Central States, Southeast & Southwest Areas Pension Fund v. Nitehawk Express, Inc. ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 99-2698, 99-2539 & 99-2629
Central States, Southeast and Southwest Areas
Pension Fund and Howard McDougall, Trustee,
Plaintiffs-Appellees/Cross-Appellants,
v.
Nitehawk Express, Inc., Six Transfer, Inc.,
Interstate Express, Inc., Midwest Jobbers
Terminals, Inc. and James LaCasse,
Defendants-Appellants/Cross-Appellees.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
Nos. 95 C 3944 and 97 C 1402--John A. Nordberg, Judge.
Argued February 8, 2000--Decided August 4, 2000
Before Cudahy, Manion and Diane P. Wood, Circuit
Judges.
Cudahy, Circuit Judge.
I) Background
In some industries, particularly those where
jobs are "episodic," individual companies do not
sponsor pension plans. See Langbein & Wolk, Pension and
Employee Benefit Law 57 (2d ed.). Instead, groups of
firms in an industry make pension contributions
to a joint, or multiemployer, pension plan. See
id. In 1980, Congress passed the Multiemployer
Pension Plan Amendments Act of 1980 (MPPAA). See
29 U.S.C. sec.sec. 1381-1461. The MPPAA was
prompted by Congress’s fear that as individual
employers withdrew from joint plans without
providing funds to cover their workers’ accrued
benefits, a plan could be underfunded by the time
the workers retired and their benefits came due.
See Central States, Southeast and Southwest Areas
Pension Fund and Howard McDougall v. Hunt Truck
Lines, Inc., 204 F.3d 736 (7th Cir. 2000). To
avoid the development of this scenario, Congress
provided that when an employer withdraws from a
multiemployer plan, it must pay "withdrawal
liability" in an amount roughly equal to its
proportionate share of the plan’s unfunded vested
benefits. Thus, withdrawal liability essentially
forces employers to continue making payments on
behalf of fully vested workers so that, even
though the company is no longer a going concern,
its fully vested workers will receive the
benefits they earned there. The employer’s
"contribution history," or the level of
contributions it has made on behalf of workers
over a fixed period of time, provides a
substantial element in the calculation of
withdrawal liability. Generally, a higher
contribution history indicates a higher
proportionate participation in a plan, but it is
not unusual in a plan where each employer sets a
different benefit level that some employers may
be paying too little for their promised benefits
while others pay too much. Therefore, until a
pension fund calculates how much a withdrawing
employer would have to invest in order to pay at
the promised benefit level, it is hard to say
whether a higher contribution history necessarily
correlates with a higher withdrawal liability.
James LaCasse was the 100 percent shareholder
of three companies known as Hines Transfer, Inc.
(Hines), Six Transfer Co. (Transfer) and Nitehawk
Express, Inc. (Nitehawk). The three are
considered to be a "controlled group," and are
treated as a single employer. See 29 U.S.C. sec.
1301(b)(1). We refer to the three as the LaCasse
controlled group. Transfer had eighteen workers;
Nitehawk had four. All three companies had
entered into collective bargaining agreements
with local affiliates of the International
Brotherhood of Teamsters. Under the agreements,
the companies were to make pension payments on
behalf of their workers to the Central States,
Southeast and Southwest Areas Pension Fund
(Central States), which is a multiemployer
pension plan under ERISA. See 29 U.S.C. sec.sec.
1002(37) and 1301(a)(3).
Hines Transfer shut down in 1986, and it was
freed from its obligation to make contributions
to Central States. Central States did not assess
withdrawal liability because the LaCasse group’s
contributions to the Fund did not decline more
than 70 percent over the preceding three-year
period as a result of the Hines shutdown. See 29
U.S.C. sec. 1385. In September 1992, Transfer
sold its assets to Six Cartage (Cartage). The
MPPAA exempts some sales of assets from
withdrawal liability, if the buyers and sellers
structure the sale appropriately and comply with
certain reporting and bonding requirements. Once
the purchase agreement was complete, Transfer
notified Central States of the sale, but claimed
an exemption. Critically, Transfer did not comply
with all of the technical requirements set out in
the statute’s exemption provision. Central States
did not assess withdrawal liability against Six
Transfer at that time. In any event, Cartage
continued making payments on behalf of former
Transfer employees. A year later, Nitehawk shut
down. Central States then determined that the
controlled group had completely withdrawn from
Central States, and therefore owed withdrawal
liability in the amount of $456,620. The
controlled group initiated arbitration, while
Central States exercised its statutory
prerogative to sue for so-called interim
withdrawal liability payments. See 29 U.S.C. sec.
1399(c)(2). In 1996, the district court--properly
deferring consideration of the underlying case--
granted summary judgment on the interim payment
issue for Central States, and ordered the
controlled group to pay $456,620 plus liquidated
damages and attorney’s fees.
