                              No. 79-78
                IN THE SUPREME COURT OF THE STATE OF MONTANA

                                 1980


SLETTEN CONSTRUCTION COMPANY,
A CORPORATION,

                          Defendant and Appellant,


AUDIT SERVICES, INC., A Montana Corporation,
                         A ! &LVL&k) P A P + ~ U ~ / ~
                          ?,      4 ,i
                                     ci



Appeal from:   District Court of the Eighth Judicial District,
               In and for the County of Cascade.
               Honorable John McCarvel, Judge presiding.
Counsel of Record:
    For Appellant:
         Jardine, Stephenson, Blewett and Weaver, Great Falls,
          Montana
         Alexander Blewett I11 argued, Great Falls, Montana
    For Respondent:
         Cure and Borer, Great Falls, Montana
         Max -argued,       Great Falls, Montana
            DL@&

                                Submitted:   September 11, 1980
                                 Decided:    OCT 2 7 59@
Filed:   &I 8 7 19jd
Mr. Justice Gene B. Daly delivered the Opinion of the Court.
       This is an appeal from a judgment of the District Court
of the Eighth Judicial District of the State of Montana, in
and    for    the     County     of       Cascade,    the   Honorable      John   M.
McCarvel presiding.            Audit Services, Inc. (Audit Services) ,
the assignee of the trustees of several Laborers, Operating
Engineers and Teamster                trust funds, filed a complaint
against Sletten Construction Co.                     (Sletten), attempting to
recover fringe benefit contributions for hours worked                             by
employees of Swartz Brothers Excavating, Inc. (Swartz), a
subcontractor of Sletten on fifteen different projects, from
the period of January 1 , 1977, through September 18, 1977.
Audit Services is also attempting to recover audit fees,
liquidated damages, interest and attorney fees.
       During the subject period of this litigation, Sletten
was a party to and bound by several collective bargaining
and trust agreements with numerous contractors1 associations
and    unions.          All    fifteen Sletten-Swartz           projects were
covered      by   one    of    the    collective        bargaining    agreements
(CBAs)  .    By the terms of the CBAs, Sletten agreed to make
fringe benefit contributions to the unions1 trust funds.
Each    of   these      agreements         also contain a subcontractors1
clause.      Although the wording of the clauses vary slightly,
their purposes are the same.                     The clauses state that the
employer      (Sletten) agrees             that   the    contractors       to   whom
subcontracts are let shall be required to comply with all
the requirements, conditions and intents of the CBAs and
shall     continue       to do        so throughout all parts of the
subcontract work.             Any violation of the agreement would
constitute        a     breach       of    the    agreement.         One    clause
specifically             allows     that       controversies          over    the
interpretation of the agreement be subject to a grievance
arbitration procedure.
        The Swartz business first came into existence in the
early     1970's       when    Robert      Swartz    began     operating       an
excavating business known as Robert Swartz Excavating, a
sole     proprietorship.             Subsequently,        Robert's      brother
Clarence joined the business, and the name was changed to
Swartz Brothers Excavating, which was a partnership.                           In
1975, the brothers incorporated their business which became
known as Swartz Brothers Excavating, Inc.                       During these
entity changes, the business carried on the same type of
work.     In its capacity as a sole proprietorship, partnership
and corporation, the excavating business executed a series
of compliance agreements with the Laborers, Operating
Engineers and Teamster unions.                 The agreements incorporated
the terms of the existing CBAs negotiated by those unions
with the aforementioned contractors' a.ssociations of which
Sletten     is a member.             The compliance agreements also
incorporated the terms of the Montana Laborers, Operating
Engineers,       and     Teamster    trust     funds.     A    number    of   the
compliance         agreements        were      executed       prior     to    the
incorporation of Swartz Brothers Excavating, Inc.
        While    performing       work   for    Sletten, Swartz Brothers
Excavating, Inc.,             observed all current CBAs by making
required        fringe    benefit    contributions      on    behalf     of   its
Laborers, Operating Engineers and Teamster employees until
mid-1977, the subject period of this litigation.                        At that
time Swartz stopped making payments because it was having
cash-flow problems.               Eventually all operations by Swartz
ceased,          and a p e t i t i o n f o r b a n k r u p t c y was f i l e d i n O c t o b e r

1977.

