Central States, Southeast and Southwest Areas Pension Fund v. Sherwin-Williams Co.

• Decision Date: 14 December 1995
• Docket Number: Nos. 95-1952,SHERWIN-WILLIAMS,s. 95-1952
• Citation: 71 F.3d 1338
• Parties: -8070, 19 Employee Benefits Cas. 2336, Pens. Plan Guide P 23915P CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, Plaintiff-Appellant, Cross-Appellee, v. TheCOMPANY, Defendant-Appellee, Cross-Appellant. & 95-2028.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1338

71 F.3d 1338

76 A.F.T.R.2d 95-8070, 19 Employee Benefits

Cas. 2336,

Pens. Plan Guide P 23915P

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND Plaintiff-Appellant, Cross-Appellee, v. The SHERWIN-WILLIAMS COMPANY, Defendant-Appellee, Cross-Appellant.

Nos. 95-1952 & 95-2028.

United States Court of Appeals Seventh Circuit.

Argued Oct. 24, 1995.

Decided Dec. 14, 1995.

Terence G. Craig, James P. Condon (argued), Bruce L. Perlin, Central States, Southeast & Southwest Area Pension Fund, Rosemont, IL, for Central States, Southeast and Southwest Areas Pension Fund and Howard McDougall.

Mitchell A. Orpett, Tribler & Orpett, Chicago, IL, Harold H. Reader, Ronald A. Kahn (argued), Patricia A. Shlonsky, Ulmer & Berne, Cleveland, OH, for Sherwin-Williams Company.

Before EASTERBROOK, KANNE, and ROVNER, Circuit Judges.

EASTERBROOK, Circuit Judge.

Between 1987 and 1990 a subsidiary of The Sherwin-Williams Company owned 100% of the stock of Lyons Group, a motor carrier. Lyons was a losing proposition for Sherwin-Williams (as we call the firm and its subsidiaries, collectively), which not only lost money on operations but also sold the stock for less than it paid. The Central States Pension Fund, a multi-employer fund to which Lyons contributed, believes that the price Sherwin-Williams must pay for this adventure exceeds the business losses: when it sold Lyons, the Fund contends, the entire Sherwin-Williams family of companies withdrew and incurred substantial liabilities under the Multiemployer Pension Plan Amendments Act of 1980, which requires firms that pull out of underfunded plans to chip in. See Milwaukee Brewery Workers' Pension Plan v. Jos. Schlitz Brewing Co., --- U.S. ----, 115 S.Ct. 981, 130 L.Ed.2d 932 (1995); Connolly v. PBGC, 475 U.S. 211, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986); PBGC v. R.A. Gray & Co., 467 U.S. 717, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984); Artistic Carton Co. v. Paper Industry Union-Management Pension Fund, 971 F.2d 1346 (7th Cir.1992).

Sherwin-Williams has another subsidiary (Dupli-Color) that still contributes to the Fund, but the Fund insists that this does not matter. The argument goes like this. Sherwin-Williams and all of its subsidiaries and affiliates are a single employer by virtue of 29 U.S.C. Sec. 1301(b)(1). When it sold Lyons, Sherwin-Williams changed the constituents of its corporate group. The old group, minus Lyons, became a new group. An employer withdraws completely when it "permanently ceased all covered operations under the plan." 29 U.S.C. Sec. 1383(a)(2). Old Sherwin-Williams ceased to exist, just as if it had liquidated and distributed its assets, and thus "permanently ceased all covered operations under the plan." New Sherwin-Williams continued to be a contributing employer, but the fact that one employer joins a plan as another employer withdraws does not relieve the withdrawing employer of its liability. One provision of the MPPAA, 29 U.S.C. Sec. 1398(1)(A), provides that the successor to an employer that winks out of existence because of a "change in corporate structure described in section 1369(b) of this title" is "considered the original employer." Section 1369(b)(3) deals only with corporate "division," and although "division" is an undefined term the sale of a subsidiary's stock is a form of corporate "division." See PBGC Opinion Letters 82-4 (Feb. 10, 1982), 84-7 (Dec. 20, 1984). But Sec. 1398(1) applies only if "the change causes no interruption in employer contributions or obligations to contribute under the plan". Six months after its spinoff, Lyons ended operations and filed for bankruptcy. Its demise scotched any exemption under 29 U.S.C. Sec. 1384, which applies only if a business provides security for five years' worth of contributions after the sale. If, as the Fund believes, Lyons' failure was "caused" by the sale, the new Sherwin-Williams corporate group also loses Sec. 1398's shelter and must pay approximately $2 million in withdrawal liability. The difference between Lyons' own withdrawal liability of some $1.76 million and the $2 million figure for the entire Sherwin-Williams group likely is less important to the Fund than is the fact that its group-withdrawal approach ensures that the solvent Sherwin-Williams picks up the entire tab (which exceeds the price it realized from the sale of the Lyons stock) whether or not the transaction was designed to "evade or avoid" withdrawal liability, which under 29 U.S.C. Sec. 1392(c) would require Sherwin-Williams to make good Lyons' debt. To collect under Sec. 1392(c) a pension trust must establish that avoiding withdrawal liability was a principal purpose of the transaction, and the difficulty of proving intent may explain why the Fund has not pursued this possibility. See Santa Fe Pacific Corp. v. Central States Pension Fund, 22 F.3d 725 (7th Cir.1994).

