Service Employees International Union National Industry Pension Fund v. Hebrew Homes Health Network, Inc.

          MEMORANDUM OPINION

          TREVOR N. McFADDEN, UNITED STATES DISTRICT JUDGE.

         The Service Employees International Union National Industry Pension Fund (the "Fund") seeks to recover a total of $847, 290.62 in required pension contributions that Defendants Hebrew Homes Health Network, Inc., Aventura Plaza, Inc., Jackson Plaza, Inc., Hebrew Homes Sinai, Inc., Arch Plaza, Inc., Hebrew Homes South, Inc., and Hebrew Homes of South Beach, Inc. (collectively, the "Employers") admit that they failed to pay. The Court referred this matter to Magistrate Judge G. Michael Harvey for full case management, and following discovery, the parties filed cross-motions for summary judgment. Upon consideration of the Magistrate' Judge's Report and Recommendation (the "Report"), R. & R., ECF No. 50, the Court adopts the Report in full, over the Employers' objections. The Court will deny the Employers' Motion for Summary Judgment and grant in part and deny in part the Fund's Cross-Motion for Summary Judgment.

         The Employers objected to the Report. See Objs. to R. & R., ECF No. 52. The Court reviews de novo any part of the Magistrate Judge's disposition a party properly objects to. Fed.R.Civ.P. 72(b)(3). The Employers mainly object to the Magistrate Judge's finding that Amendment Three is a contractual limitations period.^[1] The Employers' reasoning is far from clear. They insist that the Court should consider Amendment Three "to be an adoption of. . . the Florida five-year statute of limitations." Objs. to R. & R. at 19-20. Fine. But in that case, the Employers still lose because, as the Report persuasively explains, the Fund's Complaint was timely under Florida's statute of limitations.

         The Employers' real gripe is that, according to them, Amendment Three was an unfair, unilateral "cram down." But nowhere in their Objections do the Employers argue that Amendment Three is therefore unenforceable or that they are not bound by its terms. Nor could they. They did not make that argument to the Magistrate Judge, see R. & R. at 16, and parties may not present new issues or arguments for the first time in their objections to the Magistrate Judge's Report. See Sciacca v. FBI, 23 F.Supp.3d 17, 27 (D.D.C. 2014); Aikens v. Shalala, 956 F.Supp. 14, 19-20 (D.D.C. 1997) (collecting cases).

         In any event, the Employers got what they bargained for. In each Employer's negotiated Collective Bargaining Agreement with the Fund, they agreed to be bound by Amendments adopted by the Trustees, like Amendment Three.^[2] Indeed, the Employers appear to concede that their obligation to abide by the Trust Amendment is a product of their negotiations with the Fund. See Objs. to R. & R. at 24 ("the Plaza Facilities agreed in their CBAs to accept any changes in the Plan"). More, rather than a unilateral "cram down," Amendment Three was adopted by the Fund's Board of Trustees, see ECF No. 39-1, which is comprised of equal parts representatives from SEIU affiliated labor unions and representatives from participating employers, see SOF ¶ 2, ECF No. 36-16. Had they objected to such a process, they should not have entered into the Collective Bargaining Agreements. The Employers have cited no authority that such Amendments passed by the Fund's Trustees are defective. And again, they do not make that argument. Thus, whatever unfairness the Employers perceive, the Court agrees with . the Magistrate Judge that Amendment Three is binding on the Employers.

         The Employers' other objections are arguments considered and rejected by the Magistrate Judge. The Court has considered the Employers' objections de novo. None has merit for the reasons set forth in the Magistrate Judge's thorough and well-reasoned Report. So the Court will adopt in full the Magistrate Judge's Report as its own opinion and append it below.

         For these reasons, the Court will deny the Employers' Motion for Summary Judgment and grant in part and deny in part the Fund's Cross-Motion for Summary Judgment. A separate order will issue.

