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July 14, 1982

Harrison COMBS, John J. O'Connell and Paul R. Dean, as Trustees of the United Mine Workers of America Health and Retirement Funds, Plaintiffs,

The opinion of the court was delivered by: WEBER


This is an action brought under the Employee Retirement Income Security Act of 1974 (ERISA) 29 U.S.C. § 1132. The plaintiffs are Trustees of the United Mine Workers of America Pension Funds. The defendant Hawk Contracting, Inc. is a corporation which operates a coal mine in Armstrong County, Pennsylvania. In the course of its operations the defendant entered into several successive collective bargaining agreements with the United Mine Workers of America. As part of these agreements Hawk Contracting was obligated to pay a royalty into the Mine Workers Pension Fund. The amount of this royalty was tied to mine production, with the mine operator paying a specified amount for every ton of coal produced by it for use or for sale.

 The plaintiffs are now suing, as fiduciaries for these Funds, to enforce this royalty obligation. According to the plaintiffs' complaint the defendant owes the Funds royalties from September 1, 1977 to the present. This case is before us on plaintiffs' motion for preliminary injunction. In this motion the plaintiffs request that we order the defendant to make full payment into the Funds as required by the applicable collective bargaining agreements. The defendant has responded to this motion, arguing that the payments previously made by it were in accord with the collective bargaining agreements and that the Trustees' acceptance of a lesser royalty acts as an estoppel or an accord and satisfaction.

 A hearing was held on this motion on May 27, 1982, at which time the court heard the testimony of several witnesses and entertained the arguments of counsel. Upon consideration of the evidence presented at this hearing, along with the briefs and arguments of counsel, we conclude that a preliminary injunction should issue in this matter. Accordingly we will enter such an injunction.

 The record developed at the hearing conducted before this court revealed the following facts: Between 1980 and 1981 Hawk Contracting, Inc., was twice the subject of audits conducted by employees of the Pension Funds. The first of these audits was conducted in the fall of 1980. This was a routine audit conducted to insure that Hawk was making royalty payments in accordance with the collective bargaining agreements. As a result of this initial audit it was concluded that Hawk owed approximately $ 157,000 in royalties and interest to the Funds. A demand for payment of these royalties was made to Hawk by Jack Murrin, Assistant Comptroller for the Funds, on February 5, 1981.

 Hawk Contracting, through its vice-president, Mr. Donald Gaydos, contested the findings of this audit. Hawk contended that the audit overstated the amount of unpaid royalties because it improperly disallowed a royalty deduction based on the ash content of the coal produced and sold by Hawk.

 In order to understand the precise nature of the royalty deduction claimed by Hawk it is important to understand the way in which this company produces and markets its coal. Like many mine operators, Hawk Contracting does not own coal cleaning facilities which remove rocks and other impurities from the coal it produces. Therefore, Hawk must sell its coal to its consumers in its raw-mined state. Many of the impurities found in this raw coal are non-combustible. The presence of these non-combustible materials in the coal reduces its value as a fuel source. Because of the coal sold by Hawk, as mined, contains these non-combustible materials it commands a lesser price on the market.

 The National Bituminous Coal Wage Agreement which defines the duty of coal operators to pay royalties, links that obligation to mine production. Under the agreement an operator is required to pay a royalty on each ton of bituminous coal "produced ... for use or for sale...". The calculation of royalties under this agreement is generally based on the gross tonnage removed from the mine. The Fund Trustees have, however, made an exception to this rule in instances involving coal which has been cleaned prior to its use or sale. When a mine operator can demonstrate that it cleaned its coal prior to sale the Fund demands royalties based only on the amount of the clean coal or net tonnage. Defendant Exhibit D. Of course, only miners with coal cleaning equipment can take advantage of this royalties policy.

 In its objections to the Pension Fund audit Hawk argued that its ash deduction was simply another way of determining clean coal or net tonnage. Ash is the noncombustible residue that remains when coal is burnt. Hawk took the position that a deduction of this ash content from gross tonnage would accurately reflect the net tonnage of coal sold. Hawk asserted to the auditors that such ash deductions were consistent with the terms of the collective bargaining agreement as interpreted by the Trustees and that they had in the past been allowed by field auditors.

 After consideration of this argument, a second audit was conducted by employees of the Fund. In this audit the field auditors were instructed by Mr. Murrin, the Assistant Comptroller, to allow a deduction for the ash content of the coal sold by Hawk. As a result of this ash deduction Hawk's liability to the Fund was adjusted downward from $ 157,000 to $ 7,997.49. Defendant Exhibit J. This amount was paid by Hawk into the Funds.

 The Trustees now contend that the allowance of this ash deduction by their audit department was improper under the collective bargaining agreement. The Trustees also argue that the Funds' auditors had no authority to permit such an ash deduction. According to the Trustees a preliminary injunction is needed in order to prevent irreparable harm to the trust and its beneficiaries resulting from Hawk's wrongful failure to make full royalty payments.

 The defendant has responded by arguing that the ash deduction taken by it is consistent with the agreements as they have been interpreted by the Pension Trustees. The defendant also argues that the Trustees, by their own actions and the actions of their employees, have accepted Hawk's method of calculating royalties. According to Hawk, the Trustees' acceptance of a lesser royalty acts as an estoppel and/or an accord and satisfaction in this lawsuit. The defendant urges, therefore, that we refuse to grant the Trustees any relief in the form of a preliminary injunction.

 In this case we believe that there is a high likelihood that the plaintiffs/trustees will succeed on the merits of their claim. With respect to the merits of the Trustees' claim Hawk has presented two defenses. First, Hawk argues that the National Bituminous Coal Wage Agreements permit a deduction from royalty payments based on the ash content of the coal produced and sold by a mine operator. Second, Hawk asserts that the actions taken by the Trustees ...

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