ILGWU Nat. Retirement Fund v. Levy Bros. Frocks, Inc., 769

• Decision Date: 17 May 1988
• Docket Number: D,No. 769,769
• Citation: 846 F.2d 879
• Parties: , 9 Employee Benefits Ca 2326 ILGWU NATIONAL RETIREMENT FUND, Sol C. Chaikin and Joseph Moore, Plaintiffs-Appellants, v. LEVY BROS. FROCKS, INC., Defendant-Appellee. ocket 87-7870.
• Court: U.S. Court of Appeals — Second Circuit

Page 879

846 F.2d 879

56 USLW 2708, 9 Employee Benefits Ca 2326

ILGWU NATIONAL RETIREMENT FUND, Sol C. Chaikin and Joseph Moore, Plaintiffs-Appellants, v. LEVY BROS. FROCKS, INC., Defendant-Appellee.

No. 769, Docket 87-7870.

United States Court of Appeals Second Circuit.

Argued Feb. 22, 1988.

Decided May 17, 1988.

Marc E. Richards, New York City (Myerson & Kuhn, Richard Levy, Jr., Sara Chenetz; Booth, Marcus & Pierce, New York City, of counsel), for plaintiffs-appellants.

David B. Bernfeld, New York City (Hoffinger Friedland Dobrish Bernfeld & Hasen, Mark W. Geisler, of counsel), for defendant-appellee.

James J. Armbruster, Washington, D.C. (Pension Ben. Guar. Corp., Gary M. Ford, Gen. Counsel, Carol Connor Flowe, Deputy Gen. Counsel, Jeanne K. Beck, of counsel), as amicus curiae for Pension Ben. Guar. Corp.

Before FEINBERG, Chief Judge, PRATT, Circuit Judge and McLAUGHLIN, District Judge. ^*

FEINBERG, Chief Judge:

ILGWU National Retirement Fund (the "Fund") and two of its trustees appeal from a judgment of the United States District Court for the Southern District of New York, Bernard Newman, senior judge of the United States Court of International Trade, sitting as a district court judge by designation, dismissing, after a bench trial, the Fund's complaint against Levy Bros. Frocks, Inc., a New York corporation now dissolved (the "Corporation"). Appellants seek to recover from the Corporation "withdrawal liability" in the sum of $277,881, plus interest, liquidated damages, costs and attorneys' fees, allegedly due the Fund pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1001, et seq., as amended by the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. Sec. 1381, et seq. (collectively, "MPPAA"). The Fund is an employee pension benefit plan and a multiemployer plan within the meaning of 29 U.S.C. Secs. 1002(2) and (37).

This case presents the question of whether under MPPAA the Corporation must arbitrate its defense to withdrawal liability that it was not bound on and after the effective date of MPPAA by a contract to contribute to the Fund, in order to preserve that defense for ultimate judicial review. For the reasons given below, we conclude that MPPAA does require the Corporation to raise such a defense in arbitration. We therefore reverse the judgment of the district court and remand the case for further proceedings.

I. Statutory Framework

Before turning to the facts, it is useful to summarize the statutory framework governing this case. MPPAA was enacted by Congress in September 1980 for "[t]he primary purpose of ... protect[ing] retirees and workers who are participants in [multiemployer] plans against the loss of their pensions." H.R.Rep. No. 96-869, Part I, 96th Cong., 2d Sess. 51 (1980) ("House Report"), reprinted in 1980 U.S. Code Cong. & Ad. News 2918, 2919. In particular, Congress was concerned that as of 1980:

(1) the magnitude of the risk and the potential exposure of the [multiemployer plan] system are intolerably high; and (2) existing law and particularly the plan termination insurance provisions are inadequate to assure financially sound multiemployer plans, may accelerate declines and further weaken and hasten the termination of financially weak plans.... [T]here are serious defects in current law which undermine the benefit security of multiemployer plan participants.

Id. at 57, 1980 U.S. Code Cong. & Ad. News at 2925. Thus, in T.I.M.E.-DC, Inc. v. Management-Labor Welfare & Pension Funds, 756 F.2d 939, 943 (2d Cir.1985), we pointed out that "[t]he policy of the MPPAA ... was to protect the interests of participants and beneficiaries in financially distressed multiemployer plans and to encourage the growth and maintenance of multiemployer plans." See also Textile Workers Pension Fund v. Standard Dye & Finishing Co., Inc., 725 F.2d 843, 847-49 (2d Cir.) (discussing history of MPPAA), cert. denied, 467 U.S. 1259, 104 S.Ct. 3554, 82 L.Ed.2d 856 (1984).

