Centra v. Central States, Se and Sw Areas Pension

• Decision Date: 20 August 2009
• Docket Number: No. 08-4041.,08-4041.
• Citation: 578 F.3d 592
• Parties: CENTRA, INC. and Detroit International Bridge Co., Plaintiffs-Counterdefendants-Appellants, v. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, Defendant-Counterplaintiff-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

578 F.3d 592

CENTRA, INC. and Detroit International Bridge Co., Plaintiffs-Counterdefendants-Appellants, v. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, Defendant-Counterplaintiff-Appellee.

No. 08-4041.

United States Court of Appeals, Seventh Circuit.

Argued May 27, 2009.

Decided August 20, 2009.

Richard Willard (argued), Steptoe & Johnson, Washington, DC, for Plaintiffs-Counterdefendants-Appellants.

Richard L. Fenton, Sonnenschein, Nath & Rosenthal, Chicago, IL, James P. Condon (argued), Central States, Southeast & Southwest Areas Pension Fund, Rosemont,

IL, for Defendant-Counterplaintiff-Appellee.

Before CUDAHY, RIPPLE and WOOD, Circuit Judges.

CUDAHY, Circuit Judge.

CenTra, Inc. is a holding company that owns subsidiaries in trucking and real estate, as well as one that operates the Ambassador bridge between Detroit and Windsor, Ontario. In 1995, CenTra was reorganized to shed its unprofitable unionized trucking operations. Two years later, CenTra's last unionized subsidiary—the Detroit International Bridge Co. (DIBC)— withdrew from the Central States pension fund, and the fund assessed more than $14 million in withdrawal liability against CenTra under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), 29 U.S.C. §§ 1381-1461. CenTra challenged the assessment in arbitration, and the arbitrator reduced the assessment to roughly $960,000. The district court vacated the arbitrator's award and reinstated the fund's assessment. We affirm.

I

The MPPAA amended Title IV of ERISA to require employers withdrawing from multiemployer pension plans to pay their proportionate share of the plans' unfunded vested benefits—the so-called "withdrawal liability." 29 U.S.C. § 1381(b)(1). The purpose of withdrawal liability is to protect the other employers in the plan from having to pay for the benefits vested in the withdrawing employer's employees. See, e.g., Santa Fe Pacific Corp. v. Central States, Southeast and Southwest Areas Pension Fund, 22 F.3d 725, 726-27 (7th Cir.1994). The pension plan calculates a withdrawing employer's withdrawal liability based in large part on the employer's history of contributions to the fund. See Central States, Southeast and Southwest Areas Pension Fund v. Nitehawk Express, Inc., 223 F.3d 483, 486 (7th Cir.2000). Here, the "employer" withdrawing from the fund is the group made up of CenTra and its subsidiaries—a "controlled group" in the argot of the MPPAA.¹ The question is whether CenTra's controlled group, which withdrew from the plan in 1997, was properly assessed withdrawal liability based on the contribution histories of two CenTra subsidiaries that disappeared in the 1995 reorganization.

A

Though the parties quibble about the details, the facts are not materially in dispute. In 1970, T.J. Moroun and his four children created CenTra as a holding company for various trucking subsidiaries the family had owned for decades. T.J. died in 1992; by 1994 his son Manuel (Matty), CenTra's first president, was also CenTra's principal owner and controlling shareholder. Matty's three sisters were minority owners.

From 1970 until 1995, two of CenTra's subsidiaries were Central Cartage Co. and Central Transport, Inc. (Old Subsidiaries or Old Subs). Central Cartage performed local pick-up and delivery services in cities across the Midwest and employed drivers and dockmen. Central Transport was an "over-the-road" line haul carrier that employed drivers who owned their own trucks. The Old Subsidiaries worked together to provide shippers door-to-door service. The dockmen, local drivers and over-the-road truckers that the Old Subs employed all belonged to local unions affiliated with the Teamsters. The Old Subs each had labor agreements with those unions under which they contributed to the Central States pension fund on behalf of their employees. In 1979, Central Cartage purchased DIBC, which owns and operates the Ambassador Bridge. DIBC was also a union employer and contributed to the Central States pension fund. Also relevant here is Crown Enterprises, Inc., a real estate firm that, prior to the 1995 reorganization, was owned by Central Transport. Crown never participated in the pension plan. Rounding out the relevant employers in the pre-1995 CenTra controlled group was U.S. Truck Company, Inc., another fund contributor. Matty's sister Agnes Anne (Anne) owned U.S. Truck. It was affiliated with CenTra by virtue of an agreement between Matty and Anne giving Matty an option to purchase U.S. Truck's stock. U.S. Truck also contributed to the fund.

