CENTRAL STATES, ETC., PENSION FUND v. Johnco, Inc.

• Decision Date: 11 August 1988
• Docket Number: No. 87 C 5539.,87 C 5539.
• Citation: 694 F. Supp. 478
• Parties: CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, a pension trust, and Loran W. Robbins, Marion M. Winstead, Robert C. Sansone, Robert J. Baker, Howard McDougall, Arthur H. Bunte, R. Jerry Cook, and R.V. Pulliam, the pension trustees, Plaintiffs, v. JOHNCO, INC. and R.D. Motor Express, Incorporated, Indiana corporations, Defendants.
• Court: U.S. District Court — Northern District of Illinois

694 F. Supp. 478

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, a pension trust, and Loran W. Robbins, Marion M. Winstead, Robert C. Sansone, Robert J. Baker, Howard McDougall, Arthur H. Bunte, R. Jerry Cook, and R.V. Pulliam, the pension trustees, Plaintiffs, v. JOHNCO, INC. and R.D. Motor Express, Incorporated, Indiana corporations, Defendants.

No. 87 C 5539.

United States District Court, N.D. Illinois, E.D.

August 11, 1988.

Linda J. Gershon, Thomas J. Angell, Thomas C. Nyhan, Central States Law Dept., Chicago, Ill., for plaintiffs.

Hugh L. Moore, Betsy L. Anderson, Lord, Bissell & Brook, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

MAROVICH, District Judge.

This case comes before the court on plaintiff's motion for summary judgment. Plaintiff Central States, Southeast and Southwest Areas Pension Fund (the "Fund") is a multiemployer pension fund bringing a collection action against an employer who has withdrawn from the fund. Plaintiff brings this action under the authority of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended by the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. Sections 1001 et seq. (1982) ("MPPAA"). The court finds that summary judgment is appropriate under Fed.R.Civ.P. 56 because there is no disputed issue of material fact. The court enters judgment for the plaintiff and finds that defendant is unable to limit any amounts owing plaintiff under 29 U.S. C. Sections 1405(a) and 1405(b) because defendant failed to request arbitration of the limitations as required by MPPAA procedures.

Congress enacted ERISA in 1974 to ensure that employees and their beneficiaries would not be deprived of anticipated benefits from their private pension plans. If an employer withdraws from a fund after its employees' rights have vested but before the employer has fully funded its portion, the fund is left with unfunded liabilities. MPPAA, enacted in 1980, protects employees and beneficiaries in financially distressed multiemployer plans and encourages the growth and maintenance of multiemployer plans through an intricate statutory procedure governing employer withdrawal liability.

When an employer withdraws from a fund, the employer must pay its share of the plan's unfunded vested benefit liability. 29 U.S.C. § 1381 (1982). The plan itself is charged with responsibility for calculating the sum due and must send the employer notice of the amount and a demand within a reasonable time after the withdrawal. Id. §§ 1382, 1399(b)(1).

If the employer objects to the amount or existence of liability, it must within 90 days ask the plan for review. Id. § 1399(b)(2)(A). After reasonable review, the plan must notify the employer of its decision. Id. § 1399(b)(2)(B). If the parties are still not in agreement, MPPAA provides for the disputes to be resolved through arbitration. Id. § 1401(a)(1). Either party may initiate arbitration within a 60-day period after the earlier of either the date the plan notifies the employer of the results of its review or 120 days after the employer's request for review. Id. The parties may jointly initiate arbitration within the 180-day period after the fund's initial demand for payment. Id.

If no arbitration takes place, the amounts demanded by the fund become due and owing and the plan may file suit in state or federal court for collection. Id. § 1401(b)(1). If arbitration does take place, either party may file an action in federal court to enforce, vacate, or modify the arbitrator's award. Id. § 1401(b)(2).

The facts in this case are undisputed. Defendant R.D. Motor Express ("R.D. Motor") is a subsidiary of defendant Johnco, Inc. ("Johnco") and the two are treated as a single employer for purposes of assessment and calculation of withdrawal liability. R.D. Motor was subject to a collective bargaining agreement with the Teamsters Union which required R.D. Motor to make contributions to plaintiff pension fund. On or about August 3, 1985, R.D. Motor permanently ceased operations and ceased making contributions to the Fund. On October 25, 1985, the pension fund sent a notice and demand to Johnco stating that withdrawal liability in the amount of $334,301.13 was due. This liability could be discharged by monthly payments of $7,265.62 starting December 1, 1985. When Johnco failed to pay, the Fund sent a past due notice and demand forewarning the employer of the consequence of refusing to pay. R.D. Motor received this notice on December 23, 1985.

