Central States Areas v. Hunt Truck Lines Inc ( 2001 )


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  • In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 00-3922
    Central States, Southeast and
    Southwest Areas Pension Fund
    and Howard McDougall,
    Plaintiffs-Appellants,
    v.
    Hunt Truck Lines, Inc.,
    an Iowa corporation,
    Defendant-Appellee.
    Appeal from the United States District Court
    for the Northern District of Illinois, Eastern Division.
    No. 96 C 5634--John A. Nordberg, Judge.
    Argued May 14, 2001--Decided December 3, 2001
    Before Bauer, Rovner, and Diane P. Wood,
    Circuit Judges.
    Diane P. Wood, Circuit Judge. Prior to a
    series of corporate sales and
    bankruptcies, Hunt Truck Lines
    participated in the Central States,
    Southeast and Southwest Areas Pension
    Fund. In 1996, Central States determined
    that Hunt owed withdrawal payments to the
    fund. It accordingly sent a notice
    demanding that Hunt begin making interim
    payments while the parties arbitrated
    Hunt’s ultimate liability. Hunt, however,
    refused to pay. Central States responded
    with this suit seeking the interim
    payments. Despite the broad power pension
    funds generally have to demand such
    payments, the district court refused to
    order Hunt to pay, finding that this was
    one of those rare cases in which the fund
    had exceeded its powers. In February
    2000, a panel of this court affirmed that
    decision. Central States, Southeast and
    Southwest Areas Pension Fund v. Hunt
    Truck Lines, Inc., 
    204 F.3d 736
    (7th Cir.
    2000) (Hunt I). Hunt then returned to the
    district court to request attorneys’
    fees, and the district court awarded it
    over $100,000. Central States has
    appealed that award, arguing that its
    position in the underlying case was
    substantially justified and that special
    circumstances exist in this case that
    make an award of fees unjust. We agree
    with Central States and reverse the
    judgment of the district court.
    I
    In 1994, Hunt withdrew from the Central
    States pension fund. In many
    circumstances, this action would
    havegiven rise to withdrawal liability on
    Hunt’s part under the relevant provisions
    of the Multiemployer Pension Plan
    Amendments Act of 1980, 29 U.S.C.
    sec.sec. 1381-1461 (MPPAA). Because Hunt
    sold its assets to another company, Wintz
    Parcel Drivers, Inc., however, the
    situation was morecomplicated. As long as
    Wintz continued to make payments to the
    fund, Hunt did not face withdrawal
    liability under the MPPAA. In 1996, one
    of Wintz’s subsidiaries went bankrupt,
    which triggered withdrawal liability on
    Wintz’s part under the relevant statutes.
    Central States first sent a notice to
    Wintz demanding that it begin making
    installment payments on the withdrawal
    liability, but Wintz defaulted. Its
    default permitted Central States to
    pursue Hunt’s secondary liability for the
    withdrawal payments.
    On May 31, 1996, Central States sent
    Hunt a notice demanding that it begin
    making installment payments on its
    withdrawal liability. Hunt refused, and
    Central States brought this lawsuit. At
    the same time, Central States commenced
    arbitration to determine Hunt’s final
    liability.
    The provisions of the MPPAA that give
    pension plans the right to demand interim
    payments of withdrawal liability are
    quite broad, and the general rule is that
    the plan is entitled to receive interim
    payments while the parties arbitrate the
    employer’s ultimate withdrawal liability.
    See, e.g., Trustees of the Chicago Truck
    Drivers, Helpers and Warehouse Workers
    Union (Independent) Pension Fund v.
    Central Transp., Inc., 
    935 F.2d 114
    , 118
    (7th Cir. 1991). There are very few
    exceptions to the plan’s right to such
    payments, because the purpose of the
    interim payment provisions is to ensure
    that the plan is protected from the risk
    of insolvency and that it remain fully
    funded while the parties arbitrate their
    dispute. The statute mandating
    arbitration of disputes over withdrawal
    liability would be thwarted if employers
    could litigate the merits of their claims
    before interim payments were made. See
    
    id. at 118-19.
