Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. Louis Zahn Drug Co.

• Decision Date: 11 December 1989
• Docket Number: No. 88-2498,88-2498
• Parties: , 11 Employee Benefits Ca 2177 CHICAGO TRUCK DRIVERS, HELPERS AND WAREHOUSE WORKERS UNION (INDEPENDENT) PENSION FUND and Paul Glover, Plaintiffs-Appellants, v. LOUIS ZAHN DRUG CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1405

890 F.2d 1405

58 USLW 2387, 11 Employee Benefits Ca 2177

CHICAGO TRUCK DRIVERS, HELPERS AND WAREHOUSE WORKERS UNION (INDEPENDENT) PENSION FUND and Paul Glover Plaintiffs-Appellants, v. LOUIS ZAHN DRUG CO., Defendant-Appellee.

No. 88-2498.

United States Court of Appeals Seventh Circuit.

Argued Feb. 15, 1989.

Decided Dec. 11, 1989.

Martin J. Burns, Stephen B. Horwitz (argued), Jacobs, Burns, Sugarman & Orlove, Chicago, Ill., for plaintiffs-appellants.

Ira Gould (argued), Lawrence I. Davidson, J. Michael Williams, Holleb & Coff, Chicago, Ill., for defendant-appellee.

Before COFFEY, EASTERBROOK, and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

The Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund (the Fund) brought an action in the district court to vacate an arbitrator's award in favor of Louis Zahn Drug Company (Zahn). The arbitrator had found Zahn free of withdrawal liability to the Fund under certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA) as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). Zahn responded by filing a motion for summary judgment. The district court referred Zahn's motion to a magistrate. The magistrate recommended that the arbitrator's award stand. The district court adopted the magistrate's Report and Recommendation and granted Zahn's motion for summary judgment. The Fund ¹ now appeals the district court's order granting summary judgment. For the following reasons, we affirm.

I BACKGROUND

A. Withdrawal Liability Under MPPAA

In Robbins v. Lady Baltimore Foods, Inc., 868 F.2d 258, 261 (7th Cir.1989), Judge Kanne, writing for the court, succinctly explained the statutory scheme governing the liability of an employer who withdraws from a multi-employer pension plan:

MPPAA was enacted by Congress to cure the problems arising when an employer ceased making payments to a pension plan fund. When an employer ceased making such payments, the plan would be left with vested pension obligations which were only partially funded. MPPAA provides that an employer who withdraws from a pension plan covered under it becomes liable for an amount of money designed to cover the employees' share of vested, but unfunded, benefits. 29 U.S.C. Secs. 1381(a), 1382; Robbins v. Admiral Merchants Motor Freight, Inc., 846 F.2d 1054, 1055-56 (7th Cir.1988) and cases cited therein; Robbins v. B & B Lines, 830 F.2d 648, 649 (7th Cir.1987).

Under MPPAA, after the sponsor of a multiemployer plan determines that an employer has "withdrawn" within the meaning of 29 U.S.C. Secs. 1383, 1385, the sponsor must issue a notice and demand for payment of the employer's withdrawal liability. The notice must include a schedule of payments. 29 U.S.C. Sec. 1399(b)(1). Within 90 days after receiving the notice and demand, the employer may ask the plan's sponsor "to review any specific matter relating to the determination of the employer's liability and the schedule of payments," 29 U.S.C. Sec. 1399(b)(2)(A)(i). After a "reasonable review of any matter raised," the sponsor must notify the employer of its decision. 29 U.S.C. Sec. 1399(b)(2)(B).

If the employer disagrees with the plan's sponsor's decision on review, it must initiate arbitration within 60 days after the earlier of the date it is notified of the decision or 120 days after its request for review. 29 U.S.C. Sec. 1401(a)(1).

B. Facts

Zahn is a wholesale distributor of drugs and related products. Its customers include retail drug stores, nursing homes, and hospitals. In order to transport its products to its customers, Zahn maintained its own delivery operation by leasing trucks and hiring drivers who were members of the Union. Zahn and the Union drivers entered into a collective bargaining agreement (CBA) covering the period from April 1, 1982 through March 31, 1985. During this period, Zahn was required to make contributions to the Fund, a multiemployer pension plan as defined in 29 U.S.C. Secs. 1002(37)(A) and 1301(a)(3). By 1984, however, Zahn concluded that it could not operate efficiently its delivery system and decided to terminate its trucking operations. Thus, on January 11, 1985, Zahn entered a transaction with George A. Nuelson Teaming Co. (Nuelson) that consisted of three separate agreements: (1) the Sublease Agreement (SA), under which Zahn On April 15, 1985, the Fund notified Zahn that the cessation of its trucking operations constituted a complete withdrawal from the Fund for which Zahn had incurred "withdrawal liability" of $428,000 under 29 U.S.C. Sec. 1382. ³ Zahn invoked its right under 29 U.S.C. Sec. 1399(b)(2)(A)(i) to have the "plan sponsor" (the trustees of the Fund) review the withdrawal liability determination. Zahn argued that it was exempt from withdrawal liability because its transaction with Nuelson constituted a "bona fide, arm's-length sale of assets" within the meaning of 29 U.S.C. Sec. 1384(a)(1). ⁴ The

