaintiffs' claims against them are premised on a
provision of the New York State Finance Law that is subject to
preemption under ERISA. They also assert a lack of subject matter
jurisdiction inasmuch as the ERISA-derived federal question in
the case has either been defaulted (due to Frascone's failure to
appear), or has been rendered moot (due to an anticipated
settlement with Frascone's surety, CCSC).*fn4 Defendants argue
further that even absent a finding of preemption, and assuming
jurisdiction is retained, they have defenses based on the Union's
breach of the Agreements, and the plaintiffs' failure to give
timely notice of deficiencies accruing under the first of the
Plaintiffs here move for summary judgment on their claims
against Trataros and Seaboard.*fn5 Defendants Trataros and
Seaboard cross-move for summary judgment dismissing plaintiffs'
claims against them.
I. Threshold Questions of Law
There are two threshold questions of law that must be settled
before any issue of summary judgment liability may be addressed.
The first is whether plaintiffs' claims against Trataros and
preempted under ERISA. The second is whether, if they are not
preempted, this Court should assert supplemental jurisdiction
over them. Examining these questions in turn, we conclude that
(i) plaintiffs' claims against Trataros and Seaboard are not
ERISA-preempted; and (ii) this Court should exercise supplemental
jurisdiction over those claims.
A. ERISA Preemption
Plaintiffs cite two decisions by the Second Circuit, and one
Memorandum and Order of this Court relying on those decisions, in
support of the proposition that surety bond claims are not
preempted by ERISA. See Bleiler v. Cristwood Const., Inc.,
72 F.3d 13 (2d Cir. 1995); Greenblatt v. Delta Plumbing & Heating
Corp., 68 F.3d 561 (2d Cir. 1995); Cement and Concrete Workers
District Council Welfare Fund v. DeGaetano Const., Mem. and
Order, CV-94-3604 (E.D.N.Y. Mar. 6, 1996) (Glasser, J.).
Defendants rely primarily on three more recent Second Circuit
decisions finding separate sections of the New York Lien Law
preempted under ERISA, and urge this Court to extend the
reasoning of those decisions to the provision of the New York
State Finance Law that, they insist, is operative in this case.
See EklecCo v. Iron Workers Locals 40, 361, & 417 Union Sec.
Funds, 170 F.3d 353 (2d Cir. 1999); Plumbing Ind. Bd. v. E.W.
Howell Co., 126 F.3d 61 (2d Cir. 1997); Romney v. Lin,
105 F.3d 806 (2d Cir.), cert. denied, 522 U.S. 906, 118 S.Ct. 263,
139 L.Ed.2d 189 (1997).
The parties present different theories of the legal basis for
plaintiffs' claims against Trataros and Seaboard. As plaintiffs
see it, those claims stem from the provisions of a 1993 surety
bond (the "Bond"), issued by Seaboard in favor of the New York
City Housing Authority, whereby Seaboard undertook to guarantee
the payment of
all lawful claims for wages and compensation for
labor performed and services rendered by all persons
engaged in the prosecution of the [Williamsburg
Housing Project rehabilitation] . . . whether such
persons be agents, servants or employees of the
Principal [viz., Trataros] or of any such
Subcontractor [to whom Work under this Contract is
(Plaintiffs' Rule 3(g) statement, attaching the Bond as Exhibit A
thereto.) Plaintiffs also draw attention to the Bond's definition
of proper claimants under the broad substantive provision just
All persons who have performed labor, rendered
services or furnished materials and supplies, as
aforesaid, shall have a direct right of action
against the Principal and his, it or their successors
and assigns, and the Surety herein or against either
or both or any of them and their successors and
assigns. Such persons may sue in their own name, and
may prosecute the suit to judgment and execution
without the necessity of joining with any other
person as party plaintiff.
Id. Submitting that they have standing under these contractual
provisions "in their own behalf and in their representative
capacity" as persons who performed labor and rendered services
for Sovereign, as subcontractor to Trataros, plaintiffs argue
that they are proper claimants under the terms of the Bond, and
that the Bond makes Trataros and Seaboard guarantors of
Sovereign's and Frascone's obligations under the Agreements.