Although still failing to pay, by letter dated January 24, 1986, Johnco requested review of its withdrawal liability assessment. In the letter, Johnco stated that R.D. Motor Express was evaluating a sale of all of its assets and, depending on the results of the sale, a reduction in withdrawal liability under 29 U.S.C. Section 1405(a) or (b) would apply. Section 1405(a) limits an employer's withdrawal liability where there has been a bona fide sale of assets. Section 1405(b) limits an employer's liability where the employer is insolvent and undergoing liquidation or dissolution.

On June 9, 1986, the Fund notified Johnco of the results of the review. The Fund affirmed the original withdrawal assessment and declined to apply the limitations of liability set out in 29 U.S.C. Sections 1405(a) and (b). The Fund did not apply Section 1405(a) because it felt that a sale of assets several months after withdrawal was not a withdrawal in connection with a sale. With respect to Section 1405(b), the Fund stated that Johnco did not supply requested financial information to substantiate its position.

Thereafter, neither party initiated arbitration proceedings. In due course, the Fund filed this action to collect the outstanding withdrawal liability plus interest, statutory liquidated damages, attorneys fees and costs.

Defendants do not dispute that some withdrawal liability is due and owing. Defendants instead dispute the amount of withdrawal liability, arguing that the amount claimed by the Fund should be reduced under the provisions of 29 U.S.C. Section 1405(a) or (b). Although plaintiffs claim that defendants are precluded from raising any defense to complete withdrawal liability because defendants failed to arbitrate any defenses within the time allotted, defendants maintain that they may raise Sections 1405(a) and (b) issues because (1) the MPPAA does not require arbitration of Section 1405 issues; (2) arbitration under MPPAA is not required for questions of statutory interpretation; (3) the arbitration provisions of MPPAA, if applied to this case, would result in denial of procedural due process to defendants. The court addresses each of these arguments in order.

I.

Defendants first argue that the statute does not mandate arbitration of Section 1405 issues. The text of MPPAA provides:

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.

29 U.S.C. Section 1401(a)(1) (1982). Defendants argue that Section 1405 does not fall within Sections 1381-1399, thus a Section 1405 dispute does not have to be arbitrated.

Although defendants' argument is logical, the structure of the statute indicates that Congress intended Section 1405 disputes be arbitrated. Most importantly, Section 1381(b)(1)(D), the provision detailing how a pension fund is to calculate withdrawal liability, requires funds to consider Section 1405 in their calculations.¹ Thus a fund's determination of withdrawal liability under Section 1381 necessarily takes into consideration the employer's insolvency or sale of assets. In addition, Section 1401(a)(3)(A) cross references Section 1405.² Because issues under Section 1405 are part of the calculus for determining withdrawal liability under Section 1381 and Section 1391, those issues should be arbitrated under Section 1401(a). See generally, Canario v. Byrnes Exp. & Trucking Co., Inc., 644 F.Supp. 744 (E.D.N.Y. 1986), vacated on other grounds, 652 F.Supp. 385 (1987).

II.

Courts have recognized exceptions to the Section 1401 arbitration requirement. Courts liken the MPPAA's arbitration requirement to the general rule that a party must exhaust its administrative remedies before it can invoke the jurisdiction of a court. Where the traditional reasons for invoking the exhaustion doctrine are not present, courts have allowed parties to bypass the MPPAA's arbitration requirement. See e.g. Dorn's Transp. v. Teamsters Pension Trust Fund, 787 F.2d 897 (3d Cir. 1986); T.I.M.E.-D.C. v. Management-Labor W. & P. Funds, Etc., 756 F.2d 939 (2d Cir.1985); I.A.M. Nat. Pension Fund Ben. v. Stockton Tri Ind., 727 F.2d 1204 (D.C. Cir.1984). Thus, employers raising constitutional defenses have been allowed to proceed directly to judicial review without arbitration. See Republic Industries v. Central Pa. Teamsters, 693 F.2d 290 (3d Cir. 1982). Likewise, some courts allow employers to bypass arbitration when an issue of statutory interpretation, especially a pure question of law, is involved. See e.g. T.I.M.E.-D.C., Inc. v. Management-Labor W. & P. Funds, Etc., supra; I.A.M. Nat. Pension Fund Ben. v. Stockton Tri Ind., supra. Other courts, however, expressly decline to except issues of statutory interpretation from arbitration. See Teamsters Pension Trust Fund v. Allyn Transp. Co., 832 F.2d 502 (9th Cir.1987).³

Defendants' second argument is that this case involves only questions of statutory interpretation and thus the court should address the questions without first requiring arbitration. In effect, defendants are submitting that the policies underlying the arbitration exhaustion requirement would not be advanced by sending the issues in this case to arbitration. In T.I.M.E.-D.C., Inc. v. Management-Labor Welfare & Pension Funds of Local 1730, 756 F.2d 939 (2d Cir.1985), the Second Circuit identified three traditional exhaustion policies which are...