WALSH v. SCHLECHT

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Argument of Carl R. Neil

Chief Justice Warren E. Burger: We’ll hear at arguments first this morning in 75-906, Walsh v. Schlecht.

Mr. Neil, you may proceed whenever you are ready.

Mr. Carl R. Neil: Mr. Chief Justice and may it please the Court.

This case involves interpretation and application of Section 302 of the Labor Management Relations Act, 1947 as amended, popularly known as Taft-Hartley Act, in the context of payments to trust required by the terms of a subcontractor’s clause in a Collective Bargaining Agreement.

This Court has asked to review a decision of the Supreme Court of Oregon rejecting petitioner’s defense that the subcontractor’s clause conflicts with the requirements of Section 302 (c) (5).

The question on which petitioners sought certiorari, which was briefed, and decided among other questions by the Supreme Court of Oregon, is what are the subcontractor’s clause and requiring a signatory employer to make trust contributions on behalf of or for the benefit of employees of a non-signatory subcontractor violates the 302 (c) (5) requirements.

The trust agreements must benefit only employees of contributing employers.

It is apparently conceded by Respondents in this Court -- I read their brief so to concede him pleasantly, that the subcontractor’s clause less construed that is to require contributions for the benefit over on behalf of subcontractor’s employees would violate Section 302 (c) (5).

Instead, Respondent’s brief as I read it, raised three arguments, which were not made below and which now apparently are the questions to be decided by this Court.

I except this, these are valid -- I don’t read a valid arguments but I think they are validly raised by the Respondents.

His questions are (1) they now seek to have an interpretation of Article IV of the Collective Bargaining Agreement, the subcontractor’s clause different than that made by the Court below as I read the opinion of the Court below.

They say that the clause should be read to merely measure contributions to the trust by the hours of work of the non-signatory subcontractor’s employees and not to require contributions for their benefit or on their behalf.

That is the first argument they make.

The second is that two of trusts, the apprenticeship trust and the vacation trust are 302 (c) (6) trust in purpose and therefore not subsidiary requirements of 302 (c) (5) concerning beneficiaries.

Third, they say that one of the trusts CIAF or Construction Industry Advancement Fund trust is not 302 Trust at all.

Petitioner, we submit, is entitled to prevail on all of these issues as well as on the original issue.

The facts giving rise this is controversy, are these?

Chief Justice Warren E. Burger: Mr. Neil, before you go in, if they are right on the first argument, that’s the end of the whole case.

Mr. Carl R. Neil: I believe that’s right, Your Honor.

Unknown Speaker: Is that a federal question and all the construction of Article IV or is that a matter for the Supreme Court of Oregon.

Mr. Carl R. Neil: No, as I will, if you might advantage argument, it’s a matter of Supreme Court of Oregon but I don’t think it is, I think it is a federal question, I think since Lincoln Mills of Alabama that the construction of Collective Bargaining Agreements in interstate Congress has been a matter of Federal Law.

This Court might well respect the interpretation of the Supreme Court of Oregon, but I do not think it binding on this Court.

The petitioner, Mr. Walsh, is a builder of multiple family housing in Portland.

He formed a limited partnership of which he became the general partner to build and operate a 56 unit apartment project in Salem, Oregon known as Oak Hill.

This project was HUD supported, federally financed and therefore by agreements required by HUD the contractor and his subcontractor’s was required to adhere to the provision of the Davis-Bacon Act, principally requirement of paying prevailing wages including fringe benefits either to workmen on a job or in to trust.

The limited partnership subcontracted, the carpentry framing work to a non-union subcontractor, Lloyd Jackson.

Walsh, of course and it was bound by the terms of a Collective Bargaining Agreement with a carpenters union that had the subcontractor’s clause in it.

In addition to requiring Walsh to pay if he hired his own carpenters, a total of 96 cents per hour into these five trust.

The subcontractor’s clause is quoted at pages 5-6 in our brief and elsewhere in the briefs and it says in general that Walsh has a signatory agreement, shall either hire and retain only union subcontractors or if he fails to do so -- and these are the crucial words, he shall “be liable for payment of these employees, wages, travel and then it goes on the list, contributions to these five trusts”.

During the construction, the carpenters union find out a course that there was a non-union sub on the job and protested that Mr. Walsh who said that he was bound by the terms of the subcontract that he could not discharge the non-union subcontractor.

Mr. Walsh, the record shows, did cooperate in arranging for the non-union sub to meet with the union people and to negotiate as to whether they could be organized.

That was unsuccessful but it is agreed in the record that Mr. Walsh was cooperative in that respect.

Unknown Speaker: How does that effect to the central (Inaudible).

Mr. Carl R. Neil: Well, I am trying to make the point, Your Honor, I guess that my client is not hostile to unions.

He insists on his rights under this clause but I think that his evidence says that he is not unfriendly toward unions.

It is stipulated that the subcontractor paid his man directly, Jackson, a non-union subcontractor, paid his man directly, the 96 cents per hour, amounting fringe benefits, that is an amount equal to the trust contributions which would have been required if a union subcontractor had been employed.

The Oak Hill project was…

Unknown Speaker: Was that part of their original employment?

