United States District Court, D. Minnesota
TERRY NELSON, JOHN NESSE, CLARK ANDERSON, and GARY MEYERS and their successors in their capacities as Trustees and Fiduciaries of the Painters and Allied Trades District Council No. 82 Health Care Fund, the Painters and Allied Trades District Council No. 82 Vacation Fund, the Painters and Allied Trades District Council 82 STAR Fund, the International Painters and Allied Trades Industry Pension Fund, the Finishing Trades Institute of the Upper Midwest Trust Fund, the National Painting, Decorating, and Drywall Apprenticeship Committee, the St. Paul Painting Industry Pension Fund, the Minneapolis Local 386 Drywall Finishing Industry Pension Fund, the Finishing Trades Institute, the Painters and Allied Trades Labor Management Cooperation Initiative, and each above-named Fund, Plaintiffs,
FRANA COMPANIES, INC.; DIAMOND DRYWALL, INC.; DAVID STELLMACH; KAREN STELLMACH; TWIN CITIES DRYWALL, INC.; and JOHN DOES 1-2, Defendants.
S. Wosmek, Amy L. Court, and Christy E. Lawrie, MCGRANN SHEA
CARNIVAL STRAUGHN & LAMB, CHARTERED, for plaintiffs.
J. Broady and Bryan R. Feldhaus, LOMMEN ABDO P.A.; and
Nicholas A. Dolejsi, ZELLE LLP, for defendant Frana
D. Kappenman and Gregory L. Peters, SEATON, PETERS &
REVNEW, P.A., for defendants Diamond Drywall, Inc., David
Stellmach, and Karen Stellmach.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Patrick J. Schiltz United States District Judge
an action to recover contributions that are allegedly owed to
various union-sponsored fringe-benefit funds under the terms
of various collective-bargaining agreements
(“CBAs”). Plaintiffs are the funds and the
trustees of the funds. Defendant Diamond Drywall, Inc.
(“Diamond”) is a drywall contractor that was a
signatory to CBAs that required Diamond to make
fringe-benefit contributions to the funds. Prior to going
bankrupt in 2012, non-party Lincoln Drywall, Inc.
(“Lincoln”) was also a drywall contractor and
also a signatory to the CBAs.
the CBAs, Diamond and Lincoln were contractually obligated to
pay their employees by the hour and to make fringe-benefit
contributions based on the total number of hours worked by
those employees. According to plaintiffs, Diamond and Lincoln
breached the CBAs by paying some employees on a piece-work or
“footage” basis and by not accurately recording
or reporting the number of hours that those employees
actually worked. As a result, plaintiffs allege, Diamond and
Lincoln failed to pay the full amount of the fringe-benefit
contributions that they were obligated to pay under the CBAs.
further allege that defendant Frana Companies, Inc.
(“Frana”)-a general contractor that subcontracted
drywall work to both Diamond and Lincoln-should be held
liable for Diamond's and Lincoln's breaches under an
alter-ego theory. Finally, plaintiffs allege that defendant
Twin Cities Drywall, Inc. (“Twin Cities”) is the
corporate successor to Lincoln and thus should be held liable
for Lincoln's breaches.
on these core allegations, plaintiffs brought 15 claims
against defendants, including claims under the Employee
Retirement Income Security Act (“ERISA”), 29
U.S.C. § 1001 et seq., the Racketeer Influenced and
Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1961 et seq., the Minnesota Uniform Fraudulent
Transfer Act, Minn. Stat. § 513.41 et seq., and the
common law. The Court dismissed all of plaintiffs'
claims, save their ERISA and breach-of-contract claims. The
surviving claims were tried in two phases spanning a total of
nine days, after which the parties submitted extensive
briefing. Having heard the evidence and considered the
briefs, the Court makes the following findings of fact and
conclusions of law pursuant to Fed.R.Civ.P. 52(a).
FINDINGS OF FACT
individual plaintiffs are trustees and fiduciaries of the
plaintiff multi- employer fringe-benefit funds.
Diamond is a drywall contractor that specializes in
wood-frame multi- family construction. TT 1264,
Defendant David Stellmach is the sole owner of Diamond. TT
483. Stellmach's wife, Karen Stellmach, works as a
part-time bookkeeper for Diamond.TT 656.
