Mary Helen Coal Corp. v. Hudson , 235 F.3d 207 ( 2000 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MARY HELEN COAL CORPORATION, a 
Virginia Corporation,
Plaintiff-Appellant,
v.
MARTY D. HUDSON; MICHAEL H.
HOLLAND, Trustees of the United
Mine Workers of America
Combined Benefit Fund and
Trustees of the 1992 United Mine
Workers of America Benefit Fund;
THOMAS O. S. RAND, Trustees of the
United Mine Workers of America  No. 99-2181
Combined Benefit Fund; ELLIOTT A.
SEGAL, Trustees of the United Mine
Workers of America Combined
Benefit Fund; CARLTON R. SICKLES,
Trustees of the United Mine
Workers of America Combined
Benefit Fund; GAIL R. WILENSKY,
Trustees of the United Mine
Workers of America Combined
Benefit Fund; THOMAS F. CONNORS,
Trustees of the 1992 United Mine
Workers of America Benefit Plan;

2 MARY HELEN COAL v. HUDSON
ROBERT WALLACE, Trustees of the 
1992 United Mine Workers of
America Benefit Plan; WILLLIAM P.
HOBGOOD, Trustees of the United

Mine Workers of America
Combined Benefit Fund,
Defendants-Appellees.
PARDEE & CURTIN LUMBER COMPANY;
THE STEARNS COMPANY LTD.,
Amici Curiae.

Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Richard L. Williams, Senior District Judge.
(CA-97-71-3)
Argued: October 31, 2000
Decided: December 19, 2000
Before WILKINSON, Chief Judge, and NIEMEYER and
MOTZ, Circuit Judges.
Reversed and remanded by published opinion. Chief Judge Wilkinson
wrote the opinion, in which Judge Niemeyer and Judge Motz joined.
Judge Niemeyer wrote a concurring opinion.
COUNSEL
ARGUED: Patrick Michael McSweeney, MCSWEENEY, BURTCH
& CRUMP, P.C., Richmond, Virginia, for Appellant. Peter Buscemi,
MORGAN, LEWIS & BOCKIUS, L.L.P., Washington, D.C., for
Appellees. ON BRIEF: John L. Marshall, Jr., MCSWEENEY,
MARY HELEN COAL v. HUDSON 3
BURTCH & CRUMP, P.C., Richmond, Virginia, for Appellant.
David W. Allen, Office of the General Counsel, UMWA HEALTH
AND RETIREMENT FUNDS, Washington, D.C.; John R. Mooney,
MOONEY, GREEN, BAKER, GIBSON & SAINDON, P.C., Wash-
ington, D.C.; Samuel M. Brock, III, MAYS & VALENTINE, L.L.P.,
Richmond, Virginia, for Appellees. John T. Montgomery, Robert
Daniel O’Connor, Scott D. Pomfrett, ROPES & GRAY, Boston, Mas-
sachusetts, for Amici Curiae.
OPINION
WILKINSON, Chief Judge:
This case arises in the wake of the Supreme Court’s decision in
Eastern Enterprises v. Apfel, 524 U.S. 498 (1998). In Eastern, the
Court held that Coal Act premiums assessed against companies such
as Mary Helen Coal violated the Fifth Amendment. Although the
defendants returned the unconstitutionally collected premiums, they
refused to compensate Mary Helen for lost interest. Mary Helen is
entitled to an award of prejudgment interest because of the general
rule that interest follows principal. Neither the absence of an authoriz-
ing statute nor ERISA’s anti-inurement provision bars such an award.
Accordingly, the judgment of the district court is reversed and
remanded with instructions to calculate the amount of prejudgment
interest owed to Mary Helen.
I.
Mary Helen Coal Corporation mined coal from 1921 until 1963.
During this time, the United Mine Workers of America (UMWA), a
labor union representing coal miners, negotiated a series of collective
bargaining agreements with the Bituminous Coal Operators’ Associa-
tion (BCOA). The agreements are collectively referred to as the
National Bituminous Coal Wage Agreements (NBCWAs). Mary
Helen was a signatory to at least two of these agreements: the 1946
Welfare and Retirement Fund and the 1950 NBCWA. The agreements
were revised in 1974 and 1978, though by this time Mary Helen was
no longer actively mining coal and thus was not a party to either
agreement.
