Central Tool Co. v. International Ass'n of Machinists Nat. Pension Fund, Ben. Plan A, s. 81-2047

• Citation: 811 F.2d 651
• Decision Date: 10 February 1987
• Docket Number: 81-2056,Nos. 81-2047,s. 81-2047
• Parties: 124 L.R.R.M. (BNA) 2565, 258 U.S.App.D.C. 309, 55 USLW 2467, 55 USLW 2496, 105 Lab.Cas. P 12,199, 8 Employee Benefits Ca 1268 CENTRAL TOOL COMPANY, v. INTERNATIONAL ASSOCIATION OF MACHINISTS NATIONAL PENSION FUND, BENEFIT PLAN A, et al., Appellants. CENTRAL TOOL COMPANY, Appellant, v. INTERNATIONAL ASSOCIATION OF MACHINISTS NATIONAL PENSION FUND, BENEFIT PLAN A, et al.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 651

811 F.2d 651

124 L.R.R.M. (BNA) 2565, 258 U.S.App.D.C.

309, 55 USLW 2467,

55 USLW 2496, 105 Lab.Cas. P 12,199,

8 Employee Benefits Ca 1268

CENTRAL TOOL COMPANY, v. INTERNATIONAL ASSOCIATION OF MACHINISTS NATIONAL PENSION

FUND, BENEFIT PLAN A, et al., Appellants.

CENTRAL TOOL COMPANY, Appellant, v. INTERNATIONAL ASSOCIATION OF MACHINISTS NATIONAL PENSION

FUND, BENEFIT PLAN A, et al.

Nos. 81-2047, 81-2056.

United States Court of Appeals,

District of Columbia Circuit.

Argued June 7, 1982.

Decided Feb. 10, 1987.

Denis F. Gordon, with whom David M. Ermer, Washington, D.C., was on the brief, for International Ass'n of Machinists Nat. Pension Fund, Benefit Plan A, et al., appellants in No. 81-2047 and appellees in No. 81-2056.

Richard A. Perras, Boston, Mass., of the Bar of the Supreme Court of Massachusetts, pro hac vice by special leave of the Court, with whom Michael Joseph and Timothy Trushel, Washington, D.C., were on the brief, for Central Tool Co., appellee in No. 81-2047 and cross-appellant in No. 81-2056.

Before WALD, Chief Judge, TAMM ^* and ROBINSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge SPOTTSWOOD W. ROBINSON, III.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

The National Pension Fund maintained by the International Association of Machinists and Aerospace Workers, AFL-CIO (IAM), cancelled all past service credits for covered employees of the Central Tool Company after it discontinued its contributions to the Fund. The company now challenges this action as violative of Section 302(c)(5) of the Labor Management Relations Act. ¹ On cross-motions for summary judgment, the District Court ruled that the cancellation was arbitrary and capricious, and for that reason contravened Section 302(c)(5), insofar as it materially affects Fund determinations on satisfaction of vesting requirements by Central Tool employees, but not to the extent that it decreases their accrued benefits under the governing plan. ² In our view, the case is controlled by the Supreme Court's decision in UMWA Health & Retirement Funds v. Robinson, ³ the central teaching of which constrains us to hold that the termination of past service credits does not impinge upon Section 302(c)(5).

I

The Fund is a multi-employer, ⁴ open-ended, ⁵ defined benefit ⁶ trust created in 1960 pursuant to an agreement and declaration of trust between the union and employers of employees represented by affiliated locals of the union. ⁷ The Fund is administered by an equal number of union-designated and employer-selected trustees, ⁸ and is financed by employers' contributions made in accordance with collective bargaining agreements with union affiliates. ⁹

Central Tool inaugurated its relations with the Fund by contributions effective July 1, 1970, pursuant to a collective bargaining agreement with IAM's Local Lodge 147, the representative of some of Central Tool's employees. ¹⁰ The participation agreement between Central Tool and the local, which was expressly incorporated into the collective bargaining agreement, listed the payments that Central Tool would be required to make to the Fund "under the Agreement and Declaration of Trust dated May 1, 1960, as amended, which has been signed by the Employer and I.A.M. Lodge in the place provided at the end of such Agreement attached hereto." ¹¹ The terms of the pension plan agreement thus appear to have been incorporated by reference in the collective bargaining contract. The pension plan agreement provided for determination of the accrued benefits and the vesting status of each covered employee on the basis of how much "service credit" the employee possessed. Service credits were to be ascertained in accordance with Benefit Plan A, which contained rules governing the collection, investment, and distribution of the contributions of participating employers. ¹² Benefit Plan A granted two types of service credit to covered employees. One was future service credit for the period during which they worked for an employer then contributing to the Fund on their behalf; ¹³ the other was past service credit for any period prior thereto during which they worked for the same employer if the service continued up to the point at which the employer's obligation to contribute to the Fund commenced. ¹⁴