Was that under their original employment or did that come about after the union raised?

Mr. Carl R. Neil: No, I see your question as a good question.

No, this was paid from the outside; the subcontractor was made aware at the beginning that this was a Davis-Bacon Act job.

There are forms in evidence for his payroll and right on the form it says, are you paying the fringes directly your man, are you paying them to a trust?

He checked directly to his men and it stipulated that he did so.

The Oak Hill project was completed in November of 1971 and year later these suits were brought to seeking payment to the trust by Walsh, of the same amounts that the subcontractor had previously paid into the trust, So, we say in effect a double payment or a second payment of the same benefits or he paid to already Jackson’s men is being required from, I think principal contractor, Walsh.

Unknown Speaker: Mr. Neil, I may have misunderstood what you said, you said double payment to the trust.

Mr. Carl R. Neil: No, we say a double payment has been required in effect by the contractors.

Unknown Speaker: I see! The first payment is to the employee.

Mr. Carl R. Neil: Yeah, the contractor had to pay a fixed price to the sub, Jackson before to work, obviously, from which Jackson paid his men the 96 cents among other things.

So, when Walsh is required to pay this in order to trust that he has already paid the fixed price including the fringes once, now you have to pay them a second.

Unknown Speaker: Can you say that’s a violation of the statute?

Mr. Carl R. Neil: No, I do not think that’s the violation of the statute.

Unknown Speaker: What is the question?

Mr. Carl R. Neil: The violation question is if we construe an Article IV of the subcontractor’s clause correctly to require contributions by Walsh for the benefit of or on behalf of the subcontractor’s employees.

We say this violates Section 302 (c) (5), the requirement that benefits paid out of those trusts under 302, only for the benefit of employees, of the contributing employer or of other contributing employers.

Jackson is not one.

Unknown Speaker: Well, but there are no benefits being paid down to the subs employee.

Mr. Carl R. Neil: That’s true, but three of two deals not only…

Unknown Speaker: Well, they aren’t beneficiaries of the trust.

Mr. Carl R. Neil: So, they how say.

Unknown Speaker: Well, are they legal or not.

Mr. Carl R. Neil: No, I do not think they are not legal beneficiaries.

Unknown Speaker: Well, how has the statute violated?

Mr. Carl R. Neil: The statute is violated because three or two prohibits either paying on agreement to pay.

Unknown Speaker: Well, is there agreement to pay.

Mr. Carl R. Neil: Article IV, we say, is an agreement requiring Walsh to make contributions to the trust for the benefit of and we say we’d follow –- it is an agreement that these men should be pay these benefits.

Strongest case Your Honor, is the vacation trust in that respect.

The testimony in the record is that the vacation trust operates as in and out payment, the employer pays into the trust the money for the vacation pay and that sum is paid to the workmen for whose benefit it is paid plus any earnings, their pro rata share of any earnings on the sum paid into the trust.

Unknown Speaker: Well, but did the employees at the sub get paid out of the vacation trust?

Mr. Carl R. Neil: There is no evidence if they did, Your Honor.

Unknown Speaker: But you contend under the agreement that they will be?

Mr. Carl R. Neil: I contend it under Article IV that that is the intention -- I would conceive that the trust agreements themselves, which you will see on much more carefully drawn documents than the collective bargaining agreement.

Our intended probably to restrict in the beneficiaries to contributing employers with one exception.

It says in Article VIII of the principal agreements that, although the rights of the beneficiaries and everyone else of these trusts are defined or as defined in the trust agreements, their terms are subject to the Collective Bargaining Agreement.

So, it leaves open it seems to me individual Collective Bargaining Agreements to vary the terms of the trust and we contend that’s exactly what happened by Article IV of the subcontractor’s clause.

We think in effect that the union got carried away probably in Article IV and penalizing and I agree that the penalizing employer, in and of itself, is not unlawful, but we think the union probably got carried away in drafting Article IV and in a penally way that they would not cognizant of the requirements of Section 302 (c) (5).

We say that our interpretation of Article IV that is…

Unknown Speaker: Let’s assume an Article IV was perfectly clear that the employer would be required to pay under the trust an amount of money measured by not only his all employees but the subs employees even if the sub was not organized, the union are not 11.12 and let's assume that they expressly say that this is an order to encourage contractors to employee union subcontractors and so it’s perfectly clear the intention was to making pay twice if they use a non-union, is that probably the statute?

Mr. Carl R. Neil: No, but not Your Honor, though your positing agreement of the type of Kreindler, of Budget Dress, of Greenstein all of which was cited by the other side and involved contracts in the garment industry would said exactly that.

Unknown Speaker: The question is of course I suppose whether that kind of a payment is an authorized payment by an employer on behalf of the union.

Mr. Carl R. Neil: Yes, I think it is.

Unknown Speaker: Do you think that employer would authorize that kind of the double payment.

Mr. Carl R. Neil: Well, I know it authorize it but I don’t think it prohibits it.

Unknown Speaker: It is a forbidden one, it is a provision statement on the behalf of the union.

