United Retail & Wholesale Employees Teamsters Union Local No. 115 Pension Plan v. Yahn & Mc Donnell, Inc.

• Decision Date: 23 April 1986
• Docket Number: No. 115,85-1065,Nos. 85-1035,115,s. 85-1035
• Citation: 787 F.2d 128
• Parties: , 7 Employee Benefits Ca 1273 UNITED RETAIL & WHOLESALE EMPLOYEES TEAMSTERS UNION LOCAL NO. 115 PENSION PLAN and Robert E. Zimmer, Michael Paolella, John P. Morris and James Smith, Jr., Trustees of the United Retail & Wholesale Employees Teamsters Union LocalPension Plan, Appellees/Cross-Appellants, v. YAHN & Mc DONNELL, INC. and the Pennstar Company, Appellants in 85-1035/Cross- Appellees.
• Court: U.S. Court of Appeals — Third Circuit

Page 128

787 F.2d 128

54 USLW 2527, 7 Employee Benefits Ca 1273

UNITED RETAIL & WHOLESALE EMPLOYEES TEAMSTERS UNION LOCAL

NO. 115 PENSION PLAN and Robert E. Zimmer, Michael Paolella,

John P. Morris and James Smith, Jr., Trustees of the United

Retail & Wholesale Employees Teamsters Union Local No. 115

Pension Plan, Appellees/Cross-Appellants, v. YAHN & Mc DONNELL, INC. and the Pennstar Company, Appellants

in 85-1035/Cross- Appellees.

Nos. 85-1035, 85-1065.

United States Court of Appeals, Third Circuit.

Argued Sept. 12, 1985.

Decided March 31, 1986.

Rehearing and Rehearing In Banc Denied April 23, 1986.

Paula R. Markowitz (Argued), Richard H. Markowitz, Markowitz & Richman, Philadelphia, Pa., for appellees/cross-appellants.

William H. Ewing (Argued), Hangley, Connolly, Epstein, Chicco Foxman & Ewing, Philadelphia, Pa., for appellants in No. 85-1035/cross-appellees.

Before SEITZ and BECKER, Circuit Judges, and ROSENN, Senior Circuit Judge.

OPINION OF THE COURT

BECKER, Circuit Judge.

This case presents three important questions concerning the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. Sec. 1381 et seq. (1982): 1) whether MPPAA authorizes a right of action to collect withdrawal liability payments pending arbitration proceedings at which employers withdrawing from the plan may challenge assessments of withdrawal liability made by plan trustees; 2) whether the statutory scheme, under which the determination of withdrawal liability is made by trustees who themselves owe a fiduciary duty to the plan, and whose findings must be presumed correct by the arbitrator, deprives withdrawing employers of an impartial tribunal in violation of their procedural due process rights under the Fifth Amendment (and whether the alleged offending provisions are severable from the statutory scheme); and 3) whether MPPAA makes an award of attorney's fees, liquidated damages and costs mandatory upon an entry of a judgment for delinquent payments in favor of a pension plan, even though arbitration and review of arbitration in the district court have yet to take place. The district court held that withdrawal liability may be pursued in court prior to arbitration; that MPPAA comports with the constitutional requirement of due process; and that it would be premature to award a pension plan attorney's fees, liquidated damages and costs prior to the final resolution of the controversy.

We agree with the district court that MPPAA provides for a cause of action to collect withdrawal liability pending arbitration. We find, however, that the scheme violates the due process rights of withdrawing employers. We further find that the scheme is severable, and accordingly strike down only the portion of the scheme that requires the arbitrator to accord the trustees' determination of withdrawal liability a presumption of correctness. Finally, we hold that once the district court granted judgment for delinquent payments in favor of the pension plan, it was required to award attorney's fees, liquidated damages and costs even though the matter had yet to go to arbitration. Accordingly, we affirm in part and reverse in part.

Because of MPPAA's complexity, we must commence our analysis with a rather detailed description of its historical background and statutory scheme.

I. HISTORICAL BACKGROUND & STATUTORY SCHEME

Under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1001 et seq. (1976), amended by 29 U.S.C. Sec. 1301 et seq. (1982), employers contribute to a pension plan on behalf of each of their employees who is a member of a participating union. The amount of the payments is determined by a collective bargaining agreement between each employer and its employees. The plan is administered by trustees, half of whom are chosen by contributing employers and half by the union. 29 U.S.C. Sec. 186(c)(5)(B). The trustees set the level of benefits paid to participants and determine investment policy. ERISA also established the Pension Benefit Guaranty Corporation ("PBGC"), a government corporation, to insure employees' benefits against a plan's termination for insufficient funds.

