author: GILMORE, District Judge.

text:
    M & B CONTRACTING CORPORATION, a Michigan corporation, Plaintiff, v. David DALE and Merrill, Lynch, Pierce, Fenner & Smith, Inc., a subsidiary of Merrill, Lynch and Company, Inc., a Delaware corporation, jointly and severally, Defendants.
    Civ. A. No. 82-72880.
    United States District Court, E.D. Michigan, S.D.
    Nov. 14, 1984.

      Dickinson, Wright, Moon, Van Dusen & Freeman by Robert S. Krause, Robert E. Kinchen, Detroit, Mich., for plaintiff.
    Butzel, Keidan, Simon, Myers & Graham by Douglas G. Graham, Dennis K. Egan, Detroit, Mich., for defendants.
   OPINION

GILMORE, District Judge.

This is an action by M & B Contracting Corporation, (“M & B”), against defendants David Dale (“Dale”) and Merrill Lynch, Pierce, Fenner & Smith, Inc. (“Merrill Lynch”), claiming violation of various sections of the Securities Acts, 15 U.S.C. § 78j(b), 15 U.S.C. § 77q(a), and rules thereunder, and the rules of the New York Stock Exchange.

Plaintiffs claim defendants: a) totally disregarded the needs, objectives and instructions of M & B as to the type of investment account it wanted, and how it was to be handled; b) engaged in excessive and unwarranted trading and churned M & B’s account to generate commissions and interest income for themselves, in total disregard of the needs and desires of M & B; c) failed to inform M & B of the risk involved in margin trading, short term in- and-out trading, non-diversification, and other highly improper and speculative trading activity that was undertaken with M & B’s account; d) made fraudulent misrepresentations to persuade M & B to commence trading on a margin basis; and e) failed to explain to M & B the nature and extent of the risk to which M & B was exposing its operating capital, and the business risk both to the capital and the future of the corporation. Plaintiff also claims that Merrill Lynch failed properly to supervise Dale, who was the account executive in charge of the account.

The three issues for determination are:

1) Whether the broker (Dale) had control of M & B’s account, and, if so, whether the activity therein was excessive and for the purpose of generating commissions and interest income for defendants;

2) Whether the broker made fraudulent misrepresentations to M & B in connection with the purchase or sale, and, if so, whether M & B relied upon such misrepresentation; and

3) Whether Merrill Lynch properly enforced its internal compliance rules with respect to the supervision of the M & B account.

Alternately stated, the case presents the question of to what extent a corporation managed by knowledgable, educated and sophisticated businessmen is responsible for the results of its own actions in choosing to invest in the stock market.

The Court finds no basis for this lawsuit, and will order a judgment of no cause for action.

The action concerns a security account maintained between May 1980 and July 1982 by M & B with Merrill Lynch. The account was serviced by Dale, a Merrill Lynch account executive. Principals in the action are Sebastian J. Mancuso (“Senior”), founder, chairman of the board, and majority shareholder of M & B; Sebastian D. Mancusso (“Danny”), Senior’s son, secretary, and 24 percent shareholder of M & B; Peter C. Saputo (“Saputo”), vice-president of finance of M & B; Dale; and Russell Mann (“Mann”), the branch manager of Merrill Lynch’s Bloomfield Hills office.

Saputo, who was a friend of Dale as the result of playing in the same softball league, opened an M & B account with Merrill Lynch in May 1980. At the time M & B was a national heavy construction firm specializing in road construction, and was the 24th largest heavy contractor in the United States.

Senior was the Company’s principal decision maker, who reserved the right to make all major decisions regarding the Company and its business. The Company’s principal contact with Dale was Saputo, who was a University of Detroit graduate with a bachelor’s degree in accounting, who had been a Certified Public Accountant since 1968. From the time of his graduation from the University of Detroit in 1965 until 1972, he was an auditor for Price Waterhouse and Company, and from 1972 to 1976 vice-president of finance for Euro Corporation, a residential building firm in Michigan and Florida. In 1976, he became vice-president of finance at M & B, with responsibility for overseeing all of its accounting functions and financial operations.

Dale and Saputo started talking about investment of funds and excess working capital of M & B. M & B had most of its working capital tied up in certificates of deposit, and wanted a more liquid type of account in which the funds could be readily available and yet yield a higher return.

In May of 1980, Saputo discussed the idea of an investment program for M & B, and Senior agreed to open a corporate account with Merrill Lynch. The Company had approximately $3,000,000 in excess funds to invest, and initially invested in a Merrill Lynch ready asset trust, a money market fund. Senior hoped the rate of return on the trust would exceed that of the certificates of deposit. The first investment was in the amount of $750,000. Subsequently, additional funds were made available, and the total initial deposits were approximately $1,600,000.

In early June of 1980, Saputo, on behalf of M & B, authorized the purchase of a $100,000 bond in Central Power and Light, a $250,000 bond in Detroit Edison, and a $100,000 bond of Oklahoma Gas and Electric. Subsequently, the account began to trade in stocks, and the nature of these trades raises the principal dispute in this case.