In 1997, the arbitrator found that the LaCasse
group owed no withdrawal liability because
Transfer’s sale of assets--which accounted for
the lion’s share of the group’s reduced
contribution to the Fund--was exempt from
withdrawal liability under the MPPAA. See
Appellant’s App. at 24 (In the Matter of
Arbitration Between Nitehawk Express and Six
Transfer, Inc. and Central States, Southeast and
Southwest Areas Pension Fund, AAA Case No. 51-
621-00147-94 at 13-14) (hereinafter In the Matter
of Nitehawk). Predictably, the LaCasse group
moved to enforce the arbitration award and vacate
the judgment ordering interim payment. The
district court determined that, contrary to the
arbitrator’s view, Transfer had failed to meet
the three conditions required to secure an
exemption from withdrawal liability. Because the
sale of assets was not exempt, the court
determined, it constituted a partial withdrawal
from the Fund. Although withdrawal liability was
not proper so long as one member of the
controlled group, Nitehawk, remained a going
concern, as soon as Nitehawk shut its doors, the
controlled group had to ante up. Therefore, the
court granted partial summary judgment to Central
States and ordered the LaCasse group to pay
withdrawal liability. But it went on to hold that
the group’s liability should be calculated
without reference to Transfer’s contribution
history because, in its view, Cartage had
essentially adopted Transfer’s contribution
history, which meant the Fund had suffered no
harm. See Central States et al. v. Nitehawk
Express, Inc. et al., No. 97 C 1402 (N.D Ill.
March 23, 1999) (hereinafter "Mem. Op.") at 15-
16. The LaCasse group appeals the award of
withdrawal liability, and Central States cross-
appeals the district court’s decision to allocate
Transfer’s contribution history to Cartage, as
well as its refusal to award attorney’s fees in
connection with Central States’ victory in the
interim payments case./1
II) Analysis
A) Background of the MPPAA
The MPPAA requires that a company choosing to
withdraw from a multiemployer pension plan must
pay "withdrawal liability," which is intended to
cover that company’s share of the unfunded vested
benefits that exist when it withdraws. See 29
U.S.C. sec.sec. 1381, 1391. Congress permits
multiemployer pension plans many options for
calculating withdrawal liability, all of which
are intended to assure that departing employers
bear their fair share of pension payments, and do
not leave others holding the bag. Most of the
methods endorsed by Congress calculate withdrawal
liability "as a function of contributions made by
the withdrawing employer, normally for the five
[or ten] plan years ending with the year in which
the unfunded vested benefits or change in the
unfunded vested benefits is determined." Ronald
A. Kladder, Asset Sales After MPPAA--An Analysis
of ERISA Section 4204, 39 Bus. Law. 101, 117
(November 1983).
Congress recognized that the daunting prospect
of withdrawal liability might deter a struggling
company from selling a failing division and
trying to salvage the others. In order to
encourage asset sales, Congress excused companies
from withdrawal liability when they sold assets.
See 29 U.S.C. sec. 1384. But this exemption was
potentially problematic. What if the purchaser
withdrew from the plan? Because the MPPAA
calculates withdrawal fees based on a five- or
ten-year history of contributions to the Plan,
"the purchaser’s withdrawal liability, calculated
as of the date of the sale, would be zero unless
the purchaser also had a preexisting contribution
obligation to the plan." See Kladder, supra, at
116.
To avoid the "zero liability" scenario, Congress
conditioned the seller’s withdrawal exemption on
the purchaser’s assumption of a preexisting
obligation to the plan. Specifically, Congress
established three conditions for exemption.
First, the buyer must assume an obligation to
make contributions to the plan at substantially
the same level as the seller’s contribution. See
29 U.S.C. sec. 1384(a)(1)(A). Second, the
purchaser must provide to the plan a bond or
escrow account for five plan years commencing
with the first plan year beginning after the sale
of assets. The bond must be roughly equivalent to
the seller’s annual contribution for recent
years, and will be paid to the plan if the buyer
withdraws or misses an annual contribution to the
plan at any time in the five years following the
sale. See 29 U.S.C. sec. 1384(a)(1)(B). Finally,
the contract for sale must provide that, if the
buyer fully or partially withdraws in the five
years following the sale and does not pay
withdrawal liability, the seller is secondarily
liable for the fee. See 29 U.S.C. sec.
1384(a)(1)(C).
B) The Transfer-Cartage Sale of Assets
In the present case, Central States contends
that Transfer failed to obtain an exemption when
it sold its assets to Cartage. The arbitrator
found that Transfer had properly obtained an
exemption. See In the Matter of Nitehawk,
Appellant’s App. at 37. The district court
disagreed. The LaCasse group urges us to defer to
the arbitrator. The district court reviewed the
arbitrator’s actions for clear error, and we
apply the same standard in reviewing the district
court’s decision as that court did in reviewing
the arbitrator’s interpretation. See Matteson v.
Ryder Sys. Inc., 99 F.3d 108, 112 (3d Cir. 1996).
Clear error may seem an unusually exacting
standard of review for an arbitration award. It
is true that Congress specifically stated that
"there shall be a presumption, rebuttable only by
a clear preponderance of the evidence, that the
findings of fact made by the arbitrator were
correct." 29 U.S.C. sec. 1401(c)./2 But we have
recognized that whether a party has successfully
structured a transaction to satisfy the statutory
standard for exemption is a "classic example[ ]
of [a] ’mixed question[ ] of law and fact.’"
Chicago Truck Drivers, Helpers and Warehouse
Workers Union (Independent) Pension Fund v. Louis
Zahn Drug Co., 890 F.2d 1405, 1409 (7th Cir.
