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City of Riverview v. Operating Engineers Local 324 Pension Fund

United States District Court, E.D. Michigan, Southern Division

March 31, 2019

CITY OF RIVERVIEW, Plaintiff,
v.
OPERATING ENGINEERS LOCAL 324 PENSION FUND, JOHN STICKEL, JOHN DOE, INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL 324, Defendants.

          ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS [#8; #9]

          DENISE PAGE HOOD CHIEF JUDGE, U.S. DISTRICT COURT.

         I. BACKGROUND

         A. Procedural Background

         On May 1, 2018, Plaintiff City of Riverview (“the City”) brought this second action against Defendants Operating Engineers Local 324 Pension Fund (“the Fund”), International Union of Operating Engineers Local 324 (“the Union”), John Stickel (“Stickel”), and John Doe (potentially other vested individuals) (collectively, “Defendants”), requesting declaratory relief from this Court pursuant to 28 U.S.C. § 2201 (Count I). (Doc # 1, Pg ID 7) Plaintiff's claims are based on its belief that under the Michigan Constitution, the City lacked the authority to become party to a multi-employer pension plan that requires Plaintiff to contribute money to pay for the pension benefits of persons who are not employed by the City and have not provided services to the City. (Doc # 1, Pg ID 15)

         Plaintiff previously filed a Complaint for Declaratory Judgment in the Oakland County Circuit Court (the “State court case”) against the Fund, in which it sought the same relief that it is seeking from this Court. (Doc # 1, Pg ID 4) Plaintiff specifically sought declaratory rulings on issues pertaining to Michigan Constitutional law. (Id.) On or about March 20, 2015, the Fund removed the State court case to federal court. (Doc # 1, Pg ID 5) Plaintiff subsequently filed a Motion to Remand, which this Court granted on May 28, 2015. (Id.) On or about August 19, 2015, the Fund filed a Motion for Summary Disposition on remand, which the State trial court granted. (Id. at 5-6.) The State trial court ruled that it lacked the requisite subject matter jurisdiction necessary to decide Plaintiff's questions that pertained to Michigan law because Plaintiff's claims were “defensively preempted” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), 29 USC §1001, et seq. (Id.) On March 25, 2016, Plaintiff filed an appeal as of right to the Michigan Court of Appeals. (Doc # 1, Pg ID 6) On May 30, 2017, the Michigan Court of Appeals affirmed the Michigan trial court's opinion, and held that the State court did not have subject matter jurisdiction over Plaintiff's claims. (Id.) On July 10, 2017, Plaintiff filed an Application for Leave to Appeal with the Michigan Supreme Court. (Id.) On December 27, 2017, the Michigan Supreme Court denied Plaintiff's Application. (Id.) The City then filed its second case in federal court requesting that this Court grant it declaratory relief on the basis that this Court has proper subject matter jurisdiction over its claims that were brought in the State court case. (Doc # 1, Pg ID 7) Plaintiff asserts that based on “the broad language of ERISA and the U.S. Constitution, ” this Court has subject matter jurisdiction pursuant to 29 U.S.C. § 1144(a), 29 U.S.C. § 1451(a)(1) and 28 U.S.C. § 1331. (Id.)

         This matter is before the Court on the Fund's Motion to Dismiss (Doc # 8) and the Union and Stickel's Motion to Dismiss (Doc # 9). Plaintiff filed a Response to both Motions on August 3, 2018. (Doc # 17) The Fund filed a Reply on August 17, 2018. (Doc # 19) The Union and Stickel filed a Reply on August 17, 2018. (Doc # 20)

         B. Factual Background

         The Fund is believed to be a pension plan of the Union. (Doc # 1, Pg ID 2) The Union is a collective bargaining agent that represents employees who are beneficiaries of the Fund, including current or former employees of the City. (Id.) Stickel is an employee (or former employee) of the City who has participated in the Fund, and who is believed to be a vested beneficiary of the Fund as a result of having provided services to the City. (Id.) Plaintiff alleges that Stickel's presence in this case may be necessary in order for the Court to grant complete relief. (Id.)