(Plaintiffs' Rule 3(g) Statement at ¶ 13.)
Defendants Trataros and Seaboard reject the contention that the
sole basis of plaintiffs' claims is the Bond. Asserting that the
Bond was issued pursuant to the specific mandate of New York
State Finance Law § 137, defendants insist that it is § 137, and
not the Bond standing alone, that confers a cause of action upon
plaintiffs. State Finance Law § 137 requires the posting of
payment bonds on public works projects "guaranteeing prompt
payment of moneys due to all persons furnishing labor or
materials to the contractor or his subcontractors." State Finance
Law § 137(1). The law further defines the expression
"moneys due to persons furnishing labor to the contractor or his
subcontractors" to include:
all sums payable to or on behalf of persons
furnishing labor to the contractor or his
subcontractors, for wages, health, welfare,
non-occupational disability, retirement, vacation
benefits, holiday pay, life insurance or other
benefits, payment of which is required pursuant to
the labor law or by the contract in connection with
which the bond is furnished or by a collective
bargaining agreement between organized labor and the
contractor or subcontractor, and which are computed
upon labor performed in the prosecution of the
contract. A trustee or other person authorized to
collect such payments shall have the right to sue on
the payment bond in his own name and subject to the
same as if he were the person performing the labor
upon which such sums are computed.
Id. at § 137(5)(b).*fn6
Defendants argue, and plaintiffs tacitly concede, that the
difference between plaintiffs' and defendants' theories of where
the prime locus of the preemption inquiry lies — whether in a
surety agreement between Trataros and Seaboard, governed by state
law principles of contract and surety law, or, in a statute that
confers specific rights of enforcement upon employee benefit
plans — marks a crucial point of divergence between the parties.
By insisting that the sole basis of its claim against Trataros
and Seaboard is the Bond, and indeed by declining even to address
the applicability of State Finance Law § 137 to the Bond,
plaintiffs argue in effect that the only relevant precedents are,
first, this Court's previous determination in facially similar
circumstances that there is no ERISA preemption of a claim
turning on state surety law and its application to a
"non-plan-related contract action," and second, the Second
Circuit's decisions in Greenblatt and Bleiler, upon which
this Court relied in coming to that determination (neither of
which involved consideration of State Finance Law § 137). For
their part, defendants argue that recognizing State Finance Law §
137 as the source of plaintiffs' claims makes apparent the close
parallels between that provision and those of the New York Lien
Law that the Second Circuit found ERISA-preempted in EklecCo
and Plumbing Industry Bd., thus compelling the conclusion that
State Finance Law § 137 is also subject to ERISA preemption.
We do not share the parties' perception of this threshold
issue.*fn7 For the reasons that follow, we find that even if (as
we assume it is) the ultimate basis of plaintiffs' claim against
Trataros and Seaboard is the enforcement mechanism of State
Finance Law § 137, that provision is not preempted under ERISA,
and therefore, presents a state law claim that, for reasons also
set forth below, is adjudicable in this Court under principles of
We begin with an assessment of the cases. In Greenblatt, the
guardians of certain union benefit funds were seeking to recover
contributions to those funds from the surety of a bankrupt
subcontractor (in other words, from a party in the posture of
Contractors Casualty in this case). The Second Circuit held that
the funds' action against the surety, pursuant to "state surety
law," presented "but a `run-of-the-mill state law claim,'
similar to tort or non-plan-related contract actions to which
ERISA plans may be a party." Greenblatt, 68 F.3d at 574
(quoting Mackey v. Lanier Collection Agency & Serv.,
486 U.S. 825, 833, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988)). The Court
reasoned that although the funds' claim on the surety bond
"`obviously affect[ed] and involv[ed] ERISA plans'" it did not
"conflict with any enforcement mechanism specified in ERISA,"
inasmuch as "surety law does not touch upon any rights or duties
incident to the ERISA plan itself, nor does it conflict with any
ERISA cause of action." Id. at 574-75 (quoting Mackey, 486
U.S. at 833, 108 S.Ct. 2182). The Court concluded that the funds'
action was not preempted under ERISA.
