Court of Appeals rules that employee trust funds cannot recover against payment bond and retainage

In an unpublished opinion, the Division II Court of Appeals ruled this month that union managed employee benefit trust funds could not recover against a general contractor’s payment bond and against an owner’s retained percentage for unpaid trust fund contributions. In Leo Finnegan Construction Company v. Northwest Plumbing and Pipefitting Industry, a number of union managed employee benefit trust funds (“Trusts”) filed lien notices against the general contractor’s, Finnegan, performance bond and retainage held by the City of Tacoma on the Tacoma Police Department project. Finnegan had subcontracted with Chapman Mechanical. Chapman was required under a collective bargaining agreement between it and the Plumbers and Pipefitters Local 26 to pay monthly employee benefit contributions to the Trusts. Chapman failed to pay the required contributions and the Trusts recorded liens against the payment bond and retainage.

The Court of Appeals ruled that the Trusts’ liens against the bond and retainage were improper. The Court of Appeals was bound by the Washington State Supreme Court’s decision in I.B. E.W., Local No. 46 v. Trig Electric Construction Company, 142 Wn.2d 431, 13 P.3d 622 (2000), which held that trust funds, such as those in the Leo Finnegan case, that were created under federal law and governed by the Employee Retirement Income Security Act (ERISA), were governed by federal law that preempted the Trusts’ right to recover against the payment bond and retention under Washington state law.

The case demonstrates that until the Trig Electric case is overruled by the Washington Supreme Court, lower Washington courts will hold that trust fund liens against the payment bond and retainage are invalid.

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