        A u d i t S e r v i c e s , u n d e r two t h e o r i e s o f l i a b i l i t y ,      filed

suit     against S l e t t e n seeking the contributions                             S w a r t z had

failed       t o make.           Under        the     first    theory,         Audit     Services

alleged          Sletten       breached         its       obligation        under      the    CBAs.

Under t h e s e c o n d t h e o r y , A u d i t S e r v i c e s a l l e g e d S l e t t e n was

o b l i g a t e d t o p a y c o n t r i b u t i o n s u n d e r s e c t i o n 39-3-706,         MCA.

Basing       i t s d e c i s i o n on b o t h         theories,          the District         Court

g r a n t e d j u d g m e n t i n f a v o r o f A u d i t S e r v i c e s i n t h e amount o f

$9,578.89            as fringe benefit                 contributions             for    Swartz's

employees,             $426.19         as    liquidated         damages,           interest        of

$27.64,           audit      fees      of     $548.71,         and        attorney       fees      of

$2,925.00.            S l e t t e n appeals.

        The i s s u e p r e s e n t e d on a p p e a l i s w h e t h e r t h e D i s t r i c t

Court e r r e d i n finding t h a t t h e subcontractors'                              clauses in

t h e c o l l e c t i v e bargaining agreements c o n t r a c t u a l l y o b l i g a t e d

S l e t t e n C o n s t r u c t i o n Co. t o p a y f r i n g e b e n e f i t c o n t r i b u t i o n s

t o Audit Services, Inc.,                    f o r h o u r s worked by S w a r t z B r o t h e r s

Excavating,            Inc.,     a   subcontractor            of    S l e t t e n Construction

Co.

        Sletten           contends           that      there         is     no     contractual

obligation            under      the        CBAs      because        the       subcontractors'

c l a u s e s a r e u n e n f o r c e a b l e and v o i d i n a c c o r d a n c e w i t h T i t l e

29,     U.S.C.A.          §158(e).            It     argues        that    the     clauses,         in

e f f e c t , p r o v i d e t h a t S l e t t e n a g r e e s n o t t o s u b c o n t r a c t any

work      to       any    contractor           who     is     not    a     union       contractor

employing           union      employees           and,     thus,        are     prohibited        by

S158 ( e )   .
        Respondent a r g u e s t h a t                the subcontractors'                 clauses
merely     require     Sletten      to   apply          the    same    terms    and
conditions in its own union-signatory clauses; they are all
union-standards clauses and, therefore, fall outside the
scope of 29 U.S.C.       S158(e).
        Federal, rather than state, law principles of contract
construction apply           in determining             the meaning          of the
subcontractors'         clause since          it    is a provision             of    a
collective bargaining agreement.                    Application of federal
law is necessary to avoid the "possibility that individual
contract terms might have different meanings under state and
federal law."        Walsh v. Schlecht (1977), 429 U.S.                      401, 97
S.Ct. 679, 50 L.Ed.2d        641.
     The pivotal         issue is whether               the     subcontractors'
clauses are union-signatory or union-standards clauses.                             We
agree with Judge Skelly Wright who held in Truck Drivers
Union Local No. 413, etc. v. NLRB (D.C. Cir. 1964), 334 F.2d
539, cert.         denied, 118 U.S.App.D.C.                   149, that      union-
signatory clauses are secondary and, therefore, within the
scope    of   29    U.S.C.    S158(e)    of    the       NLRA,       while    union-
standards     clauses        are   primary         as   to     the    contracting
employer.      The subject subcontractors' clause would be a
union-signatory clause if it required subcontractors to have
collective bargaining agreements with petitioner unions or
their affiliates or with unions generally.
     We interpret the clause, however, as merely requiring
that subcontractors observe the equivalent of union wages,
hours, and the like.           Since we find that this clause only
requires union standards, and not union recognition, we rule
it primary and, thus, outside the prohibition of S158(e).
The concept of a "union-standards" subcontracting clause has
r e p e a t e d l y been a p p r o v e d i n f e d e r a l c a s e s .        Mine Workers v .