Bleiler presents a closer factual posture to this case.
There, union benefit funds sought to recover unpaid contributions
provided for under a collective bargaining agreement with a
subcontractor. Defendants included the general contractor on the
project, and its surety (entities in the position Trataros and
Seaboard occupy here). Plaintiffs' claim against the general
contractor and its surety was premised upon a Connecticut bond
statute, pursuant to which the contractor had obtained a payment
bond "guaranteeing certain obligations in connection with the
project." Bleiler, 72 F.3d at 14.*fn9 The Court concluded that
Greenblatt disposed of the preemption issue,
because it held that a state contract claim on a
surety bond was not preempted by ERISA and thus was
not a ground for removal. In so holding, we noted
that such a claim neither related to any employee
benefit plan nor conflicted with any enforcement
mechanism specified in ERISA.
Id. at 16 (citing Greenblatt, 68 F.3d at 572-75).
Defendants Trataros and Seaboard urge that Greenblatt and
Bleiler are distinguishable. Defendants argue that the more
recent Second Circuit decisions cited above show that the Second
Circuit has adopted a more nuanced view of ERISA preemption in
the suretyship context than the broad statements of Greenblatt
and Bleiler suggest.
Defendants point in particular to parallels between the
language of the State Finance Law § 137 and New York Lien Law §§
3 and 5 to show that the reasoning under which the latter
provisions are ERISA-preempted compels the same result as to the
former. (Defendants' Mem. of Law at 10-11.) But, the Second
discussion of the controlling test in Plumbing Industry Bd.
does not support defendants' proposed analogy. Reasoning from the
Supreme Court's analysis of the "relates to" language of § 514(a)
of ERISA, 29 U.S.C. § 1144(a),*fn10 the Second Circuit there
proposed two ways "in which the anti-preemption presumption can
First, preemption will apply where a state law
clearly `refers to' ERISA plans. . . . Second, a
state law is preempted even though it does not refer
to ERISA or ERISA plans if it has a clear `connection
with' a plan in the sense that it `mandate[s]
employee benefit structures or their administration'
or `provid[es] alternative enforcement mechanisms.'
Plumbing Industry Bd., 126 F.3d at 67.
Construing the first prong of this test, the Court determined
that the core of "reference to" analysis is proof "that the
challenged statute either refers solely to ERISA plans or depends
as an essential part of its operation on their existence." Id.
at 68. As to the second prong, the Court identified the essential
factor as the original Congressional objective "to eliminate
alternative state law remedies for benefit plan participants and
beneficiaries, relegating such persons to the six well-integrated
remedies specifically provided in the statute's civil enforcement
provisions. . . ." Id.
Applying these standards, the Court first concluded that Lien
Law § 5 did not "refer to" ERISA plans for purposes of
preemption, noting in particular that the provision "cannot be
said to depend on ERISA for an essential part of its operation,"
and also that it was not clear that it "can apply only to
[ERISA] plans." Id. (emphasis in original). These findings are
dispositive for the purposes of "reference to" analysis of State
Finance Law § 137, which can equally well be said not to apply
exclusively to ERISA plans, and concerning which there is no
indication in the record that it depends on ERISA "for an
essential part of its operation."
Defendants argue strenuously and at length that State Finance
Law § 137 does provide an "alternative enforcement mechanism"
under the second prong of Plumbing Industry Bd.'s ERISA
preemption analysis. (Defendants' Mem. of Law at 7-16.) The
Second Circuit so concluded with respect to New York Lien Law §§
3 and 5, and these findings do raise a question about the
viability of the preemption principles announced in Greenblatt
and Bleiler. See EklecCo, 170 F.3d at 356-57 (concluding that
section 3 of the New York Lien Law is ERISA-preempted because,
like section 5 of the same statute, found to be ERISA-preempted
in Plumbing Industry Bd., it provides "a collection measure
that impermissibly supplements the limited enforcement mechanisms
enumerated in ERISA `for enforcing the rights protected by ERISA
§ 502(a)'").*fn11 We conclude,
however, that this question must be resolved in accord with the
preemption principles of Greenblatt and Bleiler, as
reaffirmed in Plumbing Industry Bd., Romney v. Lin, and
EklecCo, and therefore, against the defendants here.