4 MARY HELEN COAL v. HUDSON
By the late 1980s, escalating health care costs threatened the sol-
vency of the most recent benefit plan. In response, Congress enacted
the Coal Industry Retiree Benefit Act of 1992 (Coal Act). The Act
created two new funds, including the Combined Fund. The Combined
Fund provides benefits to coal industry retirees previously receiving
benefits under the 1950 or 1974 NBCWAs. To fund this new pro-
gram, the Coal Act required coal operators who had previously partic-
ipated in any of the NBCWAs to pay annual premiums. The premium
requirement thus applied to companies like Eastern Enterprises and
Mary Helen even though they had not mined coal for many years.
Mary Helen filed suit against Marty Hudson and the other Trustees
of the Combined Fund (Trustees). In its complaint, Mary Helen
alleged that the Coal Act premiums violated the Due Process and
Takings provisions of the Fifth Amendment. See Mary Helen Coal
Corp. v. Hudson, 976 F. Supp. 366 (E.D. Va. 1997) (Mary Helen I).
Following then binding precedent, the district court rejected Mary
Helen’s claims and ordered it to pay all outstanding premiums plus
interest. See id. at 368. Mary Helen appealed.
This court held Mary Helen’s appeal in abeyance pending the
Supreme Court’s decision in Eastern. See Mary Helen Coal Corp. v.
Hudson, No. 97-2331, 1998 WL 708687 (4th Cir. Sept. 24, 1998).
Eastern Enterprises, like Mary Helen, stopped mining coal in the mid-
1960s. In Eastern, the Supreme Court held that the Coal Act was
unconstitutional as applied to Eastern Enterprises. See 524 U.S. at
504. No single opinion in Eastern garnered five votes. The four Jus-
tice plurality held that the Coal Act violated the Takings Clause. See
id. at 538. According to the plurality, the Coal Act imposed severe,
unanticipated retroactive liability upon Eastern Enterprises in
amounts substantially disproportionate to the company’s prior experi-
ence with miner benefits. See id. at 529-31. Justice Kennedy, who
concurred only in the judgment, concluded that the Coal Act premi-
ums were not amenable to a Takings analysis. See id. at 547. Accord-
ing to Justice Kennedy, however, the Coal Act violated the Due
Process Clause because it bore no legitimate relation to the govern-
ment’s asserted interests and the degree of retroactive effect was
severe. See id. at 549. The four dissenting Justices agreed with Justice
Kennedy that the Due Process Clause provided the relevant frame-
MARY HELEN COAL v. HUDSON 5
work, but disagreed with his conclusion about the existence of a con-
stitutional violation. See id. at 558-59 (Breyer, J., dissenting).
Once that decision was announced, we granted Mary Helen’s
motion for summary reversal on the grounds that its case was materi-
ally indistinguishable from Eastern. See Mary Helen Coal, 1998 WL
708687 at *1. The Trustees subsequently refunded the premiums paid
by Mary Helen, but refused to compensate Mary Helen for the interest
lost.
Mary Helen returned to district court seeking, among other things,
$341,727.74 in prejudgment interest. The district court denied this
request. See Mary Helen Coal Corp. v. Hudson, 57 F. Supp.2d 318(E.D. Va. 1999) (Mary Helen II). According to the district court, the
absence of a statute allowing an award of prejudgment interest meant
that such an award was not required. See id. at 319. The district court
also noted that any award of interest would be paid from the assets
of the Combined Fund. According to the court, this meant prejudg-
ment interest was barred by ERISA’s anti-inurement provision, which
states that "the assets of a plan shall never inure to the benefit of any
employer." Id. (quoting 29 U.S.C. § 1103(c)(1)). Mary Helen now
appeals.
II.
We have already determined that the Coal Act’s premium require-
ment, as applied to Mary Helen, violated the Fifth Amendment of the
Constitution. See Mary Helen Coal, 1998 WL 708687 at *1. Award-
ing prejudgment interest to Mary Helen, therefore, would simply give
full effect to the Supreme Court’s decision in Eastern and this court’s
holding in Mary Helen I, by providing full compensation for the
harms suffered.
