N.T. AUDIO VISUAL SUPPLY, INC., OPINION

Defendant-Appellant.

Appeal from the United States District Court

for the Central District of California

Manuel L. Real, District Judge, Presiding

Argued and Submitted

November 1, 1999--Pasadena, California

Filed August 7, 2001

Before: Harry Pregerson, John T. Noonan, and

Diarmuid F. O'Scannlain, Circuit Judges.

Opinion by Judge O'Scannlain;

Dissent by Judge Pregerson

10220 COUNSEL

Lisa F. Rosenthal, Woodland Hills, California; Michael J.

Rand (argued), Encino, California, for the appellant.

Steven Holguin, Satoshi Yanai (argued), Holguin & Garfield,

Los Angeles, California, for the appellee.

_________________________________________________________________

OPINION

O'SCANNLAIN, Circuit Judge:

We must decide, in an action under the Employment

Retirement Income Security Act ("ERISA"), whether trustees

10221

of employee benefit plans produced sufficient evidence of

employer liability on summary judgment to shift the burden

of production.

I

N.T. Audio, a corporation engaged in the business of creat-

ing optical sound negatives, employs approximately eighteen

local union members. N.T. Audio is a party to collective bar-

gaining agreements with the International Alliance of Theatri-

cal State Employees and Motion Picture Operators ("IATSE")

and the Alliance of Motion Picture and Television Producers

("AMPTP"). Pursuant to these agreements, N.T. Audio was

obligated to make contributions on behalf of its employees

who were performing work covered under those agreements

to two pension and employee benefits plans: (1) the Motion

Picture Industry Health Plan and (2) the Motion Picture

Industry Pension Plan (collectively, the "Plans"). The collec-

tive bargaining agreements also called for N.T. Audio to

report to the Plans every hour worked by or guaranteed to

their employees covered by those agreements.

The employer-union collective bargaining agreements pro-

vided remedies of liquidated damages and interest in the event

of N.T. Audio's default in payment. Furthermore, trustees of

the Plans were authorized to audit the employment and pay-

roll records of N.T. Audio to ensure that it complied with its

contribution responsibilities.

In due course, trustees of the Plans initiated an audit of

N.T. Audio's records, covering the period from January 1,

1989 through March 20, 1993. At the conclusion of the audit,

in December 1995, they informed N.T. Audio that it owed the

Plans approximately $32,000. N.T. Audio objected to the

auditors' findings in a letter dated January 23, 1996.

On May 13, 1997, the Plans filed suit in the Central District

of California under ERISA provisions 29 U.S.C. §§1132 and

1145, alleging that N.T. Audio had failed to pay the delin-

quent contributions identified in the audit. The Plans filed a

motion for summary judgment on December 15, 1997, to

which they attached a declaration of their chief auditor, Teri

Goldstein, reciting that N.T. Audio had failed to keep ade-

quate records and that the Plans' auditors had raised serious

questions as to whether N.T. Audio employees had performed

covered work for which contributions were not paid. Gold-

stein stated by declaration that "often, the absence of detailed

records made it impossible to determine the precise number

of hours or type of work performed by [the employees]."

N.T. Audio filed its opposition to the motion for summary

judgment on December 23, 1997, responding that the Plans'

motion should fail because "they have not identified what

work these individuals have done." On February 23, 1998, the

district court entered judgment in favor of the Plans. N.T.

Audio timely filed this appeal. 1

II

Both sides agree that the controlling case on appeal is Brick

Masons Pension Trust v. Industrial Fence & Supply, Inc., 839

_________________________________________________________________

1 Before we were able to consider the merits of this appeal, we had to

deal with the jurisdictional bar presented by Local 159 v. Nor-Cal Plumb-

ing, Inc., 185 F.3d 978, 981-84 (9th Cir. 1999) (holding that, because an

ERISA plan is not a "participant, beneficiary,[or] fiduciary," subject mat-

ter jurisdiction did not exist under § 502(e) of ERISA over a suit brought

by such a plan). Subsequent to oral argument, on April 10, 2000, we

ordered the Plans to show cause why this appeal should not be dismissed

for their failure to join their fiduciaries as necessary parties to this suit. In

due course, on August 30, 2000, we granted the Plans' motion to join two

members of their Board of Directors, Managing Director Hank Lachmund

and Director Bruce C. Doering (collectively, the"Trustees"), as fiduciary

plaintiffs in this suit. Once fiduciaries of the Plans were joined, jurisdic-

tion was established pursuant to § 502(e) of ERISA, which grants exclu-

sive jurisdiction to the district courts to hear"civil actions under this

subchapter brought . . . by a participant, beneficiary, [or] fiduciary . . . ."