1989). That is a particularly apt description of
the present case, in which the arbitrator was
required to compare the terms of the contract
with the statutory requirements, and to attach
legal significance to Cartage’s failure to post
a bond. Congress did not set forth a standard by
which to review an arbitrator’s findings on these
types of questions. We resolved in Zahn that the
proper standard of review for such questions is
for clear error. See id. at 1411. A finding is
clearly erroneous if the reviewing court, after
acknowledging that the factfinder below was
closer to the relevant evidence, is firmly
convinced that the factfinder erred. The district
court stated, and we agree, that the arbitrator
committed clear error on the question whether
Transfer’s sale of assets merited an exemption.
See Mem. Op. at 11.
In this case, the clear error is apparent upon
review of the Purchase Agreement, the provisions
of which are fatally noncompliant with the MPPAA.
As required by statute, the purchase agreement
does seem to obligate Cartage to make payments at
substantially the same level as Transfer, thus
satisfying the first precondition for
exemption./3 But the Purchase Agreement does not
assign secondary liability to Transfer. The
LaCasse group protests that the contract
accomplishes the goal of secondary liability
because it calls for Cartage’s liabilities to
revert back to it in the event of a breach. The
arbitrator agreed. See In the Matter of Nitehawk,
Appellant’s App. at 36. The LaCasse group says
"reversion" is called for in sections 14 and 15
of the Agreement. Section 14 states that
covenants and warranties will survive closing,
and section 15 provides for remedies in the event
of a breach of contract. That provision states
that in the event Cartage breaches the contract,
Cartage, "at [Transfer’s] option, will relinquish
all title, possession and control of the business
and all assets purchased under this agreement to
[Transfer]." Appellee’s App., Tab 2 at page 10,
sec. 15(b). LaCasse testified at his deposition
that this language required him to reassume
liabilities if Cartage were to breach the
contract. Contrary to that interpretation, the
plain language does not call for an automatic
reversion to Transfer or require that Transfer
reassume liabilities. It states only that Cartage
would have to turn the business back over to
Transfer "at [Transfer’s] option." Appellee’s
App., Tab 2 at page 10, section 15(b) (emphasis
added). We need not speculate whether Transfer
would have exercised that potentially dubious
option if Cartage’s prospects had gone south. As
discussed above, Congress did not want to leave
pension plans without recourse if buyers
"vamoosed" without paying withdrawal fees. See
Artistic Carton Company v. Paper Industry Union-
Management Pension Fund, 971 F.2d 1346, 1352-53
(7th Cir. 1992). Congress considered it crucial
that sellers be bound to pay withdrawal liability
if buyers proved unsound. The contract involved
here does not bind Transfer, and therefore the
sale of assets cannot be exempt.
This failure alone is enough to deprive the
asset sale of the exemption. Moreover, we note
that Transfer and Cartage bungled the bond
requirement. The arbitrator concluded that the
failure to post bond was "not determinative of
this dispute," because Central States’ interests
were protected. In the Matter of Nitehawk,
Appellant’s App. at 37. The district court
stated, and we agree, that this is a second
instance of clear error. As discussed above, the
purchaser must furnish a bond "commencing with"
the first plan year after the sale of assets. See
29 U.S.C. sec. 1384(a)(1)(B). This is not an
empty formality; it forces the buyer to back up
its promise to pay the seller’s withdrawal
liability until the buyer accrues its own
liability. See, e.g., Artistic Carton, 971 F.2d
at 1352. (One might wonder what the buyer
receives in exchange for accepting the liability
and putting additional money down. Presumably,
the sale price for the assets reflects the
liabilities that go along with them. See, e.g.,
5 Erisa Litigation Rep. 13, 16 (April 1996) ("the
issue of additional contingent liability [if the
contribution history is to be transferred to the
buyer] can be factored into the sales price.")).
In the present case, Cartage did not post a bond.
The plan may waive the bond requirement if the
parties request a waiver and meet certain
statutory conditions, one of which is a bond
amount less than $250,000. See 29 C.F.R. sec.
4204. There is no question in this case that the
parties would have qualified for the exemption
because the amount of the required bond was less
than $250,000. But the parties erred
procedurally. First, Transfer requested the bond
exemption alone, when the statute explicitly
states that "the parties" must request a waiver.
Further, Transfer waited until six months into
the first plan year to seek the bond waiver. See
Record Vol. I at Tab 5. Transfer argues that
Cartage did not have to post the bond until the
end of the first plan year, and therefore its
waiver request was timely if filed before the
expiration of the plan year.
We find the waiver request inadequate. First,
Cartage did not participate in the waiver
request. This alone makes it invalid. See
Brentwood Fin. Corp. v. Western Conference of
Teamsters Pension Fund, 902 F.2d 1456, 1461 (9th
Cir. 1990) (seller’s request for waiver
insufficient). And it is not as though we are
punishing Transfer for Cartage’s lapse; Transfer
could probably have met the requirement of a
joint request by simply asking a Cartage official
to sign the waiver request it drafted, but it did
not. Additionally, we doubt the request was
timely. We have stated as a general matter that
the determination as to whether the purchaser has
met the requirements for an exemption is at the
time of the sale, not afterwards. See Central
States, Southeast and Southwest Areas Health and
Welfare Fund v. Cullum Companies, Inc., 973 F.2d
1333, 1338 (7th Cir. 1992). This principle pulls
us towards the Fund’s view that Cartage had to
either post the bond or request the variance at
the start of the plan year./4 Transfer makes
another, more fanciful, argument, that a seller
need not satisfy the requirements for withdrawal
liability exemption until there is a complete
withdrawal. Cullum nips this argument in the bud:
the time of sale is the time to satisfy the
requirements. In sum, we conclude that when the
LaCasse group sold Transfer’s assets to Cartage,
it failed to comply with two of the three
requirements necessary to secure an exemption
from withdrawal liability.