Sherwin-Williams and the Fund took their differences to an arbitrator, as the MPPAA requires. The arbitrator stated that the Fund had not presented any claim that the sale of Lyons' stock was designed to "evade or avoid" withdrawal liability or that it represented a "partial withdrawal" of the Sherwin-Williams group under Sec. 1385(a). The only question on the table, the arbitrator thought, was whether the sale produced a complete withdrawal of the old Sherwin-Williams group. Observing that Dupli-Color continues to participate in the Fund, the arbitrator concluded that the group's withdrawal is not "complete." As the arbitrator saw things, the Fund is trying to have things both ways: it treats the sale of Lyons' stock as dissolving the old Sherwin-Williams group and substituting a new group, yet it seeks to hold the new group responsible for the old group's liability. If Lyons' departure really caused the old Sherwin-Williams group to withdraw, then the old group logically should be liable; yet looking at the old group's operations would make it plain that withdrawal had not been complete--for in mid-1990 both Lyons and Dupli-Color were active contributors. The Fund sought to collect from the Sherwin-Williams group existing today, which under the Fund's theory is a different employer from the one responsible for Lyons. Moreover, Lyons' failure without surviving for five years meant that it never really became a stand-alone entity, and Sec. 1384 attributed its failure to Sherwin-Williams. With Lyons treated as if reabsorbed into the group, neither a change of employer nor a complete withdrawal occurred.

The district judge, entitled to review the arbitrator's legal conclusions independently, see Trustees of Iron Workers Local 473 Pension Trust v. Allied Products Corp., 872 F.2d 208, 211-12 (7th Cir.1989), took a different route to the same conclusion. 879 F.Supp. 867 (N.D.Ill.1995). The judge disagreed with the arbitrator's conclusion that Lyons' failure meant that the sale of stock should be disregarded for the purpose of identifying the employer. Only a transaction condemned under Sec. 1392(c) should be treated as if it had not occurred, the judge believed, and the Fund has not argued that Sherwin-Williams sold the Lyons stock to "evade or avoid" withdrawal liability. But the judge believed that Sec. 1398, on which the Fund does rely, has nothing to do with this case. The statute creating liability for complete withdrawal is Sec. 1383(a), which asks whether the employer has ceased making contributions. Only the old Sherwin-Williams group could have ceased contributing (for, on the Fund's theory, the new group did not come into existence until the old group sold Lyons). Yet the old group didn't cut off all contributions; Dupli-Color remains a participating employer. Any attempt to reason backwards from Sec. 1398 to the definition of a complete withdrawal, the judge thought, "would really be non-statutory in nature, calling for the judicial recognition of an implied private cause of action where Congress has not expressly created one. And on that score the Supreme Court's increasing reluctance to recognize such implied rights of action should be controlling here." 879 F.Supp. at 877 (emphasis in original).

Although implied rights of action are not in vogue, ERISA and the MPPAA have plenty of express rights of action. In particular, 29 U.S.C. Sec. 1401(b)(2) permits a multi-employer pension fund to recover withdrawal liability. Ours is not a case like Mertens v. Hewitt Associates, 508 U.S. 248, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993), or Reich v. Continental Casualty Co., 33 F.3d 754 (7th Cir.1994), where the provision of one right of action implied the withholding of another. Neither the arbitrator nor the district court directly confronted the Fund's central argument: that when Sherwin-Williams sold its stock in Lyons, the old Sherwin-Williams group vanished, as if it had fallen into one of Kurt Vonnegut's chrono-synclastic infundibulums. Ex-groups necessarily have withdrawn, fully and permanently, and owe withdrawal liability unless some statute prevents collection. Section 1398, the only candidate, is not up to the task, according to the Fund, because the stock sale "caused" Lyons to fail.

Now we have serious doubts that a sale of stock can be blamed for a business failure. Transfer of the certificates' ownership does not affect the firm; that the identity of the investors does not alter business operations is a central feature of corporate law. See Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785 (7th Cir.1995). Stock certificates are corporate liabilities--and contingent ones at that, for the owners are not entitled to dividends in the same way debt investors are entitled to interest. If the sale of stock were accompanied by some other event--the sale of assets for an inadequate price, the replacement of top managers, or the assumption of liabilities creating a negative cash flow-then the transaction might alter the firm's prospects. But the Fund does not contend that Sherwin-Williams stripped Lyons of its...