Prior to MPPAA, 29 U.S.C. Sec. 1381 et seq. (1982), an employer who withdrew from a pension plan incurred a contingent liability: if a multiemployer plan terminated within five years following an employer's withdrawal, the employer was liable to the PBGC, but if the plan did not terminate within five years, the employer had no liability. The maximum of each employer's liability was 30% of its net worth. Because an employer who withdrew from a plan more than five years prior to its termination escaped with no liability, the remaining employers bore a greater share of liability. There was thus an incentive for employers to withdraw from plans in order to avoid future liability. Many withdrawals resulted, and the solvency of pension plans was threatened.

In 1980, Congress passed MPPAA, amending ERISA, to discourage withdrawals from multiemployer pension plans and to ensure the solvency of such plans. H.R.Rep. No. 869, 96th Cong.2d Sess. 67, reprinted in 1980 U.S.Code Cong. & Ad.News 2918, 2935. MPPAA, inter alia, imposed mandatory liability on withdrawing employers regardless of whether the plan terminated, and repealed the provision that set 30% of an employer's net worth as its maximum liability. Because MPPAA was signed into law on September 26, 1980, but imposed retroactive liability on employers who ceased contributing to a plan on or after April 29, 1980, in a worst case scenario an employer could be liable for all of its assets even if the plan remained solvent and even if the employer had left the pension plan prior to the enactment of MPPAA. ¹ Title 29, Sec. 1381 provides that upon an employer's withdrawal from a pension plan, the plan's trustees determine the amount of liability. In determining the amount of liability, the trustees are required to use one of several actuarial methods set forth in Sec. 1391 or any alternative method approved of by the PBGC. 29 U.S.C. Sec. 1391(c)(1) (1982). Section 1394(a) prohibits the retroactive application of a method chosen after the date of the employer's withdrawal and Section 1394(b) requires that the selected method be applied uniformly to all employers who withdraw from the plan.

Once an employer's withdrawal liability is calculated, the plan is required to notify the employer and demand payment on an installment schedule. 29 U.S.C. Sec. 1399(b)(1). After the employer receives notice of the amount of his withdrawal liability, it may, within ninety days, ask for a review by the plan's trustees. 29 U.S.C. 1399(b)(2)(A). After a "reasonable review," the trustees must notify the employer of their determination. 29 U.S.C. 1399(b)(2)(B). If a dispute persists, either party may initiate arbitration proceedings, in which the trustees' determination is presumed correct unless the party contesting it shows "by a preponderance of the evidence that the determination was unreasonable or clearly erroneous." 29 U.S.C. Sec. 1401(a)(3)(A). Section 1401(c) provides that the arbitrator's decision is subject to review in a district court where there is also a presumption, rebuttable by a clear preponderance of the evidence, that the arbitrator's factual findings are correct.

Under Secs. 1399(c)(2) and 1401, the employer must commence payments within 60 days of being informed of its liability, regardless of whether a review has been requested or arbitration proceedings initiated. Under Sec. 1132(g), if the plan wins judgment for a delinquent payment, attorney's fees and other costs must be paid by the employer.

II. FACTUAL AND PROCEDURAL HISTORY

In December 1980, appellant Yahn & McDonnell, Inc. ("Yahn") and Teamsters Union Local No. 115 entered into a collective bargaining agreement requiring Yahn to make specified weekly contributions to the union's ERISA pension plan, Teamsters Union Local No. 115 Pension Plan ("the Plan"), appellees in this action, on behalf of all of Yahn's employees who were members of Local 115. Yahn made all plan contributions expressly required by the collective bargaining agreement. The agreement itself does not provide for the imposition of withdrawal liability. The pension plan was administered by four trustees, two appointed by Local 115 and two appointed by contributing employers.

In November 1981, Yahn ceased operations and withdrew from the pension plan. In April 1982, the Plan demanded withdrawal liability totalling almost $458,000, and informed Yahn that the Plan had the right to look to a parent company for payment if Yahn could not pay. ² In July, Yahn requested a review, raising several issues, e.g., whether Yahn's liability might be reduced by its poor financial condition and/or the fact that most of its employees who were members of Local 115 had been hired by another company which had contributed and was continuing to contribute to the pension plan. After conducting the review, the trustees notified Yahn that its assessment would not be altered. On January 31, 1983, the Plan informed Yahn that if Yahn failed to make liability payments, the Plan would file suit within 60 days. Yahn demanded arbitration, and informed the Plan of its intention to challenge the constitutionality of MPPAA in district court. The parties agreed to hold arbitration in abeyance pending resolution of the constitutional issues. In April 1983, the Plan brought suit in the district court for the Eastern District of Pennsylvania against Yahn seeking a withdrawal liability payment.

In the district court Yahn argued that MPPAA does not confer a right of action to collect withdrawal liability payments while arbitration is pending. Yahn also argued that MPPAA denied it due process because the initial determination of liability is made by biased trustees. Yahn maintained that the right of appeal to an arbitrator and a district court did not eliminate the bias because the...