It is clear that from June 1980 until December 1980, and early 1981, the Corporation engaged in extensive short-term in- and-out trading. Most trades were in 10,-000 share lots, under instructions from Saputo.

It would not be helpful to detail all of the trades, but suffice it to say that some stocks would be held as briefly as one day before sale, and others would be held as long as two to three weeks. Many stocks were bought and sold and then bought again, and there was constant in-and-out trading. From early June 1980 until the end of January 1981, there were more than 90 transactions.

In September of 1980, Saputo placed the account on margin, with Senior’s approval. It is clear that both Senior and Saputo understood the risks of margin, that they would be borrowing money to buy stocks, and would be paying Merrill Lynch interest. Saputo understood that borrowing was involved, that the stocks were pledged, that a certain level of equity in stocks would have to be maintained, and that interest would have to be paid. At the time they went on margin, Saputo and Senior discussed the idea and were well aware of the risks involved and the margin interest required.

The account remained profitable through December of 1980, but in January and February of 1981 the market turned around, and plaintiff began to have losses. Plaintiff continued to trade, however, through 1981, and finally closed the account in 1982, with a loss of approximately $2,000,000. Plaintiff seeks to recover $2,035,000 for trading losses, and $806,000 lost interest that it claims it would have received had the money remained in the ready asset account.

The record is clear that Dale suggested, first, the purchase of bonds, and secondly, the purchase of stocks. It is equally clear that Saputo and Senior were well aware of all trades, and approved of every trade that was made. In the fall of 1980, when the account went on margin, Dale and Saputo would talk several times a day. In fact, they talked so much that a special phone was installed in M & B so that Saputo could carry on his conversations about the market with Dale without tying up M & B’s regular phones.

Saputo approved every stock purchased. Dale generally made the recommendations for purchase, but no stock was ever purchased without Saputo’s specific approval, and many times Saputo turned down recommendations made by Dale. The same is true of sales: no stock was sold without the approval of Saputo.

It is clear that Saputo also knew the commissions charged by Merrill Lynch, received a confirmation slip from Merrill Lynch immediately after every trade, and at the end of every month, a monthly statement showing all activity for the month. These monthly statements disclosed the stocks purchased and sold, the amount, price, commission, and all margin interest paid. They also showed the cash balance in the account, the size of any margin balance, and the current market value of all open positions.

As pointed out earlier, the account was profitable through 1980, but in January of 1981 the market started to fall and did not rebound as many expected. At the close of business on January 29, 1981, M & B’s account, if closed, would have suffered an overall loss of $233,598.

On the morning of January 29, 1981, a disputed conversation took place among Dale, Mann and Saputo. Saputo claims that he never had the conversation, but both Dale and Mann testified to it and its detail. Their testimony and the documentation offered by Dale convinces the Court that such conversation took place, and the Court finds as a matter of fact that the conversation did take place. In that conversation, Mann reviewed the status of the account, including the margin debt, the equity and losses, and asked Saputo whether M & B could afford the risk of its positions, and whether the funds were needed for M & B’s business. He reminded Saputo that, although Merrill Lynch believed the market would improve, Merrill Lynch could be wrong, and the account could get into serious trouble. The point of the call was to warn Saputo of the possibility of serious loss in the account so that they could see if he (Saputo) and Senior wanted to make any change in the nature of the account or the volume of trading. Saputo told Mann and Dale that he would consult with other officers and with Senior and would get back to them, and later called Dale to tell him that M & B would hold its position.

By the end of March 1981 M & B’s account showed an overall loss of more than $1,000,000, and the account continued to lose until it was finally closed in 1982 with more than a $2,000,000 loss.

Crucial to decision is the testimony of Dale and Saputo. There is no question that, over all, Dale was extremely evasive and tried so hard to put his testimony in the best possible light that he lost much of his credibility. There is also no question that Dale was anxious to keep the account moving, and that he encouraged much of the trading. His testimony did not help the defendant. M & B was Dale’s best customer, and it is obvious that he was trying to make as many trades as he could to gain commissions. By the same token, Dale was impressed with Saputo’s knowledge and experience, and spoke truthfully of his impression of Saputo as a capable, informed businessman with a very successful company. At one point, he stated that Saputo was probably the best informed client in the office.

It is clear to the Court that Saputo was most responsible for what happened here. As chief financial officer, he had an obligation to watch the investments like a hawk, and there is no question but that he did. The Court does not find his testimony credible when he says that he placed his complete trust in Dale and simply went along with Dale’s recommendations without any independent inquiry. Nor does the Court accept his protestations of ignorance about the market and his total reliance upon Dale’s recommendations. Saputo maintained extremely careful records, and had an extensive background in business. He was careful and conscientious in all of his financial duties with M & B. The records he kept of the sales and purchases were extremely detailed, and they enabled him to determine, at any given moment, the exact condition of the account. He was a CPA with extensive experience in business. Every trade made by Dale was approved by Saputo, and he generally did not approve transactions until he had obtained the approval of Senior.