P e n n i n g t o n ( 1 9 6 5 ) , 381 U.S.        657,       85 S . C t .    1 5 8 5 , 1 4 L.Ed.2d
626;     see,        e.g.,    NLRB v .      N a t i o n a l M a r i t i m e Union      (2nd C i r .


        Having d e t e r m i n e d t h a t t h e c l a u s e s a r e n o t v o i d ,         it is

n e c e s s a r y t o d e c i d e i f t h e y impose c o n t r a c t u a l l i a b i l i t y on
Sletten.         T h e r e i s no d i s p u t e t h a t t h e c l a u s e s i n c o r p o r a t e

the      fringe          benefits          requirements              of      the    underlying
agreement.            The c l a u s e s s p e a k o f a c o n t i n u i n g o b l i g a t i o n t o

s e e t h a t t h e s u b c o n t r a c t o r a b i d e by t h e t e r m s and c o n d i t i o n s
of    i t s CBA,        including fringe benefits,                     and n o t m e r e l y t h e

o b t a i n i n g o f an i n i t i a l a g r e e m e n t .      S i n c e t h e o b l i g a t i o n is
assumed by t h e p r i m a r y c o n t r a c t o r , when i t i s b r e a c h e d l o g i c
d i c t a t e s t h a t t h e remedy l a y a g a i n s t t h e p r i m a r y c o n t r a c t o r

i n f a v o r of t h e t r u s t e e s .
        The N i n t h C i r c u i t r e c e n t l y d e c i d e d t h i s v e r y i s s u e i n

Seymour v .          Hull    &   Moreland E n g i n e e r i n g ( 9 t h C i r . 1 9 7 9 ) , 605