         REPORT AND RECOMMENDATION

          G. MICHAEL HARVEY, UNITED STATES MAGISTRATE JUDGE.

         This matter was referred to the undersigned for full case management. Pending before the Court are the parties' cross-motions for summary judgment. Service Employees International Union National Industry Pension Fund ("the Fund") and its Trustees (collectively "Plaintiffs") filed this action under sections 502 and 515 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1132, 1145, against Hebrew Homes Health Network, Inc. and related .corporations ("Defendants"). Plaintiffs seek to recoup from Defendants pension contributions to the Fund which Defendants failed to pay. Specifically, they seek $847, 290.62 in delinquent contributions, interest, liquidated damages, fees, and costs, as well as declaratory and injunctive relief. After reviewing the entire record, ^[1] the undersigned recommends denying Defendants' motion and granting in part and denying in part Plaintiffs' motion.

         I. BACKGROUND ^[2]

         A. Factual Background

         Defendants do not dispute that they underreported and underpaid pension contributions to the Fund between January 2009 and December 2010. Rather, they contend that Plaintiffs' claims to recover those delinquent contributions are untimely. Similarly, Defendants do not dispute the accuracy of Plaintiffs' underpayment and related damages calculations, except to contend that Plaintiffs have applied incorrect employee eligibility criteria for contributions that were due during a three-month period in 2010. The factual background that follows will focus on these disputes.

         1. Defendants' Collective Bargaining Agreements with Local 1199

         Defendants are a network of six residential nursing and rehabilitation centers located in Miami-Dade County, Florida, and a nonprofit corporation that "provid[es] administration and support" to the centers.^[3] ECF No. 37-1 at 2-3. The Fund is a multiemployer pension plan under ERISA that provides pension benefits to eligible employees of contributing employers. ECF No. 36-16 at 1-2; see also 29 U.S.C. § 1002(37). The Fund is administered in the District of Columbia by a board of trustees made up of equal numbers of labor and management representatives. ECF No. 36-16 at 1-2.

         Employees at Defendants' nursing and rehabilitation centers are represented by Service Employees International Union Local 1199 United Healthcare Workers East ("Local 1199"). ECF No. 36-16 at 3. In October 2008, Defendants entered into collective bargaining agreements ("CBAs") with Local 1199 that established the terms and conditions of employment for various covered classifications of employees. ECF No. 36-16 at 3-6; ECF Nos. 36-1 through 36-6. These CBAs were initially effective from the time that Local 1199's members ratified the agreements through September 30, 2010. Id.

         Under the terms of the CBAs, Defendants agreed to become and remain participating employers in the Fund "throughout the term of th[e] Agreement[s], including any extensions thereof." ECF Nos. 36-1 through 36-6 at ¶ 26.2. Defendants agreed to make contributions on behalf of each covered employee based on the number of hours each employee worked. Id. at ¶ 26.3. The CBAs also required each employer to submit a remittance report, including information such as the employees' names and dates and hours of employment, along with its contributions each month. ECF No. 36-16 at 6-7; ECF Nos. 36-1 through 36-5, 36-6 at ¶ 26.3(c); ECF No. 36-15 at 6. As noted above, Defendants do not dispute that between January 1, 2009 and December 31, 2010, they underreported and underpaid their contributions to the Fund.

         2. The Fund's Trust Agreement and Amendment Three

         Central to the parties' dispute is whether Plaintiffs' claims are governed by the statute of limitations period contained in the parties' agreement. The CBAs between Defendants and Local 1199 provide that each employer "agrees to be bound by the provisions of the [Trust Agreement], as it may from time to time be amended, and by all resolutions and rules adopted by the Trustees pursuant to the powers delegated to them by that agreement." ECF Nos. 36-1-36-6 at ¶ 26.4. The Trust Agreement, in turn, explains that the Fund's trustees are empowered "to establish such procedures, rules and regulations ... as shall be necessary to carry out the operation of the Plan and effectuate the purpose thereof." ECF No. 36-7 at 6; ECF No. 36-16 at 7. On November 12, 2013, the Fund's trustees adopted Amendment Three to the Trust Agreement, which provides:

In any action by the Trust to collect delinquent contributions from contributing employers to the Trust, the limitations period for such action shall be governed by the law of the state in which all or the majority of the employees on whose behalf the contributing employer makes contributions work, unless such limitations period is less than three years, in which case the limitation period under the law of the District of Columbia shall govern.

