Connolly v. Pension Benefit Guar. Corp.

• Citation: 631 F. Supp. 640
• Decision Date: 01 May 1984
• Docket Number: No. CV-75-2037-DWW.,CV-75-2037-DWW.
• Court: U.S. District Court — Central District of California
• Parties: John L. CONNOLLY, et al., etc., Plaintiffs, v. PENSION BENEFIT GUARANTY CORPORATION, etc., Defendant, Woodward Sand Co., Inc.; Penfield & Smith, Inc.; Klema Engineering, Inc.; and Municipal Engineers, Inc., Plaintiffs in Intervention.

631 F. Supp. 640

John L. CONNOLLY, et al., etc., Plaintiffs, v. PENSION BENEFIT GUARANTY CORPORATION, etc., Defendant, Woodward Sand Co., Inc.; Penfield & Smith, Inc.; Klema Engineering, Inc.; and Municipal Engineers, Inc., Plaintiffs in Intervention.

No. CV-75-2037-DWW.

United States District Court, C.D. California.

May 1, 1984.

COPYRIGHT MATERIAL OMITTED

Jett, Clifford & Laquer, Wayne Jett, Los Angeles, Cal., for plaintiffs.

Peter H. Gould, Pension Benefit Guar. Corp., George B. Driesen, Washington, D.C., for defendant Pension Benefit Guar. Corp.

Merrill, Schultz & Wolds Ltd., San Diego, Cal., for intervenors Woodward Sand Co., Inc.; Penfield & Smith, Inc.; Klema Engineering, Inc.; and Mun. Engineers, Inc.

Before NELSON, Circuit Judge, and WILLIAMS and KELLEHER, Senior District Judges.

ORDER GRANTING SUMMARY JUDGMENT TO DEFENDANT

Plaintiffs, as trustrees, ("Trustees") of the Operating Engineers Pension Trust ("Pension Trust"), a joint labor-management employee benefit trust created pursuant to Section 302(c)(5) of the Labor Management Relations Act of 1947 29 U.S.C. § 186(c)(5), seek summary judgment against defendant Pension Benefit Guaranty Corporation ("PBGC") to the effect that certain provisions of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"), as amended by the Multiemployer Pension Plan Amendment Act of 1980 ("MPPAA"), violate the Constitution of the United States. In particular, the Trustees contend that the provisions of the MPPAA imposing "withdrawal liability" on employers who ceased participation in the Pension Trust violate the fifth amendment of the Constitution by requiring private property to be transferred from one party to a second party for the second party's private use and benefit. In addition, the Trustees contend that the provisions of ERISA, as originally enacted and amended, requiring payments of "premiums" by the Pension Trust to PBGC, failed to accord the due process of law guaranteed by the fifth amendment.

Actions seeking to enjoin the operation of acts of Congress were, until 1976, required to be heard by district courts with three judges on the panel. Since this lawsuit was begun in 1975, it is properly before this three-judge court. Connelly v. Penson Benefit Guaranty Corp., 673 F.2d 1110, 1113-14 n. 1 (9th Cir.1982).

There are no factual issues in dispute in this case. The date of intervenors' withdrawal from the pension plan is not relevant because intervenors do not challenge the retroactive application of the MPPAA. Such a challenge was rejected in Shelter Framing Corp. v. Penson Benefit Guaranty Corp., 705 F.2d 1502 (9th Cir.1983), prob. juris. noted sub nom PBGC v. R.A. Gray & Co., 464 U.S. 912, 104 S.Ct. 271, 78 L.Ed.2d 253 (1983) (hereinafter "Shelter Framing"). Moreover, this lawsuit challenges the facial constitutionality of Title IV and the MPPAA and does not challenge the statute as applied to particular persons. Hence, allegations regarding the particularized impact of the challenged legislation on the parties' individual situations are of little relevance. We find that no triable issues of fact exist and, for the reasons set forth below, grant defendant's motion for summary judgment.

BACKGROUND

In 1974, Congress attempted to regulate pension plans in a comprehensive manner.¹ To do so, it enacted the Employee Retirement Income Security Act. Title IV of ERISA was adopted to protect an employee's interest in his accrued benefit rights when a plan failed or terminated with insufficient funds. To achieve this goal, it established a system of termination insurance. See Nachman Corp. v. Pension Benefit Guaranty Corp., 592 F.2d 947, 951 (7th Cir.1979), aff'd, 446 U.S. 359, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980). This termination insurance program is run by the PBGC. The PBGC is a governmental entity which receives no direct federal appropriations. Instead, it relies primarily on premium payments from private parties to insure against the failure of pension funds.

Upon enactment of ERISA in 1974, the PBGC immediately insured the receipt of all "non-forfeitable benefits" that had been earned by employees in single employer plans. A single employer who wished to terminate his plan was thus first required to notify the PBGC. 29 U.S.C. § 1341(a) (1976). If an investigation subsequently revealed that the plan lacked sufficient assets to pay its "non-forfeitable benefits," the PBGC itself became obligated for the shortfall. Id. at § 1341(c), (e).

