Kinek v. Paramount Communications, Inc.

• Decision Date: 28 April 1994
• Docket Number: D,No. 788,789,788
• Citation: 22 F.3d 503
• Parties: -1989, 62 USLW 2703, 17 Employee Benefits Cas. 2713 Charles KINEK, Ernest Moreno, Steve Konik, Steven Yanecko, Plaintiffs-Appellees, Pension Benefit Guaranty Corporation, Plaintiff-Appellee-Cross-Appellant, v. PARAMOUNT COMMUNICATIONS, INC., Pension Plan of The New Jersey Zinc Company for Bargaining Unit Employees, Defendants-Appellants-Cross-Appellees. ocket 93-6230, 93-6232.
• Court: U.S. Court of Appeals — Second Circuit

Page 503

22 F.3d 503

73 A.F.T.R.2d 94-1989, 62 USLW 2703,

17 Employee Benefits Cas. 2713

Charles KINEK, Ernest Moreno, Steve Konik, Steven Yanecko Plaintiffs-Appellees Pension Benefit Guaranty Corporation Plaintiff-Appellee-Cross-Appellant, v. PARAMOUNT COMMUNICATIONS, INC., Pension Plan of The New Jersey Zinc Company for Bargaining Unit Employees Defendants-Appellants-Cross-Appellees.

No. 788, 789, Docket 93-6230, 93-6232.

United States Court of Appeals, Second Circuit.

Argued Dec. 16, 1993.

Decided April 28, 1994.

Marvin E. Frankel, New York City (Michael J. Nassau, Robert E. Payne, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, New York City, of counsel), for appellants-cross-appellees.

Jeremiah A. Collins, Washington, DC (Julia Penny Clark, Martin S. Lederman, Bredhoff & Kaiser, Washington, DC, Patricia McConnell, Vladeck, Waldman, Elias & Engelhard, New York City, of counsel), for plaintiffs-appellees.

Jeffrey B. Cohen, Deputy Gen. Counsel, Pension Benefit Guaranty Corp., Washington, DC (Carol Connor Flowe, General Counsel, Frank D. Allen, Jr., Asst. Gen. Counsel, Sara B. Eagle, Jeffrey J. Altenburg, Pension Benefit Guar. Corp., Washington, DC, of counsel), for appellee-cross-appellant.

Before: MESKILL, WINTER and PRATT, Circuit Judges.

MESKILL, Circuit Judge:

The appeals in these consolidated cases principally require us to determine whether, pursuant to the provisions of the pension plan agreement at issue, the defendant employer and the defendant pension plan were obligated to provide full funding of a portion of a single-employer defined benefit pension plan when that portion was "spun off" into a new plan with a different sponsor. On the plaintiffs' summary judgment motions on the issue of liability, the United States District Court for the Southern District of New York, Sand, J., held that the defendants were obligated to fund fully the spinoff by the provisions of the parties' collectively bargained pension plan agreement. Kinek v. Gulf & Western, 720 F.Supp. 275 (S.D.N.Y.1989) (Kinek I ). We affirm the district court's judgment in all respects.

BACKGROUND

Prior to 1981, defendant Gulf & Western At the time critical to these cases, the defendant G & W Plan included two provisions that are relevant here. Section 3.1, the full-funding clause, provided:

Inc. (G & W) ¹ operated, through a division, ten facilities engaged in mining, manufacturing and selling zinc oxide and other alloys. A defined benefit plan ² (G & W Plan) covered all workers in the ten facilities who were members of bargaining units represented by the United Steelworkers of America, AFL-CIO (USWA). USWA had negotiated the G & W Plan, which was subject to the requirements of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1001-1461, with G & W, the plan sponsor. See 29 U.S.C. Sec. 1002(16)(B)(i) ("plan sponsor" is "the employer in the case of an employee benefit plan established or maintained by a single employer").

Upon termination of the Plan or upon termination of all the Employer's operations, the Employer will fully fund on a sound actuarial basis all vested benefits currently payable or payable in the future under the eligibility provisions of the Plan in effect at the time of termination.

Section 10.2, the transfer clause, provided:

Upon the merger or consolidation of this Plan with any other plan or the transfer of assets or liabilities from the Trust Fund to another trust, all Participants shall be entitled to a benefit at least equal to the benefit they would have been entitled to receive had the Plan been terminated in accordance with Section 10.3 immediately prior to such merger, consolidation or transfer of assets or liabilities.

The transfer clause substantially mirrors section 208 of ERISA, 29 U.S.C. Sec. 1058 (section 208), which provides:

A pension plan may not merge or consolidate with, or transfer its assets or liabilities to, any other plan after September 2, 1974, unless each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated). The preceding sentence shall not apply to any transaction to the extent that participants either before or after the transaction are covered under a multiemployer plan to which subchapter III of this chapter applies.

On September 30, 1981, G & W sold three of the ten facilities to Horsehead Industries, Inc. (Horsehead), which subsequently operated the three facilities under the name The New Jersey Zinc Co., Inc. (NJ Zinc). Certain employees in the USWA bargaining units at the three facilities were transferred from G & W to Horsehead. Horsehead also acquired all of the assets and liabilities of the G & W Plan allocable to the transferred employees. At the time of this "spinoff," which is defined as "the splitting of a single plan into two or more plans," 26 C.F.R. Sec. 1.414(l )-1(b)(4), the spun off portion of the G & W Plan was allegedly underfunded.