The arbitrator held that the shutdowns of Hines
and Nitehawk were not sufficient to trigger
withdrawal liability because the Transfer sale
was exempt. That finding of exemption was clear
error on a mixed question of law and fact; once
it is reversed, the arbitrator’s conclusion
regarding the availability of withdrawal
liability (which is probably best characterized
as a mixed question of law and fact) is also
clearly erroneous. Together, the shutdowns of
Hines, the non-exempt sale of Transfer’s assets
and the shutdown of Nitehawk amounted to a
complete withdrawal from the Plan, sufficient to
trigger withdrawal liability.
C) Apportioning Contribution History
The remaining question is how to apportion the
LaCasse group’s contribution history among the
parties in this case. Because the arbitrator did
not think the group had withdrawn, it did not
hazard a calculation. The district court, in
granting summary judgment, deleted Transfer’s
contribution history from the LaCasse group and
attributed it to Cartage./5 We review this grant
of summary judgment de novo. See Hunt Truck
Lines, 204 F.3d at 742. The most precise and
authoritative guide to allocating contribution
history in the present circumstance has been
offered by the Pension Benefit Guaranty
Corporation. As the agency charged with
interpreting the MPPAA, the PBGC is entitled to
substantial deference when it construes the
statute. See Trustees of Iron Workers Local 473
Pension Trust v. Allied Products Corp., 872 F.2d
208, 210 n.2 (7th Cir. 1989). PBGC Opinion Letters
are not as authoritative as PBGC regulations, but
they have been discussed in the same vein as
Revenue rulings. See, e.g., Blessitt v.
Retirement Plan for Employees of Dixie Engine
Co., 848 F.2d 1164, 1170-73 (11th Cir. 1988). In
PBGC Opinion Letter 92-1, the agency considered
a complex scenario in which a controlled group
like LaCasse shed four subsidiaries, each
accounting for 25 percent of the group’s
contributions to a multiemployer pension plan.
See PBGC Op. Ltr. 92-1, 1992 WL 425182 (March 30,
1992) (hereinafter PBGC Letter). The PBGC’s
hypothetical controlled group sold the assets of
subsidiary B in a non-exempt sale, just as
LaCasse sold the assets of Transfer. See id. at
1. The PBGC stated that "the contribution history
of [the subsidiary] remains part of the
controlled group’s contribution history for
purposes of calculating amounts of subsequent
withdrawal liability." Id. at 2. Indeed, the PBGC
intimated that the only reason the sale of
subsidiary B did not trigger liability itself was
that it caused a drop of just 25 percent in the
controlled group’s contributions to the Fund. See
id. In the present case, the Fund explains that
it did not view Transfer’s withdrawal as causing
the required three-year drop in contributions to
qualify as a partial withdrawal. So the sale did
not--as in the PBGC hypothetical--trigger
liability. Therefore, Transfer is in exactly the
position of the PBGC’s hypothetical asset seller,
and just as the contribution history remained
with the seller in that case, it must remain with
the seller in this case.
The district court relied on a different and,
we think, less analogous passage in the PBGC
letter to reach the opposite result. In that
passage, the PBGC instructed that if the
controlled group sold the stock of one
subsidiary, and the controlled group later
withdrew, the group’s liability would be
determined without reference to the contribution
history of the subsidiary whose stock had been
sold. See id. at 3. Why? And why doesn’t the same
reasoning apply to a sale of assets? The answer
is that a sale of stock is covered by a different
provision of the statute, 29 U.S.C. sec. 1398,
which specifies that the successor employer
resulting from such a transaction "shall be
considered the original employer." Therefore,
under the statute, the contribution history of a
subsidiary whose stock is sold automatically
transfers to the buyer. See PBGC Ltr. at 2-3.
This statutory dictate reflects the longstanding
principle of corporate law that "a purchaser of
corporate stock takes the risk of all outstanding
corporate liabilities, except in so far as the
contract of purchase may provide otherwise." Ford
Motor Co. v. Dexter, 56 F.2d 760, 761 (2d Cir.
1932).
The Ninth Circuit analyzed a situation similar
to the one before us in Penn Central Corp. v.
Western Conference of Teamsters Pension Trust
Fund, 75 F.3d 529 (9th Cir. 1996). In that case,
the parent company of a controlled group shut
down two subsidiaries. It then sold the stock of
a third subsidiary. See id. at 533. Because the
stock sale caused the controlled group to cease
contributions to the Fund, withdrawal liability
was triggered. The Ninth Circuit attributed the
subsidiary’s contribution history to the
purchaser. But it allocated the contribution
history for the two shuttered subsidiaries to the
seller. Id. at 533. It reasoned that when the
MPPAA equated the purchaser with the "original
employer," it meant for the purchaser to become
responsible only for the liability of the
subsidiary it bought. This result confirms our
view that the "original employer" provision for
stock sales merely codifies the principle that a
stock purchaser takes the liability associated
with that stock.