         The Fund receives various fringe benefit contributions made by employers that are bound by a master agreement between the Associated Underground Contractors (“AUC”) (a multi-employer association) and the Union. (Doc # 1, Pg ID 3) The Fund is maintained and administered pursuant to ERISA and Section 302 of the Labor-Management Relations Act of 1947, as amended (“LMRA”), 29 U.S.C. § 186, et seq. (Id.) Since 2000, the City has entered into several collective bargaining agreements with the Union that require it to contribute to the Fund on behalf of certain employees who perform work for the City. (Id.) The number of contributions that are to be made by the City is determined by the AUC, the Fund, and the Union. (Doc # 1, Pg ID 8) The City has no input on this matter. (Id.)

         Once the parties' 2007 Collective Bargaining Agreement expired, the City determined that the mandatory contributions that it previously had to make to the Fund had become financially burdensome. (Id.) When this was expressed to the Fund, the Fund responded by explaining to the City that if it withdrew from the Fund, or refrained from making contributions to the Fund on behalf of its temporary employees, withdrawal liability would be assessed against the City under ERISA. (Doc # 1, Pg ID 8-9) It has been alleged by Plaintiff that initially, the Fund expressed that the withdrawal liability to the City would amount to $3, 240, 000. (Id. at 9.) As of April 30, 2016, the withdrawal liability exposure has grown to approximately $4, 561, 124. (Id.) Following the expiration of the 2007 Collective Bargaining Agreement, the parties ultimately reached a successor collective bargaining agreement for the period of July 1, 2017 through June 30, 2022. (Id.)

         Shortly after the communication between the Fund and the City regarding Plaintiff's possible withdrawal liability, Plaintiff initiated its first action seeking declaratory relief in the State court case. (Id.) Plaintiff argued that the Michigan Constitution prohibited it from participating in the Fund. (Id. at 14.) According to Plaintiff, its participation in the Fund was a mistake of fact because it did not know that it could become liable to pay for the retirement benefits of persons that did not provide any services to the City in violation of its chartered rights and authority. (Id.) Plaintiff also claims that its participation in the Fund was a mistake of law because Article 7, Section 26 of the Michigan Constitution generally prohibits the lending of credit, and provides that the lending of credit by a municipality must be both authorized by law and be for a public purpose. (Id. at 10.) Plaintiff argues that “[a] public purpose only exists where the objective of expenditure is the promotion of the public health, safety, morals, general welfare, security, prosperity, and contentment of all the inhabitants or residents within the municipality, and where the public enjoys the benefit of the expenditure.” (Id. at 11-12.)

         Another argument made by Plaintiff is that it was illegal for the City to have participated in the Fund under Article 9, Section 2 of the Michigan Constitution, which prohibits municipalities from contracting away their power to tax. (Id. at 12-13.) Plaintiff claims that its connection with the Fund is unlawful since it “constitutes the illegal exercise of the City's power to tax… because of the potential and threatened claims by the Fund for the assessment of withdrawal liability.” (Id. at 16.) The argument put forward by Plaintiff is that it cannot be liable for withdrawal liability because any money that would be paid by the City-which is the taxpayers' money-directly benefits the Fund, and those funds do not in turn benefit the City, and are not being used for a public purpose. (Id.) Plaintiff further argues that even if the payment of withdrawal liability was for a public purpose, case law dictates that it would nevertheless be an illegal lending of the City's credit because the entity receiving the money (the Fund) is not under the City's control. (Id. at 12.) Since the City is responsible for contributing to the Fund without its input, approval, or agreement, Plaintiff claims that its involvement with the Fund is unconstitutional under Michigan law. (Id. at 13.)

         Based on the aforementioned facts, the City is seeking a declaration from this Court that:

1. The City is not a lawful party to a multi-employer pension fund that benefits non-employees of the City;
2. The City's participation in the Fund was void ab initio;
3. The City's participation in the Fund was a mistake of law;
4. The City's participation in the Fund was a mistake of fact;
5. The City is not bound by any agreement to contribute to the Fund;
6. The City has no obligation to contribute to the Fund on behalf ...

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