Multiemployer plan benefits, in contrast, were not insured unconditionally upon enactment, but rather were guaranteed solely at the discretion of the PBGC until January 1, 1978. At that time, the guaranties were to become mandatory. Id. at 1381(c)(1). In the interim, the PBGC was authorized to determine on a case-by-case basis whether it would pay a terminating plan's beneficiaries the difference between the value of their guaranteed benefits and the value of the plan's assets on the date of termination. Id. at § 1381(c)(2).

There were several reasons why Congress chose not to insure all multiemployer plan benefits immediately in 1974. Congress viewed multiemployer plans as more stable and secure than single employer plans and thus saw less need to insure the former. See Connolly v. Pension Benefit Guaranty Corp., 581 F.2d 729, 734 (9th Cir.1978); 126 Cong.Rec. 12,179 (1980) (remarks of Rep. Biaggi). Moreover, Congress was concerned about the potential costs of such a program. Recognizing that it needed more time to study the entire problem, Congress delayed the effective date of the mandatory guarantee program and extended the PBGC's discretionary authority through June 30, 1979. Pub.L. No. 95-214, 91 Stat. 1501 (1977). At the same time, Congress ordered the PBGC to prepare a comprehensive report analyzing the multiemployer situation.

After extensive consideration, the MPPAA was enacted, affecting a variety of major changes in ERISA. Under the MPPAA, the PBGC is required to guarantee certain benefits of covered multi-employer plans. The level of benefits guaranteed by the PBGC under the MPPAA is lower than the level guaranteed prior to the passage of the MPPAA. The premiums employers must pay the PBGC for insurance are significantly higher under MPPAA. The PBGC is also authorized to provide financial assistance to plans which cannot meet their current financial obligatios. This permits a plan which is having financial difficulties to continue, and allows employers to continue making contributions to an insolvent plan without incurring liability under ERISA. Under the MPPAA, the insurable event for a plan is its insolvency, rather than its termination. The MPPAA further provides that the plan benefits are to be funded over a shorter period of time than formerly required and requires arbitration to resolve a wide variety of disputes between trustees and employers. Plaintiffs raise a number of constitutional challenges to the provisions of Title IV and the MPPAA.

DISCUSSION

A. THE TAKINGS CLAUSE.

Plaintiffs argue that contractual provisions creating investment backed expectations constitute compensable property rights just as much as actual ownership of property. Relying primarily on the recent Ninth Circuit case of Midkiff v. Tom, 702 F.2d 788 (9th Cir.1983), prob. juris. noted, 464 U.S. 932, 104 S.Ct. 334, 78 L.Ed.2d 304 (1983), they argue that employers would normally be required to liquidate other property, such as land, to pay withdrawal liability claims.

Midkiff, on its face, suggests that it does not control the case before us. Midkiff insists that if it had been reviewing "a congressional determination that there was a public use, not ... a state legislative determination," it might have reached a different result. 702 F.2d at 798. State legislative pronouncements, Midkiff concludes, are entitled to less deference than Congressional determinations. Id. Since the case before us, unlike Midkiff, involves a congressional finding, we could merely cite this analysis and move on. We choose not to do this, however, because to do so would be to endorse the Midkiff logic.

The Midkiff analysis seems inconsistent with what little Supreme Court precedent is available. The Supreme Court has never written that state legislative determinations are entitled to less deference than congressional determinations. To make it seem otherwise, Midkiff culls sentences from two unrelated cases, written 15 years apart, and stands them in juxtaposition. Thus, it offers this statement:

when Congress has spoken on the subject `Its decision is entitled to deference until it is shown to involve an impossibility'

T.V.A. v. Welch, 327 U.S. 546, 552, 66 S.Ct. 715, 718, 90 L.Ed. 843 (1946), quoting Old Dominion Land Co., 269 U.S. 55, 66, 46 S.Ct. 39, 40, 70 L.Ed. 162 (1925), in contrast with this one:

where a state legislative determination is involved: "it is well established that ... the question what is a public use is a judicial one."

Cincinnati v. Vester, 281 U.S. 439, 446, 50 S.Ct. 360, 362, 74 L.Ed. 950 (1930), and concludes that state legislative findings are accorded little deference. 702 F.2d at 798. The Supreme Court did not intend, in either of these cases, to draw a line between state and federal legislative judgments. In fact, the quotation from Vester is equally applicable to Congress, and that from T.V.A. equally applicable to the states. Thus, Midkiff has created a distinction that the Supreme Court has never recognized and has, in fact, implicitly rejected. E.g., Berman v. Parker, 348 U.S. 26, 31-32, 75 S.Ct. 98, 101-02, 99 L.Ed. 27; United States v. Gettysburg Electric Ry. Co., 160 U.S. 668, 680, 16 S.Ct. 427, 429, 40 L.Ed. 576 (1896).

Moreover, common sense suggests that state legislative determinations, if they are to be treated differently than congressional determinations, should be granted more, not less, deference. The tenth amendment reserves power to the states. To at...