Mr. Carl R. Neil: So, these three cases held and I haven’t challenged those, because the requirement that we are proceeding on, says you may not require payments to a trust for the benefit of people other than employees of contributing employers.

Unknown Speaker: And it is clear from what you have said before that you think the employees, these employees, can never get any benefit.

Mr. Carl R. Neil: It is not true, they can never get any benefit.

If they in the future would become -- well, I won’t say in the future, if they, in the past, had worked for a contributing employer, a signatory employer, they could have qualified as the employee of a contributing employer by past employment for a signatory employer, therefore, contributions made by Walsh here for those employees, even though their present employment is by a non-signatory employer might not be unlawful under 302 (c) (5) and that point is 13.17 on in the brief of Respondents.

However, there is no evidence in this record that these employees ever did work for any signatory employer prior to this.

Respondent say well people in the construction industry move around from employer to employer, from job to job, that’s quite true but it is rare, I submit that people in the construction industry move from union employers to non-union employers and vice versa.

There are either one or the other here in this industry, you're workman in union membership or you're workman for a non-union employer.

I submit it to be very unlikely, you will know the record does not speak to this that these workmen objects and whatever have been employees of the union employer prior this time, it’s conceivable but unlike this.

Unknown Speaker: On the theory of the Section 4 of the contract that this was for the benefit of the employees, do you think the employees could maintain action and equity to impress that money with the constructive trust?

Mr. Carl R. Neil: Possibly, it’s clear that they could not maintain an action against the trust or trust benefits, that’s what Moglia out of the Second Circuit holds that and in the old legal payment to the trust does not create a right of the beneficiary or intended beneficiary to sue the trust for benefits.

So, probably the answer to your question, Mr. Chief Justice, no because these employees in this case already received payment of these benefits.

So, if they were to do that, they would in effect missing a double payment.

The correct procedure I would think is that we’re following which is to setup a defense to the contributions when sued for or possibly, we can sue against the back if we had pay them.

Unknown Speaker: Well, that sued would be under Oregon Law presumably the hypothetical case I suggested, but if the Supreme Court of Oregon had no difficulty assessing in effect determining the double payments where appropriate, is there anything in the law of the equity doctrine of Oregon that would preclude having the employees get double benefit.

Mr. Carl R. Neil: Fairly not because Oregon ruled on a matter of equitable law in this case and rejected our arguments along those lines.

The rationale of the Oregon of Supreme Court’s opinion is that it does not accept the Moglia case, at least as I read it.

It is saying that even though you accept our construction of Article IV, that is that the contributions are required for the benefit of Jackson’s employees, that does not violate 302 (c) (5).

Unknown Speaker: Moglia is very distinguished belong this facts.

Mr. Carl R. Neil: Moglia is not factually in point.

Unknown Speaker: Then the employer didn’t sign the agreement.

Mr. Carl R. Neil: It is the rationale of Moglia, I think that we feel it’s applicable to this case, Your Honor.

Well, in any event, the Oregon Supreme Court seemed to think that the language of Moglia on which we rely, it was not to be followed.

Unknown Speaker: This is multi-employer bargaining unit?

Mr. Carl R. Neil: The bargaining unit is the petitioner is not a member of that multi-employer association.

He has signed a memorandum agreement, which binds him to observe the multi-employer agreement.

Unknown Speaker: Is he the multi-employer agreement otherwise fairly general in the market.

Mr. Carl R. Neil: I don’t understand your question.

Unknown Speaker: Well, is that cover most of the contractors.

Mr. Carl R. Neil: Oh, I see.

Yes, it covers, I would say all of the union contractors in the area, how many non-union contractors?

Unknown Speaker: Because in effect it’s an agreement -- whoever signed the multi-employer agreement and whoever agreed on the side to observe it, the general agreement in effect it will employ only unionized subcontractors?

Mr. Carl R. Neil: Yes.

Unknown Speaker: Or at least, these are going to cost you.

Mr. Carl R. Neil: That’s the way it works.

Unknown Speaker: I must confess, I don’t understand the relevance of Moglia at all because that case, as I remember, just dealt with whether or not the employees can receive benefits in having to do with contribution, did it.

Mr. Carl R. Neil: Well, the rationale of the Court in Moglia says that the laid down principle which we quote in our briefs that one of the reasons they say why the person seeking pension and as I recall it, cannot obtain one is because his or her employer never paid into the trust at all -- or excuse me, did pay into the trust but under without a written agreement.

Therefore, the contributions into the trust were illegal and therefore had to be put to one side and the Court goes on to make statements to the effect that only employees of employers who were lawfully contributing to the trust may obtain benefits.

So, it seems to me the rationale relied on by Moglia is applicable.

Unknown Speaker: Well, that means that the employees of the subcontract in this case could not legally obtain benefits from this trust, that’s what that said.

Mr. Carl R. Neil: I agree, that’s true and I think…

Unknown Speaker: If that’s true, then as a matter of law that seemed to follow that the contributions could not have been for their benefit, it seems to me defeats your position.

Mr. Carl R. Neil: Well, it does not seem to me that way, Your Honor, because 3 or 2 (c) prohibits agreements to make illegal contributions as well as illegal contributions.