F.2d 1 1 0 5 .         I n t h a t c a s e t h e r e was a s u b c o n t r a c t o r s ' c l a u s e
similar         in     wording        to    those      in      issue        here.          It    was
i n t e r p r e t e d i n t h e f o l l o w i n g manner:
        " A r t i c l e V I I I o f t h e 1969-1974 M a s t e r S u r v e y
        Agreement p r o v i d e s t h a t :
        " ' [ i l t i s f u r t h e r a g r e e d t h a t s h o u l d a n y Employer
        s u b l e t any p a r t o r p o r t i o n o f h i s work c o v e r e d by
        t h i s A g r e e m e n t , t o a n y o t h e r Employer o r s u b -
        e m p l o y e r , t h e p r o v i s i o n s o f t h i s Agreement s h a l l
        be b i n d i n g upon and a p p l i c a b l e t o a l l work p e r -
        formed by s a i d Sub-employer on t h e j o b s i t e . '
        " A r t i c l e V I I I was b r o u g h t t o t h e t r i a l c o u r t ' s
        a t t e n t i o n and no e x p r e s s r u l i n g on i t s e f f e c t
        was handed down; h o w e v e r , i t i s o b v i o u s t h a t t h e
        c o u r t could n o t have found t h e d e f e n d a n t s n o t
        l i a b l e for Hardin's time without a l s o f i n d i n g
        t h a t A r t i c l e V I I I imposed no o b l i g a t i o n .
        "The t r u s t e e s c o n t e n d on a p p e a l t h a t A r t i c l e
        V I I I i s s u b j e c t t o o n l y one l a w f u l i n t e r p r e t a -
        t i o n , and t h a t t h i s c o u r t m u s t g i v e i t t h a t
interpretation in accordance with the principle
that a contract provision should not be inter-
preted in a fashion which renders it meaningless.
According to the trustees, the only lawful inter-
pretation that can be given Article VIII is that
it requires the defendants to make contributions
to the fringe benefit funds measured by hours
worked by nonsignatory subcontractors, but that
such contributions are not to be on behalf of
such subcontractors. The trustees thus propose
an interpretation somewhat analogous to an ex-
clusive listing arrangement in the real estate
brokerage field: regardless of who actually
does the work the union's fringe benefit fund
will be compensated.
"The language of Article VIII is reasonably
susceptible to the trustees' interpretation.
Even though the language does not speak in
terms of affirmatively requiring the employer
to bind subcontractors to the Master Survey
Agreement, it does say that the provisions of
the agreements 'shall be binding upon and
applicable to' work performed by subcontractors.
If the agreement is 'applicable' to subcon-
tractors' work, then it is reasonable to infer
that the employer must make contributions to
the fringe benefit funds based upon non-
signatory subcontractors' work.
"This ambiguous provision, however, is sus-
ceptible to several interpretations. The
trustees maintain that under federal labor
legislation theirs is the only lawful inter-
pretation. The trustees cite Walsh v. Schlecht,
429 U.S. 401, 97 S.Ct. 679, 50 L.Ed.2d 641
(1977), for the proposition that so-called
'subcontractors' clauses' calling for payment
of fringe benefits to union trust funds are
legal only if they require payments to the
fund generally, based upon hours worked by
subcontractors, and not to make payments on
behalf of employees not covered by the agree-
ment. The restrictive interpretation of such
clauses, according to Schlect, is mandated by
5302 of the Labor Management Relations Act,
29 U.S.C. 5186. 5302 makes unlawful the pay-
ment of anything of value by an employer to
. ..    any representative of his employees who
are employed in an industry affecting commerce
. . . ' 29 U.S.C. §186(a)(l). 5302 was intended
to prevent bribery of union officials by
employers. Among the exceptions to this rule,
however, is a provision which allows payments
to trust funds ' ...   for the sole and exclu-
sive benefit of the employees of such employer
...      29 U.S.C. §186(c)(5). Walsh held that
one side effect of 5302 is that employers may
make contributions only to trust funds estab-
lished for their own employees, and not for
        the benefit of a non-employee independent con-
        tractor. Accordingly, subcontractors' clauses
        may require only that contributions be made
        measured by the hours worked by such non-
        employees.
        "(8) It is well-settled that ambiguously-worded
        contracts should not be interpreted to render
        them illegal and unenforceable where the word-
        ing yields a construction which is both legal
        and enforceable. Walsh v. Schlect, 429 U.S.
        401, 408, 97 S.Ct. 679 (1977); cf. In re Wonder-
        fair Stores, Inc. of Arizona, 511 F.2d 1206
        (9th Cir. 1975); Washington Capitols Basketball
        Club, Inc. v. Barry, 419 F.2d 472 (9th Cir.
        1969). Unless Article VIII be given the con-
        struction mandated by Walsh, it has no logical
        or legally enforceable meaning. If the union
        cannot compel payments to fringe benefits funds
        based upon Article VIII, then there is little
        that it can enforce under that article. With
        all the signposts pointing so forcefully in the
        direction of one interpretation, we have no
        choice but to give the contract that interpreta-
        tion. . ."  Seymour v. Hull & Moreland Engineering,
        605 F.2d at 1114-1115.

        Appellant    contends, and    respondent     agrees, that      the
subcontractors' clauses merely state that all subcontractors
to whom     Sletten    subcontracts work         shall be   required     to
comply with the terms of the CBAs or that Sletten shall not
subcontract work to contractors who do not agree with the
agreements.         Both   parties   fail   to    mention   that,   if    a
subcontract is so let, the employer (Sletten) agreed to be
responsible to see that the subcontractors comply with the
requirements of the CBA, including the payment of fringe
benefits in accordance with the schedules in the rear of the
CBAs.     It is, therefore, reasonable to infer that, if the
subcontractor fails to make the payments, it is the primary
contractor's obligation to live up to his agreement and do
so.     We hold that the subcontractors' clauses, the payment
schedules and the compliance agreements constitute a legal
and enforceable promise to pay on the part of Sletten.
                           L d %+
     A£ f i r m e d .




                           Justice


W e concur:




     Chief J u s t i c e




     Justices