The simple reason sustaining this conclusion is that the Second
Circuit itself has clearly considered the matter and, for now,
evidently perceives no basis for limiting its earlier holdings.
Thus, in the course of its discussion in Plumbing Industry Bd.
of whether Lien Law § 5 provides an alternative enforcement
mechanism to ERISA's, the Court observes:
Further, while a state cannot itself require that a
person pay to a plan benefit obligations that ERISA
imposes on someone else, a state can — through
generally applicable enforcement statutes that
function irrespective of ERISA — enforce third-party
obligations that are created without ERISA's mandate
or influence. For example, an action on a surety
contract generally will not be preempted.
Id. (citations to Greenblatt and Bleiler omitted) (dicta).
Likewise, in Romney v. Lin, the Court distinguished
Greenblatt from its determination of ERISA preemption as to a
New York statute imposing shareholder liability for debts to
employees, including employee benefit plans, in the following
In Greenblatt, the basis for the defendant's
liability was a surety contract. Veil-piercing and
surety law are principles of general applicability,
within a state's traditional purview, that bear on
employment benefits only insofar as the underlying
transactions happen to involve employment benefits.
ERISA does not create federal law on veil-piercing .
. ., or on the enforcement of judgments generally.
Nor does ERISA create federal law on the
enforceability of surety contracts (whether or not
the bond secures obligations that the employer owed
Romney v. Lin, 105 F.3d at 811.
The Second Circuit has not had occasion squarely to address the
question of whether State Finance Law § 137 is ERISA-preempted
under the possibly conflicting standards enunciated in
Greenblatt and Bleiler, on the one hand, and Plumbing
Industry Bd. and Romney v. Lin, on the other. But, at least
one district court has considered the issue, and concluded that
Greenblatt "compels the finding that a claim under § 137 of the
New York State Finance Law does not trigger ERISA preemption."
Local No. 46 v. Trataros Const., Inc., 920 F. Supp. 55, 57
(S.D.N.Y. 1996).*fn12 We see no reason at this juncture to find
differently, and conclude that, even under the assumption that
plaintiffs' claims against Trataros and Seaboard have their
footing in State Finance Law § 137, those claims are not
ERISA-preempted, and thus survive as state law claims pendent to
the federal question raised in
plaintiffs' cause of action against defendant Frascone.
B. Supplemental Jurisdiction
Federal law grants district courts supplemental jurisdiction
over all claims that are so related to claims in an action over
which the district courts have original jurisdiction that they
form part of the same case or controversy. 28 U.S.C. § 1367(a).
Where state claims are part of the same case or controversy that
includes a federal claim, the court's exercise of pendent
jurisdiction is the "favored and normal course of action."
Mizuna, Ltd. v. Crossland Federal Sav. Bank, 90 F.3d 650, 657
(2d Cir. 1996) (quoting Promisel v. First Am. Artificial
Flowers, Inc., 943 F.2d 251, 254 (2d Cir. 1991), cert. denied,
502 U.S. 1060, 112 S.Ct. 939, 117 L.Ed.2d 110 (1992)).
Where all claims over which the district court had original
jurisdiction have been dismissed, leaving only state law claims
in the action, the district court may decline to exercise
supplemental jurisdiction. 28 U.S.C. § 1367(c)(3). In deciding
whether to exercise its discretion to hear such solely remaining
state-law claims, "a federal court should consider and weigh in
each case, and at every stage of the litigation, the values of
judicial economy, convenience, fairness, and comity." Id.
(quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 357,
108 S.Ct. 614, 98 L.Ed.2d 720 (1988)); see also United Mine
Workers v. Gibbs, 383 U.S. 715, 726-27, 86 S.Ct. 1130, 16
L.Ed.2d 218 (1966).
Because (or, to the extent that) the claims remaining in this
case present purely state law questions, defendants Trataros and
Seaboard argue that this Court should dismiss those claims for
lack of subject matter jurisdiction. In response, plaintiffs
argue that, although he has defaulted, the federal ERISA claim
against Frascone remains legally viable inasmuch as a default
judgment has not yet been entered against him. Plaintiffs also
point to the fact that discovery in this case is complete.
