Central States v. Safeway, Inc.

• Decision Date: 06 October 2000
• Docket Number: Nos. 99-3724,s. 99-3724
• Citation: 229 F.3d 605
• Parties: (7th Cir. 2000) Central States, Southeast and Southwest Areas Pension Fund, and Howard McDougall, trustee, Plaintiffs-Appellees, Cross-Appellants, v. Safeway, Inc., Defendant-Appellant, Cross-Appellee. & 99-3822
• Court: U.S. Court of Appeals — Seventh Circuit

Page 605

229 F.3d 605 (7th Cir. 2000)

Central States, Southeast and Southwest Areas Pension Fund, and Howard McDougall, trustee, Plaintiffs-Appellees, Cross-Appellants, v. Safeway, Inc., Defendant-Appellant, Cross-Appellee.

Nos. 99-3724 & 99-3822

In the United States Court of Appeals For the Seventh Circuit

Argued March 30, 2000

Decided October 6, 2000

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 2005--Harry D. Leinenweber, Judge. [Copyrighted Material Omitted] Before Bauer, Diane P. Wood, and Williams, Circuit Judges.

Diane P. Wood, Circuit Judge.

The Central States, Southeast and Southwest Areas Pension Fund (Central States) is a well known multiemployer pension plan that serves members of the International Brotherhood of Teamsters who work in the midwestern United States. For years, Safeway operated many grocery stores in Central States' coverage area. The employees in these stores were covered by collective bargaining agreements with the Teamsters. As part of those arrangements, Safeway was required to make contributions to the plan for more than 1500 employees. In the late 1980s, Safeway sold the divisions that employed most of the plan members. By 1989, Safeway owned only one store that employed plan participants. This was its Eau Claire, Wisconsin, store, where 16 plan members worked. This case concerns the payments Safeway must make to Central States as a result of these changes in its business--changes known as "partial withdrawals" from the pension fund. The district court concluded that Safeway owed approximately $1.9 million for a 1993 partial withdrawal assessment. We affirm.

I

Employers who are part of multiemployer plans make contributions on the basis of the number of their employees covered by the plan (who are converted into the antiseptic-sounding "contribution base units"). So, if an employer's workforce shrinks or the employer goes out of business, that employer reduces or ends its contributions to the plan. This could cause problems, because plan participants continue to enjoy their right to benefits upon retirement. If employers could simply stop contributing when they go out of business, downsize, or, as in this case, sell the divisions employing plan participants to somebody else, a plan could find itself substantially underfunded. To deal with this problem, Congress enacted the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), Pub. L. No. 96-364, 94 Stat. 1208 (codified in scattered sections of 29 U.S.C.). The MPPAA creates "withdrawal liability" for employers that leave plans. Basically, when an employer pulls out, the plan in which it participated is permitted to approximate the degree to which it is underfunded (its "unfunded vested benefits," or UVBs), and then charge the employer for its share of those UVBs. Moreover, under 29 U.S.C. sec. 1385, employers are subject to partial withdrawal liability when their contributions decline substantially over a period of several years. This is what happened to Safeway.

Under the rules for determining when a partial withdrawal occurs, Safeway first incurred withdrawal liability in 1990 for its 1987 and 1988 asset divestitures. Central States demanded $16.3 million from Safeway; eventually, they settled on $12.6 million. This settlement was confirmed in November 1993. In 1995, Central States came calling again, this time claiming that Safeway incurred partial withdrawal liability for 1993. The gross assessment was $11,299,544, but Safeway received a credit for its 1990 payment, making the net demand $1,985,363. Despite the hefty reduction that took into account the earlier payment, Safeway argued that it was entitled to an even greater credit. Central States disagreed, relying on the credit rules that are contained in the regulations issued by the body responsible for overseeing Employee Retirement Income Security Act (ERISA) plans, the Pension Benefit Guarantee Corporation (PBGC). Safeway responded that those regulations are unreasonable since their use resulted in a nearly two million dollar assessment even though no additional assets were sold. Its 1993 liability rested instead only on the statutory definition of a "partial withdrawal."