ECF No. 39-1 at 17. The District of Columbia has a three-year limitations period for contract claims. D.C. Code § 12-301(7). The employees covered by the CBAs all worked at facilities in the State of Florida (ECF No. 36-16 at 2-3; ECF No. 37-1 at 2-3), which has a five-year statute of limitations applicable to contract claims, Fla. Stat. § 95.11 (2)(b).

         3. Plaintiffs' Discovery of Defendants' Delinquencies

         Plaintiffs filed suit on June 21, 2017, seeking to recoup from Defendants delinquent pension contributions from January 1, 2009, to December 31, 2010, associated interest, penalties, and fees. ECF No. 1. Plaintiffs contend that their claims did not accrue until they completed an audit of Defendants' 2009-2010 payroll records on January 30, 2015. ECF No. 40 at 11. By contrast, Defendants argue Plaintiffs' claims accrued much earlier when Plaintiffs became aware of information that Defendants contend would have led a reasonably prudent pension fund to initiate an audit that would have revealed the 2009-2010 delinquencies. ECF No. 37-2 at 23-26. Specifically, Defendants contend that the claims accrued in January 2013, when Plaintiffs filed an action against Defendants for unpaid contributions to the Fund or, at the latest, in August 2013, when a whistle-blower informed the Fund that Defendants had underreported their employees' hours. Id.

         As background for the Court's consideration of these issues, summarized below are the Fund's audit procedures, as well as the circumstances that led to the discovery of the delinquencies at issue.

         a. The Fund's Audit Procedures

         Employers participating in the Fund self-report the number of hours worked by covered employees each month and remit contributions consistent with those calculations. ECF No. 36-16 at 13. Because this system relies on data self-reported by participating employers, the Trust Agreement authorizes the Fund to conduct periodic random audits of employers' payroll data to ensure the hours employers have reported are accurate. Id. at 13-14; ECF Nos. 36-7 at 5, 36-8 at 6-9. Using a lottery system keyed to the record number the Fund has assigned to each employer, the Fund "endeavors to audit about one third of participating employers every year" so that "every employer is usually audited once every three years or so." ECF No. 36-16 at 14.

         Typically, the Fund's audits review two to three years of employer records, comparing the employers' payroll information in tax and unemployment documents with the payroll information the employer remitted to the Fund. ECF No. 36-15 at 13-14. Where an audit reveals an underpayment, the Fund sends the employer a billing letter assessing the amount of the underpayment as well as interest, liquidated damages, and a testing fee that charges the employer for the cost of the audit. Id. at 15-16. When an employer fails to pay after receiving a billing letter, the Fund initiates litigation. Id.

         b. The Fund's 2009 Employer Audit

         In 2009, the Fund randomly selected for a payroll review the employer record number 'assigned to Defendants, but that number was also assigned to another participating employer based on the Fund's erroneous understanding that the other employer was related to and jointly-operated by Defendants. ECF No. 36-16 at 16. When the Fund's auditor arrived and learned that the employers were not related or jointly-operated, he audited only the other employer and did not audit Defendants in 2009. Id. at 16-17. Plaintiffs then assigned the other employer a new record number so that the issue would not recur. Id. at 17.

         c. The Fund's 2013 Lawsuit Against Defendants

         In January 2013, Plaintiffs filed suit against Defendants in the U.S. District Court for the Southern District of Florida seeking to recover delinquent contributions that Defendants' monthly remittance reports allegedly had revealed for the years 2008-2012. ECF No. 37-1 at 17; ECF No. 40 at 15-16; see also Serv. Emps. Int'l Union Nat'l Indus. Pension Fund v. Hebrew Homes Health Network, Inc., Civ. Action No. 13-cv-20175-JEM (S.D. Fl. Jan. 16, 2013). Plaintiffs explain that Defendants accrued the delinquency at issue "by failing to pay the full amount due as stated in [their] own reports submitted during the 2008-2012 period." ECF No. 40 at 16. Plaintiffs suggest that this sort of arrearage differs from amounts due under an audit, which "represent the difference in what was reported to the Fund and what was actually worked by covered employees." Id.