It is significant that he felt the reasons given him by Dale for each and every transaction made sense. It is clear that Saputo was in control of the account since he made an independent evaluation of each recommendation. He testified at one point that when M & B moved out of the ready asset account and into common stocks it was an exciting time because the market was moving up. He kept meticulous records, talked with Senior almost daily about the activity of the account, and was very involved in and informed about the account from the start.

His protestations that he did not thoroughly understand margin accounts and option trading are not credible. He may not have been an expert in the market, but he knew enough to know that trading on margin and in options was very risky. It is undisputed that he understood the concept of margin trading, and he must have realized that by the time margin trading began M & B’s account had come a long way from the conservative liquid investment account he testified had been M & B’s initial investment objective.

In fact, Saputo’s entire testimony about M & B’s investment objectives is hard to believe. He claims that its initial goal was a safe, readily available liquid investment that would earn a respectable and consistent return, and he claims that objective never really changed. This is refuted completely by the facts. M & B went into a pattern of short term, roller coaster, in-and-out, margin and option trading that was about as far from a safe, readily available liquid investment as possible. There is little question that he knew exactly what he was doing. This is borne out by months of careful record keeping and reports to stockholders, hundreds of conversations between him and Dale, and almost daily conversations between him and Senior.

The first legal issue is whether the actions described above constitute churning, or whether the broker had control over M & B’s account, and if so, whether the activity was excessive for the purpose of generating commissions and interest income for the defendants. Three elements are necessary to establish churning: 1) control of the account by the broker; 2) excessive trading in light of the customer’s objectives; and 3) scienter, which is defined as intent to defraud, or a reckless disregard by the broker of the customer’s best interests.

Indicia of control are: 1) the identity, age, education, intelligence, and investment and business experience of the customer; 2) the relationship between the customer and the account executive, that is, whether it is an arms-length one or a particularly close relationship; 3) knowledge of the market and the account; 4) the regularity of discussions between the account executive and the customer; 5) whether the customer actually authorized each trade, and 6) who made the recommendations for trades.

Plaintiff claims that control in the account executive was established because the client routinely followed the broker’s recommendations. It cites Mihara v. Dean Witter & Co., Inc., 619 F.2d 814 (9th Cir. 1980). However, in Follansbee v. Davis, Skaggs & Co. Inc., 681 F.2d 673 (9th Cir. 1982), the court rejected M & B’s interpretation of Mihara, holding:

That is not to say, however, that a non-professional investor who usually follows the advice of his broker is not in control of his account---- {Mihara) simply cannot be construed to mean that the most sophisticated investor is not in control of his account simply because he usually follows the recommendations of his broker. As long as the customer has the capacity to exercise the final right to say “yes” or “no”, the customer controls the account.

Id. at 677.

Chief Judge Feikens, in Lieb v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 461 F.Supp. 951 (E.D.Mich.1978), aff'd mem., 647 F.2d 165 (6th Cir.1981), defined control in the following manner, and listed several relevant factors:

In determining whether a broker has assumed control of a non-discretionary account the courts weigh several factors. First, the courts examine the age, education, intelligence and investment experience of the customer____ Second, if the broker is socially or personally involved with the customer, the courts are likely to conclude that the customer relinquished control because of the relationship of trust and confidence____ Conversely, where the relationship between the broker and the customer is an arms-length business relationship, the courts are inclined to find that the customer retained control over the account____ Third, if many of the transactions occurred without the customer’s prior approval, the courts will often interpret this as a serious usurpation of control by the broker---- Fourth, if the customer and the broker speak frequently with each other regarding the status of the account or the prudence of a particular transaction, the courts will usually find that the customer, by maintaining such active interest in the account, thereby maintain control over it.

Id. at 954-55.

It is clear to the Court that M & B, through Saputo and Senior, maintained control over this account. Saputo was a sophisticated businessman and a CPA, well acquainted with financial matters. Senior had become a tremendously successful builder, graduating, as he said, from the “school of hard knocks.” M & B’s officers were not naive regarding financial matters. In addition, the relationship between M & B and Dale was one of strictly business. Saputo and Senior viewed the relationship as a professional one, and there is no question that Saputo and Dale dealt on an arms-length basis. Dale did not take advantage of Saputo because of their former relationship on the softball team. Nor was there usurpation of control by Dale, since he always had M & B’s prior approval. Finally, there was regular consultation between the parties as to the trades. At no time was a trade made without consultation.

It is thus clear that control, the first essential element of churning, has not been established by plaintiff. Dale did not have control of the account; Saputo did. Nor was there excessive trading in light of the customer’s objectives. It is not entirely clear when M & B’s objectives changed, but they did change radically from their cautious beginnings. Finally, although Dale was both ambitious and less than honest with the Court in his testimony, the Court cannot find adequate scienter necessary for churning. There is no showing that he sought to defraud plaintiff, and no showing of a reckless disregard. It therefore is clear that there was no churning in this account.

The second major claim is that the broker made fraudulent misrepresentations to M & B in connection with the purchase and sale of securities, and M & B relied upon such misrepresentations to its own detriment. It is clear to the Court that defendants are not liable for fraud, whether it be alleged under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a), or under the Michigan common law.