It does not just prohibit trusts that violate the statute, it also prohibits any kind of agreement to make an illegal payment or to make requiring an illegal contribution.

Unknown Speaker: But the legality of the payment turns on for whose benefit it is and by the matter of law under Moglia, it cannot be for the benefit of the employees of the sub as I think.

Mr. Carl R. Neil: But the testimony indicates, Your Honor, I submit that that isn’t what the parties thought, but that the people who enforced this agreement on a day-to-day basis thought that these subcontracts employees could benefit and they thought that they were announcing a principle that non-union people aren’t disqualified by that matter of fact from being beneficiaries and that is true.

But I don’t think that that conclusion falls at all because it seems to me that there was every attempt in the Lower Court and the evidence to make these people beneficiaries.

Unknown Speaker: Does the record tell us whether the general ever had any employees for whom if may contribute?

Mr. Carl R. Neil: It does not but I would concede that he has had, at times, employees for which he must make contributions.

He didn’t happen to have it at the time of his job, the subcontractor’s -- and other times he has that.

I would like to reserve rest of my time, Mr. Chief Justice for rebuttal.

Chief Justice Warren E. Burger: Mr. Bailey.

Argument of Paul T. Bailey

Mr. Paul T. Bailey: Mr. Chief Justice and may it please the Court.

We are here representing these trust funds and here as contrasted to reference to unions from time to time because these are jointly administered trusts funds, four of them are and in that respect, they refer to the Health and Welfare and pension, apprenticeship and vacation.

The fifth fund, this Construction Industry Advancement Fund is an employer administered fund, part of the employer trustdeed and, therefore, it should not be used in connection with three or two at all, it is not a Taft-Hartley Fund.

So, referenced to that should not be a referenced to the other funds, which are jointly administered.

These trustees are authorized and directed both by the trust agreement now by Federal Law to enforce the trust agreements before its collections and contributions that are provided for in those trust agreements and that’s what this action was initiated for.

There are really not a great deal of difference contravention of what counsel for petitioner has stated here, particularly, in the view of the law because we do agree that if these trust agreements do permit contributions to be received for the benefit of a non-signatory employers/employees but that would violate the 302 provisions of (c) (5).

Unknown Speaker: Were these payments for the exclusive benefit of employees of such employer?

Mr. Paul T. Bailey: Yes, I say that…

Unknown Speaker: Can you spell that out for me, will you?

Mr. Paul T. Bailey: The contract that is spelled out in the Labor Agreement establishes the trust agreements in each of these instances and that set up in the working agreement.

In the trust agreement themselves, they were very careful in the drafting of it to provide that they do particularly, do precisely what the act and the laws says, they should do.

Article II of, first speaking of the Health and Welfare, which is in plaintiff’s Exhibit IV and recited in our brief, that section provides that the purpose of the Health and Welfare contributions in the funds established there, shall be for the benefit of employees, of the individual employers, and it goes on to say sort of things.

Definition of employee is spelled out in Article I of the agreement.

Article I of each of these agreements provide that the employee, whether union or non-union, is defined of any employee, whether union or non-union, of an individual employer and then he goes forward to say what’s an individual employer by definition.

That set out in Article I, Section 5 of the trust agreement.

There, it provides that the employer – it defines an individual employer, as employer who is required by the Collective Bargaining Agreement to make contributions to the fund.

Now, in the face of that, that’s precisely what we say that the act also requires that the contributions coming in must be used for the benefit of employees of the contributing employer.

If there is testimony in this record, contrary to that or if somebody attempts to do contrary to that.

They also both violate the law; they also violate the trust find.

Unknown Speaker: What do you find the obligation to -- what promise are you enforcing here?

Mr. Paul T. Bailey: Promise?

If I understand your question, Mr. Justice White.

Unknown Speaker: Why you are suing for contributions?

Mr. Paul T. Bailey: Yes, we are suing for contributions.

Unknown Speaker: where do you find the promise to pay?

Mr. Paul T. Bailey: The promise to pay is set forth initially in the working agreement and it is spelled out in the working agreement particularly and that is also contained in plaintiff’s Exhibit IV in this record.

Unknown Speaker: But it is not in the trust agreement.

Mr. Paul T. Bailey: No, it is a separate document.

Unknown Speaker: Does agreement just tells you what to do with the funds 23.18.

Mr. Paul T. Bailey: Right, correct.

Unknown Speaker: And it also requires you to sue for whatever payments that are due to the fund.

Now, so where is the promise?

Mr. Paul T. Bailey: The promise comes from the working agreement and the working agreement...

Unknown Speaker: Collective Bargaining Agreement?

Mr. Paul T. Bailey: Collective Bargaining Agreement, right.

The Collective Bargaining Agreement spells out frankly in the Articles 17, 18, 19, 20 and 21 as for each of the five trusts, precisely that the trusts will be established.

It also spell out that the contributing employer shall pay certain specific sums of money to each of these trusts.

Now, in order to…

Unknown Speaker: Then it require the employer that you are suing here to say (Inaudible) to measured by the number of employees that he has any subcontractors.

