Banner Industries, Inc. v. Central States, Southeast and Southwest Areas Pension Fund

Decision Date20 July 1989
Docket Number87-1959,87-1960 and 87-2794,Nos. 87-1700,s. 87-1700
Parties, 10 Employee Benefits Ca 2617 BANNER INDUSTRIES, INC., Plaintiff Counterdefendant-Appellant, Cross-Appellee, v. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, and its present Trustees in their capacity as Trustees, et al., Defendants Counterplaintiffs-Appellees, Cross-Appellants, and Pepsico, Inc., et al., Defendants.
CourtU.S. Court of Appeals — Seventh Circuit

Thomas D. Yannucci, Kirkland & Ellis, Washington, D.C., for plaintiff counterdefendant-appellant, cross-appellee.

Rodney F. Page, Arent Fox Kintner Plotkin & Kahn, Peter H. Gould, Pension Benefit Guar. Corp., Office of General Counsel, Washington, D.C., for defendants counterplaintiffs-appellees, cross-appellants.

Before FLAUM, MANION and KANNE, Circuit Judges.

MANION, Circuit Judge.

Banner Industries, Inc. (Banner) brought this action against Central States, Southeast and Southwest Areas Pension Fund (Central States), among others. Banner sought a declaration that it not be liable for any portion of a demand for withdrawal liability made upon Banner by Central States pursuant to the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. Sec. 1382 (MPPAA). Withdrawal liability is the amount owed a pension plan by an employer which reduces or ceases its plan contributions. Central States moved to dismiss and moved for summary judgment on its counterclaim for interim payments.

The two questions certified on appeal are (1) whether a control group employer remains subject to MPPAA arbitration requirements when that corporation has divested itself of its subsidiary before the subsidiary's withdrawal; and (2) whether (assuming arbitration is required) Banner's filing in federal court raising the issue whether under these circumstances a party is subject to the MPPAA mandatory arbitration procedures, tolls the time period for initiating arbitration, 663 F.Supp. 1290. For the reasons stated below, we answer both in the affirmative, and affirm the district court's dismissal of Banner's action and grant of summary judgment for Central States on its counterclaim.


For purposes of a motion to dismiss, this court accepts a plaintiff's well-pleaded allegations as true. Repp v. F.E.L. Publications, Ltd., 688 F.2d 441 (7th Cir.1982). The facts of this case are alleged as follows. Before March 1983, Commercial was a wholly-owned subsidiary of Banner engaging in interstate trucking. The International Brotherhood of Teamsters represented the majority of Commercial's hourly employees. Commercial contributed to various multiemployer pension plans (principally Central States) pursuant to collective bargaining agreements with the Teamsters.

During 1982 Banner hired a consultant for advice on reversing losses suffered by Commercial. This consultant recommended a 20 percent reduction in wages, salaries, and benefits of all Commercial's employees. In return for such reductions, the consultant suggested that majority control of Commercial be transferred to the employees through an Employee Stock Ownership Program (ESOP). Commercial presented the Commercial Lovelace Compensation Program to its employees in February 1983. Under this proposed program, Commercial's employees would absorb wage and benefit reductions of approximately 20 percent of total compensation and benefits. In exchange, Commercial and Banner would establish an ESOP Trust and transfer to it 50.01 percent of the issued and outstanding shares of Commercial stock. Nearly 90 percent of Commercial's employees signed up for the Program. Commercial, on February 20, 1983, announced that the Program would be launched in March 1983.

Commercial transferred 4,001,000 shares of its common stock, representing 50.01 percent of Commercial's issued and outstanding shares as of that date, to the ESOP Trust effective March 1, 1983. Banner thereby became a minority shareholder in Commercial and no longer controlled Commercial's operations. After the Program was implemented, Commercial continued making payments to Central States pursuant to its obligations under collective bargaining agreements with the Teamsters.

During July 1983, Banner sold 790,000 shares of Commercial stock to CL Investors, a partnership consisting of certain Commercial officers and directors. This reduced Banner's ownership in Commercial to approximately 40 percent. In February 1985, Banner sold another 400,000 shares of Commercial stock to Gerard W. McIntyre, the president of Commercial, thus reducing Banner's ownership in Commercial to approximately 35 percent. In June 1985, Banner sold its remaining 2,809,000 shares of Commercial stock to McIntyre.