Cities is a drywall contractor. TT 914. Plaintiffs allege
that Twin Cities is the common-law successor to Lincoln.
Compl. ¶¶ 184-87.
Frana is a general contractor that specializes in wood-frame
multi-family construction. TT 1258, 1720. During the period
August 15, 2007 through December 31, 2012 (the “audit
period”), Frana subcontracted with both Diamond and
Lincoln to perform drywall work. TT 836.
Since 1998, Diamond has been a signatory to CBAs with the
Painters and Allied Trades District Council 82 (“the
painters' union”), which represents drywall tapers.
P1, P2, P3; TT 484.
Before it went bankrupt, Lincoln was also a signatory to the
painters' union CBAs. TT 858.
CBAs require that covered employees be paid by the hour and
establish hourly wage rates for those employees. See,
e.g., P2 Art. 9 & Add. A.
CBAs also require employers to make contributions to the
plaintiff fringe-benefit funds for each hour of covered work.
P2, Art. 27; P3, Art. 28. Each month, employers must report
the number of hours worked by covered employees and remit the
required contributions to the funds. TT 858-59.
Drywall and Multi-Family Construction
Drywall contractors typically employ three types of workers:
carpenters, tapers, and laborers. TT 611-12. Of these three
trades, only tapers are represented by the painters'
union. TT 604-05, 659.
Drywall is hung by carpenters. TT 611. Tapers then come
through to tape and coat the seams and fasteners and thereby
create a finished surface. TT 15-17, 613- 14.
Surface finishes are designated by level, with level 5 being
the highest and most time-consuming and level 1 being the
lowest and least time-consuming. TT 15-17. With respect to
each level, a finish may be textured or smooth; applying a
smooth finish typically takes more time than applying a
textured finish. TT 642, 923, 947-48, 1268.
Tapers tend to finish more square feet per hour in
multi-family construction than in commercial construction
because ceiling heights are lower and the finish is often
lower level or textured. TT 642, 854, 878-79, 903-04,
1264-65, 1467. In addition, work on multi-family construction
projects tends to be highly repetitive, with each floor
having consistent layouts, ceiling heights, and finishes. TT
1264-65. Multi- family construction does not commonly require
a level 5 finish (which, again, is the most labor intensive),
and Frana never used level 5 as a primary finish in any of
the buildings that it constructed during the audit period. TT
2015, Frana constructed the Five15 building, a large
wood-frame multi- family building that was typical of the
projects that Frana built during the audit period. TT 1293.
Diamond was the drywall subcontractor on the Five15 project.
TT 1293-94. Because the Five15 project was subject to wage
oversight, Diamond had to submit certified payrolls to the
Department of Housing and Urban Development and the City of
Minneapolis. TT 1296. Representatives from these agencies
regularly visited the site to interview workers and verify
that they were being paid for all of the hours that they
worked. TT 1296-97. Based on the square footage of the
project and the certified payroll records, Diamond's
productivity rate for the Five15 project was 116 square feet
per hour. TT 1299.
Diamond's Footage System
During the audit period, Diamond paid most of its tapers by
the hour, as Diamond was required to do under the CBAs.
Diamond did, however, pay a small number of its tapers on a
unit or “footage” basis to give them an incentive
to work faster.
Diamond's footage system worked as follows: Stellmach
would determine an amount that he would pay for a unit of
work (such as a single apartment in a multi-unit building).
TT 586. The tapers working “on footage” would
report units worked (rather than hours) or a combination of
units and hours. TT 535-36. Stellmach would then divide the
unit price by the hourly wage to calculate a number of hours,
and Diamond would calculate its obligations to the funds
based on that number of hours. TT 536, 547-52, 659-61, 684.
So, for example, if a taper completed three apartments at
$300 per apartment, the taper would be owed $900. If the
taper's hourly wage was $30 per hour, Stellmach would
report that the taper had worked 30 hours, regardless of how
many hours the taper had actually worked. Karen then used
that number of hours to generate payroll and report covered
hours to the funds.
footage system can work to either the advantage or the
disadvantage of the funds. If, in the above example, the
taper actually worked 25 hours, then the funds would benefit
from the footage system, as Diamond would report and make
contributions on 30 hours of covered work, when the funds
were entitled to receive contributions on only 25 hours. But
if the taper actually worked 35 hours, the funds would be
cheated, as they would receive contributions on only 30 hours
of covered work, when they were entitled to receive
contributions on 35 hours.
will be discussed below, the footage system used by Stellmach
during the audit period generally resulted in Diamond
reporting more covered hours to the funds than the employees
actually worked. This makes sense, as the purpose of the
footage system was to provide an incentive for tapers to work
quickly, and the footage system would fail of its purpose
unless it gave tapers a realistic opportunity to earn more
money than they would earn if they were paid by the hour.
