Robbins v. Pepsi-Cola Metropolitan Bottling Co.

• Decision Date: 08 May 1986
• Docket Number: No. 84C170,85C9385.,84C170
• Citation: 636 F. Supp. 641
• Parties: Loran W. ROBBINS, et al., Plaintiffs/Counterdefendants, v. The PEPSI-COLA METROPOLITAN BOTTLING COMPANY, et al., Defendants/Counterclaimants, and Frito-Lay, Inc., et al., Additional Counterclaimants, and Central States, Southeast and Southwest Areas Pension Fund, et al., Additional Counterclaim Defendant. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, et al., Plaintiffs/Counterclaim Defendants, v. PEPSICO, INC., et al., Defendants/Counterclaimants, and Pepsi-Cola Bottling Company of Los Angeles; Taco Bell Corp.; Pizza Hut, Inc.; and North American Van Lines, Inc., Additional Counterclaimants.
• Court: U.S. District Court — Northern District of Illinois

636 F. Supp. 641

Loran W. ROBBINS, et al., Plaintiffs/Counterdefendants, v. The PEPSI-COLA METROPOLITAN BOTTLING COMPANY, et al., Defendants/Counterclaimants, and Frito-Lay, Inc., et al., Additional Counterclaimants,

and

Central States, Southeast and Southwest Areas Pension Fund, et al., Additional Counterclaim Defendant.

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, et al., Plaintiffs/Counterclaim Defendants, v. PEPSICO, INC., et al., Defendants/Counterclaimants, and Pepsi-Cola Bottling Company of Los Angeles; Taco Bell Corp.; Pizza Hut, Inc.; and North American Van Lines, Inc., Additional Counterclaimants.

Nos. 84C170, 85C9385.

United States District Court, N.D. Illinois, E.D.

May 8, 1986.

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Neil K. Quinn, Joseph B. Lederleitner, Mary Anne H. Capron, Richard M. Waris, Pretzel & Stouffer, Chartered, Thomas C. Nyhan, Alan M. Levy, John E. Bardgett, Daniel M. Locallo, Chicago, Ill., Rodney F. Page, Michael Evan Jaffe, Ronald L. Castle, James J. Armbruster, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., James L. Coghlan, Coghlan & Joyce, Chicago, Ill., for plaintiffs.

Arthur S. Friedman, Peter N. Wang, Deborah Fabricant, Friedman, Wang, Bleiberg & Heimer, P.C., New York City, Stanley J. Adelman, Rudnick & Wolfe, Chicago, Ill., for defendants/counterclaimants.

John R. Climaco, John A. Peca, Jr., Thomas L. Colaluca, John M. Masters, Climaco, Climaco, Seminatore & Lefkowitz Co., L.P.A., Cleveland, Ohio, Edward J. Calihan, Jr., Anna Lavin, Calihan & Lavin, Chicago, Ill., for third-party defendants.

Henry Rose, Mitchell L. Strickler, Washington, D.C. Gen. Counsel, Eileen M. Marutzky, Asst. U.S. Atty., Chicago, Ill., Local Counsel, for amicus curiae.

NORDBERG, District Judge.

These consolidated actions seek to recover withdrawal liability under the Employee Retirement Income Security Act of 1974, 29 U.S.C. ? 1001 et seq. ("ERISA"), as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. ? 1381 et seq. Plaintiff Central States, Southeast and Southwest Areas Pension Fund ("Central States") is a multiemployer plan as defined in 29 U.S.C. ? 1002(37)(A). The plan's trustees are also plaintiffs. Defendants Pepsi-Cola Metropolitan Bottling Co. ("Pepsi-Cola"), Pepsico, Inc. ("Pepsico"), Frito-Lay, Inc. ("Frito-Lay") and Wilson Sporting Goods, Inc. ("Wilson") are alleged to be members of a "controlled group" (See 29 U.S.C. ? 1301(b)(1)) who employed workers covered by the plan. Jurisdiction is based on 28 U.S.C. ? 1331 and 29 U.S.C. ? 1451(c).

The defendants have moved for partial summary judgment, challenging the constitutionality of the "controlled group" theory and withdrawal liability provisions of the MPPAA. The Fund has also moved for summary judgment, denying that the act is unconstitutional, and urging this court to order defendants to pay their withdrawal liability assessments in accordance with the provisions of the MPPAA.¹

Background of ERISA and the MPPAA²

In 1974, after several years of study and debate, Congress enacted the Employment Retirement Income Security Act, 29 U.S.C. ?? 1001 et seq. One of the central purposes of the Act was to "prevent the great personal tragedy suffered by employees whose vested benefits are not paid when pension plans are terminated." Nachman Corp. v. PBGC, 446 U.S. 359, 374, 100 S.Ct. 1723, 1732, 64 L.Ed.2d 354 (1980). See also PBGC v. R.A. Gray & Co., 467 U.S. 717, 719, 104 S.Ct. 2709, 2713, 81 L.Ed.2d 601 (1984). Through the passage of ERISA, Congress endeavored to insure that "if a worker has been promised a defined pension benefit upon retirement ?€” and if he has fulfilled whatever conditions are required to obtain a vested benefit ?€” he actually will receive it." Nachman, 446 U.S. at 375, 100 S.Ct. at 1733.

