Gastronomical Workers Union Local 610 & Metro. Hotel Ass'n Pension Fund v. Dorado Beach Hotel Corp.

Decision Date11 August 2010
Docket Number08-2563.,No. 08-2561,08-2561
Citation617 F.3d 54
PartiesGASTRONOMICAL WORKERS UNION LOCAL 610 & METROPOLITAN HOTEL ASSOCIATION PENSION FUND et al., Plaintiffs, Appellants/Cross-Appellees,v.DORADO BEACH HOTEL CORPORATION et al., Defendants, Appellees/Cross-Appellants.
CourtU.S. Court of Appeals — First Circuit

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Jeffrey S. Swyers, with whom Barry S. Slevin, Allison A. Madan, and Slevin & Hart, P.C. were on brief, for plaintiffs.

James C. Polkinghorn, with whom Alejandro Méndez Román, José R. González-Nogueras, and Jiménez, Graffam & Lausell were on brief, for defendant Dorado Beach Hotel Corporation.

Manuel Duran-Rodríguez and Manuel Duran Law Office on brief for defendant La Mallorquina, Inc.

Before HOWARD, SELYA and THOMPSON, Circuit Judges.

SELYA, Circuit Judge.

These appeals are distinctive in two respects. First, they require us to ponder a question of first impression under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1481 (2000),1 which concerns the operation of ERISA's minimum funding requirement. See id. § 1082. Second, the appeals provide us with an opportunity to discuss, for the first time, the Supreme Court's recent teachings in Hardt v. Reliance Standard Life Insurance Co., --- U.S. ----, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010), which clarified the operation of ERISA section 502(g)(1), 29 U.S.C. § 1132(g)(1). The tale follows.

I. BACKGROUND

The underlying action was brought by the Gastronomical Workers Union Local 610 & Metropolitan Hotel Association Pension Fund (the Fund), a multi-employer pension plan covered by ERISA, and the trustees of the Fund. The Fund, as an entity, was dismissed by the district court for lack of standing, and that ruling is not challenged on appeal. We therefore refer to the trustees as the plaintiffs.

The complaint named the eleven employers who composed the Metropolitan Hotel Association as defendants. Along with Local 610, these employers were parties to a collective bargaining agreement (CBA), which had been renegotiated and renewed from time to time. A current iteration of the CBA remains in effect. It provides in pertinent part that the employers will make periodic contributions to the Fund. In the first instance, the CBA for any given year effectively dictates the amounts to be contributed by a particular employer.

Local 610 and the employers established the Fund in 1971, by means of a declaration of trust. Its primary purpose is to provide pensions for eligible employees.

The Fund operates on a May 31 fiscal year. ERISA mandates that covered pension plans, such as the Fund, must meet the statutory minimum funding standard in each fiscal year. See ERISA section 302, 29 U.S.C. § 1082. When a plan fails to satisfy the minimum funding requirement for a given year, the plan sponsor-the employer-must make additional contributions to bridge the gap. See id. § 1082(a)-(b). In a multi-employer plan, this responsibility is shared among participating employers. See id. § 1082(c)(11)(A).

The focal point of this case is the Fund's 2005 plan year. The CBA then in effect provided for employer contributions of $58 per eligible employee per month. In the spring of 2005, the Fund's actuary determined that these contributions would not be adequate to allow the Fund to satisfy ERISA's minimum funding standard. The actuary projected that an additional sum of $622,363 would be needed. ERISA allows employers a grace period of eight and one-half months after the end of a plan's fiscal year within which to cure an accumulated funding deficiency. See 29 U.S.C. § 1082(c)(10). With this in mind, the actuary calculated that the necessary sum could be raised by increased employer contributions of $100 per eligible employee per month.

The CBA recognized that the agreed contribution levels might have to be adjusted if and when an actuarial evaluation indicated a funding shortfall. In that event, the parties promised to “seek to reach an agreement as to an increase in the contributions stipulated [in the CBA].” Presumably with this language in mind, the trustees, by letter dated May 19, 2005, notified the employers of the projected deficiency for plan year 2005 and advised them that increased monthly contributions, as recommended by the actuary, would be required beginning June 1, 2005. The employers turned a deaf ear to this importuning, eschewing any increased contributions.

On March 14, 2006, the Fund filed Form 5500 with the Internal Revenue Service (IRS), reporting an accumulated funding deficiency of $643,748 for the 2005 plan year. The trustees notified the employers that they had reported a funding deficiency in this amount to the IRS.