Mr. Paul T. Bailey: Well, the employees precisely, it’s on the hours that each of these employees work and if he happens to subcontract the way that those hours to some employer, who is not also a signatory, then the employer, in this case Walsh, the petitioner, is also agreed there that he will contribute in order to maintain the integrity of that fund and he will contribute a sum that would equal, the amount that he would have paid had they been his employees.

Unknown Speaker: And even though, the sum he is paying that his contribution make it by will never benefit.

Mr. Paul T. Bailey: That’s what the law says.

We did not say that, Congress established that so...

Unknown Speaker: Well, I know but that the fact is that you are requiring those payments even though they would not be necessary to maintain the integrity of the fund because the people, those particular employees will never benefit.

Mr. Paul T. Bailey: Well, I would not say that he can never benefit, he could not benefit, we state that they could not benefit from the particular contribution made at that time, as counsel stated, Your Honor, in earlier question from the Court that if these employees are eligible, employers are contributing, employers either before or after this period that would not by working for a non-contributing employer here does not qualify.

Unknown Speaker: But the fact is, you are suing for some fund to go into the trust that can never be -- right now anyway, cannot benefits the employees by whose hours they are measured.

Mr. Paul T. Bailey: Yes, I think that’s correct.

I think we are also in certain instances these trust funds sue employers for moneys that are in excess of as an example, the benefit schedule has established.

Unknown Speaker: So, they are really not for the benefits.

They are really not necessary thing to maintain the integrity of the fund.

Mr. Paul T. Bailey: The actuarial determination of the trust, Mr. Justice Brennan.

Unknown Speaker: Because those are the some people but whose hours measure these contribution just can never benefit.

Mr. Paul T. Bailey: Well, we have pointed out.

Unknown Speaker: Wasn’t that true or not?

Mr. Paul T. Bailey: Well, I don’t say that this is true on the basis that the…

Unknown Speaker: Do you deny it’s true?

Mr. Paul T. Bailey: Well I say, Mr. Justice, that the basis of the actuarial determinations of these funds is premised upon the dollars paid then that goes specifically to benefits.

They also are actuarial determinations on the amount of overfull.

That’s the money that comes in over the amounts necessary to pay for contribution, and some of these people never been had at all.

Unknown Speaker: What you are saying then is this you have to sue to collect on behalf of monies or wages paid to some employees, who can, themselves, never benefit in order to make the fund actuarially assigned sound for those employees who can benefit.

Mr. Paul T. Bailey: That’s correct.

Unknown Speaker: Just a small point, Mr. Bailey with strictly speaking, the trustees brought suit as third party beneficiaries of the labor contract, is that correct?

Mr. Paul T. Bailey: That’s correct and that’s their obligation on both the trust funds he said and also recent.

We are submitting that and argue that the defense raised by petitioner herein unless the defense that he raised initially below, but also he is arguing that the language of Article IV of the trust agreement has to be determined to be on behalf of or for the benefits of these people.

We think that strains it, we think that certainly attempts to modify the trust agreement which in itself provides that the money is coming into the trust shall be used only for the benefit of individual employees who are signed up.

We ask and he has used the phraseology in his briefing, petitioner has, we ask that if a person was going to look for benefits, one of these funds, he must really look to the trust agreements and not to the working agreement, because the working agreement only spells out what monies will go into the trust.

We submit that the trust agreement in and of itself is an agreement that is legal, complies with the statute that there is no record, no evidence and no proof shown by petitioner whose obligation it is to make that showing here that any employee has received benefits in violation of the law or the trust agreement.

Unknown Speaker: Mr. Bailey, do you think that the construction of the trust agreement is a matter of State Law or Federal Law.

Mr. Paul T. Bailey: Well, I would assume that because it is a document drafted in state law, it would be matter of construction of state law unless there is a federal question that could properly operate on it.

Here we think the construction of -- now, that’s where we think we are down to, we are not disagreeing with petitioner on the law of the case and that’s the 302 law, but we do say the construction of that particular paragraph or that particular contract is a matter of state law.

Unknown Speaker: And the Oregon Supreme Court has construed it?

Mr. Paul T. Bailey: Yes, that’s what they say.

A comment that I would make; additional comment if I may--

Unknown Speaker: There would be questions in that if the contract violated Section 302 then it would involve, would you?

Mr. Paul T. Bailey: I would have to agree with that that is that’s the connotation given to it.

We submit that it’s a strained effort that the petitioner is making here to say that Article IV does provide for benefits.

We think…

Unknown Speaker: Are there decisions in this court that say that the construction of collective bargaining agreement in this kind of a lawsuit is a matter of a federal law; Lucas Flower and Dowd Box and some of those?

Mr. Paul T. Bailey: Well, it could well be that there is some aspect of it.

Here we are talking about the construction of this statute.

Unknown Speaker: I would know -- yes, we were talking about the construction of collective bargaining agreement.

It was a question as I understood.

Mr. Paul T. Bailey: Well, more specifically, we are talking about the construction of the trust agreement.

Unknown Speaker: Mr. Bailey, you are doing on a promise within a collective bargaining agreement not a trust fund.