In the present case, Cartage did not purchase
Transfer’s stock. So although the case seems
superficially analogous to Penn Central, it is
actually quite different. Under neither corporate
law nor the MPPAA did Transfer’s liabilities--in
particular, its contribution history--
automatically shift to the purchaser. The MPPAA
and the PBGC’s interpretations of it clearly
indicate that unless the purchaser of assets
assumes withdrawal liability by taking the
prescribed steps, the contribution history and
associated withdrawal liability stay with the
seller. So neither Penn Central nor the latter
portion of the PBGC Opinion Letter are as
instructive as the early portion of the PBGC
Opinion Letter which demonstrates that the
contribution history for a non-exempt sale of
assets remains with the seller.
But the district court did not rely solely on
the PBGC Opinion Letter and Ninth Circuit
opinion. The judge trusted his own eyes, and it
is much harder for us to discount his view than
it was to distinguish the authority he invoked.
At the time of the 1992 sale, Cartage was not
legally responsible/6 for Transfer’s pre-sale
contribution history and thus could have escaped
withdrawal liability. But by the time the case
reached Judge Nordberg in 1997, Cartage would
have been on the hook for withdrawal liability
based on the five-year contribution history it
had accrued since the purchase. The court seemed
to reason that because the Fund had suffered no
harm, it was not justified in seeking to punish
Transfer./7
The "no harm, no foul" approach is
instinctively appealing in the circumstances,
because a retrospective view may cast more light
on the relative rights and obligations of the
parties than would a prospective view at the time
of sale. Still, we must reject it. We have in the
past expressly refused to examine harm that
arises after a sale of assets in determining the
status of that sale. See Cullum, 973 F.2d at
1338. In Cullum, the parties completed an exempt
sale of assets, in which the buyer was obligated,
under the purchase agreement, to contribute to
the plan. See id. The buyer eventually reneged on
this obligation and the Fund assessed withdrawal
liability against the seller, reasoning that the
sale of assets was not exempt because the buyer
did not follow through on its obligation. We held
that the exempt status of the sale was to be
determined at the time of sale. See id. If the
buyer pledged to make contributions at the time
of sale, its eventual bad faith would not change
the status of the sale. The same principle that
worked to the seller’s advantage in Cullum must
be applied here to the seller’s detriment. At the
time of the transaction, the sale did not meet
the statutory requirements whereby Transfer’s
contribution history was shifted to Cartage.
Cartage’s good faith in continuing to make
contributions, thereby building up its own
history on which withdrawal liability could
eventually be calculated, does not change the
fact that the sale was not exempt. The LaCasse
group had one opportunity to discard Transfer’s
contribution history--during the sale--and it did
not do so.
We recognize that in some circumstances,
contemporaneous analysis will look like a trap
for the unwary. But the opposite approach--asking
courts to calculate withdrawal liability
retrospectively--would force the parties to scan
a kaleidoscope, in which constantly changing
facts assume rising and falling importance until
the arbitrary moment in time when an opinion
issues. That would undermine the very certainty
the MPPAA was meant to guarantee. So we have
adopted an arguably imperfect standard in the
service of MPPAA’s rules of general application
(which may ill fit, under particular
circumstances, the realities of these transient
corners of the economy). For instance, in Central
States, Southeast and Southwest Areas Pension
Fund v. Bellmont Trucking Co., 788 F.2d 428, 432
(7th Cir. 1986), we refused to excuse a bankrupt
company from withdrawal liability even though its
workers went on to retire and thus foreclose the
need for pension contributions, or went on to
obtain new jobs where the new employer paid their
contributions. We suggested that the Fund’s lack
of injury was merely fortuitous, and applied a
prospective approach to withdrawal liability that
would protect the Fund in the event it was not as
lucky the next time. See id. at 432 n.2.
The LaCasse group urges that we have taken a
flexible line in the past in order to achieve an
equitable result, citing Central States,
Southeast and Southwest Areas Pension Fund v.
Bell Transit, 22 F.3d 706 (7th Cir. 1994). In
Bell, the employer sold its assets in an exempt
sale, and retained an amount of cash. The Fund
learned of the withheld cash, and determined that
the seller had "liquidated." Id. at 708-09. Under
the MPPAA, if the seller liquidates within five
years after the sale, it is required to post a
bond, which the seller in Bell had not done.
Because the seller had posted no bond, the Fund
tried to assess withdrawal liability against it.
We blocked this effort, stating that the Fund
should only be able to recover the bond amount
(preferably through a civil action), instead of
assessing withdrawal liability against the seller
and giving the Fund a "windfall." Id. at 712. At
first blush, it may seem that we "manipulated"
the statute in order to achieve a "fair" result.
