Rights of Union Benefit Trusts Against General Contractors' Payment Bonds and Retainage on Washington Public Projects and to Assert Mechanics' Lien Claims

There continues to be a split between Washington courts and federal courts as to whether Union Benefit Trusts are entitled to claim against a general contractor’s payment bond and retainage on a Washington public works project or entitled to file a mechanics’ lien on a private project. Union Benefit Trusts provide benefits to union workers. If the Union Benefit Trusts do not receive payment for the benefits of workers on a particular project, the Union Benefit Trusts seek to recover the contribution from nonpaying contractors and subcontractors, including claiming against the general contractor’s payment bond or retention on a public project or filing a lien on a private project. The Washington Supreme Court in Brotherhood of Electrical Workers, Local Union No. 46 v. Trigg Electric Construction Co., 142 Wn.2d 431, 13 P.3d 622 (2000), however, held that the Employee Retirement Income Security Act (“ERISA”) (federal law) preempted state lien (RCW 60.04) and bond (RCW 39.08) statutes, thus, precluding the Union Benefit Trusts from bringing claims against a general contractor’s payment bond and retention. The decision was decided narrowly, only 5 to 4, and the Washington Supreme Court has not revisited the issue since it issued this opinion in 2000.

Federal courts, on the other hand, have allowed Union Benefit Trusts to bring such claims against a general contractor’s payment bond and retention on a Washington public works project. In Ironworkers District Council of the Pacific Northwest v. Jordan Sollit Corp., 2002 WL 31545972 (W.D. Wash.), the Washington federal district court held that the Union Benefit Trust’s bond claim was not pre-empted by ERISA under Federal law, and denied the defendants’motion to dismiss the bond claim, despite the Washington’s Supreme Courts’ decision in Trigg Electric. The federal district court only had jurisdiction over the state bond claim because of diversity jurisdiction (the plaintiff and defendant resided in different states and the amount in controversy exceeded $75,000). Generally, in a diversity jurisdiction case, the federal court will apply state law yet, the court in Jordan Sollit applied federal law because it stated that the issue was federal preemption, not a state bond claim issue. Similarly, in Cement Masons & Plasterers Health & Welfare Trust v. GBC Northwest LLC, 2007 WL 1306545 (W.D. Wash.), the district court entered an order establishing its jurisdiction over a state lien foreclosure action brought by a Union Benefit Trust.  The court held that there was supplemental jurisdiction over such a claim in the ERISA action, because the claim arose “under the exact same set of facts surrounding the employer’s failure to make required payments to the Union’s Trust actionable under ERISA.”

In sum, if the Union Trusts Benefit forecloses its bond or lien action in state court, the action should get dismissed under the Washington Supreme Court’s decision in Trigg Electric. But if the Union Trusts Benefit forecloses its claim in federal court under diversity jurisdiction, the federal court will likely not dismiss the action and the Union Benefit Trust can proceed under both ERISA and the state bond or lien statutes. The lesson for general contractors is to monitor their subcontractors, to ensure they are making their required payments to the subcontractor employees’ Union Benefit Trusts, to avoid potential liability to the Union Benefit Trusts in either state or federal court.

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