To establish a case for fraud by a broker-dealer under Section 10(b) and Rule 10b(6-5) thereunder, it is necessary that the defendant implement a deceptive or manipulative practice in connection with the purchase or sale of a security. See Mansbach v. Prescott, Ball & Turben, 598 F.2d 1017 (6th Cir.1979). To establish a fraud claim in this case, it would be necessary to show that Dale made material misrepresentations or non-disclosures to M & B in connection with the purchase or sale of a security, that they were either made with the intention of defrauding M & B or were made recklessly, that M & B relied on these misrepresentations, and that they were the proximate cause of damages.

The proofs in this case simply do not show such misrepresentations. There were no material misrepresentations, or non-disclosures by Dale to plaintiff. Saputo was fully informed about everything that went on in the account; Saputo had full access to the research work of Merrill Lynch; Saputo discussed extensively every transaction with Dale, and to suggest that somehow or other Dale defrauded Saputo and Senior is without any foundation in the record.

The Court, having found no churning and no fraudulent misrepresentations to M & B in connection with the purchase of stock upon which M & B relied, the question of whether Merrill Lynch properly enforced its internal compliance rules with respect to the supervision of M & B’s account is moot.

In sum, the Court finds no churning and no fraudulent misrepresentations, and orders the entry of a judgment of no cause of action. Costs may be taxed. This opinion constitutes the findings of fact and conclusions of law required by Fed.R.Civ.P. 52(a).

      . The question of suitability has been raised by plaintiff under a general rule that provides the broker should "know his customer.” Whatever the legal position as to whether a private cause of action can arise because of lack of suitability, it is clear that the stocks that were purchased were suitable for M & B. Generally, they were quality stocks. Most were of investment grade, or good quality, although a few were speculative or high risk. Saputo approved all investment decisions. He was aware at all times of M & B's financial situation and the effect of these stock purchases on M & B's position. It is clear that any suitability claims are without foundation because of the clear control and knowledge of Saputo, and approval of Senior.


source: Caselaw Access Project

author: ASPEN, District Judge:

license: Public Domain

text:
    CHICAGO DISTRICT COUNCIL OF CARPENTERS PENSION FUND, Chicago District Council of Carpenters Welfare Fund and the Chicago District Council of Carpenters Apprentice and Trainee Program, George Vest, Jr., Wesley Isaacson, Milton Holzman, Thomas E. Ryan, Richard S. Pepper, Albert Kaufman, Dominic J. Velo and Herbert S. Church, Jr., as Trustees of the Chicago District Council of Carpenters Pension and Welfare Funds, Richard S. Pepper, Wesley Isaacson, George Vest, Jr., Thomas D. Coleman, Jack Bornh Bornhoeft, Domonic J. Velo, Edward Ellis and Kenneth Borg, as Trustees of the Chicago District Council of Carpenters Apprentice and Trainee Program, Plaintiffs, v. MONARCH ROOFING COMPANY, INC., Defendant.
    No. 83 C 2974.
    United States District Court, N.D. Illinois, E.D.
    Nov. 15, 1984.

      Albert M. Madden, Hugh J. McCarthy, Rita A. Long, Hugh J. McCarthy & Assoc., Ltd., Chicago, 111., for plaintiffs.
    Jeffrey K. Ross, Joan McAvinn Gale, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, 111., for defendant.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

ASPEN, District Judge:

This case having been tried without a jury, the Court has heard testimony and reviewed exhibits received in evidence, arguments of counsel, and legal briefs submitted by the parties. Based on the foregoing,' we now make the following findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52.

Findings of Fact

1. The Chicago District Council of Carpenters Pension Fund, the Chicago District Council of Carpenters Welfare Fund and the Chicago District Council of Carpenters Apprentice and Trainee Program Fund (“the Trust Funds”) provide health and welfare, pension and training benefits to carpenters who work within the territorial jurisdiction of the Chicago District Council of Carpenters and its successor, the Chicago and Northeast Illinois District Council of Carpenters (“the Union”).

2. Monarch Roofing Company, Inc. (“Monarch”) is an Illinois corporation which at all times material to this action has been engaged in the business of installing hot tar roofing, aluminum siding and asphalt roof shingles. In addition, during the winter months, Monarch also installs walls and insulated ceilings.

3. Emil Trimarco has been the President of Monarch since 1969. Before then, the business was run by Carl Fisher, then President of Monarch.

4. On or about August 4, 1967, Carl Fisher signed a one-page, two-sided Agreement (the “Hard Card”) with the Union on behalf of Monarch. Pursuant to the terms on the Hard Card, Monarch agreed to be bound by (1) the Collective Bargaining Agreement (“CBA”) entered into by the Union and the Builders Association of Chicago for the period of June, 1967 through May 31, 1972, and (2) the Trust Agreements which created the Trust Funds.