    In most cases, therefore,
    when a plan seeks an order for interim
    payments, the district court enters the
    order as a matter of course.
    This case proved to be an exception to
    that rule. In the district court, Hunt
    pointed out that Central States sent the
    notice and demand to Hunt on May 31, but
    that in its memorandum in support of
    summary judgment in the district court,
    Central States stated that Wintz withdrew
    from the plan "on or about July 20."
    Because Hunt could not have incurred
    withdrawal liability until Wintz actually
    withdrew from the plan, it was apparent
    that Central States had sent the notice
    to Hunt at least a month and a half
    before Hunt incurred any liability. Hunt
    argued that, although the provision for
    interim payments was broad, at a minimum
    the statute did not allow Central States
    to seek payments until after Hunt
    incurred withdrawal liability. Central
    States responded to this assertion in two
    ways. First, it argued that it thought
    the withdrawal might have occurred as
    early as May 3, and that since the date
    of withdrawal was disputed, that issue
    should be submitted to arbitration. In
    addition, Central States argued that,
    even if its notice was premature, it was
    clear that Wintz had withdrawn by the
    time Central States filed its complaint
    in the district court on September 5, and
    so the district court could order the
    interim payments despite the fact that
    the initial notice was premature.
    The district court sided with Hunt, and
    a panel of this court affirmed that
    decision. Hunt 
    I, 204 F.3d at 743
    . We
    rejected Central States’ effort to argue
    that "on or about July 20" could mean "as
    early as May 3" and held instead that
    Central States would be bound by the
    admission it made in its summary judgment
    memorandum; this meant that the date of
    withdrawal was not legitimately in
    dispute. 
    Id. at 742.
    We also ruled that,
    under the MPPAA, a pension fund was not
    permitted to issue a notice and demand
    for withdrawal liability until after the
    employer incurred such liability. 
    Id. Because Central
    States did not comply
    with this statutory requirement, we
    agreed that Central States could not
    collect interim payments based on the May
    31 notice. 
    Id. Although Hunt
    prevailed on the narrow
    question presented, this court was
    careful to note that the decision would
    not preclude Central States from
    recovering the withdrawal payments once
    it issued a revised demand notice. In
    closing Hunt I, this court opined that
    "it appears certain that Central States
    will (and should) receive the full
    withdrawal fee to which it is entitled,"
    and warned that "Hunt should comply with
    the fund’s later demand." 
    Id. at 743.
    Central States indeed filed a revised
    notice, quite promptly. Nevertheless, as
    of the date of oral argument in this
    case, Hunt had yet to pay a dime on the
    underlying liability.
    Far from agreeing to pay what it owes,
    Hunt instead filed a number of motions in
    the district court seeking to have
    Central States pay Hunt for its
    attorneys’ fees in litigating Hunt I.
    Hunt did prevail on the only issue it
    raised in the case, which was whether
    Central States could demand interim
    payments based on a premature notice of
    liability. There is a modest presumption
    in ERISA cases in favor of awarding
    attorneys’ fees to the prevailing party,
    Meredith v. Navistar Int’l Transp. Corp.,
    
    935 F.2d 124
    , 128 (7th Cir. 1991), and
    the district court accordingly granted
    Hunt’s fee petitions. Despite the
    presumption in favor of awarding fees in
    usual cases, however, we believe that the
    district court erred in failing to take
    into account the broader context of this
    litigation.
    II
    ERISA generally permits a district court
    to award attorneys’ fees to either party
    in a dispute over withdrawal liability.
    29 U.S.C. sec. 1132(g). This court has
    described the approach the district
    courts should take in determining whether
    to award fees in ERISA cases in two ways.
    The first looks to five factors that the
    court should consider in connection with
    the fee question: (1) the degree of the
    losing party’s culpability or bad faith;
    (2) the ability of the losing party to
    satisfy an award of fees; (3) whether an
    award of fees against the losing party
    would deter others from acting under
    similar circumstances; (4) whether the
    party requesting fees sought to benefit
    all participants and beneficiaries of an
    ERISA plan or to resolve a significant
    legal question regarding ERISA; and (5)
    the relative merits of the parties’
    positions. 