The principal enforcement mechanism for the repair of minimum funding deficiencies is the imposition of excise tax penalties. See 26 U.S.C. §§ 412, 4971 (2000); see also D.J. Lee, M.D., Inc. v. Comm'r, 931 F.2d 418, 420 (6th Cir.1991) (“The excise tax ... was intended by Congress to enforce compliance with [the minimum funding] requirements.”). If a pension plan has a minimum funding deficiency that is not corrected by additional employer contributions within eight and one-half months of the end of the plan year, the employer becomes liable for a mandatory excise tax of five percent of the amount of the deficiency. 26 U.S.C. § 4971(a). If the deficiency is not thereafter seasonably corrected, an additional tax, equal to one hundred percent of the funding deficiency, is imposed. Id. § 4971(b), (c)(3).

On May 31, 2006, the Fund requested a waiver with respect to the accumulated funding deficiency for plan year 2005. 29 U.S.C. § 1083. To date, the IRS has not acted on this application.

During calendar 2006, one employer, Dorado Beach Hotel Corp. (DBHC), withdrew from the Fund. ERISA requires an employer who wishes to withdraw from a multi-employer plan to continue contributing toward its vested but unfunded liabilities, accrued as of the date of its withdrawal, until those liabilities are fully funded. See id. §§ 1381, 1391. The trustees, acting on actuarial advice, promulgated a schedule of DBHC's monthly withdrawal liability payments. DBHC began complying with this payment schedule.

In February of 2007, the trustees advised DBHC that the Fund would not meet the minimum funding requirement for the 2006 plan year unless it received $1,900,000 in additional contributions within the cure period. DBHC agreed to make a lump-sum payment in that amount in exchange for a favorable variance in its scheduled withdrawal liability payments. DBHC and the Fund entered into a similar arrangement for the 2007 plan year; the former again advanced $1,900,000 to enable the latter to avoid a looming minimum funding deficiency for the 2007 plan year and again received a favorable variance in the (previously amended) schedule of withdrawal liability payments.

II. TRAVEL OF THE CASE

On March 31, 2006, the trustees commenced an action against the employers in the United States District Court for the District of Puerto Rico. The trustees brought this action under 29 U.S.C. § 1132(a)(3), which supplies a cause of action in favor of an ERISA fiduciary (A) to enjoin any act or practice which violates any provision of [ERISA] or the terms of the plan or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of [ERISA] or the terms of the plan....” The scope of the action has narrowed over time; out of eleven employers originally named as defendants, only two, DBHC and La Mallorquina, Inc., remain in the case. Seven employers have settled, and two others have defaulted.

Pertinently, the trustees alleged that the employers failed to make sufficient payments to keep the Fund in compliance with ERISA's minimum funding requirement, ERISA section 302(a), 29 U.S.C. § 1082(a), for plan year 2005. They sought equitable relief, including an injunction, an order requiring the employers to contribute the additional monies needed to satisfy the minimum funding requirement for plan year 2005, liquidated damages, attorneys' fees, interest, and costs.

The employers moved to dismiss, asserting that (i) their liability for Fund contributions was limited to the schedule of contributions described in the CBA, and (ii) the trustees lacked standing to sue. The district court denied the motion. Gastronomical Workers Union v. Dorado Beach Hotel Corp. ( GW I ), 476 F.Supp.2d 99, 106-07 (D.P.R.2007). The part of the district court's ruling that resolved the issue of standing is not challenged on appeal.

In due course, the trustees moved for summary judgment, seeking judgment against each employer for its pro rata share of the accumulated funding deficiency for plan year 2005, along with liquidated damages, prejudgment interest, attorneys' fees, and costs under ERISA section 502(g)(2), 29 U.S.C. § 1132(g)(2). The employers opposed this motion and cross-moved for summary judgment in their favor.

The district court granted the trustees' motion to the extent that it sought enforcement of the minimum funding requirement for plan year 2005. Gastronomical Workers Union v. Dorado Beach Hotel Corp. (GW II), Civ. No. 06-1346, slip op. at 13 (D.P.R. Oct. 20, 2008). The court ruled that the employers were liable under section 302 for additional sums needed to cure the 2005 funding deficiency. Id. at 7-8. The court refused, however, to grant any ancillary relief. Id. at 13. At the same time, the court denied the cross-motion. Id. The court entered a judgment against each employer for a dollar amount representing that employer's pro rata share of the accumulated funding deficiency that had been reported at the end of the 2005 plan year.

Invoking Federal Rule of Civil Procedure 54(d) and ERISA section 502(g)(1), 29 U.S.C. § 1132(g)(1), the trustees filed a postjudgment motion for attorneys' fees, interest, and costs. The district court denied this motion...

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