         The parties settled that case in March 2013, but the Fund reserved the right "to pursue any amounts that the Fund may be entitled to recover as a result of an audit conducted in accordance with the Fund's Trust Agreement and Statement of Policy for the Collection of Delinquent Contributions" for the period of November 2003 through December 2012. ECF No. 37-1 at 18; ECF No. 37-11 at 55.

         d. Michael Alexander's Letter and Meeting with Local 1199

         Following the settlement, on August 12, 2013, the Fund received a letter from Michael Alexander, a former administrator for Defendants, alleging that Defendants had "for close to 10 years" underreported covered employees' hours and consequently underpaid Defendants' contributions to the Fund.^[4] ECF No. 36-16 at 17; ECF No. 37-1 at 19-20; ECF No. 41 at 18-19. Based on the issues raised in Mr. Alexander's letter, the Fund decided to conduct an audit of Defendants' payroll records from January 1, 2011, through August 2013. ECF No. 36-16 at 17; ECF No. 37-1 at 19; ECF No. 42 at 4. The Fund selected this timeframe because its usual practice is to examine two to three years of employer records during an audit.^[5] ECF No. 36-16 at 13, 17. In late August 2013, Local 1199 officials received from Mr. Alexander (1) a copy of Defendant Aventura Plaza's remittance report for June 2013 which listed only 36 covered employees and (2) a full roster of the 112 covered employees working at that facility. ECF No. 36-16 at 18; ECF No. 37-1 at 20-21. Local 1199 then sent the materials it received from Mr. Alexander to the Fund along with a comparison of the June 2013 remittance report with a list of bargaining unit employees that the union received from Aventura Plaza in March 201-3. Id; ECF No. 38-2 at 52, 54, 56.

         e. The Fund's Audit of Defendants' 2011-2013 Records

         In late October 2013 the Fund conducted an on-site audit of Defendants' 2011-2013 payroll records according to its normal procedures, comparing the employers' payroll information in tax and unemployment documents with the payroll information Defendants had remitted to the Fund. ECF No. 36-16 at 14-15, 19; ECF No. 37-1 at 22-23. The audit revealed that Defendants had significantly underreported covered employees' hours and consequently substantially underpaid the contributions due during the 2011-2013 period. ECF No. 36-16 at 18-19. The Fund notified Plaintiffs of the audit's findings and requested payment for the amounts it had calculated .Defendants to owe. ECF No. 36-16 at 19; ECF No. 37-1 at 23. Between April and July 2014, the parties negotiated a settlement of the amounts owed under the 2011-2013 audit. ECF No. 36-16 at 19; ECF No. 37-1 at 24. As a result, those amounts are not at issue in this case.

         f. The Fund's Audit of Defendants' 2009-2011 Records

         Because the 2011-2013 audit revealed significant underreporting, the Fund decided to audit Defendants' payroll records from 2006-2010. ECF No. 36-16 at 19. Defendants evidently had some difficulty obtaining their payroll records for years before 2009, but they provided the Fund with payroll records for 2009 and 2010. ECF No. 36-16 at 19-20; ECF No. 37-1 at 24; ECF No. 42 at 4. The Fund conducted a payroll audit of those records, which concluded on January 30, 2015. ECF No. 36-16 at 20. Like the prior audit, the 2009-2010 audit found that Defendants had underpaid their contributions for that period because of the underreporting of employees' hours. Id; see also ECF No. 36-14 (comparing employee hours reported to hours due under the CBAs). Based on the outcome of the 2009-2010 audit, the Fund sent billing letters to Defendants in May 2017, explaining the outcome of the audit and requesting payment for the unpaid contributions, interest, liquidated damages, and testing fees. ECF No. 36-16 at 20; ECF No. 37-1 at 25. When those letters went unanswered, Plaintiffs initiated this action on June 21, 2017. Id.; ECF No. 1.

