S & M PAVING v. Const. Laborers Pension Trust

• Decision Date: 12 April 1982
• Docket Number: 81-4910.,No. 81-5929 TJH,81-5929 TJH
• Citation: 539 F. Supp. 867
• Court: U.S. District Court — Central District of California
• Parties: S & M PAVING, INC., Plaintiff, v. The CONSTRUCTION LABORERS PENSION TRUST OF SOUTHERN CALIFORNIA, Defendant. Alan C. ELLS, Plaintiff, v. The CONSTRUCTION LABORERS PENSION TRUST OF SOUTHERN CALIFORNIA, Defendant.

539 F. Supp. 867

S & M PAVING, INC., Plaintiff, v. The CONSTRUCTION LABORERS PENSION TRUST OF SOUTHERN CALIFORNIA, Defendant.

Alan C. ELLS, Plaintiff, v. The CONSTRUCTION LABORERS PENSION TRUST OF SOUTHERN CALIFORNIA, Defendant.

Nos. 81-5929 TJH, 81-4910.

United States District Court, C. D. California.

April 12, 1982.

Wayne A. Hersh, Van A. Goodwin, Merrill, Schultz & Hersh, Newport Beach, Cal., for plaintiffs Ells and S & M Paving.

James Watson, Howard A. Kroll, Cox, Castle & Nicholson, Los Angeles, Cal., for defendant Construction Laborers Pension Trust.

OPINION

HATTER, District Judge:

I.

BACKGROUND

This action concerns the validity of the Multiemployer Pension Plan Amendment Act of 1980 (MPPAA) (29 U.S.C. § 1381 et seq.). That Act amended the Employee Retirement Income Act of 1974, commonly known as ERISA.

Prior to ERISA, numerous private pension plans had experienced difficulty providing promised retirement benefits for their employees. In 1974, Congress attempted to rectify this problem by creating a multiemployer pension plan system under ERISA. ERISA provided for minimum vesting and funding schedules and established a centrally administered insurance fund to protect employees in the event of plan termination. See 29 U.S.C. §§ 1001-1144, 1301-1381.

Under ERISA-sponsored multiemployer plans, the pension benefits an employee could receive were not directly tied to the actual contributions made by his employer. Thus, the funds held in trust by each plan did not always equal the amount of vested pension benefits that had accrued and were outstanding. The difference between the two amounts was known as the unfunded vested liability. Under the initial ERISA program, an employer became liable to pay this unfunded vested liability only if a plan terminated or if he withdrew from a plan within five years of its termination. Many employers were thus encouraged to withdraw from these plans, knowing that the chances of their incurring liability for the unfunded vested benefits were fairly remote.

In 1980, Congress plugged this loophole by passing the MPPAA. That Act made employers liable for any unfunded vested benefits that might exist at the time of withdrawal. 29 U.S.C. § 1381. Although the MPPAA was enacted on September 26, 1980, it was made effective as of April 29th of that year.

The plaintiffs in this case, Alan C. Ellis Construction, Inc. and S & M Paving Company, had established employee pension plans under the terms of their collective bargaining agreements with the Council of Laborers of Southern California (the Union). These plans were administered by the Construction Laborers Pension Trust (the Trust) which is the defendant in this action. Both Ells and S & M Paving terminated their collective bargaining agreements with the Union around July 1, 1980. Both, however, continued their pension fund contributions until at least December 1980. At that point, negotiations with the Union reached an impasse and pension contributions ceased.

In August 1981, the Trust notified plaintiffs that they were subject to substantial withdrawal liability under the MPPAA. Plaintiffs were given the option of making one lump sum payment or monthly installments. They responded by filing this action challenging the constitutionality of the MPPAA and seeking to have this Court permanently enjoin the Trust from further prosecution, enforcement or collection of the withdrawal liability claims. Although plaintiffs challenge the MPPAA on a number of constitutional grounds, only two of those grounds merit discussion here. They involve the Contracts Clause and Due Process Retroactivity.

II

THE CONTRACTS CLAUSE

Plaintiffs claim the MPPAA unconstitutionally impairs the terms of both the collective bargaining agreements with the Union and the Trust Agreement which established the Construction Laborers Pension Trust. Specifically, the collective bargaining agreements provide that plaintiffs' liability with respect to the Trust "has been and remains limited exclusively to payment of the contributions specified from time to time in the Collective Bargaining Agreements." The Trust Agreement likewise provides that:

The Individual Employers shall not be required to make any further payments or contributions to the cost of operation of the fund or of the pension plan except as may be hereafter provided in the collective bargaining agreements.

Plaintiffs argue that the MPPAA, by imposing additional liabilities not covered in these agreements, "totally abrogated" this contractual relationship.