Mr. Paul T. Bailey: That’s correct but the defense that has been raised through our suit on a promise is the defense that these are contributions that would benefit people who are…

Unknown Speaker: The question is whether the CA2, the comment in the collective bargaining agreement is not possible.

Unknown Speaker: Which in-turn turns on whether they are beneficiaries within the meaning of the trust agreement.

Mr. Paul T. Bailey: That’s correct.

Unknown Speaker: So, all of them lead to the construction question is one of the trust instrument rather than a collective bargaining agreement.

Mr. Paul T. Bailey: That’s what we have maintained all the way, that you have to go to the trust agreement to find what benefits--

Unknown Speaker: Here the petitioner’s claim is that they attempted, they agreed to make contribution on behalf of employees of an employer who would not making a contribution.

Mr. Paul T. Bailey: Alright, may I address myself?

Unknown Speaker: That’s his claim.

Mr. Paul T. Bailey: Yes, that’s his claim and that’s what…

Unknown Speaker: That’s what the question about the construing that collective bargaining agreement.

Mr. Paul T. Bailey: I understand that, yes.

But to reach that and to make that convention, petitioner has to – and we think the wrongfully has to act or use the language of 302(c)(6) as encompassing 302(c)(5) of the act.

The act itself spells out that under 302(c)(5) it must for the exclusive benefit of contributing employer’s employees.

When the Congress enacted amendment by 302(c)(6) and added such things as vacation, apprenticeship, things of that nature which are involved here and did spell out in 302(c)(6) that the provisions of 302(5)(b) would likewise be the ones that would apply and that’s the provisions that sets up the trust agreement program.

It did not specifically sort out the requirement that it be for the exclusive benefit of the employees.

Additionally, when counsel in his or when petitioner has referred to that all five funds should be treated the same and using the language of Article IV to say so, he is saying there that the construction industry advancement fund is also one that goes to the benefit of employees.

What we say that that’s a strained interpretation of Article IV to get to that point.

Basically there are no specific benefits to employees at all in the apprenticeship and training; nor are there any benefits that go to anybody in the construction industry advancement fund.

Both of those could not be for the benefit of any of these employees.

Thus, he has to strain the language in order to reach the result that he is urging that the language in Article IV does say what he says, isn’t that this is for the benefit of employees.

Unknown Speaker: If there were no Article IV in that collective bargaining contract, there would not be any case here, was there?

Mr. Paul T. Bailey: That’s great.

Unknown Speaker: Well, then the genesis of everything in this case springs from a collective bargaining agreement.

Mr. Paul T. Bailey: That’s right, we are suing on that and we are saying that in the fact that his defense has to rest on the fact that the benefit payments for employees would benefit employees of a non-contributor and we both agree that that is unlawful at least as far is the 302(c)(5) says.

Unknown Speaker: Neither the general contractor or the subcontractor were in privity with the trust agreement in anyway, were they?

Mr. Paul T. Bailey: They over this way because in the agreement that the general contractor, Walsh, who are the petitioner executed he agreed to adopt the terms of the trust agreement as a part of his agreement.

So, he did adopt that.

Now, the subcontractor was no signatory at all, so he did not.

We state that basically this whole case has drop down to one or what are the words for these employee’s contributions mean.

That’s the language of the Article IV and we think that it does not, we submit that it does not mean what they petitioner has indicated here or urged on this court or in the court below, because we do spell out here that it could not mean that particularly when you get down to apprenticeship and the CIAF funds.

Justice Potter Stewart: Well, do you agree, Mr. Bailey that the Oregon Supreme Court construed and interpreted the meaning in the way suggested by Mr. Neil and nonetheless decided in your favor.

As I understand it now, you are submitting us that if that construction is correct than it’s near legal payment.

Mr. Paul T. Bailey: If that does say that but we say that it does but let go back to answer your question, Mr. Justice Stewart that the Oregon Supreme Court in its opinion spelled out that first of the urging before that Oregon Supreme Court was mostly Moglia and the teachings of Moglia and that of the urging there was that Moglia says that you have to have an agreement in writing before you could have benefits.

The Oregon Supreme Court except for Moglia does not apply here, because Walsh does have an agreement therefore it could not operate.

Then they came on this petition here saying that, well look because these people cannot benefit and there is an indication that they might benefit then it’s in violation Article IV and violation of 302.

We say that the trust agreement, which is the way that you determine how you are going to have benefit, that trust agreement precludes that interpretation.

Justice Potter Stewart: But the Oregon Supreme Court seems to interpret the documents here as well the employees of the sub were beneficiaries of the trust agreement.

Mr. Paul T. Bailey: Well, if you use the words -- well I am not totally in agreement with it because the Oregon...

Justice Potter Stewart: Well, it’s all not that clear and I just wanted...

Mr. Paul T. Bailey: Right, correct.

It’s not that clear because the Oregon Court said that they did not really have to reach that because in the teachings of the Kreindler v. Clarise case and the Budget Dress that an agreement that provided that the contractor signed an agreement to pay for his own employees plus contract employees under certain circumstances was alright because --

Justice Potter Stewart: As you will agree now, as I understand you, can you tell me about, misunderstand you that you would agree that the Oregon Supreme Court did have to reach that and that indeed is the dispositive issue in this case, isn’t it?