(Plaintiffs' Mem. of Law in Opposition at 5-6.)
This case has been before this Court since November of 1997.
Although, as defendants observe, discovery has not figured
prominently in the proceedings, this is because there are few
material facts in dispute, and because the case turns on the
construction of contracts and statutes. This is to say that this
Court may decide most of the extant issues in this case on the
present motion. It would hardly serve the ends of judicial
economy, convenience, or fairness to the litigants, to send a
case in such a posture back to state court.
II. The Summary Judgment Motions
A. The Legal Standard for Summary Judgment in Contract
Summary judgment under Rule 56 is proper "if the pleadings,
depositions, answers to interrogatories, and admissions on file
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law." Celotex Corp. v.
Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986). The moving party bears the burden of production on the
summary judgment motion, but upon being satisfied, the burden of
proof then shifts to the nonmovant, who must demonstrate that a
genuine issue of fact exists for trial. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202
As a general matter in a contract dispute, summary judgment may
be granted only if the contractual language is not susceptible to
different reasonable interpretations, and there exists no
relevant extrinsic evidence of the parties' actual intent.
Mellon Bank, N.A. v. United Bank Corp. of New York,
31 F.3d 113, 116 (2d Cir. 1994); see also Williams & Sons Erectors v.
South Carolina Steel, 983 F.2d 1176, 1183-84 (2d Cir. 1993)
("Ambiguity without the existence of extrinsic evidence of intent
presents not an issue of fact, but an issue of law for the court
to rule on.").
B. Contractual Liabilities of the Parties
1. The Bond and State Finance Law § 137
The Bond upon which plaintiffs claim against Trataros and
Seaboard was issued pursuant to and in compliance with the
mandate of State Finance Law § 137 for municipal projects such as
the housing project renovations undertaken here. Thus, for the
purposes of contractual construction, and as assumed for the
purposes of the ERISA preemption inquiry, the Bond may be deemed
to be governed by the provisions of State Finance Law § 137. See
A.C. Legnetto Constr., Inc. v. Hartford Fire Ins. Co., 92 N.Y.2d 275,
279-80, 680 N.Y.S.2d 45, 702 N.E.2d 830 (1998) (holding that
"once municipalities were required to bond all substantial
construction projects, the distinction [between common-law and
statutory bonds] lost its meaning and effect").
So construed, it is clear that the Bond makes plaintiffs proper
parties to this action, with standing to sue upon the obligations
undertaken by Sovereign, as subcontractor to Trataros, to make
periodic contributions to the Funds pursuant to the terms of the
Agreements between the Union and Sovereign. Specifically, State
Finance Law § 137 provides that the "wages and compensation"
guaranteed under the Bond shall include "all sums payable to or
on behalf of persons furnishing labor to the contractor or his
subcontractors, for wages, health, welfare, non-occupational
disability, retirement, vacation benefits, holiday pay, life
insurance or other benefits, payment of which is required . . .
by a collective bargaining agreement between organized labor and
the contractor or subcontractor, and which are computed upon
labor performed in the prosecution of the contract." State
Finance Law § 137(5)(b). The law further provides that "[a]
trustee or other person authorized to collect such payments shall
have the right to sue on the payment bond in his own name," so
authorizing plaintiffs here to proceed without benefit of
assignments from the Union members who rendered services under
the Agreements with Sovereign.
2. Liability Under the Agreements
i. The First Agreement
It is not disputed that the sums sought herein by plaintiffs
are contributions to Union benefits and dues funds contracted for
by the Union and Sovereign for which payment is past due. The
parties do differ on how, and more precisely, under which
contractual instruments, those obligations arose. Plaintiffs
argue that they derive from a single "continuous contract," made
effective from July 1, 1993, and extended as of July 1, 1996
through June 30, 1999. (Plaintiffs' Mem. of Law in Opp. to
Defendants' Mot. for Summary Judgment at 910.) Defendants argue
in reply that there are two separate agreements, and that
liability issues must be assessed independently under each.