    Meredith, 935 F.2d at 128
    . The
    second approach indicates that the
    district court should award fees to the
    prevailing party unless either (1) the
    losing party’s position was substantially
    justified or (2) special circumstances
    make a fee award unjust. 
    Id. In the
    end,
    we think these two formulations are
    simply alternative ways of making the
    same basic point: as we have put it
    before, "the bottom-line question is . .
    . : was the losing party’s position
    substantially justified and taken in good
    faith, or was that party simply out to
    harass its opponent?" 
    Id. We review
    the
    district court’s decision to award fees
    for abuse of discretion. Bowerman v. Wal-
    Mart Stores, Inc., 
    226 F.3d 574
    , 592 (7th
    Cir. 2000).
    Here, in the broader context of this
    litigation, an award of fees would do
    nothing but encourage the very foot-
    dragging and avoidance of interim payment
    liability that the statute was designed
    to prevent, and thus would be "unjust."
    The district court apparently felt that
    it was without power to consider events
    not directly related to the case before
    it. This assumption was in error. Our
    cases make clear that a district court
    considering an award of fees should take
    into consideration any "special
    circumstances" which would make an award
    of fees unjust, see 
    Meredith, 935 F.2d at 128
    , and that directive is broad enough
    to encompass consideration of pending,
    related litigation between the parties.
    Once we take this broader context into
    account, it becomes clear why fees would
    be inappropriate here. Although Hunt won
    this round of its battle with Central
    States, as far as we can tell from the
    record, there is no dispute that Hunt
    will ultimately face withdrawal
    liability. Nevertheless, Hunt has
    continued to refuse to make payments to
    Central States, and as of the date of
    oral argument in this case had not paid
    anything. The fact that Hunt has now
    managed to put off making its first
    payment on its liability for several
    years confirms our suspicion that Hunt’s
    primary motivation in this case was not
    to force Central States to issue a new
    demand notice revising the withdrawal
    date by a few months (which Central
    States has long since done), but to delay
    paying its withdrawal liability for as
    long as possible. In the face of Hunt’s
    obstinance, it would be unjust to require
    Central States to pay Hunt over $100,000.
    Given the fact that Hunt apparently is
    not financially stable and that Central
    States fears that, when it finally does
    receive an enforceable award against
    Hunt, Hunt will no longer be able to pay,
    the injustice of ordering an award at
    this stage is particularly acute.
    We also conclude that the district court
    erred in concluding that Central States
    had no legitimate justification for its
    position in the underlying litigation and
    was pursuing the case in bad faith. The
    district court was understandably
    unimpressed with Central States’ argument
    that when it said Wintz withdrew from the
    plan "on or about July 20," it might have
    meant as early as May 3. Perhaps that
    rather silly assertion detracted from the
    force of Central States’ key point, which
    was that the legal question it was
    presenting was not so simple after all.
    The district court thought it clear under
    the relevant statutes that Central States
    had overstepped its bounds by trying to
    collect interim payments based on a
    premature demand notice. Noting that
    Central States still had the power to
    reissue a valid notice, the district
    court believed that an award of fees
    would serve as a deterrent to Fund
    attempts to skirt the statutory framework
    in the future. Finally, although the
    district court acknowledged that Central
    States was likely to prevail on the issue
    of Hunt’s ultimate liability, it regarded
    that issue as relevant only to the
    related cases before other judges and not
    to the merits of the parties’ positions
    in the case before it.
    In fact, the issues that Central States
    was litigating were more complex than the
    district court acknowledged and its
    position was, even if not ultimately a
    winning one, substantially justified. In
    several cases prior to Hunt I, we
    stressed that under the MPPAA an employer
    is required to make interim payments at
    the fund’s request in almost all cases.
    It therefore followed, we said, that we
    would refuse to order interim payments
    only if the employer could show both (1)
    that the fund did not have even a
    colorable claim on the merits of its
    assessment of liability, and (2) that
    making the interim payments while the
    claim’s merits were arbitrated would
    cause the employer irreparable harm. See
    Trustees of the Chicago Truck Drivers,
    Helpers and Warehouse Workers Union
    (Independent) Pension Fund v. Rentar
    Indus., Inc., 
    951 F.2d 152
    , 154-55 (7th
    Cir. 1991); Central 
    Transp., 935 F.2d at 118-19
    .