Whether or not the employees of the sub were beneficiaries of the trust agreement?

Unknown Speaker: I don’t think the Oregon Supreme Court they actually reach that.

Justice Potter Stewart: But isn’t that the dispositive issue?

Mr. Paul T. Bailey: That is the dispositive issue.

Justice Potter Stewart: You and your brother agree on that as I understand and you agree as to what the law is as I understand.

You differ only as to what the precise situation is in this case, isn’t it that?

Mr. Paul T. Bailey: Right and that there is no showing that there has been anybody that has not been entitled to receive benefits whosoever received it.

Unknown Speaker: My brother Stewart asked you, if the proclaim on the face of this (Inaudible) that the employer and the union actually agreed and intended to have these payment made for the benefit of a nonunion subcontractor, as I have understanding to your answer that that would be a new legal contract.

Mr. Paul T. Bailey: That portion would be -- I would agree with that.

Unknown Speaker: You would assert you will also agree, I take it, but basically you are dealing with a prohibition that is across the border and then there are exceptions to it and I would presume the burden is on he wants to bring himself within an exception.

Mr. Paul T. Bailey: That’s what we say that he has to show that we actually did payout; the trust actually payout some money to somebody to --

Unknown Speaker: No, no, no I think it’s the other one.

Unknown Speaker: The agreement.

What's the construction of the collective bargaining agreement?

If the parties have said it in so many words we -- I have a contractor terms to pay on behalf of and for the benefit of the employees of nonunion subcontractor certain amounts of money.

I think if you agree that would be a new legal term?

Mr. Paul T. Bailey: Yes, you said that right.

Unknown Speaker: Do you conceive that the basic language of 302 is not here.

That it was a payment to a representative of any of his employees.

Mr. Paul T. Bailey: Well, we can see certainly that the trusts are such representatives because they are established as a Taft-Hartley trust, except that, except that —

Unknown Speaker: Then you have to bring in yourself within one of your exception, don’t you?

Mr. Paul T. Bailey: Well, I am saying I wanted to qualify my answer to qualification is that of course the CIAF is not such a Taft-Hartley trust.

Unknown Speaker: It is one out of the five, the industry advancement trust.

Mr. Paul T. Bailey: Now, to bring ourselves within in the exceptions, the exceptions, of course, rather that the trust fund and we are talking about the exceptions of (c)(5) that the trust funds must be such that they do not make contributions or benefits to persons other than the employees of the contributing player.

Unknown Speaker: And traditional statutory constructions as of the burden would be on you to bring yourself within the exemption, is it not?

Mr. Paul T. Bailey: Well, council has never challenged the validity of the trust fund and no time has he done that.

There has never been any challenge to whether these trust funds are unlawful.

Unknown Speaker: Mr. Bailey, may I ask you a question?

Mr. Paul T. Bailey: Yes sir.

Unknown Speaker: First of all, is the entire trust agreement in the record?

Mr. Paul T. Bailey: Each of the trust agreements are in the record, yes.

Unknown Speaker: And is it correct that an employee in order to be entitled to benefits must work a certain number of years or something like that is their periods that must elapsed before his rights vest.

Mr. Paul T. Bailey: That’s on the pension.

Unknown Speaker: On the pension?

Mr. Paul T. Bailey: Right, on the pension he must have 12 credits and that means 12 years of employment to have certain hours per year.

Unknown Speaker: So, with respect to such an employee there might be contributions made for him for five years and then he might decide to get out of carpentry and go into some other industry, he would never be a beneficiary of that trust then.

Mr. Paul T. Bailey: That’s correct.

Unknown Speaker: Is that also true of say the other trust?

Mr. Paul T. Bailey: The health and welfare runs on a shorter period of time and that runs on a quarter saying that you receive the credit of 250 hours in a period of three months.

Unknown Speaker: And such a man could perhaps work 200 hours and contributions be made on account of those 200 hours, but he never get any benefit from that?

Mr. Paul T. Bailey: That’s correct.

Unknown Speaker: Now, is that same principle applicable to all of the trust?

Mr. Paul T. Bailey: The balance of the trust is on the vacation for those who are eligible of it.

The dollars that come in on the vacation are allocable to an individual and they are also added to by earnings of trust and the disposition is made on pro rata base based upon the amount of money that comes in.

Unknown Speaker: But is there immediate investing in the vacation cost as soon as the man works for few hours?

Mr. Paul T. Bailey: If he is an employee.

Unknown Speaker: If he is a covered employee.

Mr. Paul T. Bailey: Right.

It need to be vest.

Now, as you wanted the other two trust you asked about.

On the apprenticeship and training, of course, there is no benefit that applies to an employee because the employee himself is working.

See, he is a contract I mean he is a journeyman and he is on the job, so he is not taking --

Unknown Speaker: So, the beneficiary is somebody entirely different.

Mr. Paul T. Bailey: He is not around and on the construction industry advancement there are no beneficiaries of that except the general public or what you will because it promotes the industry.

Unknown Speaker: Let me ask one other question, I am sure you would not mind.

Assume that there were an employee of the general contractor in the past.