The difference matters because of an alleged failure of notice.
State Finance Law § 137 provides that
a person having a direct contractual relationship
with a subcontractor of the contractor furnishing the
payment bond but no contractual relationship express
or implied with such contractor shall not have a
right of action upon the bond unless he shall have
given written notice to such contractor within one
hundred twenty days from the date on which the last
of the labor was performed . . . stating with
substantial accuracy the amount claimed and the name
of the party . . . for whom labor was performed.
State Finance Law § 137(3). The record shows that Trataros and
Seaboard first received notice of deficiencies in Sovereign's
bonded obligations on August 19,
1997.*fn13 Therefore, unless plaintiffs are correct that the
Agreements constitute a single contract, there is no factual
dispute concerning plaintiffs' failure to give notice within 120
days of the last day on which payments were due under the first
of the two Agreements (which ran from July 1, 1993 to June 30,
When contract language "has a definite and precise meaning,
unattended by danger of misconception in the purport of the
[contract] itself, and concerning which there is no reasonable
basis for a difference of opinion," then, as a matter of law, no
ambiguity exists and liability may be assessed on the basis of
the contract's definite terms. Sayers v. Rochester Telephone
Corp., 7 F.3d 1091, 1095 (2d Cir. 1993) (applying New York law).
The language of the Agreements is both definite and precise. The
first agreement declares, in its "Duration" clause, that it is
"effective for the period commencing July 1, 1993 and shall
terminate on June 30, 1996." (Complaint, Exhibit A thereto at
Art. XX, p. 64.) For its part, the second agreement states that
it "is made as of July 1, 1996," and "is effective for the period
commencing July 1, 1996 and shall terminate June 30, 1999."
(Complaint, Exhibit B thereto at Preamble, p. 1 and Art. XX, p.
64.) Plaintiffs call attention to Article VIII of the second
agreement, governing wages, which states that "[t]he existing
contract Agreement between the parties shall be amended as listed
below and be effective from July 1, 1996 to June 30, 1999," but
the obvious effect of this provision is to create a new schedule
of hourly wages, not to give expression to the parties' intent
that the Agreements be read for all interpretive purposes as a
single and continuous whole.
The New York Court of Appeals has specifically upheld the
one-year statute of limitations of State Finance Law § 137, as
applied to a payment bond that, without making reference to §
137, was nevertheless determined by the Court to be governed by
it. A.C. Legnetto, 92 N.Y.2d at 280, 680 N.Y.S.2d 45,
702 N.E.2d 830. The same reasoning must apply to the notice provision
of § 137. We conclude that plaintiffs failed to give timely
notice to Trataros and Seaboard of deficiencies arising under the
first agreement, and therefore forfeited their right of action
upon those sums.*fn14
ii. Liability Under the Second Agreement
The bulk of plaintiffs' claim against Trataros and Seaboard
accrued under the second agreement, from deficiencies in benefits
contributions and dues by Sovereign between January and September
of 1997 exceeding $140,000, by plaintiffs' reckoning. (Complaint
at ¶ 17 and Exhibit E thereto.)
Defendants Trataros and Seaboard argue that plaintiffs' claims
under the second agreement are barred by the Union's breach of
that agreement. The breach allegedly arose with respect to the
When an Employer bound by the Agreement owes the C &
CWDC Fringe Benefit Funds an amount greater than the
face amount of its surety bond, the surety
bond must be increased to cover such indebtedness. If
this is not done, it shall be mandatory for the Union
to remove all members in the bargaining unit from the
employ of that Employer.
(Complaint, Exh. B thereto at Art. X, Sec. 5(b).) Defendants
allege, and plaintiffs do not deny, that the Union never removed
its members from Sovereign's employ, despite having been aware of
deficiencies to the Funds well in excess of the bonded amount of
$10,000. Defendants argue that the Union's breach exposed them to
liabilities of which they had no notice, and accordingly,
plaintiffs' claim here should be estopped on equitable grounds.