The usual rule that "interest follows principal" is long and well
established. See Phillips v. Washington Legal Foundation, 524 U.S.
156 (1998). See also Webb’s Fabulous Pharmacies, Inc. v. Beckwith,
449 U.S. 155, 162 (1980) ("The usual and general rule is that any
interest . . . follows the principal and is to be allocated to those who
are ultimately to be the owners of that principal."). The Phillips Court
noted that this rule has existed "under English common law since at
6 MARY HELEN COAL v. HUDSON
least the mid-1700’s" and that it "has become firmly embedded in the
common law of the various States." 524 U.S. at 165. Read together,
therefore, Eastern and Phillips indicate that Mary Helen receive pre-
judgment interest on the premiums it paid. It is undisputed that after
Eastern the Trustees had to refund the principal amounts paid by
Mary Helen. Since the principal belonged to Mary Helen, so too did
the interest earned. That the Trustees collected the premiums in good
faith does not change the fact that doing so violated Mary Helen’s
constitutional rights. Thus, to deny an award of prejudgment interest
would undercut the Supreme Court’s jurisprudence.
Prejudgment interest is simply "an element of" Mary Helen’s
"complete compensation." Osterneck v. Ernst & Whinney, 489 U.S.
169, 175 (1989). See also West Virginia v. United States, 479 U.S.
305, 310 (1987); General Motors Corp. v. Devex Corp., 461 U.S.
648, 655-56 (1983). One factor to consider in deciding whether to
award prejudgment interest is whether such an award "is necessary to
compensate the plaintiff fully for his injuries." Osterneck, 489 U.S. at
176. In this case, Mary Helen paid over $540,000 in premiums to the
Combined Fund from 1993 to 1996. Mary Helen was deprived of the
use of those funds until at least September 1998, when we granted its
motion for summary reversal. It is undisputed that the inability to
make use of these funds from 1993 to 1998 imposed a measure of
harm upon Mary Helen. Thus, an award of prejudgment interest is a
critical component of Mary Helen’s recovery.
III.
Mary Helen is thus presumptively entitled to an award of prejudg-
ment interest. Of course, the award of "prejudgment interest is within
the discretion of the district court." Moore Bros. Co. v. Brown &
Root, Inc., 207 F.3d 717, 727 (4th Cir. 2000). The district court in this
case cited two reasons for its decision not to award prejudgment inter-
est: the absence of any statutory authorization and ERISA’s anti-
inurement provision. Neither of these rationales, however, bars an
award of prejudgment interest to Mary Helen. Thus, the district
court’s denial of prejudgment interest was an abuse of discretion
"guided by erroneous legal conclusions." Koon v. United States, 518
U.S. 81, 100 (1996).
MARY HELEN COAL v. HUDSON 7
A.
With regard to the district court’s first reason, it is well established
that "the absence of a statute [authorizing prejudgment interest]
merely indicates that the question is governed by traditional judge-
made principles." City of Milwaukee v. Cement Division Nat’l Gyp-
sum Co., 515 U.S. 189, 194 (1995). See also Monessen Southwestern
Ry. Co. v. Morgan, 486 U.S. 330, 336-37 (1988); Rodgers v. United
States, 332 U.S. 371, 373 (1947). Here, the governing principle is one
of "fairness." Blau v. Lehman, 368 U.S. 403, 414 (1962). As dis-
cussed above, because Mary Helen’s constitutional rights were vio-
lated by the Coal Act, prejudgment interest is mandated if we are to
give meaning to the rule that "interest follows principal." Phillips, 524
U.S. at 165.
B.
The other obstacle to the recovery of prejudgment interest identi-
fied by the district court was ERISA’s anti-inurement provision. The
Coal Act states that the Combined Fund is a multi-employer, welfare
benefit plan under ERISA. See 26 U.S.C. § 9702(a)(3)(B) and (C).