5. On or about September 21, 1973, Emil Trimareo executed a Hard Card Agreement with the Union. Pursuant to this Agreement, Monarch agreed to be bound by the provisions of a CBA entered into by the Union and the Mid-America Regional Bargaining Association (“M.A.R. B.A.”) for the period of June 1, 1973 through May 31, 1975, and to the Trust Agreements which created the Trust Funds.

6. On or about June 11, 1975, Trimareo signed a Hard Card Agreement, again binding Monarch to the CBA entered into by the Union and M.A.R.B.A. and again agreeing to bind Monarch to future CBAs entered into by the Union and M.A.R.B.A.

7. The regular practice of the Union has been to send promptly a copy of the CBA to an employer who signs a Hard Card. There is no evidence that the Union did not follow that procedure with respect to Monarch, but no testimony or other evidence directly shows that the Union did send a copy. Monarch does not now have a copy in its files. However, copies were readily available to Monarch from the Union.

8. Pursuant to the provisions of the CBAs and the Trust Agreements, Monarch must make contributions to the Trust Funds for each hour worked by its carpenter employees at the rate and in the manner specified in the CBA and the Trust Agreements. In addition, the CBA requires Monarch to make contributions to the Trust Funds measured by the hours worked by its subcontractors who are not signatory to a CBA with the Union.

9. Monarch employed seventeen individuals to perform carpentry work during the period of July 1, 1978 through December 31,1981, or a portion of that period of time. These workers were employed as “trainees” pursuant to a “training program” begun by Carl Fisher and continued by Trimarco. Under this program, after Monarch unilaterally determined that a trainee had developed sufficient skills, Monarch called a Union business agent and told the agent that he had a man who was ready to join the Union. The agent would meet the employee and sign him up as a member of the Union.

10. Monarch made no contributions to the Trust Funds between the period of July 1, 1978 through December 31, 1981, on behalf of the individuals mentioned in Paragraph 9. Section 1.1 of the CBA between the Union and M.A.R.B.A. includes trainees in addition to regular journeymen in the Agreement. In addition, § 1.1 provided that “shinglers” were covered by the Agreement.

11. During the period of July 1978 through December 1981, the CBAs required signatory employers to make contributions to the Chicago District Council of Carpenters Pension Fund at the rate of $1.08 for each hour worked by its employees who performed bargaining unit work.

12. During the period of July 1978 through December 1981, the CBAs required signatory employers to make contributions to the Chicago District Council of Carpenters Welfare Fund at the following rates for each hour worked by its employees who performed bargaining unit work:

Period Hourly Rate
July 1, 1978 — May 31, 1979 $ .98
June 1, 1979 — May 31, 1980 1.08
June 1, 1980 — May 31, 1981 1.23
June 1, 1981 — August 31, 1981 1.38
September 1, 1981 — December 31, 1981 1.43

13. During the period of July 1978 through December 1981, the CBAs required signatory employers to make contributions to the Chicago District Council of Carpenters Apprentice and Trainee Program Fund at the following rates for each hour worked by its employees who performed bargaining unit work:

Period Hourly Rate
July 1, 1978 — May 31, 1980 $.08
June 1, 1980 — December 31, 1981 .10

14. The total number of hours worked by the individuals listed in Paragraph 9 during the period of July 1978 through December 1981 that were not reported to the Pension Fund is 12,760.75. Based upon the contribution rate set forth in the CBAs, Monarch failed to pay $13,781.60 (12,760.75 X $1.08 = $13,781.61).

15. Based upon the hours that were not reported to the Chicago District Council of Carpenters Welfare Fund during the period of July 1978 through December 1981, Monarch failed to pay $14,605.36 to the Welfare Fund. This amount was calculated as follows:

Period
Period Unreported Hours Hourly Contrib. Rate Amount Owed
07/78 - 05/79 2.955.25 $ .98 $ 2,896.15
06/79 - 05/80 4.077.25 1.08 4,403.43
06/80 - 05/81 4,266.50 1.23 4,247.80
06/81 - 08/81 646.50 1.38 892.17
09/81 - 12/81 815.25 1.43 1,165.81
Totals 12,760.50 $14,605.36

16. Based upon the hours worked by the individuals listed in Paragraph 9 that were not reported to the Chicago District Council of Carpenters Apprentice and Trainee Program Fund, Monarch failed to pay $1,135.40 to the Training Fund. This amount was calculated as follows:

Period Unreported Hours Hourly Contrib. Rate Amount Owed
07/78 - 05/80 7,032.50 $ .08 $ 562.60
06/80 - 12/81 5,728.00 .10 572.80
Totals 12,760.50 $1,135.40

17. Monarch’s failure to contribute to the trust funds was consistent with its prior practice. No contributions were made for trainees. Once Monarch determined that a trainee had sufficient skills to be placed in the Union, however, Monarch began making the contributions for that employee. No one ever told Monarch that this practice violated the CBA.

18. Monarch’s failure to contribute to the Trust Funds on behalf of trainees was discovered in an audit which took place in May 1982. The Trust Funds had engaged the Certified Public Accounting firm of Costin, Cahill and Egan to review the books and records of Monarch to determine whether Monarch had fully complied with its obligation to make contributions to the Trust Funds during the period of July 1, 1978 through December 31, 1981. The auditors’ report, dated May 28, 1982, indicated that additional contributions were owed to the Trust Funds. This report is the basis of the plaintiffs’ claim in this case. After this audit, Monarch terminated its trainee program.