So stated, the non sequitur in defendants' argument becomes
apparent. Defendants cite the conduct of the Union as premise for
the estoppel they seek. But, of course, the parties they seek to
estop are the Funds, and their administrator in his fiduciary
capacity. The Funds are third-party beneficiaries to an agreement
between the Union and Sovereign. They are also statutory
third-party beneficiaries of the Bond, pursuant to the provisions
of State Finance Law § 137. See Restatement Third, Suretyship
and Guaranty § 71(1)-(2) (1996) ("A legally mandated bond is a
secondary obligation required by law, whether the obligee or
beneficiary is a government, a class of persons to whom the
principal obligor may owe an obligation, or a particular person.
. . . When, under applicable law of the jurisdiction, a legally
mandated bond is deemed to contain terms set forth in the law
that requires that it be provided, the legally mandated bond is
treated as containing those terms."). Under settled principles
governing the construction of collective bargaining agreements,
they are third-party beneficiaries with a special status.
The dispositive rule for this case was announced by the Supreme
Court in Lewis v. Benedict Coal Corp., 361 U.S. 459, 80 S.Ct.
489, 4 L.Ed.2d 442 (1960). There the trustees of a welfare fund
for coal miners sought to recover contributions to the fund
contracted for under a collective bargaining agreement. In the
proceedings below, judgment had been entered against the fund for
a set-off claim by the defendant coal operator, as damages for
the United Mine Workers' breach of certain no-strike provisions
in the agreement.
The Court observed that in the "typical" third-party
beneficiary contract, it might well constitute a "desirable rule
of construction" to make the third party subject to any
counterclaims that the promisor might have against the promisee.
Id. at 467, 80 S.Ct. 489. But, the Court added, a collective
bargaining agreement providing for contributions to a union
welfare fund "is not a typical third-party beneficiary contract."
Id. at 468, 80 S.Ct. 489. The third party in this unique
instance is a fund to be used solely for the benefit of employees
and eligible dependents, and "is in no way an asset or property
of the union." Id. at 465, 80 S.Ct. 489.*fn15 In light of the
purpose of such funds — namely, "protecting the interests of
beneficiaries . . . many of whom may be retired, or may be
dependents, and therefore without any direct voice in the conduct
of union affairs" — the Court held that
the parties to a collective bargaining agreement must
express their meaning in unequivocal words before
they can be said to have agreed that the union's
breaches of its promises should give rise to a
defense against the duty assumed by an employer to
contribute to a welfare fund. . . .
Id. at 470-71, 80 S.Ct. 489. See also Robbins v. Prosser's
Moving and Storage Co., 700 F.2d 433
, 436-37 (8th Cir. 1983)
(citing Benedict Coal as authority for "an exception" to the
rule that a promisor may
usually assert against the beneficiary any defense he could have
asserted against the promisee), aff'd, Schneider Moving &
Storage Co. v. Robbins, 466 U.S. 364
, 104 S.Ct. 1844, 80 L.Ed.2d
366 (1984); Restatement, Second, Contracts § 309, Illustration 10
(1979) (based on Benedict Coal).
Here, neither the clause in question nor any other provision of
the second agreement contains anything evincing an intent to make
the Union's performance thereunder a condition precedent to the
Funds' rights as third-party beneficiaries. We conclude therefore
that any breach by the Union of an agreement under which
contributions are due to the Funds provides no defense either to
the original promisor (namely, Sovereign and Frascone), or to the
original promisor's statutory guarantor (Trataros), and its
surety (Seaboard). It follows that defendants Trataros and
Seaboard have no defense at law, and no defense under the facts
in the record before this Court, to plaintiffs' claims upon
obligations due under the second agreement with Sovereign.
Accordingly, summary judgment is proper in favor of plaintiffs
upon those claims.*fn16
For the reasons stated, this Court asserts supplemental
jurisdiction over plaintiffs' cause of action against Trataros
and Seaboard. Summary judgment in part is granted to Trataros and
Seaboard dismissing plaintiffs' claims on the basis of the first
agreement. Summary judgment in part is granted to plaintiffs
against Trataros and Seaboard on claims asserted on the basis of
the second agreement. Any remaining disputes concerning the
denomination of damages are hereby referred to Magistrate Judge
Mann for an inquest.