Section 403(c)(1) of ERISA provides that "the assets of a plan shall
never inure to the benefit of any employer and shall be held for the
exclusive purposes of providing benefits . . . ." 29 U.S.C. § 1103(c)(1)
(emphasis added). This provision is inapplicable here for two reasons:
1) Mary Helen’s premiums never became assets of the Combined
Fund; and 2) Mary Helen is not an employer for purposes of the Coal
Act or ERISA. Moreover, interpreting the anti-inurement provision in
a manner that would bar an award of prejudgment interest to Mary
Helen unnecessarily raises serious constitutional questions. Accord-
ingly, the district court erred in concluding that the anti-inurement
provision barred an award of prejudgment interest.
1.
By its own terms, the anti-inurement provision does not operate to
bar an award of prejudgment interest to Mary Helen. First, Mary
Helen’s premiums never became "assets" of the fund because they
were collected unconstitutionally. Since the Combined Fund never
8 MARY HELEN COAL v. HUDSON
had lawful ownership of Mary Helen’s premiums, it never owned the
interest earned on those premiums.
A similar analysis informed the Seventh Circuit’s decision in Cen-
tral States, Southeast and Southwest Areas Pension Fund v. Lady Bal-
timore Foods, Inc., 960 F.2d 1339 (7th Cir. 1992). In that case, the
Seventh Circuit held that Lady Baltimore’s payments to the pension
fund did not become property of the fund until the appeals process
was complete and the legality of the payment was finally determined.
According to the court, while the appeal was pending the pension
fund’s interest in the payments was identical to a landlord’s interest
in a tenant’s security deposit. "He can hold the money but he must
give it back eventually unless some condition materializes that allows
him to keep it. Central States held the interim payments only as (in
effect) a bailee until [the claim] was finally adjudicated." Id. at 1346.
Since Lady Baltimore ultimately prevailed on appeal, the pension
fund was required to refund the payments received. See id.Similarly, the Trustees effectively held Mary Helen’s premiums as
a bailee until the appeals process was completed. After Eastern and
this court’s summary reversal of Mary Helen I, the Trustees, like the
pension fund in Lady Baltimore, became obligated to return the pre-
miums. As a result, the premiums never became an asset of the Com-
bined Fund and the Trustees never had lawful ownership of the
interest thus derived. Since the interest earned never became an asset
of the Combined Fund, returning it does not run afoul of the anti-
inurement provision.
2.
The second difficulty with the Trustees’ anti-inurement argument
is that Mary Helen never had a valid obligation to contribute to the
Combined Fund and thus is not an employer under Title IV of ERISA
or the Coal Act. Section 9721 of the Coal Act states that companies
such as Mary Helen "shall be treated in the same manner as employ-
ers" under "subtitle E of title IV of [ERISA]." 26 U.S.C. § 9721.
Many courts have adopted the "contributing obligor" test announced
by the Second Circuit in Korea Shipping to determine if a company
is an employer under Title IV of ERISA. See Korea Shipping Corp.
v. New York Shipping Ass’n, 880 F.2d 1531, 1537 (2d Cir. 1989). See
MARY HELEN COAL v. HUDSON 9
also Seaway Port Auth. v. Duluth-Superior ILA Marine Ass’n, 920
F.2d 503, 507 (8th Cir. 1990); Carriers Containers Council, Inc. v.
Mobile S.S. Ass’n, 896 F.2d 1330, 1343 (11th Cir. 1990), amended on
reh’g in part by 904 F.2d 28 (11th Cir. 1990); Imel v. Laborers Pen-
sion Trust Fund for N. Cal., 904 F.2d 1327, 1331 (9th Cir. 1990).
Although Title I of ERISA contains a definition of employer that cov-
ers Mary Helen,1 the Supreme Court has held that Title I definitions
"are not necessarily applicable to Title IV, because they are limited
by the introductory phrase, ‘For purposes of this title.’" Nachman
Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 370 (1980). See
also Korea Shipping, 880 F.2d at 1536-37 (although Title I’s defini-
tion would support the Fund’s argument that the carriers were
employers, that definition was not relevant in light of Title I’s limiting
language).
The contributing obligor definition of employer, applicable to Title
IV of ERISA, is grounded in the underlying purpose of the statute.
Title IV was enacted in 1980 to create withdrawal liability for
employers who withdrew from multi-employer benefit plans. The
purpose of this scheme was to discourage employers from withdraw-
ing and to reduce the burden on plans in the aftermath of an employ-
er’s withdrawal. Title IV thus focuses on an employer’s obligation to
contribute to a benefit plan. See Korea Shipping, 880 F.2d at 1537.