29 U.S.C. § 1132(e)(1).

10223

F.2d 1333 (9th Cir. 1988). Brick Masons establishes that a

trustee in an ERISA contribution case can make a showing

that will shift the burden to the employer to come forward

with evidence of the precise amount of covered work per-

formed by its employees. Id. at 1337-40. The dispute between

the Trustees and N.T. Audio is focused primarily on the quan-

tum of the showing that the Trustees must make in order to

effect such a shift in the burden of production.

In Brick Masons, union fringe benefit funds brought an

action against an employer to recover contributions for certain

masons employed by one of the employer's nonunion sub-

sidiaries, who performed covered work for that same employ-

er's unionized subsidiary. Brick Masons, 839 F.3d at 1336-

37. There, the district court expressly found that while there

was evidence that some covered work had been performed by

the nonunion masons, there was no evidence of the extent of

that work. Id. The district court concluded, therefore, that any

damage award would be too speculative. Id.

On appeal, we reversed the district court and held that

29 U.S.C. § 1059(a)(1) of ERISA imposes a duty on employ-

ers to maintain records of the number of hours worked by

employees. Id. at 1338. Consequently, we held that "once the

trustees produce evidence raising genuine questions about the

accuracy of the employer's records and the number of hours

worked by the employees, the burden shifts to the employer

to come forward with evidence of the precise amount of work

performed." Id. at 1338. That is, "once the Trust Funds

proved the fact of damage" and the employer's"failure to

keep adequate records," the burden shifted to the employer to

come forward with evidence of the "extent of the[damage]."

Id. at 1338-39. The "fact of damage [was] certain" in Brick

Masons because "[i]t was undisputed that the Trust Funds

received no contributions for work performed by [35 masons]

even though they did some covered work during the relevant

time period." Id. at 1338 (emphasis added). The only uncer-

tainty was "in the amount of damages arising from the statu-

tory violation by the employer." Id. at 1338 (quoting

Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 688

(1946)). It was on this question that "the burden shifted to [the

employer] to come forward with evidence of the extend of the

covered work performed . . . ." Id. at 1338-39.

Thus, under Brick Masons, once the Trustees show 1)

that N.T. Audio failed to keep adequate records, and 2) that

there exist some employees who (a) performed covered work

that was (b) unreported to the trust funds, then the burden

shifts to the N.T. Audio to show the extent of the unreported

covered work for those employees. 2

There is little doubt that the Trustees met their first

_________________________________________________________________

2 The dissent complains that this formulation "raises the standard of

proof required of the Plan Trustee." Dissent at 10230. It argues that while

under Brick Masons "the Plan Trustee is merely required to `raise genuine

questions' about the accuracy of the employer's records and the number

of hours worked," our "formulation requires the Plan Trustee to `show'

that he satisfied the elements of his burden." The dissent concludes (with-

out explanation) that this increases the burden on the Plan Trustee because

"it is more difficult to `show' that something exists, than it is to `raise a

genuine question' whether something exists."

Whatever the merits of the dissent's contentions, Brick Masons itself

demonstrates that this formulation is not a change at all. In Brick Masons,

we explicitly held that the burden shifted when the trustees "proved" the

facts of damage and the employer's failure to keep adequate records. Id.

at 1338-39 (emphasis added). We also observed that"produc[ing] evi-

dence raising genuine questions about the accuracy of the employer's

records and the number of hours worked by the employees" would suffice

to shift the burden. Id. at 1338 (emphasis added). These two statements are

entirely consistent; indeed, evidence that "proves" the fact of damage and

the employer's failure to keep adequate records necessarily "raises genu-

ine questions" about the accuracy of the employer's records and the num-

ber of hours worked by employees. That we today describe the trustees'

duty as requiring them to "show" the facts of damage and the employer's

failure to keep adequate records is therefore entirely consistent with our

precedent. See BLACK'S LAW DICTIONARY 1385 (7th ed. 1999)

(defining "show" as "[t]o make (facts, etc.) apparent or clear by evidence;

to prove") (emphasis added).

