Canario v. Byrnes Exp. & Trucking Co., Inc.

• Decision Date: 16 September 1986
• Docket Number: No. CV 85-4209.,CV 85-4209.
• Parties: John J. CANARIO, et al., Plaintiffs, v. BYRNES EXPRESS & TRUCKING CO., INC., and Albert J. Byrnes, individually and as President of Byrnes Express & Trucking Co., Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

644 F. Supp. 744

John J. CANARIO, et al., Plaintiffs, v. BYRNES EXPRESS & TRUCKING CO., INC., and Albert J. Byrnes, individually and as President of Byrnes Express & Trucking Co., Inc., Defendants.

No. CV 85-4209.

United States District Court, E.D. New York.

September 16, 1986.

O'Connor & Mangan, Long Island City, N.Y., for plaintiffs.

Matthew J. Vetri, Brooklyn, N.Y., for defendants.

MEMORANDUM AND ORDER

WEXLER, District Judge.

Plaintiff trustees¹ commenced this action pursuant to the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA"), as amended by the Multiemployer Pension Plan Amendments of 1980, Pub.L. 96-364, 94 Stat. 1296 (1980) ("MPPAA"), against defendants Byrnes Express & Trucking Co., Inc. ("Express" or the "Company") and Albert J. Byrnes to collect withdrawal liability under ERISA. Plaintiffs have moved for summary judgment against both defendants, who have cross-moved for partial summary judgment in favor of Byrnes.

I.

Defendant Express was a trucking concern. Express occupied leased space in New Jersey and a facility in Brooklyn that Byrnes leased rent-free to Express. Since 1974 when Byrnes obtained the business from his mother, he was Express's President, sole shareholder, and its only management employee. Byrnes drew only a salary, took no other money from Express, and did not comingle his funds with those of the Company. Due to declining economic fortunes, Express had shown losses for several years and Byrnes loaned thousands of dollars to the Company in order to make up the deficit and avert bankruptcy. Byrnes cut back operations in an effort to keep the Company in business but Express continued to operate at a loss. Consequently, Byrnes acted to liquidate Express's assets and dissolve the Company, a process that was completed in early 1984. Express has no debts other than those arising from this lawsuit.

At the time of Express's demise, it was a party to a collective bargaining agreement with Local 816, an affiliate of the International Brotherhood of Teamsters, Chauffeurs, Warehouseman and Helpers of America. The agreement, which had been signed by Byrnes as President of Express, required the Company to make monthly contributions to Local 816's pension trust fund. Express made contributions to the trust fund until April 30, 1984, when the company finally ceased operations and was no longer obligated to make contributions.

On March 8, 1985, over a year after Byrnes dissolved Express, Joseph Matranga, Local 816's Pension Fund Manager, sent a letter to Byrnes notifying him that, as a consequence of the cessation of operations, Express had a withdrawal liability to Local 816 of $26,800.² Matranga also informed Byrnes that in light of Express's financial condition, Local 816's Trustees had concluded that Express was in default of its obligation pursuant to 29 U.S.C. § 1399(c)(5)(B), and the full amount was due April 1, 1985. Failure to comply would result in the commencement of a lawsuit but, pursuant to 29 U.S.C. § 1399(b)(2)(A), Express would have ninety days to seek a review of the Trustees' decision. Express neither tendered any money nor requested a review of the decision. On April 15, 1985 and again on June 15, Matranga subsequently notified Express of its delinquency, but no payments were made and Express made no attempt to either review the Trustee's decision under 29 U.S.C. § 1399(b)(2)(A) or pursue arbitration. 29 U.S.C. § 1401. This lawsuit ensued.

II.

As enacted, ERISA is divided into three subchapters, the largest of which, Subchapter III, 29 U.S.C. §§ 1301-1461, concerns plan termination insurance. Subtitle E of Subchapter III, 29 U.S.C. §§ 1381-1426, is devoted specifically to multiemployer pension plans, and the first part of Subtitle E contains provisions relating to employer withdrawals.