Armed with this understanding of the statute, the Second Circuit con-
cluded that an employer under Title IV of ERISA is "a person who
is obligated to contribute to a plan either as a direct employer or in
the interest of an employer of the plan’s participants." Id. (internal
quotations and citations omitted).
We agree with the Second Circuit’s analysis of the purpose of Title
IV and join the Eighth, Ninth, and Eleventh Circuits in adopting the
contributing obligor test as the appropriate inquiry for determining if
a company is a Title IV employer.2 Even the Trustees agree that the
1
Title I of ERISA defines an employer as "any person acting directly
as an employer, or indirectly in the interest of an employer, in relation
to an employee benefit plan." 29 U.S.C. § 1002(5).
2
This court has never explicitly defined the term employer for pur-
poses of Title IV of ERISA, nor has it addressed the limits on Title I’s
10 MARY HELEN COAL v. HUDSON
contributing obligor test determines who is an employer for purposes
of Title IV. Contrary to the Trustees’ claim, however, we do not think
that Mary Helen is a contributing obligor. "[T]he appropriate inquiry
is whether the alleged employer had an obligation to contribute and
what was the nature of that obligation." Seaway Port Auth., 920 F.2d
at 508. Here, as the Supreme Court held in Eastern, Mary Helen
never had a valid "obligation to pay any amount" under the Coal Act.
26 U.S.C. § 9721. Since Mary Helen never had a valid obligation to
contribute to the Combined Fund, it was never "obligated to contrib-
ute to a plan," and thus is not an employer for purposes of Title IV
of ERISA. Since the Coal Act expressly adopts Title IV’s definition
of employer, Mary Helen is also not an employer for purposes of the
Coal Act. Mary Helen’s exclusion from the definition of employer is
based solely on the Supreme Court’s holding in Eastern. The Trust-
ees’ concern that many other coal companies will henceforth also not
be deemed Title IV employers overlooks the limited reach of the
Eastern decision.
The Trustees cite a number of cases supporting the proposition that
ERISA’s anti-inurement provision bars the award of prejudgment
interest. All of these cases, however, involve payments made under
a mistake of fact or law; none address a situation where premiums
were collected pursuant to an unconstitutional statute. Further, each
decision based its rejection of a prejudgment interest award on the
premise that a benefit plan is allowed, but is not required, to refund
an employer’s excessive payments made by virtue of a mistake of law
or fact. See, e.g., Teamsters Local 939 Employers Health Trust v.
Cassidy Trucking, Inc., 646 F.2d 865, 868 (4th Cir. 1981). Here, how-
ever, the premise is different since a refund of the premiums was con-
stitutionally required. See Eastern, 524 U.S. at 538. Moreover, that
Mary Helen’s payments were made pursuant to an unconstitutional
definitions section. In Spring Branch Mining Co., Inc. v. United Mine
Workers of America 1950 Pension Trust & 1950 Pension Plan, 854 F.2d
37 (4th Cir. 1988), this court touched upon the issue in a per curiam
opinion summarily affirming the district court. In that decision, we noted
that the district court had used "a relevant definition of ‘employer’ found
in Title I of ERISA." Id. at 39. Spring Branch Mining did not, however,
hold that Title I’s definition of employer applied in all Title IV contexts.
MARY HELEN COAL v. HUDSON 11
statute does not mean they were made under a mistake of law. See
United States v. Moore, 627 F.2d 830 (7th Cir. 1980) (mistake con-
cerning the constitutionality of a statute does not constitute a mistake
of law); United States v. Ness, 652 F.2d 890 (9th Cir. 1981) (same).
Thus, given Mary Helen’s undisputed right to a refund of its premi-
ums, the analysis in the Trustees’ mistake of fact or law cases is inap-
posite.
3.
Adopting the Trustees’ interpretation of the anti-inurement provi-
sion would also require us to interpret the anti-inurement provision in
a way that would contravene the Supreme Court’s analysis in Eastern
Enterprises and Phillips. As discussed above, these cases jointly
establish that Mary Helen is entitled to prejudgment interest on the
premiums it paid under the Coal Act.