Plaintiffs' contentions, however, have no support either in law or in fact. Their contractual relationship was not abrogated by the MPPAA, but by the parties themselves. This occurred when the collective bargaining agreement was terminated in July 1980, several months prior to the passage of the MPPAA. Nor are plaintiffs in any position to argue that the collective bargaining agreement defined or could limit their entire obligation to the Trust. In Connolly v. Pension Benefit Guaranty Corp., 581 F.2d 729 (9th Cir. 1978), the district court had ruled that the plan in question was an individual account plan and, therefore, not subject to termination insurance coverage under ERISA. In reaching this conclusion, the court had looked only at the language in the employer's contractual obligation. The Ninth Circuit reversed and held that the plan was not an individual account plan because contributions were pooled into a common fund. Id. at 733. The court also held that liability under the plan had to be defined by reference to the appropriate ERISA statutes, and not solely by the collective bargaining agreement. Id. at 732.

While Connolly involved a different factual situation than the present case (i.e., termination insurance versus withdrawal liability), its rationale is particularly appropriate. It held, in effect, that parties could not shield themselves from a statutory obligation simply by putting what amounted to disclaimer clauses in their contractual agreement.

Assuming plaintiffs could somehow surmount these hurdles, they would then be confronted with the language of the Contracts Clause which reads:

No State shall ... pass any ... law impairing the Obligation of Contracts.

U.S. Const., Art. I, § 10. Emphasis added.

Despite this express limitation, plaintiffs argue that the Contracts Clause should be applied to the Federal Government as well as the states. The genesis of this idea can be found in Lynch v. United States, 292 U.S. 571, 579, 54 S.Ct. 840, 843, 78 L.Ed. 1434 (1934). There, the Court held that:

Rights against the United States arising out of a contract with it are protected by the Fifth Amendment.

Lynch, however, dealt with a contract formed between an individual and the United States. It did not deal with a legislative enactment of the Federal Government which adversely affected a contract between two or more private parties. Nevertheless, some courts and commentators began reading Lynch as if it did. They observed that since the Fifth Amendment prohibits the Federal Government from impairing contracts, that restriction is essentially the same as that imposed by the Contracts Clause on the states. This meant that, in essence, the Contracts Clause could be said to apply to Congress as well as the states. E.g., The Supreme Court and the Contract Clause: III, 57 Harv.L.Rev. 852, 890-91 (1944); Rivera v. Patino, 524 F.Supp. 136, 143 (N.D.Cal.1981) ("The Contracts Clause operates against the Federal Government through the due process clause of the fifth amendment." Lynch was cited for this proposition.); City of New Brunswick v. Borough of Milltown, 519 F.Supp. 878, 883 (D.N.J.1981) (Fifth Amendment provides a "similar measure of protection" as does the Contracts Clause).

The Ninth Circuit, however, has apparently refused to endorse this approach. In Todd Shipyards Corp. v. Witthuhn, 596 F.2d 899, 903 (9th Cir. 1979), the court observed that "the Supreme Court has never held the Contract Clause applicable to federal as opposed to state action." The D. C. Circuit also seems to be in accord. In Larionoff v. United States, 533 F.2d 1167, 1179-80 (D.C. Cir.1976), aff'd, 431 U.S. 864, 97 S.Ct. 2150, 53 L.Ed.2d 48 (1977), the court noted that:

Since contractual rights against the government are property interests protected by the Fifth Amendment, Congressional power to abrogate existing contracts is narrowly circumscribed. cites Lynch And although Congress may constitutionally impair existing contract rights in the exercise of a paramount governmental power such as the `War Powers,' Congress is `without power to reduce expenditures by abrogating contractual obligations of the United States.'

Emphasis added. Citations omitted.

This appears to be a more accurate interpretation of Lynch. It also is in harmony with the Supreme Court's own reading of that case. In Thorpe v. Housing Authority, 393 U.S. 268, 279, 89 S.Ct. 518, 524, 21 L.Ed.2d 474 (1969), the Court had little difficulty upholding a HUD regulation even though it had an adverse impact on the contractual expectations of various parties. But, the Court was quick to note that:

A far different case would be presented if HUD were a party to this suit arguing that it could repudiate its obligations under the annual contributions contract ....

Id. at n.33, 89 S.Ct. 524 at n.33. Lynch was cited for this proposition.

The Supreme Court thus made a basic distinction between the case of the Federal Government abrogating its own contract and that of a legislative or Congressional enactment which adversely impairs a contract because it alters the legal ground rules upon which that contract was originally predicated.

This distinction is critical to understanding why the Contracts Clause should only apply to the states. Whenever Congress enacts legislation that otherwise would pass constitutional muster, it is acting pursuant to a "paramount governmental power." The same...