But a close reading of Bell reveals that it was
just another application of the "contemporaneous
analysis" rule. We found that the sale was exempt
when transacted, and could not be unraveled by a
subsequent failure to post bond for the eventual
liquidation. See id. at 711-12. The LaCasse group
argues that Bell sets a precedent against "extra"
payments to the Fund. But in Bell, the Fund was
not entitled to withdrawal liability at the time
of sale, so permitting a delayed assessment of
liability would have paid to the Fund something
that was not owed. Here, the Fund was entitled to
withdrawal liability at the time of sale.
Ultimately, the district court seemed persuaded
by the LaCasse group’s protestation that forcing
it to pay withdrawal liability would give the
Fund a "double recovery." See Mem. Op. at 13. We,
too, are troubled by the possibility that the
Fund may recover more than is required to fully
fund these workers’ benefits. After all, it is
the job of courts to do justice, not make
superfluous awards as punishment for technical
errors. However, on further examination, we see
nothing at stake here to compel us to ignore the
statutory requirement that sellers meet certain
conditions to qualify for an exemption or to
ignore our own precedent assessing the validity
of an exemption at the time of sale or the PBGC’s
instruction that non-exempt sellers retain their
contribution history.
In a pension plan, "[w]orkers’ benefits may be
stated as a percentage of their highest average
incomes . . . multiplied by the number of years
of covered employment." Artistic Carton, 971 F.2d
at 1351. Multiemployer pension plans generally
employ "cliff vesting," meaning that after a
fixed number of years of service, employees gain
a nonforfeitable right to the benefits they have
accumulated. See Angell & Polk, Multi-Employer
Plans, in II Employee Benefits Law sec. 14.6 (Illinois
Institute of Continuing Legal Education, 1994).
Then, as explained in Artistic Carton, an
employee’s vested benefits will continue to grow
as long as he continues to rack up additional
years of service. See 971 F.2d at 1351.
Importantly, one feature of multiemployer plans
is the "portability" of pension credits. See
Angell & Polk, supra, at sec. 14.7. This means
that a worker may leave one Plan participant and
join another, bringing with him the "years of
service" from his previous job. Withdrawing
employers stop making contributions on behalf of
employees before the employees have retired.
Withdrawal liability is supposed to represent the
amount that, "when invested, would theoretically
produce . . . a sum precisely sufficient to pay
(the employer’s proportional share of) a plan’s
estimated vested future benefits." Milwaukee
Brewery Workers’ Pension Plan v. Jos. Schlitz
Brewing Co., 513 U.S. 414, 426 (1995). Central
States apparently bases withdrawal liability on
an employer’s past ten years of contribution
history (at least that is what it did for the
LaCasse group)./8 At the time of withdrawal,
some variables necessary to determining each
workers’ benefits upon retirement are necessarily
unknown. For instance, the employer cannot know
how many years of service a worker will have
accrued by the time he retires or how much his
salary might rise before that time. And before
the Fund can calculate the amount of money that
must be invested today to guarantee adequate
benefits at retirement, it must discount future
benefits to their current value. The Fund has
wide discretion in adopting a valuation method,
but many such methods depend in part on current
market values, which will almost certainly
fluctuate over time. See, e.g., Masters, Mates &
Pilots Pension Plan v. USX Corp., 900 F.2d 727,
730-33 (4th Cir. 1990).
Based on this background, we see that the
equities of withdrawal liability are debatable in
a number of scenarios. In the paradigmatic case,
the non-exempt seller such as the LaCasse group
must pay withdrawal liability on behalf of its
employees. And a non-exempt buyer like Cartage
would have no withdrawal liability even if it
went out of business immediately. The MPPAA rules
were tailored to this circumstance, and they work
appropriately to guarantee that the Fund is
covered by the party who is equitably responsible
for the unfunded vested benefits. But the rule
leads to awkward results elsewhere. For instance,
what if a non-exempt seller were forced to pay
withdrawal liability, and the buyer in that sale
shut down only after ten years of pension
payments? The buyer would be assessed withdrawal
liability based on the ten-year contribution
history it had amassed, on top of the seller’s
withdrawal liability. Therefore, both the seller
and the buyer will have made "full" withdrawal
liability payments; that is, each will have paid
the amount that, when invested, would result in
the promised benefits at retirement. But, this is
not quite the case because, after working ten
years for the second employer, the workers’
promised benefits (which are based on accrued
years of service) will be higher. Additionally,
the applicable valuation rates and actuarial
estimates may have changed in the intervening
years, as they are based in part on market
values. So in this scenario--which is essentially
the same as the dispute between the LaCasse group
and the Fund--the Fund may have recovered more
than necessary to fully fund the workers’
unfunded vested benefits. But it is difficult for
a reviewing court--not privy to the Fund’s
changing valuation methods or the individual
workers’ records--to know how much "excess" the
Fund stands to recover. We are left only with the
queasy feeling that by mechanically applying a
rule of general application, we may be leaving
the Fund in this instance more than whole.
At the same time, it would not be feasible for
us to attempt to apply some general rule of
equity to right this seeming wrong because, when
dealing with the MPPAA and the many variables
involved in calculating withdrawal liability, it
is extraordinarily hard to know what is necessary
to adequately fund the pension plan and
simultaneously do equity to the participants.
What might come to mind is some sort of
overriding rule stating that ultimately the
seller can be liable for no more than is required
to make the Fund whole. This rule might be
feasible to administer, and would place on the
Fund the burden of demonstrating the extent of
its injury, an exercise it has not attempted in
the present case. But Congress has not seen fit
to provide such a rule, and especially
considering the uncertainties involved, it is
impermissible to provide one by judicial fiat.