At the time Central Tool joined the plan, ¹⁵ Benefit Plan A featured a rule, adopted by the Fund's board of trustees pursuant to the original trust agreement, governing the amount of service credit to be retained by covered employees of employers who terminate their participation in the plan while continuing in the same or a similar line of business. ¹⁶ Section 4 of Article IX of the plan provided then, as it does now, that such employees would keep all accrued future service credits but would forfeit all accrued past service credits. ¹⁷

In 1978, Central Tool withdrew from the plan in accordance with a new collective bargaining agreement which provided that Central Tool would establish its own pension fund for covered employees and would guarantee benefits accrued by them under Benefit Plan A. ¹⁸ Upon notification of Central Tool's withdrawal, the Fund invoked the rule cancelling past service credits. ¹⁹ Since Central Tool had undertaken in the 1978 collective bargaining agreement to act as guarantor against any loss of those benefits, the cancellation increased its liability under its own pension plan. Central Tool then brought this action against the Fund and its trustees assailing the plan's forfeiture provision, primarily under Section 302(c)(5). ²⁰

The District Court applied the principle, then extant in this circuit, that an eligibility rule of a Section 302(c)(5) trust fund, or its application adversely to a covered employee or group of employees, is invalid if it is arbitrary or capricious. ²¹ Recognizing the strong interest of Central Tool employees in retaining pension benefits they could reasonably have believed to be vested, ²² the court struck down the plan's forfeiture provision insofar as it deprived employees of their status as vested beneficiaries under the plan. ²³ The court grounded this action upon the Fund's failure to demonstrate that forfeitures of vested status either served an "overriding purpose" ²⁴ or were "actuarially necessary" ²⁵ to prevent employers from undermining the Fund by dumping unfunded liability--through early withdrawals from the plan--after their employees had acquired substantial past service credits. At the same time, the court upheld the cancellation of past service credits for purposes of accrual benefits, ²⁶ reasoning that any injury to Central Tool employees resulting from an incremental reduction in benefits was outweighed by the Fund's legitimate interest in preserving its financial integrity and the desirability of minimizing judicial alterations of a plan agreed upon through collective bargaining. ²⁷ Both sides now appeal.

II

At the outset, we must determine whether Central Tool has standing to challenge the plan's forfeiture rule under Section 302 of the Labor Management Relations Act.

The District Court derived its jurisdiction from Section 302(e), which in general terms authorizes federal district courts to "restrain violations" of Section 302. ²⁸ There is no provision, however, indicating who may sue or be sued thereunder. Filling this interstice, courts have construed Section 302(e) to permit a contributing employer to bring suit when it has suffered or will incur injury from enforcement of plan rules or administration of the trust. ²⁹

In the case before us, a collective bargaining agreement has required Central Tool to establish a new pension plan preserving the accrued benefit entitlements of its employees under Benefit Plan A. ³⁰ Application of the plan's forfeiture provision increases Central Tool's liability under its plan, and thus produces an injury we think sufficient to allow Central Tool to maintain this action.

III

Section 302 prohibits an employer from paying anything of value to a union or other representative of employees unless the payment falls within one of the exceptions set forth therein. ³¹ Section 302(c)(5) validates employer-financed employee trust funds, such as Benefit Plan A, if, among other things, they operate "for the sole and exclusive benefit of the employees of [the contributing] employer and their families and dependents...." ³² Central Tool asserts that the forfeiture provision in Benefit Plan A is arbitrary and capricious, and thus does not inure to the "sole and exclusive benefit" of those designated in Section 302(c)(5). ³³

The statutory requirement embodied in this language was addressed by the Supreme Court in UMWA Health & Retirement Funds v. Robinson. ³⁴ Resolution of Central Tool's claim, of course, must square with that decision. Moreover, since the holding in Robinson was framed on the basis of and by explicit reference to the substantial caselaw that Section 302(c)(5) had previously generated, a survey of that body of jurisprudence is essential to sound application of Robinson to the contentions Central Tool now presses.

Before Robinson, federal courts often encountered challenges to eligibility rules, or the application of such rules, promulgated for Section 302(c)(5) trust funds. With but few exceptions, ³⁵ these courts refused to interpret Sections 302(c)(5) and 302(e) as conferring general equity jurisdiction to enforce fiduciary duties of trustees with respect to these funds, or otherwise to supervise the Funds' day-to-day administration. ³⁶ This limitation on the role of the judiciary reflected a number of considerations: fear of overextending judicial resources in an area traditionally governed by state law; ³⁷ concern about the absence of an explicit basis for such jurisdiction in the language or legislative history of Section 302; ³⁸ and apprehension that a criminal statute might be construed too broadly. ³⁹ Moreover, the legislative history of Section 302 provided some...