19. The Trust Funds audit employers on a regular basis. Once an employer has been selected for an audit, the auditor reviews all the monthly employer contribution reports received by the Trust Funds from the employer during the period to be audited. The monthly employer contribution reports are completed by the employer. The reports list employees, their hours worked and the amount owed to the Funds. Then, in what is usually an on-site visit, the auditor reviews various records including the employer’s payroll records, time cards, payroll tax reports and unemployment compensation records.

20. In determining what individuals to include on his report, the auditor assumes all employees who have had contributions made on their behalf by the employer have been performing bargaining unit work. Next, the auditor eliminates other employees whose names appear in the employer’s records who clearly do not do bargaining unit work. Finally, the auditor investigates any remaining names on the list.

21. To investigate the remaining names, the auditor begins by checking whether those names appear on the Trust Funds’ microfiche records. The microfiche records contain the names of all individuals for whom contributions to the Trust Funds have been made in the past because they did bargaining unit work. Such past contributions indicate that the employee is very likely still doing bargaining unit work.

22. The auditor next looks at the employee's pay scale to determine whether the employee is being paid at the rate paid to Union carpenters. Where the employee is receiving Union scale, this would also indicate that the employee was probably doing bargaining unit work.

23. Finally, if the auditor is unable to determine whether the employee is doing bargaining unit work from the records, he will ask the employer to explain what work the employee performs. If the auditor is still not satisfied, he reports that employee to the Trust Funds as a “discrepancy,” i.e., someone for whom contributions may be owed, or he lists the individual in his report as an “unverified employee.” The audit is then reviewed, usually by Robert Cahill, the supervising partner in the auditing firm and then submitted to the Trust Funds. When the audit report is received by the Trust Funds, it is assigned to an audit coordinator.

24. During the period of July 1, 1978 through December 31, 1981, Monarch paid its employees who installed shingles on a piecework rather than hourly basis. The piecework rate varied depending on the difficulty of the job. The CBA prohibits payment of wages on a piecework basis.

25. During the period of July 1, 1978 through December 31, 1981, Monarch submitted monthly contribution report forms to the Trust Funds. On its report forms, Monarch reported eight hours for each day a journeyman shingler worked regardless of the number of hours the individual actually worked.

26. When they prepared their report and their findings in Paragraphs 12-16 above, the Trust Funds’ auditors divided the gross amount paid to the defendant’s employees during the audit period by the wage rate the employees were paid for their non-shingling work or the wage rate required to be paid by the CBAs. This has been the Trust Funds’ standard procedure where an employer has not kept track of the hours worked by its employees. With respect to the employees for whom the defendant did make contributions, the auditor’s method indicated that over a three year period, the defendant's method of calculation resulted in the underreporting of only twenty-two hours.

27. On three previous occasions the Trust Funds had hired Costin, Cahill and Egan to audit Monarch’s records to see whether Monarch had complied with its duty to contribute to the Funds. On each occasion the auditors found either no discrepancy or relatively small discrepancies between the amount of hours reported by Monarch and the amount calculated by the auditors. On none of the auditors’ reports to the Trust Funds did the auditors indicate that Monarch maintained a training program under which it was not contributing to the funds. No evidence suggests that the Trustees had any direct knowledge of Monarch’s training program.

28. After the third audit, Monarch appealed the discrepancy. It disputed that it owed contributions for a trainee named “Miedaner,” whose hours had not been reported during that audit period. In appealing, Trimarco signed an affidavit stating that Miedaner “never performed work for [Monarch] within the jurisdiction of the [Union] as set forth in the Collective Bargaining Agreement.” The affidavit also stated that Miedaner performed “warehouse maintenance and roof repairs while also attending college part time.” The affidavit did not disclose that Miedaner was a trainee. On the basis of this affidavit, the Trust Funds readjusted the discrepancy.

29. Trimarco never disclosed the training program to the trustees, and the trustees never explicitly approved of the program.

Conclusions of Law

1. This action was brought under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1132 and 1145. Our jurisdiction stems from 29 U.S.C. § 1132(e)(1).

2. Monarch’s failure to contribute to the Trust Funds based upon the hours worked by its “shingler-trainees” breached the CBA to which it was bound. The Agreement specifically and unambiguously applies to “Shinglers” (§ 1.1) and “Trainees,” and requires contributions on behalf of all covered employees performing such work. See CBA, Articles XII, XIII, XIV.

3. As we held earlier in this case in denying the cross-motions for summary judgment, Monarch may attempt to invoke the doctrine of estoppel as a defense.

4. The estoppel doctrine prescribes three requirements: (1) The Trust Funds words or conduct must have led Monarch to take some action it would not otherwise have taken but for the actions of the Funds; (2) Monarch must have actually and reasonably relied on the Trust Funds’ action, and it must not have known of or had access to facts contrary to those on which it relied; (3) Monarch’s reliance must have caused it harm. Matter of Pubs, Inc. v. Champaign, 618 F.2d 432, 438 (7th Cir. 1980).