Not long after the passage of ERISA, Congress became concerned that the accumulated pension funds would be inadequate to satisfy vested benefits, forcing the government-owned Pension Benefits Guaranty Corporation ("PBGC") to assume any excess liability. In an effort to shore-up the pension system, Congress amended ERISA in 1980 through the enactment of the MPPAA. In PBGC v. R.A. Gray & Co., 467 U.S. 717, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984), the Supreme Court outlined the history and purposes of the 1980 amendments to ERISA. "As enacted, the MPPAA requires that 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 `unfounded vested benefits,' calculated as the difference between the present value of the vested benefits and the plan's assets." Id. § 1391(a) places the burden on the plan sponsor to determine the extent of the employer's withdrawal liability, and § 1391(b) sets forth an evaluation sequence for determining the withdrawal liability. Using a statutory formula, the plan sponsor must look to § 1391(b), (c), or (d) to compute an employer's withdrawal liability. Once a figure has been arrived at, § 1381(b)(1) then directs that this figure is to be adjusted by the sequential application of other sections of the statute, each of which have the effect of limiting an employer's withdrawal liability. The plan sponsor also has the burden of notifying the employer and demanding payment. 29 U.S.C. § 1391(b)(1). The employer may seek an informal review of the plan sponsor's decision on withdrawal liability, but must do so within ninety (90) days after receipt of notice. § 1399(b)(2)(A). The plan sponsor must respond to the employer's request for review within a reasonable time. § 1399(b)(2)(B). Any dispute between the employer and the plan sponsor concerning the existence or extent of withdrawal liability must be arbitrated before it can be litigated in federal court. § 1401(a)(1).

A. EXPRESS

In this case plaintiffs contend that the fact and amount of Express's withdrawal liability has already been determined by Local 816 and, by failing to request a review or seek arbitration, Express has waived its right to contest that determination in this Court. Defendants concede that Express did not request a review of Local 816's decision within ninety days of March 8, 1985 and never made a request for arbitration.⁴ Nevertheless, they maintain that Express is permitted to contest the amount of its withdrawal liability here because, in the case of an insolvent employer, there is no explicit statutory requirement that the employer contest the withdrawal liability decision through arbitration before proceeding in federal court. Defendants buttress this contention by arguing that the clear language of ERISA and the policies favoring arbitration allow Express to bypass the statutory procedures for review and arbitration and present its claim under § 1405 for the first time in this Court. Plaintiffs' rejoinder is that this position is contrary to both the policies underlying the requirement of arbitration and settled precedent.

The Court turns first to the statute. § 1401 requires arbitration for "any dispute between an employer and a plan sponsor ... concerning a determination made under sections 1381 through 1399 of this title...." 29 U.S.C. § 1401(a)(1).⁵ § 1405(b), the section of ERISA that limits withdrawal liability for insolvent employers, is not within §§ 1381-99.⁶ Although it appears that arbitration is not mandatory for determinations made under § 1405(b), there are other indications from that statute that Congress intended arbitration for § 1405. First, § 1381(b)(1)(D) requires plan sponsors to consider § 1405 when adjusting withdrawal liability. Therefore, it seems clear that any decision of a plan sponsor under § 1381, and any subsequent arbitration, would have considered an employer's insolvency under § 1405. Second, after a matter has gone to arbitration, the procedures under § 1401(a)(3)(A) contemplate that the arbitrator will evaluate issues of insolvency under § 1405.⁷ Therefore, despite the absence of any specific statutory language requiring arbitration for § 1405, the numerous cross-references in the statute make evident that issues of insolvency under § 1405 are part of the calculus for determining withdrawal liability under § 1381 and § 1391 and, therefore, should be a subject for informal review under § 1399 and arbitration under § 1401.

Furthermore, Express's interpretation of the statutory scheme would result in cumbersome and unnecessarily protracted litigation. If, as defendants contend, an employer is not required to litigate insolvency in arbitration and could defer presenting any defense under § 1405 until the federal court proceeding was commenced, there would be no incentive to arbitrate withdrawal liability fully because any decision in arbitration would be incomplete until the court had resolved any § 1405 issues. The consequence of this interpretation is piecemeal adjudication; an arbitration hearing would both precede and follow the decision of the district court, with either party able to return to the court for a second time after the final decision of the arbitrator has been issued. It is more likely that Congress intended for an employer to present, in the arbitration context, and before proceeding to court, all claims or defenses relating to the fact and extent of withdrawal liability. Trustees of the Amalgamated Cotton Garment and Allied Industries Fund v. Baltimore Sportswear, Inc., 632 F.Supp. 641, 642 (S.D.N.Y.1986). The case of Trustees of the Amalgamated Insurance Fund v. Geltman Industries, Inc., 784 F.2d 926 (9th Cir.1986) is an example of how the Court envisions the functioning of the adjudicatory process.

The policies underlying arbitration also support this conclusion. Arbitration fulfills Congress's express preference for dispute resolution in a non-judicial forum, utilizes the arbitrator's skill and expertise with matters unfamiliar to the courts, and promotes judicial...