    In this case, Hunt never even attempted
    to show that it would suffer irreparable
    harm if it were required to make interim
    payments. Under Rentar Industries and
    Central Transport, Central States thus
    had a respectable argument that Hunt
    could not avoid an order for interim
    payments regardless of any problems with
    Central States’ notice. Ultimately, of
    course, we determined that if a fund’s
    demand for payments was facially
    defective, we would not inquire into the
    harm the company would suffer from making
    interim payments. Nevertheless, prior to
    Hunt I, we had never found any exceptions
    to the two-part rule of Rentar Industries
    and Central Transport. Under those
    circumstances, one could not say that
    Central States lacked a substantial
    justification for the argument it raised
    in reliance on these cases.
    Central States also had a significant
    good-faith reason for taking the position
    it did. Central States operates a pension
    fund supported by contributions from
    multiple employers, and when an employer
    defaults on its obligations to the fund,
    Central States’ ability to pay the
    promised pensions to its beneficiaries
    may be endangered. Nevertheless, as
    Central States’ frequent resort to this
    court shows, employers who have withdrawn
    from the fund are often recalcitrant when
    it comes to paying withdrawal liability.
    See, e.g., Central States, Southeast and
    Southwest Areas Pension Fund v. Bomar
    Nat’l, Inc., 
    253 F.3d 1011
    (7th Cir.
    2001); Central States, Southeast and
    Southwest Areas Pension Fund v. Safeway,
    Inc., 
    229 F.3d 605
    (7th Cir. 2000);
    Central States, Southeast and Southwest
    Areas Pension Fund v. Midwest Motor
    Express, Inc., 
    181 F.3d 799
    (7th Cir.
    1999). As we explained in Central
    Transport, the fund’s ability to collect
    interim payments while the parties
    arbitrate the employer’s ultimate
    liability is a critical component of the
    MPPAA’s statutory 
    scheme. 935 F.2d at 118
    . Because many employers that have
    withdrawn from a fund are financially
    unstable, the interim payments provide
    the fund with a needed assurance that, in
    the event the employer is ultimately
    found liable, there will be funds
    available to cover the employer’s
    liability. 
    Id. Recognizing this
    need,
    Congress intentionally drafted the
    interim payment provisions of the MPPAA
    to give funds very broad power to demand
    interim payments, 
    id., and the
    funds have
    an obligation to their constituents to
    try to keep that power as broad as
    required to meet the statutory purposes.
    From the perspective of the employer,
    the difference between having to pay
    based on a premature notice and being
    able to wait until the fund issues a
    proper notice may be insignificant--a few
    months of payments at the most. Given the
    number of withdrawal liability notices
    the fund sends out in any given year,
    however, the delay in payment during
    those few months could quickly add up to
    substantial losses for the fund. In
    addition, although the district court
    found that there was no legitimate
    dispute over the appropriate withdrawal
    date in this case, withdrawal dates are
    often difficult to compute with
    precision, which means that the fund had
    a substantial interest in arguing for a
    rule that would not penalize it for
    occasional miscalculations. For these
    reasons, we believe Central States had a
    significant, good-faith reason for
    litigating this case.
    Once it is established that Central
    States’ position in this case was
    substantially justified and taken in good
    faith, the district court’s concern that
    an award of fees was necessary to deter
    similar conduct by funds in future cases
    loses much of its force. Although Central
    States’ position in this case was
    substantially justified, now that we have
    answered the legal question, a similar
    argument in a future case would lack
    merit.
    In closing, we stress that we are not
    holding that an award of fees could never
    be appropriate in an interim payments
    case. Rather, as we have repeatedly held,
    the district court must evaluate a fee
    request on the basis of all the
    circumstances of the case. In the unique
    circumstances of this case, however, we
    find that an award of fees to Hunt would
    be unjust, and that the district court
    accordingly abused its discretion in
    making that award. The judgment of the
    district court is Reversed.