                assigned to Nuelson all of the vehicle leases used in Zahn's trucking operations;  (2) the Motor Transportation Agreement (MTA), under which Zahn agreed to discontinue its own trucking operations and use Nuelson as its exclusive hauler;  and (3) the Asset Purchase Agreement (APA), which memorialized numerous other transactions.  Under the APA, Zahn and Nuelson agreed to the following:  Zahn sold Nuelson $10,000 worth of assets related to its trucking operations;  Nuelson assumed all of Zahn's rights and obligations under the CBA (including the duty to contribute to the Fund);  Nuelson agreed to provide a bond to the Fund for a five-year period to ensure its continued contribution to the Fund;  all drivers under the CBA became drivers of Nuelson;  and Zahn remained secondarily liable to the Fund if Nuelson failed to discharge its assumed obligations to the Fund during the five-year period following the transaction. 2   R.18, Ex.  A at 3-4 [hereinafter Arb.  Award].  Zahn had made all its required contributions to the Fund up to the date of the Nuelson transaction, and Nuelson has made all required contributions since the transaction date
                Fund's trustees concluded that Zahn's transaction with Nuelson did not constitute a "sale of assets";  instead, the trustees concluded that the "principal purpose" of the transaction was to "evade or avoid [withdrawal] liability" in violation of 29 U.S.C. Sec. 1392(c). 5   The dispute was submitted to arbitration pursuant to 29 U.S.C. Sec. 1401. 6
                

1. The Arbitrator's Award

The sole issue before the arbitrator was "whether the Nuelson transaction [was] a sale of assets by Zahn within [29 U.S.C. Sec. 1384(a)(1) ], or [whether] the principal purpose of the Nuelson transaction [was] to evade or avoid withdrawal liability under [29 U.S.C. Sec. 1392(c) ]." Arb. Award at 6. The arbitrator determined that Zahn was exempt from withdrawal liability because the Zahn-Nuelson transaction was a "sale of assets" within 29 U.S.C. Sec. 1384 and because the primary purpose of the transaction was not to "evade or avoid" withdrawal liability. Id. at 9. ⁷

2. Magistrate's Report and Recommendation

Pursuant to 29 U.S.C. Sec. 1401(b)(2), the Fund filed an action in district court to vacate the arbitrator's award. Zahn, in answering the Fund's complaint, moved for summary judgment. The matter was then referred to a magistrate, who issued a written Report and Recommendation in favor of granting summary judgment. The magistrate noted that the standard under which an arbitrator's findings of fact are reviewed is set forth in 29 U.S.C. Sec. 1401(c) and was undisputed: "[b]oth parties agree that the findings of fact made by an arbitrator are presumptively correct and may be rebutted only by a clear preponderance of the evidence." R.36 at 4 [hereinafter Mag. Rep.]. Although the magistrate noted that section 1401(c) does not provide a standard for reviewing the arbitrator's conclusions of law, the magistrate concluded that "[a]n arbitrator's decision will not be overturned due to an error of law committed in the interpretation of the underlying collective bargaining agreement." Mag. Rep. at 5. Rather, a decision will be overturned only "if the arbitrator bases his decision on factors outside his expertise, or where the decision involves a manifest disregard for the law." Id. ⁸

The magistrate rejected the Fund's argument that the arbitrator's application of 29 U.S.C. Sec. 1384(a) in determining whether Zahn's transaction was a "sale of assets" involved statutory considerations outside his expertise. Id.; see also Jaspan v. Certified Indus. Inc., 645 F.Supp. 998, 1006 (E.D.N.Y.1985) (stating that a dispute that "hinges upon the application of Sec. 1384 ... must be resolved through arbitration"). The magistrate also rejected the Fund's challenge to the arbitrator's findings of facts, concluding that "[t]he Fund's arguments attack the arbitrator's interpretation of the facts rather than point to a preponderance of contradictory evidence." Mag. Rep. at 7. The magistrate then concluded that "[a]ll the evidence presented at the hearing can be said to support the arbitrator's findings. While this court may not have decided the case in the same manner as the arbitrator, its scope of review is limited. The arbitrator's decision in this case should stand." Id.

3. The District Court Order

The district court adopted the magistrate's recommendation and granted Zahn's

                motion for summary judgment.  See R.40 [hereinafter Dist. Ct. Minute Order].  In its order granting summary judgment, the district court ruled on the three objections the Fund raised to the magistrate's report.  The Fund's first two objections were that the magistrate applied an incorrect standard of review to the arbitrator's decision and that both the arbitrator and the magistrate erred in concluding that the Zahn transaction satisfied the requirements of section 1384.  The district court rejected these arguments, holding that "whether these conclusions involve

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