Under MPPAA an employer who withdraws from a multiemployer plan, with certain exceptions, is assessed "withdrawal liability," that is, the employer is required to continue funding its proportionate share of the plan's unfunded vested benefits. 29 U.S.C. Secs. 1381, 1391. The purpose of withdrawal liability "is to relieve the funding burden on remaining employers and to eliminate the incentive to pull out of a plan which would result if liability were imposed only on a mass withdrawal by all employers." House Report at 67, 1980 U.S. Code Cong. & Ad. News at 2935. A complete withdrawal from a plan occurs when an employer (1) permanently ceases to have an obligation to contribute to a plan arising (a) under one or more collective bargaining or related agreements or (b) as a result of a duty under applicable labor-management relations law; or (2) permanently ceases all covered operations under a plan, 29 U.S.C. Secs. 1383, 1392. Withdrawal liability may also be imposed for partial withdrawals. 29 U.S.C. Secs. 1381, 1385. The methods for computing withdrawal liability are set forth in 29 U.S.C. Sec. 1391, and certain limitations on liability are set forth in 29 U.S.C. Sec. 1405.

When an employer withdraws from a multiemployer plan, the plan sponsor, that is, the entity maintaining the plan, must determine the amount of the employer's withdrawal liability, notify the employer of the amount and make a demand for payment. 29 U.S.C. Sec. 1382. Notice and other procedural provisions governing the collection of withdrawal liability are set forth in 29 U.S.C. Sec. 1399, which provides, among other things, that: (1) the plan sponsor shall notify an employer of the amount of its withdrawal liability and the schedule for liability payments "[a]s soon as practicable after an employer's complete or partial withdrawal," 29 U.S.C. Sec. 1399(b)(1); (2) no later than 90 days after the employer receives notice of the liability assessment, the employer may ask the plan sponsor to review the liability determination, identify any inaccuracy in the determination, or furnish additional relevant information, 29 U.S.C. Sec. 1399(b)(2)(A); (3) after a "reasonable review of any matter raised" by the employer, the plan sponsor shall notify the employer of the plan sponsor's decision, the basis for it and any change in the employer's liability, 29 U.S.C. Sec. 1399(b)(2)(B); (4) notwithstanding any requests for review or appeal of the determination, however, withdrawal liability is payable in accordance with the schedule set forth by the plan sponsor beginning no later than 60 days after the date of demand, 29 U.S.C. Sec. 1399(c)(2); and (5) in the event of a default--defined as, among other things, the failure to make any payment when due that is not cured within 60 days after the employer receives written notification from the plan sponsor of such failure--the plan sponsor may require immediate payment of the outstanding amount of an employer's unpaid withdrawal liability, plus accrued interest, 29 U.S.C. Sec. 1399(c)(5).

Disputes over withdrawal liability determinations are to be resolved by arbitration, as provided in 29 U.S.C. Sec. 1401(a)(1):

Any dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under sections 1381 through 1399 of this title shall be resolved through arbitration. Either party may initiate the arbitration proceeding within a 60-day period after the earlier of--

(A) the date of notification to the employer under section 1399(b)(2)(B) of this title, or

(B) 120 days after the date of the employer's request under section 1399(b)(2)(A) of this title.

The parties may jointly initiate arbitration within the 180-day period after the date of the plan sponsor's demand under section 1399(b)(1) of this title.

The arbitrator's award is subject to review by the courts, 29 U.S.C. Sec. 1401(b)(2), although the arbitrator's findings of fact are presumed correct unless rebutted by a clear preponderance of the evidence, 29 U.S.C. Sec. 1401(c). When no arbitration proceeding is initiated, the plan sponsor may bring an action in state or federal court to collect the amounts due and owing. 29 U.S.C. Sec. 1401(b)(1). Moreover, during the pendency of any arbitration proceedings payments must still be made in accordance with the sponsor's determination, with any subsequent adjustments to occur after the arbitrator's final decision. 29 U.S.C. Sec. 1401(d). However, the Pension Benefit Guaranty Corporation (the "PBGC"), a corporation established under 29 U.S.C. Sec. 1302 to administer and enforce the provisions of ERISA relevant here, and amicus on this appeal, has softened the impact of this "pay-first-question-later system" through regulations which provide that the plan sponsor cannot consider the employer to be in default and accelerate its demand for payment until the 61st day after the review and arbitration process is complete. T.I.M.E.-DC, 756 F.2d at 947; 29 C.F.R. Sec. 2644.2(c).

II. Background

With this framework in mind, we turn to the background of this case. Prior to 1967, three brothers, Louis, Albert and Hyman Levy, operated a small business that manufactured women's clothing as a partnership under the name "Levy Bros. Frocks" (the "Partnership"). In 1962, the Partnership became a member of the Cotton Apparel & Robe Producers Association of United States, Inc. (the "Association"), a trade association of apparel manufacturers that conducts multiemployer collective bargaining on behalf of its employer members. During the period relevant to this case, the Association negotiated, signed and administered a continuous series of collective bargaining agreements with the International Ladies' Garment Workers' Union (the "ILGWU"). After negotiation of each successive agreement, the Association forwarded copies of the agreement to its members and requested that they execute Certificates of Authorization and Assumption (the "Authorizations")...