10225

threshold burden, proving that N.T. Audio failed to keep ade-

quate records. The Plans submitted in support of their motion

for summary judgment declarations of the auditors who exam-

ined those records. Both auditors testified that N.T. Audio's

records were insufficiently clear to determine precisely how

many hours of covered work were performed by N.T. Audio's

employees. Specifically, the Plans' senior auditor, Teri Gold-

stein, declared that she examined the available payroll

records, timecards, and W-2s of all employees who had hours

reported to the Plans during the audit period, and found some

of them were compensated for more hours of work than had

been reported. Goldstein further noted that while the docu-

ments occasionally revealed the nature of the services for

which employees were being paid, they more frequently

failed to identify the type of work performed. A second audi-

tor, Steven Smith, confirmed these declarations, stating that

he found N.T. Audio's records to be insufficiently detailed to

allow him to identify the type of work performed. The affir-

mative declarations of the Plans' auditors are sufficient to

meet the Trustees' first threshold burden.

Moreover, N.T. Audio effectively admitted the inadequacy

of its own records when, in responding to a discovery request

for all documents identifying the duties of employees, it

responded that it "[did] not have such documents." If the

records did, in fact, exist, N.T. Audio could simply have pro-

duced them, thereby refuting the Trustees' threshold showing.

But it did not. This admission can "constitute a basis for sum-

mary judgment." In re Pacific Express, Inc. , 780 F.2d 1482,

1489 (9th Cir. 1986).

The Trustees did not, however, produce evidence meet-

ing their other threshold burdens, proving that there existed

some employees who (a) performed covered work that was

(b) unreported to the Plans. Although the Trustees produced

evidence to establish that N.T. Audio failed to report some of

the hours worked by its employees, it did not produce evi-

10226

dence establishing that those unreported hours corresponded

to covered work.

In previous cases, employee benefit plans have made the

requisite showing that some of the unreported hours corre-

sponded to covered work by submitting testimony by employ-

ees who performed the unreported work. E.g., Brick Masons,

839 F.3d at 1340; Combs v. King, 764 F.2d 818, 820 (11th

Cir. 1985). In this case, the Plans did not submit any

employee testimony along with their motion for summary

judgment, and, instead, offered only the testimony of their

auditors. A close reading of this testimony, however, reveals

that the Plans' auditors failed to show that any of the unre-

ported hours corresponded to covered work.

There were two categories of unreported hours identified

by the auditors. The first category was based on discrepancies

between "payroll records, timecards, and W-2s " and the data

reported by N.T. Audio to the Plans. Rather than establish that

any of these discrepancies corresponded to covered work,

however, the auditors appeared to presume without any basis

that all of these hours were for covered work, concluding:

"Since no documents were made available to explain the dis-

crepancy, these additional hours for which pay was received

were classified as underreported [covered] hours."

The second category was based on cash payments to

employees unreported to the Plans. Again, rather than estab-

lish that any of these payments corresponded to covered work,

the auditors appeared to presume without any basis that all of

these hours were for covered work, concluding: "[I]n the

absence of such documentation, payments made to individuals

who were known participants in the Plans were presumed to

be for covered work."

Although it is true that each employee in question had

performed some covered work for N.T. Audio, the auditors

did not establish that any of the unreported hours corre-

sponded to this covered work. As a result, the Trustees cannot

prove "the fact of damage" that some of the unreported hours

corresponded to covered work, and have, therefore, failed to

meet their threshold burdens. 3 Thus, it was inappropriate for

the district court to grant summary judgment in favor of the

Plans.

III

For the foregoing reasons, the district court's grant of sum-

mary judgment to the Plans, through, now, their Trustees, is

_________________________________________________________________

3 Despite the Trustees' failure to meet their threshold burdens, the dis-

sent would nonetheless affirm because, in its view,"it is reasonable to

infer . . . that the work performed by the employees was work covered by

the collective bargaining agreement" (even though no proof of this was

offered) because the Trustees demonstrated that (1)"the employees had a

history of performing covered work for the defendant-employer," and (2)

"some work performed by these employees was unreported to the plans."

Dissent at 10231. The dissent, however, misapprehends the use of a

burden-shifting approach in ERISA actions of this kind.

Burden-shifting alters the normal procedure -- i.e., that a plaintiff must

plead and prove its damages -- and instead forces a defendant to disprove

a plaintiff's claimed but unproven damages. This alteration is appropriate

only where the fact of damage is itself certain, but the amount is uncertain

because of an employer's substandard bookkeeping practices. See Brick

Masons, 839 F.2d at 1338 (quoting Anderson v. Mt. Clemens Pottery Co.,

328 U.S. 680, 688 (1946)). In such cases, the normal rule is eschewed in

favor of burden-shifting because "it would be a perversion of fundamental

principles of justice to deny all relief to the injured person, and thereby

relieve the wrongdoer from making any amend for his acts." Id.

