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Reed v. Greenworks, Inc.

United States District Court, D. Minnesota

January 27, 2015

Gary Reed and Thomas Vevea, as Trustees of the Minnesota Laborers Health and Welfare Fund and Minnesota Laborers Pension Fund; James Brady and Keith Kramer, as Trustees of the Minnesota Laborers Vacation Fund; Gary Reed and John Bartz, as Trustees of the Construction Laborers' Education, Training, and Apprenticeship Fund of Minnesota and North Dakota; and Dan Olson and Chris Born, as Trustees of the Minnesota Laborers Employers Cooperation and Education Trust; and each of their successors, Plaintiffs,
v.
Greenworks, Inc., Greenworks Landscape Contracting, Inc., Greenworks Nursery, and Greenworks Management, Defendants.

Carl S. Wosmek, Esq., and Amy L. Court, Esq., McGrann Shea Carnival Straughn & Lamb, Chartered, for the Plaintiffs.

Gregory M. Erickson, Esq., and James R. Magnuson, Esq., Mohrman Kaardal & Erickson, P.A., for the Defendants.

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER

JEFFREY J. KEYES, Magistrate Judge.

INTRODUCTION

Plaintiffs brought this action against the four Defendant Greenworks entities for unpaid fringe benefit contributions that Defendant Greenworks, Inc. was required to make under the terms of a 2007 collective bargaining agreement. Plaintiffs moved for summary judgment holding that the four defendants are jointly and severally liable to the Plaintiffs for all charges, liquidated damages, and reasonable attorney's fees and costs for the audit period running from January 1, 2009 through December 31, 2010. On June 6, 2013, after the hearing on the summary judgment motion, United States District Court Judge Joan Ericksen granted summary judgment in favor of Plaintiffs against Greenworks, Inc., Greenworks Management, Inc., and Greenworks Nursery, Inc., but denied summary judgment as to Greenworks Landscape Contracting, Inc. Judge Ericksen referred the parties to the undersigned Magistrate Judge "for an evidentiary hearing re liability of Greenworks Landscape Contracting, Inc." (Doc. No. 34.)

On November 6, 2013, attorneys representing the four defendants notified this Court that Chapter 7 bankruptcy petitions had been filed on behalf of each of the four Greenworks entities, and the automatic stay of this litigation went into effect. On June 25, 2014, this Court was notified that, based on the agreement of the parties, the Bankruptcy Court issued orders in all four bankruptcy proceedings lifting the automatic stay to permit the parties to pursue their claims in this matter. The stay was lifted on July 1, 2014. (Doc. No. 44.)

The parties then consented, pursuant to the provisions of 28 U.S.C. § 636 (c) and Fed.R.Civ.P. 73, to have a United States Magistrate Judge conduct any and all proceedings in this case, including the trial; order the entry of a final judgment; and conduct all post-judgment proceedings. On August 1, 2014, the matter was reassigned to the undersigned by Judge Ericksen in accordance with the provisions of 28 U.S.C. § 636 (c) and Fed.R.Civ.P. 73. (Doc. No. 64.) A bench trial was held on November 4 and 5, 2014, on the liability of Greenworks Landscaping Contracting, Inc. (Doc. No. 76.) After post-trial briefing was completed, the matter was submitted to this Court for decision on December 15, 2014. (Doc. No. 78.)

FINDINGS OF FACT

1. Tom and Karen Grygelko, a married couple, have been in the landscaping business since 1982. At its inception the Grygelkos incorporated the business as Greenworks, Inc. ("GWI"). Initially, all the stock in GWI was owned by Mr. Grygelko. In 1990, Mr. Grygelko transferred forty percent of GWI's stock to Karen Grygelko, who was actively involved at that time in the operation of the landscaping business, primarily managing the office, maintaining the books and records, and performing administrative duties. She also worked, on a part time basis, as a dental hygienist.

2. Throughout its history GWI has employed union landscaping workers. It has been bound to a series of collective bargaining agreements ("CBA") that required it to submit fringe benefit contributions to the Minnesota Laborers Health and Welfare Fund, the Minnesota Laborers Pension Fund, the Minnesota Laborers Vacation Fund, the Construction Laborers' Education, Training, and Apprenticeship Fund of Minnesota and North Dakota, and the Minnesota Laborers Employers Cooperation and Education Trust (collectively "Funds") for each hour of its employees' work covered by the collective bargaining agreements.

3. In 2003, the Grygelkos reorganized their landscaping business and became a so-called double-breasted operation with both union and non-union firms conducting side-by-side business. GWI was split into four separate entities. GWI became the firm that employed union workers and bid on jobs that required union labor. Greenworks Landscape Contracting, Inc. ("GLCI") was formed as a separate legal entity. It employed non-union laborers and competed for jobs that did not require union workers. At the same time, the Grygelkos also formed Greenworks Management ("GWM"), and Greenworks Nursery ("GWN"). GWM owned the buildings and most of the equipment used by GLCI and GWI. GWI also employed the estimator who worked on bids for both GWI and GLCI, and provided other services for the Greenworks entities such as obtaining the umbrella insurance policy covering all of the business entities. GWN grew trees and shrubbery that GLCI and GWI purchased and used on landscaping projects. GWN sold trees to other landscape businesses as well, though the bulk of its sales were to GLCI and GWI.

4. The Grygelkos formed GLCI so that they could compete for landscaping jobs that did not require union laborers. The jobs that required union laborers were usually large-scale projects in which the general contractor was a signatory to a CBA and was required to use subcontractors who were bound to a CBA. Union wage rates including fringe benefit contributions were usually double non-union labor rates, and a bid on a job with union labor would typically be 25 to 35 percent higher than a bid with non-union labor. When a general contractor invited bids for jobs where union labor was not required, there would be as many as 30 or more non-union landscaping companies submitting bids. James Varty, who has been a landscape job estimator for the Greenworks landscaping business for twenty years, testified that it was very rare for a union landscaping shop to even bid on such jobs because their labor cost structure made competitive bids impossible. He opined that, for example, GWI would not have been able to obtain any of the non-union required landscaping jobs that GLCI obtained after 2003 because of this competitive structure.

5. From 2003 to 2007, GWI entered into CBAs governing union landscaping work that were negotiated between the Landscape and Erosion Control Contractors and the Laborers District Council of Minnesota and North Dakota on behalf of its affiliated and local unions, including an agreement in 2003 and another in 2005. During this time frame, despite conducting periodic audits of the Greenworks landscaping business every two years, the Funds did not raise any claim that GLCI, the non-union side of the Greenworks' doublebreasted business, was liable for fringe benefit contributions on behalf of its nonunion employees. In 2008, for the audit period prior to the one at issue, Plaintiffs claimed $6, 382 in unpaid fringe benefits for GWI's workers, an amount which was paid by GWI, but Plaintiffs made no claim that GLCI or GWI was liable for any fringe benefit contributions for GLCI's employees.

6. In 2007, the landscape contractors and union representatives negotiated a new form of CBA. Previous agreements had bound the companies that were signatories to the agreement to its terms. This was expanded in the ...


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