With the assets of the spun off portion of the G & W Plan, approximately $1.2 million, Horsehead sponsored a new defined benefit plan, the New Jersey Zinc Co., Inc. Pension Plan for Bargaining Unit Employees Effective As of October 1, 1981 (NJ Zinc Plan). In October 1982, NJ Zinc announced its intent to terminate the NJ Zinc Plan. The Plan was terminated effective January 1, 1983, in accordance with ERISA section 4042(b)(1), 29 U.S.C. Sec. 1342(b)(1), ³ with an alleged $3.5 million shortfall.

Because the NJ Zinc Plan was underfunded at the time of its termination, the Pension Benefit Guaranty Corporation (PBGC), the plaintiff in one of the cases now consolidated before us, became trustee of the Plan. See 29 U.S.C. Sec. 1342. A wholly owned United States government corporation modeled after the Federal Deposit Insurance Corporation, the PBGC guarantees to participants in covered plans, see 29 U.S.C. Sec. 1321(a), payment of most "nonforfeitable benefits," benefits for which plan participants have satisfied the conditions for entitlement under the plan or under ERISA, see 29 U.S.C. Sec. 1301(a)(8); 29 U.S.C. Sec. 1322(a), (b); see also Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633, 636-38, 110 S.Ct. 2668, 2671-72, 110 L.Ed.2d 579 (1990). See generally 29 U.S.C. Secs. 1301-1348 (subchapter of ERISA pertaining to the PBGC). The PBGC has paid some benefits to the NJ Zinc Plan's participants, but those participants were entitled to greater benefits from the NJ Zinc Plan than they have in fact received.

The plaintiffs in the other case now consolidated before us are members of a class of persons who were vested participants in the G & W Plan prior to the spinoff and who subsequently became participants in the NJ Zinc Plan. These plaintiffs, to whom we shall refer as the Kinek plaintiffs, allegedly lost or will lose pension benefits as a result of the spinoff.

After the termination of the NJ Zinc Plan, USWA sued NJ Zinc, contending that NJ Zinc had a contractual obligation to fund fully the NJ Zinc Plan upon its termination. Specifically, USWA argued that NJ Zinc was bound by the full-funding clause, section 3.1, in the G & W Plan. This claim was unsuccessful. See United Steelworkers v. New Jersey Zinc Co., 828 F.2d 1001, 1008-10 (3d Cir.1987).

The Kinek plaintiffs subsequently sued G & W and the G & W Plan, alleging that the defendants were obligated to fund fully the spun off portion of the G & W Plan as of September 30, 1981. The Kinek plaintiffs' amended complaint asserted three causes of action: (1) pursuant to section 301 of the Labor Management Relations Act, 29 U.S.C. Sec. 185, the Kinek plaintiffs claimed that the defendants had violated a contract between an employer and a labor organization by failing to provide full funding of all vested benefits upon the spinoff, (2) pursuant to ERISA section 502, 29 U.S.C. Sec. 1132, the Kinek plaintiffs claimed that the defendants had violated the pension plan by failing to provide full funding of all vested benefits upon the spinoff, and (3) pursuant to section 208, the Kinek plaintiffs claimed that the defendants had violated ERISA by failing to provide full funding of the spun off portion of the G & W Plan.

The PBGC filed suit against the defendants shortly thereafter. In its complaint, the PBGC asserted inter alia that, pursuant to ERISA section 4042(d)(1)(B)(ii), 29 U.S.C. Sec. 1342(d)(1)(B)(ii), it is entitled, as trustee of the NJ Zinc Plan, to collect amounts owed by the defendants to the NJ Zinc Plan. The PBGC also asserted several other claims that either are not relevant here or were dismissed by the district court for lack of standing. See Kinek I, 720 F.Supp. at 279-81.

The district court consolidated the cases for pretrial purposes and granted, on cross-motions for summary judgment, the plaintiffs' motions for summary judgment on the issue of the defendants' liability. Kinek v. Gulf & Western, Nos. 87-6973, 87-7023, 1989 WL 156288, at 1-2, 1989 U.S.Dist. LEXIS 15180, at * 5-* 6 (S.D.N.Y. Dec. 20, 1989) (Kinek II ); Kinek I, 720 F.Supp. at 284. The district court read sections 3.1 and 10.2 of the G & W Plan together to require the defendants to fund fully the spun off portion of the Plan. It noted that this contractual full funding obligation was not inconsistent with ERISA, which establishes only a floor for pension benefits and does not prohibit employers from undertaking greater funding obligations. See Kinek I, 720 F.Supp. at 283 & n. 5.

In a subsequent proceeding on the issue of damages, the district court determined that, in order to discharge their liability, the defendants must pay a lump sum of $3,518,449 plus prejudgment interest of 9.5 percent dating from September 30, 1981, the effective date of the spinoff. Kinek v. Gulf & Western, 817 F.Supp. 353, 368 ...