In contrast, the dissent's approach would allow trustees to sue an

employer that keeps shoddy records -- and, if the employer cannot dis-

prove the trustees' alleged but unproven damages, to obtain a recovery --

without proving that the employer's substandard bookkeeping caused the

trustees any damage. Such a broad expansion of Brick Masons is not sup-

ported by the policy behind the use of burden-shifting in ERISA cases,

and indeed, might raise constitutional concerns. See Friends of the Earth,

Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180 (2000)

(explaining that to satisfy the standing requirements of Article III, a plain-

tiff must show, inter alia, that it has suffered "an `injury in fact' that is

. . . concrete and particularized and . . . not conjectural or hypothetical").

10228

REVERSED and REMANDED.

_________________________________________________________________

PREGERSON, Circuit Judge, dissenting:

The majority today fashions a rule that imposes a difficult

burden of production on the Plan Trustees and rewards

employers who blatantly violate the record keeping duties

imposed by ERISA. I respectfully dissent.

I.

The majority decision erodes the Brick Masons standard for

shifting the burden of production in an ERISA contribution

case where the employer has failed to keep adequate records,

as required by ERISA. In Brick Masons Pension Trust v.

Indus. Fence & Supply, Inc., 839 F.2d 1333 (9th Cir. 1988),

our circuit followed the Eleventh Circuit and adopted for

ERISA cases the burden-shifting scheme established by the

Supreme Court in the context of Fair Labor Standards Act

cases. Under this scheme, "once the trustees produce evidence

raising genuine questions about the accuracy of the employ-

er's records and the number of hours worked by the employ-

ees, the burden shifts to the employer to come forward with

evidence of the precise amount of work performed. " Brick

Masons, 839 F.2d at 1338 (citing Combs v. King, 764 F.2d

818, 822-27 (11th Cir. 1985)).

In Brick Masons, we adopted this burden shifting rule

based on the legislative history of ERISA and public policy

considerations. "Both the language and the legislative history

of ERISA clearly require employers to keep records of their

employees hours in order to permit the calculation of benefits

due." Id. at 1338 (emphasis added). We stressed in Brick

Masons the importance of the record keeping requirements of

ERISA when we stated that the "records employers are

required to keep by . . . ERISA may be the only evidence

10229

available to employees to prove that their employers have

failed to compensate them in accordance with the statute." Id.

Finally, we determined that the burden-shifting scheme was

necessary to ensure that employers did not benefit from their

failure to maintain records. "An employer cannot escape lia-

bility for his failure to pay his employees the wages and bene-

fits due to them under the law by hiding behind his failure to

keep records as statutorily required." Id.

Under our holding in Brick Masons, a Plan Trustee meets

the burden of production in an ERISA contribution case by

producing evidence that: (1) raises genuine questions about

the accuracy of the employer's records; and (2) raises genuine

questions about the number of hours worked by the employ-

ees. Id. at 1337-38. In Brick Masons, we did not specifically

address the question of who bears the burden of proving that

the unreported work was covered by the collective bargaining

agreement.

Faced with this question, the majority reformulates the

Brick Masons burden shifting scheme. The majority's new

formulation requires the Plan Trustee to "show that (1) the

[defendant employer] failed to keep adequate records, and (2)

that there exist some employees who (a) performed covered

work that was (b) unreported to the trust funds. " Maj. Op. at

10225. The majority's new formulation increases the burden

on the Plan Trustee by requiring the Plan Trustee to show that

the unreported work is covered by the collective bargaining

agreement. This added requirement contravenes the policy

concerns on which we based our decision in Brick Masons.

Additionally, the majority's new formulation raises the stan-

dard of proof required of the Plan Trustee. Under Brick

Masons the Plan Trustee is merely required to"raise genuine

questions" about the accuracy of the employers records and

the number of hours worked. The majority's new formulation

requires the Plan Trustee to "show" that he satisfied the ele-

ments of his burden. The new formulation increases the bur-

den on the Plan Trustee because it is more difficult to "show"

that something exists, than it is to "raise a genuine question"

whether something exists.