Whether such a rule is warranted is a policy
judgment, requiring that the possibility of
excess recovery be weighed against the need for
guaranteeing adequate funding of pensions under
all circumstances.
At any rate, given our reluctance to fashion
some equitable rule on our own, we find that the
potential excess recovery in this case does not
violate the MPPAA and is probably within the
bounds of equity. To the extent that the
possibility of excess recovery might offend
considerations of equity, this may be an
inescapable price Congress has elected to pay in
adopting the statutory rules. We believe that the
statute and its administrative interpretations
must continue to be refined to minimize the
chance of duplicative recoveries and other
arguable inequities. And to relieve judicial
concern about excess recovery, the Fund must be
concerned with showing the equity of its demands
as well as their conformance with the technical
requirements of the Act.
D) Attorney’s Fees
Finally, Central States appeals the district
court’s decision to vacate the award of
attorney’s fees to Central States based on the
Fund’s success in securing interim payments while
the arbitration was pending. According to the
MPPAA, an employer must pay a withdrawal
liability assessment according to a schedule set
by the pension fund, "notwithstanding any request
for review or appeal of determinations of the
amount of such liability . . ." 29 U.S.C. sec.
1399(c)(2). This provision captures the MPPAA’s
"pay now, arbitrate later" principle. See Central
States, Southeast and Southwest Areas Pension
Fund v. Wintz Properties, Inc., 155 F.3d 868, 872
(7th Cir. 1998). The statute further provides that
"any failure of the employer to make any
withdrawal liability payment within the time
prescribed shall be treated in the same manner as
a delinquent contribution (within the meaning of
section 1145 of this title.)" 29 U.S.C. sec.
1451(b). Finally, the statute provides that in
any action by a plan to enforce an employer’s
delinquent contributions, "the court shall award
the plan" . . . "reasonable attorney’s fees and
costs of the action" if the action results in a
"judgment in favor of the plan." 29 U.S.C. sec.
1132(g)(2) (emphasis added).
The LaCasse group argues that "no notice of a
demand for payment was ever given to Six Transfer
and therefore, it cannot be liable for interim
payments." Appellant’s Br. at 19. But the notice
sent to the group upon the withdrawal of Nitehawk
states that it covers "all members of any
controlled group . . . of which [Nitehawk] is a
member." Appellee’s App. at 19. Notice to one
controlled group member constitutes notice to
all. See, e.g., Central States, Southeast and
Southwest Areas Pension Fund v. Slotky, 956 F.2d
1369, 1375 (7th Cir. 1992). Further, the Fund’s
extensive documentation of its liability
assessment clearly reflects that its calculations
reflected the contribution histories of Nitehawk,
Hines, and Transfer. So the LaCasse group must
have understood that it was to pay withdrawal
liability for Transfer. The LaCasse group did not
pay the liability before beginning arbitration,
and it was therefore delinquent. Section 1132
seems to us to mandate that the LaCasse group pay
the fees if Central States won a judgment on the
interim payment issue, notwithstanding the
ultimate outcome of the case. The district court
viewed the outcome of this case as a partial
victory for each side. See Appellant’s App. at 21
(Order of May 19, 1999). But we have suggested
that an interim payment order was a final order
on the limited issue of which party gets to hold
the stakes during an arbitration. See Trustees of
the Chicago Truck Drivers, Helpers and Warehouse
Workers Union (Independent) Pension Fund v.
Central Transport, Inc., 935 F.2d 114, 116-17 (7th
Cir. 1991). The MPPAA’s interim payment provision
reflects Congress’s concern that thinly
capitalized employers who are not forced to pay
prior to arbitration may empty their pockets by
the time an arbitrator determines they owe money
to the Fund. See id. So the interim payment
accomplishes a goal entirely different from the
arbitration on the merits. As such, the Fund’s
victory in securing interim payments cannot be
undone by a loss at the merits stage. Therefore,
the district court did not have discretion to
vacate the award of attorney’s fees for that
portion of the litigation.
III) Conclusion
In sum, we affirm the district court’s finding
that the Transfer-Cartage sale did not meet
statutory requirements and therefore did not
exempt Transfer from payment of withdrawal
liability. We affirm the district court’s
conclusion that when Nitehawk withdrew from
Central States, the LaCasse group effected a
complete withdrawal from the Fund. We affirm the
district court’s conclusion that the assessment
of withdrawal liability against the LaCasse group
is warranted. We reverse the district court’s
conclusion that Transfer’s contribution history
should be excluded from the computation of the
LaCasse group’s withdrawal liability, and remand
for a calculation reflecting the contribution
histories of all three employer-members of the
group. Finally, we reverse the district court’s
decision to vacate the attorney’s fees initially
awarded to the Fund for its success in securing
interim payments from the group, and we remand
for reimposition of an order in accord with this
opinion. Each party to bear its own costs.