He had been in the union perhaps took a withdrawal card and was not working for the general during the period involved in this lawsuit and but he worked for the sub; the nonunion sub and later he got back into the union.

I take that he would not get credit or vesting for the period he worked for the nonunion employer.

Mr. Paul T. Bailey: Alright, he would not get credit for that period because those funds do not attach themselves to other than employee of a private employer.

Unknown Speaker: I once attended the Oregon, is it Oregon.

Mr. Paul T. Bailey: Yes, I am sorry.

Unknown Speaker: The Oregon Supreme Court describes that contract that in this case the requirement of the written contract was satisfied and that the defendant admit he had a written contract with the union, which requires that he make contributions to his trust funds for his own employee and also specifically provided if he had engaged with some subcontractor, if he do any work covered by the agreement, he would be liable for payments into the various trust funds for the employees subcontractor?

Mr. Paul T. Bailey: Yes, that’s what it says.

Unknown Speaker: Now, is that an interpretation of the contract that they were agreeing to make payments on behalf of and for the benefit of the employees of any subcontracts?

Mr. Paul T. Bailey: I of course, cannot say precisely what the Supreme Court of Oregon had in its mind.

Unknown Speaker: Considered any other way, it sound like that way if there is any other way?

Mr. Paul T. Bailey: Yes, it uses the word for but if it was applicable to the facts.

Unknown Speaker: What is for me?

Mr. Paul T. Bailey: Well, it could be for the hours that these employees work and that’s generally what the reference means because the word for these employees under Article IV could not apply to benefits for those people who we just demonstrated for the apprenticeship and the vacation over the CIAF.

Unknown Speaker: Do you really think that these people knew what they were doing; they were not taking any legal contract?

Mr. Paul T. Bailey: That’s what I was saying is that the intent of the labor agreement was to produce money, produce money to support the trust funds.

The intent and purpose of the trust funds is to say what to do with that money, and that’s what we are saying is that you have to look.

If you are going to get benefits, you have to look to the trust fund for that purpose.

That the only real purpose of the contract, the labor agreement was to supply the money and that was the method in which it was supplied.

I am closing by state that we emphasize that there was despite any testimony otherwise and that any testimony on this record has the contravention of the requirements of the both the law and the trust agreements.

There are no circumstances.

It must comply with the law, and that there is no proof in this record that any individual has received any benefits who was not entitled to them under the law and we think that that was the matter of proof that the petitioner had to make and we say that the decision of the Oregon Supreme Court should differ.

Chief Justice Warren E. Burger: Thank you Mr. Bailey.

Mr. Neil, do you have anything further?

Rebuttal of Carl R. Neil

Mr. Carl R. Neil: I have two or three points, Mr. Chief Justice.

Mr. Justice White extracted the concession from counsel that the payments required under counsel’s theory to case for a nonunion signatory employees are not necessary to the integrity of the trust fund.

That’s an important point I think because our argument is made otherwise in the brief of respondents.

There is no evidence in this record of any actuarial assumptions of any of the trust funds.

Furthermore the tax on pensions and pension planning cited by respondents do not disclose that any such actuarial assumptions are made.

There are a lot of actuarial assumptions made but they are all made on how many covered employees are there, how many hours they are going to work, and this kind of thing.

They do not make the kind of actuarial assumptions that says there is going to be so much penalty contributions or so many contributions they aren’t related to particular employees.

Unknown Speaker: Oh, really that’s not a business of the statute or this court.

Mr. Carl R. Neil: I don’t think so, but the argument….

Unknown Speaker: The actuarial soundness of the trustees.

Mr. Carl R. Neil: I agree, but counsel my points is -- counsel suggest that the actuaries might have assumed that there is going to be a certain level of penalty contributions made into the trust and that may be necessary for the soundness of the trust and I am saying that’s not the case.

Mr. Justice Rehnquist raised the question I think first of whether state law might control trust construction.

The Oregon Supreme Court’s opinion does not directly construe the trust agreement except by implication in its comments on Article IV and if it can be said that will construe the trust agreement, by its comments in Article IV, it construe them in our favor.

In addition to the point made by Mr. Justice White, the Oregon Supreme Court’s opinion, I draw your attention to page 34, the appendix to our brief another portion of the Oregon Supreme Court’s opinion.

In the first full paragraph where they are stating the questions as presented to the Oregon Supreme Court on this issue and they say, defendant’s first contention on cross appeal is that the subcontractor’s clause over the labor agreements violats 29 U.S.C. Section 186, that’s 302 to the extent that it maybe applied to require defendant to make contributions to union trust funds “for the benefit of employees other than his own as pleaded in defendant’s fifth affirmative defense.”

I suggest that’s further evidence that they thought they were deciding the case below on the basis of a construction that Article IV did require that contributions for Jacksons employees.

Unknown Speaker: Did the trial court construe (Inaudible)?

Mr. Carl R. Neil: It is hard to tell Your Honor, this case and this issue in the trial court, we decide on demurrer and the trial Judge rendered no opinion in his decision on the demurrer.

Thank you very much.

Chief Justice Warren E. Burger: Thank you gentleman.

The case is submitted.