The facts of this case illustrate the difference between the

Brick Masons standard and the majority's new formulation. In

this case, the Plan Trustees introduced evidence of an audit

showing that the defendant employer, N.T. Audio, maintained

incomplete records about the number of hours worked, and

the work performed by its employees. As noted by the major-

ity, N.T. Audio conceded the inadequacies of its records in its

answers to interrogatories. Maj. Op. at 10226. The Plan Trust-

ees also introduced evidence that N.T. Audio failed to report

to the Plans work performed by employees who had previ-

ously performed covered work for N.T. Audio. Maj. Op. at

10226-27.

Under the majority's new formulation, the burden would

not shift to the defendant, N.T. Audio, because the Plan Trust-

ees did not show that the unreported hours were for work cov-

ered by the collective bargaining agreement. But under the

Brick Masons standard, the Trustees would have satisfied

their burden. In order to shift the burden of production to the

employer under Brick Masons, the Trustees simply needed to

raise genuine questions about the number of hours worked by

the employees. As the majority concedes, the Trustees dem-

onstrated that the employees had a history of performing cov-

ered work for the defendant-employer. And, as the majority

further concedes, the Trustees demonstrated that some work

performed by these employees was unreported to the Plans. It

is reasonable to infer from these facts that the work performed

by the employees was work covered by the collective bargain-

ing agreement. Thus I would affirm the district court's deter-

mination that the Trustees raised genuine questions about the

number of covered hours worked by the employees. See

Comb s, 764 F.2d at 827 ("The trustees met their burden when

they produced affidavits of two of Mrs. King's employees and

of the certified public accountant. These affidavits raised gen-

uine questions about the accuracy of Mrs. King's records and

the number of hours worked by her employees.") (emphasis

added).

The majority's new formulation of the Plan Trustees' bur-

den runs contrary to the policies identified in Brick Masons.

The employer's records may be the only reliable evidence the

Trustees can use to establish liability for contributions to the

Plans. Under the majority's formulation, an employer stands

to benefit from its failure to keep records as required by

ERISA. See 29 U.S.C. § 1059(a)(1) ("every employer shall

. . . maintain records with respect to each of his employees

sufficient to determine the benefits due or which may become

due to such employees"); Central States Pension Fund v.

Cent. Transport, Inc., 472 U.S. 559, 573 (1985); ("[ERISA,

29 U.S.C. § 1059] requir[es] employers to maintain records

on employees and to furnish to benefit plans the information

needed for the plans' fulfillment of their reporting duties.").

The majority suggests that the Plan Trustees in this case could

attach affidavits from the employees to establish that the unre-

ported work was covered by the collective bargaining agree-

ment. This assumes that employees will be able to remember

in detail the number of the hours and type of work performed

in the past. 1 If this assumption proves false, the Plan Trustees

would not meet their burden under the majority's formulation,

and the case would end without recourse.

In contrast, under Brick Masons, once the Plan Trustees

meet their burden to raise genuine issues, the burden shifts to

the employer to prove that the unreported hours were for cov-

ered work. The employer could meet its burden in various

ways. Of course, if the employer maintained accurate and reli-

able records documenting the number of hours and the type

of work performed by each employee as required by ERISA,

such records should suffice to end the litigation. See 29

U.S.C. § 1059. If, as is true in this case, the employer fails to

_________________________________________________________________

1 This burden also assumes that employees will be willing to testify

against their employers.

abide by its statutory duty to maintain these records, the

employer may still introduce other forms of evidence to meet

its burden.

Michigan Laborers' Health Care Fund v. Grimaldi Con-

crete, Inc., 30 F.3d 692 (6th Cir. 1994) is the only circuit

opinion to consider the question of who has the burden of pro-

ducing evidence that work performed was work covered

under the collective bargaining agreement. In Grimaldi Con-

crete, relying upon Brick Masons, the Sixth Circuit held that

"an employer's failure to maintain adequate records shifts the

burden to the employer to prove that the work performed was

covered or not covered." Id. at 696. The employer in Grimaldi

Concrete failed to keep records showing "which laborers per-

formed covered work, or how many hours were spent per-

forming covered work." Id. at 694. Because of this record

deficiency, the trust fund "auditors were unable to determine

the amount of work for which contributions were due. " Id.

The Sixth Circuit found that the employer's failure to main-

tain records shifted the burden to the employer"to prove what

work was covered and what was not covered." Id. at 696.

In short, I would adhere to the burden shifting standard

articulated by Brick Masons, and hold that a Plan Trustee sat-

isfies its burden of production by showing that the employer

kept inadequate records and by raising genuine questions as

to whether employees have performed covered work for

which contributions were not paid. Applying this standard to

the instant case, I would find that the Plan Trustees satisfied

their threshold burden and affirm the district court.