Moreover, the Trustees’ interpretation would cast constitutional
doubt upon the anti-inurement provision itself. The Coal Act collects
premiums on a "pay first, dispute later" basis. See 26 U.S.C.
§ 9706(f)(5). Mary Helen paid its premiums within this framework,
notwithstanding its pending, and ultimately valid, constitutional
claim. Adopting the Trustees’ interpretation of the anti-inurement
provision would result in Mary Helen giving the Combined Fund an
interest-free loan on unconstitutionally collected premiums; this alone
would raise constitutional concerns.
The Trustees’ argument, therefore, cannot be correct. This conclu-
sion is buttressed by Title IV’s procedure for refunding an employer’s
payment of liability for withdrawing from an multi-employer benefit
plan. Withdrawal liability is another situation in which an employer
is required to pay first and dispute later. The Trustees concede that if
Mary Helen had overpaid its withdrawal liability, it would be entitled
to interest on the amounts refunded. See Teamsters Joint Council No.
83 v. Centra, Inc., 947 F.2d 115, 120 (4th Cir. 1991); Huber v. Casa-
blanca Industries, Inc., 916 F.2d 85, 100-03 (3d Cir. 1990), overruled
in part on other grounds by Milwaukee Brewery Workers’ Pension
Plan v. Jos. Schlitz Brewing Co., 513 U.S. 414 (1995).
The Coal Act states that claims arising out of an obligation to make
payments shall be treated "in the same manner as any claim arising
12 MARY HELEN COAL v. HUDSON
out of an obligation to pay withdrawal liability under [Title IV of
ERISA]." 26 U.S.C. § 9721. This treatment is consistent with the fact
that both the Coal Act and Title IV impose a pay first, dispute later
framework on employers. In Huber, the Third Circuit held that when
a statute requires payments up-front, the anti-inurement clause cannot,
consistent with the constitution, bar an award of prejudgment interest
on any amounts later refunded. See 916 F.2d at 102. According to the
court, "requiring refunds with interest on employer overpayments is
necessary to save the [statute’s] draconian interim payment procedure
from serious constitutional defects." Id.The same is true with respect to Mary Helen’s payments under the
Coal Act. Given the pay first, dispute later framework, adopting the
Trustees’ interpretation of the anti-inurement clause would expose
"serious constitutional defects" in the application of the provision. As
is our duty, we decline to interpret the statute in a manner that gratu-
itously raises grave constitutional questions. See NLRB v. Catholic
Bishop of Chicago, 440 U.S. 490, 500 (1979).
IV.
At a minimum, Mary Helen is entitled to whatever interest was
actually earned on its premiums. Whether it is entitled to more, how-
ever, is for the district court to determine in the first instance. There
is a dispute about whether Mary Helen’s claim to prejudgment inter-
est flows from a damages theory or the compensation theory underly-
ing Phillips. We decline to resolve this dispute because the district
court should have the first chance to make this determination.
Accordingly, the judgment of the district court is reversed and
remanded with instructions to calculate the amount of prejudgment
interest the Trustees owe Mary Helen.
REVERSED AND REMANDED
NIEMEYER, Circuit Judge, concurring:
Part II of the opinion for the court appears to collapse the distinc-
tion between (1) restoring to Mary Helen Coal its premiums, together
with such interest as the Combined Fund may have earned on them,
MARY HELEN COAL v. HUDSON 13
and (2) compensating Mary Helen Coal for damages measured by its
loss of use of the money. The doctrine that interest follows principal
can be applicable only to the restoration basis for recovery. If the
Combined Fund earned no interest, then it obviously could not — and
would not have to — restore interest to Mary Helen Coal. On the
other hand, if we award Mary Helen Coal compensation for a consti-
tutional tort, its damages normally would include damage caused to
it for the loss of use of money.
In this case, there is some indication that the Combined Fund
earned 6% per annum interest on the premiums that Mary Helen Coal
paid to the Fund and that Mary Helen Coal’s injury for loss of use of
its money was 9% per annum. Accordingly, clarity about the theory
of award that should apply would seem to be important for determin-
ing the ultimate relief in this case.
Since I would find Mary Helen Coal entitled to recovery on either
basis, I concur in the court’s opinion.