/1 Central States filed its notice of appeal June
18, giving the LaCasse group 14 days to file its
appeal. It appears the LaCasse group sent its
papers via UPS Next-Day Air on June 29, 1999. The
clerk’s office inadvertently recorded receipt on
July 6, but noted the date July 1 on the check
sent with the appeal, suggesting that filing was
timely. Therefore, we reject Central States’
contention that the LaCasse group did not file
its appeal timely, and that this court does not
have jurisdiction.
/2 Notably, the standard of review for statutorily
mandated MPPAA arbitrations is not as deferential
as it is for labor arbitrations conducted
pursuant to collective bargaining agreements (the
arbitrator’s award must be enforced "so long as
it draws its essence from the collective
bargaining agreement." United Steelworkers of
America v. Enterprise Wheel & Car Corp., 363 U.S.
593, 597 (1960)), or voluntary commercial
arbitrations conducted pursuant to the Federal
Arbitration Act (a district court may vacate an
arbitration award if, inter alia, "the
arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final,
and definite award upon the subject matter
submitted was not made." 9 U.S.C. sec. 10(a)(4)).
"Section 1401(b)(3) of MPPAA indicates the
Arbitration Act, which governs voluntary
arbitration, applies only to the extent it is
consistent with MPPAA . . . [T]he severely
limited review required by section 10 of the
Arbitration Act is inconsistent with section
1401(b)(2) of MPPAA, and the latter prevails."
Union Asphalts and Roadoils, Inc. v. Mo-Kan
Teamsters Pension Fund, 857 F.2d 1230, 1234 (8th
Cir. 1988).
/3 The relevant provision reads as follows:
Buyer will assume all obligations of Six
Transfer, Inc. pursuant to any and all collective
bargaining agreements in effect between Six
Transfer, Inc. and Teamsters Local Union 120 of
St. Paul, Minnesota which contract covers certain
employees of Six Transfer, Inc.
Buyer will also assume any and all potential
withdrawal liability to the Central States
Pension Fund into which contributions were made
pursuant to the above referenced collective
bargaining agreement with Local 120. Buyer will
continue to make payments for contributions to
the pension fund and comply with any other
obligations pursuant to the collective bargaining
agreement.
Appellee’s App., Tab 2 at pages 7-8, sec. 7.
/4 The Ninth Circuit reached a similar conclusion in
a case where the seller claimed that it
"substantially satisfied" the bond requirement by
challenging withdrawal liability, thus notifying
the Fund that it was entitled to a bond waiver.
See Brentwood Fin. Corp. v. Western Conference of
Teamsters Pension Trust Fund, 902 F.2d 1456, 1461
(9th Cir. 1990). The court held that the
"practical effect" of such a course would be to
do away with the bond requirement. Here, too. If
Transfer’s theory were correct, parties to a sale
could evade the bond requirement for a year.
/5 One might wonder whether the district court
should have remanded the question of allocation
to the arbitrator, and whether we should do so.
There is no clear instruction in the MPPAA. But
we have stated as a general matter that "[w]hen
possible, . . a court should avoid remanding a
decision to the arbitrator because of the
interest in prompt and final arbitration." See
Publicis Communication v. True North
Communications Inc., 206 F.3d 725, 730 (7th Cir.
2000) (quoting Teamsters Local No. 579 v. B & M
Transit, Inc., 882 F.2d 274, 278 (7th Cir. 1989)
(citations omitted). In the present case, neither
party contested the district court’s authority to
decide a question left open by the arbitrator,
and both parties have briefed the issue to us. So
we think it sensible and fair to consider the
issue.
/6 When we speak of "legal responsibility," we do
not mean contractual responsibility. It is pretty
clear that the Purchase Agreement obligates
Cartage to make ongoing contributions and pay
withdrawal liability. But this obligation runs to
Transfer. Had Cartage withdrawn and declined to
pay withdrawal liability, the Fund faced
uncertain prospects for collecting from Cartage.
Cases construing the MPPAA have held that
successors in non-exempt sales may be liable for
withdrawal liability. See, e.g., Artistic Carton
Co. v. Paper Industry Union Management Pension
Fund, 971 F.2d 1346, 1352 (7th Cir. 1992). But
here a non-exempt successor has not posted a bond
and therefore the Fund would have to invest time
and money to collect the debt. And if a
"successor" suit against Cartage proved
fruitless, the Fund would have no recourse
against Transfer, which is not secondarily liable
under the Purchase Agreement. Because the Fund
would have no recourse against Transfer (this is
assuming Transfer need not pay withdrawal
liability), Transfer might well refuse to pay the
Fund. So Transfer--the only party to whom Cartage
owed a contractual duty to pay--would have no
reason to sue Cartage for damages. Consequently,
by "legal responsibility" we mean a
responsibility recognized by the MPPAA and
enforceable by the Fund.
/7 In effect, the Fund seemed to be saying, "Now we
know we didn’t lose any money, so why don’t you
give us some more?"
/8 Notably, if the parties had successfully
structured this as an exempt sale of assets, five
years of Transfer’s contribution history on
behalf of its employees would have "vanished."
See Angell & Polk, Multi-Employer Plans, in II
Employee Benefits Law sec. 14.29(5) (Illinois
Institute of Continuing Legal Education 1994).
Though the Fund will assess liability against
Transfer for ten years of contributions, Cartage
would have adopted just five years of Transfer’s
contribution history. If Cartage withdrew, it
would have owed significantly less than Transfer.