5. As set forth below, Monarch has failed to satisfy the second and third estoppel requirements. Accordingly, we need not decide whether the auditors were agents of the Trust Funds such that their failure to discover the training program in the first three audits can be imputed to the Funds. As noted above, the Funds had no actual knowledge of the training program.

6. Even if Monarch relied on constructive words or conduct of the Trust Funds, we do not believe that Monarch’s reliance was reasonable. First, Monarch knew that in general it was bound by a CBA, and that under the Agreement, it was required to make Trust Fund contributions of some kind. At the very least, it was unreasonable for Trimarco, a successful businessman for fifteen years, to have not read the Agreement in order to understand his obligations. We think it unlikely that Monarch never received a copy of the Agreements, and that it did not know of its obligations under them. But even if it had not received any copies, it had ready access to them, and thus had easy access to facts contrary to those on which it might have relied. Those contrary facts are plain from the Agreements. Section 1.1 of the CBA states: “The Bargaining Unit shall consist of all Journeymen, Foremen, Apprentices, and Trainees..." Articles XII, XIII and XIV mandate Trust Fund contributions on behalf of “Employees who are covered by this Agreement.” A reasonable businessman would have made sure to read these provisions or seek an attorney’s advice about the Agreement.

7: Second, it was unreasonable for Monarch to believe that it could unilaterally decide when to begin contributions on behalf of an employer. Under Monarch’s “training” program, Trimarco controlled when a worker went from “trainee” to “Union-man,” even though both are Union-men under the CBAs. Thus, Trimarco controlled the time when contributions were to begin. It was unreasonable — if not intentional — for Monarch to conclude that it, and not the Agreement, could determine when to begin contributing to the Trust Funds on behalf of an employee.

8. Third, it was unreasonable for Monarch to rely on the events surrounding the “Miedaner affidavit” as indicating that the Trust Funds acquiesced in the training program. First, it was unreasonable for Trimarco to assert under oath in the affidavit that Miedaner did not perform Union work under the CBA when, if Trimarco is to be believed, he never read the Agreement. More significantly, we think Trimarco led the Trust Funds to believe that Miedaner had performed non-carpentry work, rather than disclosing to them that he was a trainee. Trimarco stated Miedaner was exempt from contributions for performing “warehouse maintenance and roof repair,” not for — as Trimarco says he believed — being a trainee. We find that the Trust Funds therefore concluded that Miedaner had performed either little or no carpentry work and on that basis ruled in Monarch’s favor. If Trimarco believed that trainees were exempt from contribution, we believe he would have said so. Thus, we conclude that Monarch bears responsibility for the Trust Funds’ prior ignorance of the trainee program. If it did not cloak the program from the Trust Funds, at the very least it unreasonably concluded that the Trust Funds’ acceptance of that affidavit constituted knowledge of and acquiescence in the trainee program.

9. We are also unpersuaded that Monarch suffered any significant harm, even if the other estoppel requirements were present. The Trust Funds seek contributions only from the last audit period, not from earlier periods. If the Funds had discovered the discrepancies sooner, Monarch would have had to pay for that earlier period. Now it is being asked to pay for a later, rather than earlier, period. Either way, Monarch pays for one period following its discovery in the audit. Cf. Markt v. Ro-Mart, Inc., 471 F.Supp. 1292, 1298 (N.D.Cal.1979). It is true that this last audit period is longer than each of the earlier ones. But Monarch has also enjoyed the benefit of employing “Trainees” for many years without contributing to the Funds on their behalf. It also enjoyed the benefit of employing these Trainees on a piecework basis, rather than the hourly basis mandated by the CBAs. On balance, then, we do not find that Monarch has suffered harm warranting an equitable defense.

10. Because Monarch has failed to make the contributions required of it by the CBAs, and because it has failed to make out an estoppel defense, the Trust Funds are entitled to judgment. 29 U.S.C. §§ 1132(g), 1145.

11. In ascertaining the proper amount of unpaid contributions, we find that the methods employed by the auditors to calculate the actual hours worked were reasonable under the circumstances, especially given Monarch’s failure to keep track of the actual hours worked by its employees. We also find that these methods were accurate, considering that over the last audit period the methods revealed that Monarch had underreported only twenty-two hours for those employees for whom it made contributions.

12. The Trust Funds are entitled under 29 U.S.C. § 1132(g)(2)(A) to the unpaid contributions set forth in Paragraphs 14-16 above, that is, a total of $29,522.37.

13. In addition, the Trust Funds are entitled to (1) the greater of double interest on the unpaid contributions or liquidated damages plus interest on the unpaid contributions; and (2) reasonable attorneys’ fees and costs of the action. 29 U.S.C. § 1132(g)(2)(C) and (D).