         4. Agreement Terms Defining Employee Eligibility for Pension Contributions

         Defendants do not dispute the accuracy of Plaintiffs' damages calculations except to contend that Plaintiffs have applied the incorrect criteria for determining which employees were eligible for pension contributions between October 1, 2010, and December 31, 2010. This argument turns on when the modified eligibility criteria found in appendices to the CBAs became effective ("Pension Appendix" or "Pension Appendices"). Plaintiffs' damages calculations apply these modified eligibility criteria beginning on October 1, 2010, a date drawn from the Pension Appendices themselves. Defendants contend that the modified eligibility criteria did not become effective until January 1, 2011, which they contend is the effective date of a memorandum of agreement ("MO A") Defendants executed with Local 1199. To place that issue in context, a summary of the contested eligibility criteria, the Appendices, and the MOA follows.

         The CBAs with Local 1199 required Defendants to make pension contributions on behalf of full-time employees (defined as those that work at least 32 hours per week), and part-time employees on a pro-rated basis. ECF No. 36-1 through 36-6 at ¶¶ 1.6, 26.3. Under the original terms of the CBAs, "per diem employees," defined as those "who have no regular schedule of work, but report to work on an 'on-call' basis as replacement for regular full and part time employees," were not entitled to participate in the pension plan or other benefits. Id. at ¶ 1.5.

         The CBA for the Sinai Plaza Facility provided that the employer would make these contributions for each covered employee who had worked at the facility for at least 90 days. ECF No. 36-5 at 10, 22. The CBAs for the other Defendants provided that the employer would make contributions for all covered employees with at least one year of service. ECF Nos. 36-1-36-4, 36-6 at ¶ 26.3.

         Although the original term for each of the CBAs ended in October 2010, Defendants "continued to abide by the CBAs" thereafter. ECF No. 37-1 at 7. In the summer of 2011, Defendants and Local 1199 engaged in negotiations regarding extending the CBAs and modifying the eligibility criteria for employee pension contributions. Id. at 7, 9. As a result of these negotiations, Defendants and Local 1199 executed a Pension Appendix for each Defendant on November 15, 2011. Id. at 9; ECF No. 36-9 at 2, 5, 8, 11, 14, 17. Apart from the name of each employer, the Pension Appendices are materially identical for each Defendant.

         In relevant part, the Appendices state that "[a]s of October 1, 2010, the Employer agrees to contribute to the Fund ... for all employees covered by the [CBA]" and provide that "[r]egular full-time and regular part-time employees shall be covered after the completion of 90 days of employment" and that per diem employees are covered once they satisfy certain conditions. ECF No. 36-9 at 2, 5, 8, 11, 14, 17. Each Appendix also explains that "[i]n the event of any inconsistency between this Appendix and the [CBAs], the terms of this Appendix shall prevail." ECF No. 36-9 at 4, 7, 10, 13, 16, 19.

         At roughly the same time, Defendants and Local 1199 also entered into the MOA, which modified certain provisions in the CBAs, extended the CBAs' terms through December 31, 2011, 'and provided that they would continue in effect on a month-to-month basis beginning in January 2012.^[6] ECF No. 37-1 at 7; ECF No. 36-10 at 2. The MOA reads, in pertinent part:

         The parties agree to amend and extend the collective bargaining agreement[s] . . . for [Defendants' Facilities] as follows:

1. Term of Agreement: through December 31, 2011. As of January 1, 2012, the parties agree to extend the agreements on a month to month basis during contract negotiations. Either party may terminate the extension by providing the other not less than ten (10) days notice of termination.

5. No. change to pension contributions at each facility, except the employer will begin contributions after 90 days of employment, ...