In order to effectuate this goal, Congress promulgated a complex statutory scheme regulating the operation of defined benefit pension plans.³ Title IV of ERISA, 29 U.S.C. ?? 1301-1381 (1974), created a program for plan termination insurance, to be administered by the Pension Benefit Guaranty Corp. ("PBGC"), a wholly-owned government corporation within the Department of Labor. 29 U.S.C. ? 1302. Congress designed this "insurance program" to operate in the following manner: the covered pension plans would pay insurance premiums to the PBGC, who would distribute benefits to plan participants in the event that a plan was terminated without sufficient assets to cover its guaranteed benefits.⁴See ?? 1322, 1361. ERISA's insurance program created an important distinction between single employer pension plans and multiemployer pension plans:⁵ the PBGC's obligation to pay benefits for terminated single employer pension plans commenced immediately upon the statute's passage in 1974. ? 1381(a), (b). In contrast, the statute provided that the PBGC would not become obligated to disburse guaranteed payments in the case of defaulting multiemployer plans until January 1, 1978. ? 1381(c)(1).

In the interim, the PBGC could, in its discretion, distribute benefits following the termination of a multiemployer pension plan. ? 1381(c)(2)-(4). If the PBGC distributed benefits under this section, employers who had paid into the plan during the preceding five years were liable to the PBGC in amounts proportional to their share of the plan's contributions during those periods. Thus, an employer who withdrew from a multiemployer plan exposed himself to a contingent liability dependent upon the plan's termination within the following five years and the PBGC's discretionary decision to pay guaranteed benefits. Even if the employer were liable by virtue of the occurrence of these two events, the statute limited his liability to an amount not to exceed 30% of his net worth. ? 1362(b)(2). See ? 1364(b).

As the date for mandatory coverage of multiemployer pension plans drew near, Congress began to express concern over the number of these plans experiencing significant financial hardship. The complete termination of these large pension plans could bankrupt the PBGC by forcing it to assume obligations beyond its capacity. In order to properly address this problem, Congress deferred the provisions dictating mandatory insurance coverage for multiemployer pension plans, and directed the PBGC to compile a comprehensive report addressing the problems unique to multiemployer pension plans and suggesting appropriate remedial legislation to alleviate these problems.⁶

The PBGC issued its report on July 1, 1978. Its principal criticism of ERISA's provisions relating to multiemployer plans was that "ERISA did not adequately protect plans from the adverse consequences that resulted when individual employers terminate their participation in, or withdraw from, multiemployer plans." PBGC v. R.A. Gray & Co., 104 S.Ct. at 2714. The PBGC's Executive Director explained:

A key problem of ongoing multiemployer plans, especially in declining industries, is the problem of employer withdrawal. Employer withdrawals reduce a plan's contribution base. This pushes the contribution rate for remaining employers to higher and higher levels in order to fund past service liabilities, including liabilities generated by employers no longer participating in the plan, so-called inherited liabilities. The rising costs may encourage ?€” or force ?€” further withdrawals, thereby increasing the inherited liabilities to be funded by an ever-decreasing contribution base. This vicious downward spiral may continue until it is no longer reasonable or possible for the pension plan to continue.

Gray, 104 S.Ct. at 2714 n. 2, citing "Pension Plan Termination Insurance Issues," Hearings Before the Subcommittee on Oversight of the House Committee on Ways and Means, 95th Cong., 2d Sess. 22 (1978) (statement of Matthew M. Lind). The PBGC suggested that in order to avoid these dire consequences, Congress should amend ERISA to include new rules wherein an employer withdrawing from a multiemployer pension plan would be required to pay his proportional share of the plan's unfunded vested liabilities. The advantages of the proposed withdrawal liability were two-fold: first, it would "discourage voluntary withdrawals and curtail the current incentives to flee the plan;" and second, "where such withdrawals do occur, ... withdrawal liability would cushion the financial impact on the plan." Gray, 104 S.Ct. at 2714-15 n. 3 (citing statement of Matthew M. Lind).

Congress took the PBGC's recommendations to heart, and amended ERISA by enacting the MPPAA in 1980. See 29 U.S.C. ?? 1381 et seq. "As enacted, the MPPAA requires an employer withdrawing from a multiemployer pension plan pay a fixed and certain debt to the pension plan. This withdrawal liability is the employer's proportionate share of the plan's `unfunded vested benefits,' calculated as the difference between the present value of the vested benefits and the current value of the plan's assets." Gray at 2715, citing 29 U.S.C. ?? 1381, 1391.

The MPPAA thus created a statutory framework whereby an employer who terminates or significantly reduces the level of his contributions to a multiemployer pension plan would no longer be able to evade his responsibility to fund the plan. Under the MPPAA, an employer who effects a complete or partial withdrawal from the plan will be liable for a proportionate share of the plan's unfunded vested benefit liability at the time of his withdrawal.

The MPPAA requires an assessment of withdrawal liability if an employer effects either a complete or partial withdrawal from the plan. A complete withdrawal occurs if an employer (1) permanently ceases to have an obligation to contribute under the plan, or (2) permanently ceases all covered operations under the plan. 29 U.S.C. ? 1383(a). A partial withdrawal occurs if (1) there is a seventy percent contribution decline for a given plan year,⁷ or (2) there is a partial cessation of the employer's contribution...