Anticipating that plans and employers will occasionally have disputes over the applicability of the rules, the MPPAA creates a "pay first, fight later" regime under which a dispute over withdrawal liability is referred to arbitration, but only after the employer turns the disputed amount over to the plan. See 29 U.S.C. sec. 1401(d). This is the path Safeway followed. It initiated an arbitration proceeding to contest the fund's calculation of its 1993 withdrawal liability and the credit method the fund used. In an interim decision, the arbitrator first decided that the settlement agreement with respect to the 1990 withdrawal assessment (which led to the $12.6 million figure mentioned above) did not operate as a bar of the 1993 partial withdrawal demand. Second, the interim decision held that the fund was not estopped from applying its credit method because it had not specifically notified Safeway that it was going to change its practice. The change arose from a final credit regulation published in the Federal Register, 57 Fed. Reg. 59,808 (Dec. 16, 1992), which was notice to the world that the fund would be required to change its method. Last, the arbitrator decided that the fund's calculation of Safeway's 1993 withdrawal liability was flawed. The fund used what is called the "modified presumptive method" of calculating withdrawal liability established in ERISA sec. 4211(c)(2). But it applied a 10-year allocation period, found in a separate subsection of ERISA, sec. 4211(c)(5)(C). The arbitrator found that the fund could not put these together and thus could not use a 10-year allocation period consistently with ERISA sec. 4206 and the applicable credit regulations. Instead, it had to use the five-year period found in credit regulation 29 C.F.R. sec. 2649.4. In accordance with the arbitrator's ruling, Central States recalculated Safeway's withdrawal liability using the five-year allocation period, but that led it to revise its 1993 demand upward, to approximately $2.2 million. In his final decision, the arbitrator essentially threw up his hands in dismay. He expressed the opinion that he was "convinced that the Fund is due additional payment because of the 1993 partial withdrawal and that the Employer is entitled to a reasonable credit for the payment that it made because of the prior withdrawal." But he ultimately concluded that the regulations were so irrational that they did not provide direction to the fund to calculate a proper credit and thus that its demand for payment had to be set aside.

Central States then appealed to the district court, as permitted by 29 U.S.C. sec. 1401(b). Safeway argued, as it had before, that the agreement that settled the 1990 dispute precluded Central States' request, that Central States was estopped from demanding money for the 1993 withdrawal by virtue of statements made by one of its representatives, and that the regulations providing for subsequent withdrawal liability were so incoherent as to be irrational and unenforceable. It also urged that the regulation was unconstitutional as applied to it, either as a taking or as a violation of substantive due process. The district court, properly reviewing the arbitrator's legal conclusions de novo, see, e.g., Joseph Schlitz Brewing Co. v. Milwaukee Brewery Workers' Pension Plan, 3 F.3d 994, 999 (7th Cir. 1994), affirmed on other grounds, 513 U.S. 414 (1995), disagreed with all of Safeway's arguments and vacated the arbitration award. It also concluded that the arbitrator had erred in finding that Central States could not use a 10- year allocation period for its 1993 demand. Consequently, the court held that Safeway was liable for the $1,985,363 originally demanded by Central States and that, since Safeway had paid up, Central States could simply keep the money and the case was closed. Safeway now appeals; Central States, having seen what the five-year period would do for it, has cross-appealed to argue that this is the one that should apply.

II

Before we can consider the district court's reasoning, we must address a jurisdictional argument that Central States has presented. It claims that the district court lacked jurisdiction over Safeway's request to enforce the arbitrator's award because it came too late. Under 29 U.S.C. sec. 1401(b)(2), a party has 30 days to bring an action in district court to "enforce, vacate, or modify" an MPPAA arbitration award. The arbitrator's final decision was dated March 21, 1998; Central States filed its action to vacate the award on April 1, 1998, but Safeway did not file its counterclaim until May 29, 1998, well more than 30 days beyond the arbitrator's decision. Central States seems to think that this leaves the arbitrator's award in some state of limbo, under which it is not enforceable, because no timely petition for enforcement was filed. It follows, according to Central States, that it can keep the money. This, we think, is a real stretch at best, and at worst a serious misunderstanding of the position in which the party who is content with an arbitral award finds itself. But there are other reasons as well for rejecting Central States' argument.

Central States' position is premised on two points: first, that the 30-day period provided by sec. 1401(b)(2) applies here, not the six-year limitations period for ERISA actions contained in 29 U.S.C. sec. 1451(f) (or the three-year period that applies when the plaintiff knows or should know of the cause of action), and second, that the 30 days given by sec. 1401(b)(2) are jurisdictional in the strong sense of the term-- that is, nonwaivable and not subject to doctrines like estoppel. The district court, relying on the reasoning of the Third Circuit in...