Conclusion

For the foregoing reasons, the Court finds that the Trust Funds are entitled to judgment in the amount of $29,522.37, plus interest and/or liquidated damages, plus reasonable attorneys’ fees and costs. The Trust Funds are to submit a fee petition on or before November 20, 1984. The petition shall include a calculation of the amount of interest or liquidated damages to which it is entitled under 29 U.S.C. § 1132(g)(2)(C). Monarch may respond by November 30, 1984. It is so ordered.

       These findings and conclusions are in some instances hybrid; that is, there may be legal conclusions embedded in the statements of facts and facts included in some of the conclusions of law. Where there are mixed questions of fact and law, as in the present case, this is difficult to avoid. Any finding of fact or conclusion of law which is improperly designated should be considered as if it were properly labeled.

      . The Hard Card provided, among other things, that:
      2. The parties adopt, and the EMPLOYER agrees to be bound by the terms and conditions of a Collective Bargaining Agreement dated June 1, 1973, between the UNION and Mid-America Regional Bargaining Association as bargaining agent for certain employer associations, a copy of which agreement is attached hereto and made a part hereof and the receipt of which is hereby acknowledged by the EMPLOYER.
      3. EMPLOYER agrees to be bound by the terms of the Trust Agreements creating the Chicago District Council of Carpenters Health and Welfare Fund, Chicago District Council of Carpenters Pension Fund, and the Chicago District Council of Carpenters Apprentice Training Fund and all rules and regulations adopted by the Trustees thereof, and agrees to make prompt payments of the per hour contributions provided in the Collective Bargaining Agreement aforesaid, with respect to each such Trust Fund.
      4. This agreement, and the agreement adopted by reference as aforesaid, shall be in effect as of June 1, 1973, and remain in effect to and including the expiration date of the agreement adopted by reference. This agreement shall continue in effect from year to year thereafter and the parties specifically adopt any agreement entered into between the UNION and Mid-America Regional Bargaining Association, bargaining agent for certain employer associations, subsequent to the expiration date of the agreement adopted by reference as aforesaid, unless notice of termination or amendment is given in the manner provided herein.

      . The first audit took place in February 1975, reviewing the period of April 1, 1973 through September 30, 1975. The second audit, concluded on October 31, 1977, reviewed the eighteen-month period from January 1, 1976 to June 30, 1977. The third audit reviewed the one-year period running from July 1, 1977 through June 30, 1978.

      . Trimarco admits that he signed the Hard Card, but denies that he ever agreed to be bound by any of the CBAs, including the provisions requiring contributions to the Trust Funds. As noted above in Paragraph 5, by signing that Hard Card, Trimarco unequivocally bound Monarch to the terms of the CBAs. In any event, Trimarco's conduct is inconsistent with his position now. He denies being bound to any agreements, but admits complying with those agreements by contributing to the Trust Funds for his journeymen and by submitting to audits. We find that by signing the Hard Cards, Trimarco bound Monarch to the whole of those agreements, not just selective provisions.

      . Trimarco testified at his deposition that he did not remember whether he ever received a copy. At trial, he testified that he did not, concluding so because after the deposition he did not find any copies in his files. But as noted earlier, the Union's regular practice was to send copies to every signatory of a Hard Card. We think it unlikely that the Union twice failed to send an agreement to Monarch. Indeed, Monarch implicitly admitted that it was familiar with the CBA when it signed the Miedaner affidavit. However, since we find that Monarch had convenient access to the Agreement, its actual familiarity with the Agreement is not necessary to the outcome of the case.

      . Trimarco admits that he did say so to the auditors during the 1977 audit. When asked about certain trainees whose job categories were ambiguous from the records, Trimarco told the auditor that each trainee “isn’t Union. The man is- training.” The auditor then removed those employees from the discrepancy list. As a result, the Trustees did not directly learn then of the training program. This statement suggests that Trimarco either believed that trainees were exempt from contribution or tried to hide the trainees from the Trustees. If it was the former, we think Trimarco would have later told the Trustees that Miedaner was a trainee. In that case, as noted in the text, his failure to do so made his reliance on the Miedaner incident unreasonable. If it was the latter, he is guilty of "unclean hands” and is not entitled to equitable relief in any event. Thus, in either case, Monarch does not have a right to equitable estoppel.

      . If the Trust Funds were seeking contributions from the earlier audit periods as well, Monarch might have had a stronger argument about harm.

      . Piecework wages clearly benefitted Monarch. If — as Monarch assumes in its briefs — a trainee works half as efficiently as a journeyman, it pays that trainee half of what a journeyman would earn on a piecework basis. When this wage rate is combined with its savings from not contributing to the Funds on behalf of trainees, it becomes clear that Monarch substantially reduced its hourly labor costs through its use of the training program. Thus, Monarch did not suffer any substantial harm because of the Trust Funds’ belated discovery of the training program. Rather, it no longer can continue to reap the benefits of its former cheap labor practices. Once again, if the Funds were seeking reimbursement for all the past audit periods, Monarch might have been harmed because it might have ended up paying more than if it had no training program. But so long as the Funds are seeking contributions only from the last audit period, we do not think Monarch has been harmed overall.