Over the course of the audit period, then, both the employees
and the funds profited from Stellmach's use of the
the end of a project, Stellmach discarded any notes or other
documents that would have reflected the unit prices that he
set for that project. TT 589. Stellmach discarded the
documents because he had no use for them; he did not do so
because he thought that he was violating the CBA and was
attempting to hide evidence of that fact.
Approximately 150 tapers worked for Diamond at some point
during the audit period. TT 556. Only about ten or eleven of
those tapers were ever paid on the footage system. TT 622.
Thus, over 90 percent of the tapers who worked for Diamond
during the audit period were never paid on the footage
Diamond's Payroll Records
Stellmach paid all of his employees every week with payroll
checks; he never paid cash. TT 923, 929, 951-52, 993-94, 996,
Diamond tapers who were paid hourly would either turn in a
timecard or report their hours to Stellmach. TT 532, 630-31.
Each week, Stellmach recorded his employees' hours on a
sheet that he gave to his wife, Karen. TT 532-33, 630-31.
Karen recorded the information from these sheets in
handwritten ledgers and accounting software, which she used
to generate weekly paychecks and monthly remittance reports
to the funds. TT 630-31, 658-61, 684. After recording
information from the sheets, Karen returned the sheets to
Stellmach, who eventually discarded them. TT 532-33, 550,
661. Stellmach discarded the sheets because he had no more
use for them, not because he was trying to hide anything.
Stellmach kept timecards in a stack on a ledge in his office.
TT 514-15. When the stack got so tall that it started to tip
over, Stellmach would discard a chunk of cards from the
bottom of the stack in order to bring the stack down to a
manageable height. TT 515-16. Stellmach was not aware that he
was obligated to retain timecards until a union official
informed him of that fact sometime around 2013. TT 512, 530.
Approximately every 18 months, Wilson-McShane, a firm
retained by the funds, audited Diamond's payroll records.
TT 513-14, 678. Wilson-McShane never told the Stellmachs that
their records were inadequate. TT 636, 692, 694, 1039-40. If
Wilson- McShane had told the Stellmachs to retain timecards
or other records, the Stellmachs would have done so. TT 636,
With one exception involving Diamond's use of a
subcontractor called Quality Sanders (discussed below),
Wilson-McShane sent a letter after every audit stating that
Diamond's remittance reports accurately reflected
Diamond's underlying records. TT 694-96; see,
e.g., D112; D115.
January 2012, Wilson-McShane sent a letter requesting an
audit. D124. In the past, similar letters had requested that
Diamond produce seven categories of records. See,
e.g., D113. The January 2012 letter added an additional
seven categories of records, including job-cost detail
reports, the master payroll file, monthly and annual
financial statements, tax returns, job files, estimating
documentation, and job-analysis reports. D124. It appears
that this request for additional information came about
because Dustin Partain, a Diamond taper, had complained to
the union about Diamond's footage system sometime in
2011. TT 779-83. The evidence suggests, however, that both
the union and the funds were already aware of-and appeared to
tolerate-the footage system. TT 779-82, 816-18, 959, 967,
970. In any event, the January 2012 audit request spawned a
dispute over the production of records, and that dispute
ultimately led to this lawsuit.
Testimony from Tapers Employed by Diamond
Walter, Dustin, and Troy Partain-a father and two sons-are
the only Diamond tapers who testified that they may have been
shorted hours under the footage system. None of the other 150
or so tapers who worked for Diamond during the audit
period-each of whom was a member of the painters'
union-complained to the union or to anyone else about the
footage system. None of the three Partains could identify any
weeks that they were underpaid, and none of them could
quantify the amount by which they were underpaid. TT 723-24,
731-33, 739-40, 773-74, 777-78, 801, 812, 816.
Troy Partain could not say for certain that he was,
in fact, underpaid. TT 731-32.