Pre-1995, then, the CenTra controlled group looked like this:

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Deregulation of the trucking industry in the 1980s led to increased competition, and CenTra began looking for ways to cut costs. In particular, CenTra sought to alleviate the burdens imposed by the unions' standard wage rates, which were higher than non-union rates. According to CenTra, the unions stood fast, and the Old Subs suffered financially. Matty wanted to reorganize in a way that would allow CenTra to get rid of the Old Subs' trucking operations while retaining DIBC and Crown, which were profitable. He also wanted the reorganization to be tax neutral. In 1987, CenTra obtained a favorable tax ruling from the Internal Revenue Service for a proposed reorganization, but it would be another eight years before the Moroun siblings reached an agreement allowing the reorganization to go forward.²

In 1995 the reorganization finally did go forward. In preparation, CenTra created two new subsidiaries, Central Cartage Co. of Michigan, Inc. and Central Transport of Michigan, Inc. (New Subsidiaries or New Subs), which were intended to take on CenTra's union trucking operations, and a third subsidiary, Central Transport International, Inc. (CTII), which was to engage in non-union trucking.

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Then, on December 31, 1995, the Old Subs merged into CenTra and ceased to exist as such, leaving CenTra as the surviving corporation. At the same time or shortly thereafter (as discussed below, the timing is irrelevant to the analysis), CenTra contributed certain assets and assigned certain liabilities to the New Subs, and the New Subs were renamed to take on the names of the Old Subs (i.e., the "of Michigan, Inc." was dropped).

CenTra refers to the contribution of capital and assignment of liabilities to the New Subs as a "drop down." In particular, CenTra "dropped down" Old Transport's line haul operations, which constituted a portion of Old Transport's motor carrier division, to New Transport. CenTra also contributed $266,000 in common stock and paid-in capital to New Transport. CenTra retained the remainder of Old Transport's motor carrier division, which included Crown Enterprises, the real estate business that had been a subsidiary of Old Transport and which had a book value of $44.5 million at the time of the merger. In addition, CenTra retained Old Transport's freight receivables and other receivables, as well as its other divisions, including a Mexico sales office, several terminal properties and some Canadian real estate, all of which appear to have been contributed by CenTra to CTII. CenTra Chief Financial Officer Robert Youngert testified that New Transport was to be a line haul carrier for CenTra only, and that CenTra retained Old Transport's freight receivables to avoid saddling New Transport with the risk that they would not be collectible.

The Old Transport assets and liabilities that CenTra dropped down to New Transport had a book value of about $6.8 million; those transferred to CTII or retained by CenTra were valued at roughly $104.2 million. With respect to Central Cartage, CenTra "dropped down" Old Cartage's freight division to New Cartage, and contributed $306,000 in common stock and paid-in capital. CenTra retained DIBC. The assets and liabilities dropped down to New Cartage were valued at roughly $23.5 million and those retained by CenTra were valued at approximately $29.9 million.³

All of the Old Subs' union trucking operations (including drivers and other employees) were transferred to the New Subs. The New Subs also assumed the Old Subs' labor agreements and their obligations to contribute to the pension fund. CenTra however, retained the Old Subs' freight contracts and transferred those contracts to CTII. After the merger of the Old Subs into CenTra and the drop down to the New Subs, the CenTra controlled group looked like this:

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On February 29, 1996, CenTra sold its stock in New Transport to U.S. Truck. On August 9, 1996, CenTra sold its stock in New Cartage to U.S. Truck. Then on August 19, 1996, Matty and Anne entered a settlement agreement in which Matty gave up his option to purchase U.S. Truck stock. This agreement ended CenTra's affiliation with U.S. Truck. Following the stock sale and settlement agreement, there were two controlled groups, one headed by CenTra and one headed by U.S. Truck:

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U.S. Truck's controlled group did not fare well. In 1997, New Transport shut down. In 1999 New Cartage failed, and U.S. Truck filed for bankruptcy and was ultimately liquidated. The fund assessed withdrawal liability against U.S. Truck for a partial withdrawal in 1998, 29 U.S.C. § 1385, and again for a complete withdrawal in 1999, 29 U.S.C. § 1383.

Meanwhile, DIBC remained the last fund contributor in CenTra's controlled group. DIBC's labor agreement expired in November 1997, and Central States terminated DIBC's participation in the fund as of that date. DIBC, Crown and CTII are CenTra subsidiaries to the present day.

B

DIBC's withdrawal from the fund marked CenTra's "complete withdrawal" under 29 U.S.C. § 1383(a), and Central States assessed withdrawal liability. The fund calculated CenTra's...