In April of 1984, Commercial opened negotiations with Pepsico to purchase all of the stock of its wholly owned subsidiary, Leeway Motor Freight, Inc. Leeway engaged in the transportation of goods in interstate commerce. Leeway's collective bargaining agreements required it to contribute to Central States. But for the fiscal year ending December 31, 1983, Leeway had a pretax loss of approximately $24 million on revenues of $170 million. For the five-year period between 1979 through 1983, its aggregate losses from operations totaled almost $75 million. Through the initial three months of 1984, Leeway's operating losses reached approximately $6.6 million. On June 2, 1984, Commercial's board of directors voted five to two in favor of the Leeway acquisition. The two directors voting against that acquisition were officers of Banner who had been named to the board by Banner. As it turned out, the rest of the board should have listened to the dissenters.

Pepsico and Commercial executed a Stock Purchase Agreement under which Commercial agreed to pay $500,000 cash and turn over to Pepsico $7.5 million from the sale of Leeway equipment to a third party in return for all of the issued and outstanding shares of Leeway. Additionally, Commercial and Pepsico agreed that immediately before closing the sale Leeway would transfer (in the form of a dividend) certain parcels of real property to Pepsico, which then would be leased back to Leeway. Hence, the acquisition of Leeway by Commercial was financed primarily by the sale or transfer of Leeway assets, with the proceeds or the assets themselves returning to Pepsico. Leeway's operations after Commercial's purchase were initially financed through a working capital loan arranged by Pepsico by a factoring of receivables. But it was necessary to liquidate additional assets, and some of Leeway's post-acquisition asset sales were made to Pepsico; proceeds of other sales were transferred to Pepsico.

Throughout the second half of 1984 Leeway sustained heavy losses. Its operations had been largely or completely terminated by December 1984. The Leeway acquisition adversely affected Commercial. Commercial's overhead and expenses increased significantly due to the Leeway personnel absorbed by Commercial when operations were consolidated. Commercial itself lost $2.9 million in the six months from July 1, 1984, to December 31, 1984; it lost $1.1 million in December 1984 alone. Before the acquisition of Leeway, Commercial had been a viable company with positive cash flow and improving operating ratio. But the effort to absorb Leeway drained Commercial's cash reserves and caused Commercial to suffer ballooning losses. It was clear by February 1985 that Commercial could not survive.

In March 1985, Commercial had ceased operations and withdrawn from the pension fund. Following an employer's withdrawal from a multiemployer pension plan, that plan's sponsor must determine the amount of withdrawal liability owed, notify the employer of that amount, and demand payment. 29 U.S.C. Secs. 1382, 1399(b)(1); Trustees of Iron Workers Local 473 Pension Trust v. Allied Products Corp., 872 F.2d 208, 210 (7th Cir.1989). Central States claims that Commercial owes $19,808,781.43 for pension withdrawal liability pursuant to the MPPAA. On March 25, 1986, Central States demanded that Banner pay Commercial's withdrawal liability based on its determination that "a principal purpose" of Banner in divesting itself of Commercial was to "evade or avoid" withdrawal liability within the meaning of 29 U.S.C. Sec. 1392(c). 1 Under the MPPAA and its arbitration provision, 29 U.S.C. Sec. 1401(a), that determination is arbitrable. 2

On May 1, 1986, Banner filed a complaint in the district court seeking a declaratory judgment that it ceased to be an "employer" under Sec. 1401(a) as of March 1983, and therefore was not subject to arbitration, and, more important, that it was not responsible for Commercial's withdrawal liability. On August 1, 1986, Central States moved to dismiss Banner's complaint. Central States contended that Banner's claim that it was no longer an "employer" was arbitrable, but that Banner had waived arbitration--and thus could not defend against Central States' demand--by seeking a declaratory judgment as to its status as an employer instead of timely commencing arbitration. Banner's Claims.

Banner's position has been that before a district court can order Banner to make interim payments and to proceed to arbitration, it must first determine whether Banner was an employer at the time of the withdrawal. The MPPAA provides that an employer may be assessed with withdrawal liability, and that only an "employer" can be required to make interim payments and go to arbitration. Because the MPPAA only applies to employers' withdrawals from multiemployer plans, its dispute resolution or interim payments provisions likewise apply only to employers.

Banner acknowledges that it was an MPPAA employer before March 1983 solely by virtue of the MPPAA's provisions that label it a control group due to Banner's ownership of 100 percent of Commercial's stock. Banner insists that it ceased being an...

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