Dustin Partain testified at trial that he was certain that he
had been underpaid, TT 773, but this trial testimony
conflicted with his deposition testimony that he did not know
if he had been underpaid, TT 777-78.
contending that they were probably underpaid when working
under the footage system, both Walter and Troy emphasized the
loss of overtime. TT 731-32, 739, 802-03, 814-15.
Walter testified that, of all of the Diamond tapers, he and
perhaps Dustin were harmed the most by the footage system. TT
826. Walter also testified that, at the same time that he and
Dustin were being harmed, other Diamond tapers were getting
easier work (and (presumably) making more money than they
would make if paid by the hour). TT 807-09, 826.
one occasion in 2007, Walter asked to be paid hourly instead
of under the footage system. Stellmach accommodated his
request. TT 799-800. On the next project, however, Stellmach
returned to paying Walter on a footage basis. TT 800-01.
Walter did not complain or again ask to be paid hourly.
Walter was an active member of the painters' union who
attended meetings nearly every month, but Walter never
complained to the union about short pay. TT 819. A few years
before he retired, Walter told a union organizer that Diamond
was paying him under a footage system, but Walter did not
claim that, as a result, he was being shorted pay. TT 816-19.
Although Walter testified that he often complained to
Stellmach “about the things that were going on, ”
TT 801-02, this vague statement is likely a reference to
Walter's ongoing complaints about his foreman-whom Walter
said he “hated” and regarded as “the real
problem” at Diamond-as well as Walter's ongoing
complaints about Stellmach's willingness to hire workers
of Mexican ancestry, TT 810-11, 826-27.
Dustin testified that he could have opted out of the footage
system and been paid hourly, but he chose not to exercise
that option. TT 788-89. He also testified that he sometimes
complained about working footage, but the context of his
testimony indicates that he was complaining about the footage
rates-i.e., he sometimes thought that the per-unit
rate was set too low to give him a reasonable opportunity to
earn more than he would earn if paid by the hour. TT 771-73.
other Diamond tapers-including four who worked on the footage
system-testified that they were never shorted hours. Of the
four who worked footage, three testified that they always
made more than their hourly rate, TT 929, 938, 944, 948, and
the fourth testified that he made more than his hourly rate
most of the time and at worst equaled his hourly rate, TT
922, 924-26. The remaining six tapers were all paid by the
hour and were never shorted pay. TT 951-52, 993-94, 996, 999,
1002; D268 at 29-32.
extra pay that tapers made under the footage system was
substantial, on the order of several hundred dollars per
week. TT 922 (taper averaged around $300 extra per week); TT
929-30 (taper usually earned 6 to 8 extra hours of pay each
week); TT 938 (taper averaged around $250 extra per week). As
a result, Diamond likely made thousands (or tens of
thousands) of dollars in fringe-benefit contributions to the
funds that Diamond was not required to make under the CBAs.
additional seven tapers submitted affidavits stating that
they were never shorted hours. D55.
one occasion prior to the beginning of the audit period,
Diamond hired a non-union subcontractor. Stellmach was not
aware that hiring a non-union subcontractor was a breach of
the CBA. TT 651. The auditor discovered Diamond's breach
and informed Stellmach that he could hire only union
subcontractors. TT 651, 486-87, 510. Stellmach did not again
knowingly hire a non-union subcontractor.
2009 and 2010, Diamond subcontracted with Quality Sanders.
Diamond hired Quality Sanders because Stellmach had been told
that it was a union contractor. In fact, Stellmach had been
misinformed, as Quality Sanders was a non- union contractor.
TT 636-37, 651, 486-87; D121.
September 2011, the auditor sent Diamond an invoice for $61,
881.41 in delinquent contributions and $6, 188.14 in
liquidated damages based on Diamond's subcontract with
Quality Sanders. D46 at 6319.
There is no indication that Diamond attempted to conceal its
subcontract with Quality Sanders from the auditor.
Diamond did not dispute its liability or the amount of
damages on the Quality Sanders invoice. D46 at 6321. Instead,
Diamond asked that the amount be waived because it had acted
in good faith. Id.
funds denied Diamond's request for waiver and stated that
their attorneys would be in contact regarding a payment plan.
D46 at 6322. In fact, though, no one ever ...