Dorn's Transp., Inc. v. Teamsters Pension Trust Fund of Philadelphia and Vicinity

• Decision Date: 07 April 1986
• Docket Number: No. 85-5006,85-5006
• Citation: 787 F.2d 897
• Parties: , 7 Employee Benefits Ca 1387 DORN'S TRANSPORTATION, INC., and Oneida Motor Freight, Inc., Appellees, v. TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA AND VICINITY, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 897

787 F.2d 897

54 USLW 2547, 7 Employee Benefits Ca 1387

DORN'S TRANSPORTATION, INC., and Oneida Motor Freight, Inc., Appellees, v. TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA AND VICINITY, Appellant.

No. 85-5006.

United States Court of Appeals Third Circuit.

Argued Feb. 13, 1986.

Decided April 7, 1986.

Lester M. Bridgeman, Louis E. Emery (argued), Bridgeman & Urbanczyk, Washington, D.C., for appellees.

Paul A. Friedman (argued), Cohn & Lifland, Saddle Brook, N.J., for appellant.

Before HUNTER and BECKER, Circuit Judges, and HUYETT, District Judge. ^*

OPINION OF THE COURT

BECKER, Circuit Judge.

This case presents the question of whether, under the Multiemployer Pension Plan Amendments Act ("MPPAA"), 29 U.S.C. Sec. 1381 et seq., an employer-member of an ERISA pension plan may be assessed withdrawal liability when it sells all of its stock to another employer that assumes the operations of the corporate seller and employs most of its employees, and, by virtue of its independent collective bargaining agreement with the same pension plan, continues to make the payments formerly made by the first employer. In the unusual circumstances of this case, we hold that no liability-creating withdrawal took place, and that the assessment of withdrawal liability was improper. We therefore affirm the district court's judgment, 596 F.Supp. 350, declaring that no withdrawal took place and enjoining the pension plan from taking action to collect withdrawal liability payments.

I. FACTS AND PROCEDURAL HISTORY

Co-appellee Dorn's Transportation, Inc. ("Dorn's"), a motor freight carrier, was a contributing member of appellant Teamsters Pension Trust Fund of Philadelphia and Vicinity ("the Plan"), a pension plan governed by the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001 et seq., as amended by the Multiemployer Pension Plan Amendments Act (MPPAA), 29 U.S.C. Sec. 1381 et seq. (1982). On March 2, 1981, Dorn's shut down its terminal in Pennsauken, New Jersey. That day, co-appellee Oneida Motor Freight entered into a contract (subject to ICC approval) with Dorn's Chief Executive Officer and principal stockholder, Walter Dorn, to purchase all of Dorn's outstanding stock. The transaction involved the assumption of Dorn's operating rights by Oneida and the de facto dissolution of Dorn's.

Oneida offered employment to all twelve of the former Dorn's employees at the Pennsauken facility. ¹ Ten accepted and were moved to Oneida's Pennsauken facility. All ten were union members on behalf of whom Dorn's, by virtue of a collective bargaining agreement, had been making weekly contributions to the Plan. For a number of years, as the result of an independent agreement with the Plan virtually identical to Dorn's agreement with the Plan, Oneida had also made payments to the Plan on behalf of its employees who were union members. Thus, Oneida continued to make payments to the Plan on behalf of the former Dorn's employees who accepted employment with Oneida. These employees were dovetailed with the other Oneida employees in Oneida's seniority roster.

Shortly after receiving the Dorn's stock, Oneida learned that Dorn's faced potential withdrawal liability to the Plan for which Oneida, as a "commonly controlled" company, might be jointly liable under 29 U.S.C. Sec. 1301. ² Oneida refused to pay Dorn's the purchase price of Dorn's stock, alleging that Dorn's had breached the contract by failing to disclose the potential withdrawal liability. Walter Dorn took the matter to arbitration, where he prevailed. When Oneida refused to comply with the arbitrator's decision, Walter Dorn brought suit in United States District Court for the Southern District of New York to confirm and enter judgment upon the arbitration award. The court, however, dismissed the case for lack of jurisdiction. Dorn v. Dorn's Transportation and Oneida Motor Freight, 562 F.Supp. 822 (S.D.N.Y.1983). The record does not reveal exactly what accommodation was reached, but we do know that the sale of stock was consummated.

On February 4, 1983, the Plan notified Dorn's that its trustees had assessed a total of over $315,000 in withdrawal liability against Dorn's (for which, as noted, Oneida might be jointly liable). On June 1, 1983, Dorn's and Oneida filed a complaint in the district court for the District of New Jersey seeking a declaratory judgment that various provisions of MPPAA are unconstitutional. On March 12, 1984, the district court issued an order permitting appellees to file an amended complaint that added a statutory argument to their constitutional argument. The statutory argument is that under 29 U.S.C. Sec. 1301, see supra note 2, and also under Sec. 1398 which provides a safe haven in the event of certain changes in corporate structure, no withdrawal took place and therefore no withdrawal liability is owing. ³

On September 14, 1984, Dorn's and Oneida moved for summary judgment. In its opposition to this motion, the Plan sought discovery pursuant to Fed.R.Civ.P. 56(f). The items it sought were depositions of two individuals involved in the Dorn's/Oneida transaction--Walter Dorn and Oneida agent Paul McGoldrick. In its affidavit, and in a hearing before the district court on September 14, 1984, the Plan explained that these depositions were relevant because unless the Dorn's/Oneida transaction was bona fide and arms length, it could not come within the safe harbor of Sec. 1398. On October 25, 1984, the district court denied the motion for additional discovery and issued an order granting summary judgment for Dorn's and Oneida. The district court held that under both Secs. 1301 and 1398, no withdrawal took place. Dorn's Transportation, Inc. v. Teamsters Pension Trust Fund of Philadelphia and Vicinity, 596 F.Supp. 350 (D.N.J.1984). The district court made findings that the Dorn's/Oneida transaction was indeed bona fide and arms length, but gave no indication as to exactly how that factual finding affected its holding. Id. at 354.

II. STATUTORY SCHEME; PARTIES' CONTENTIONS

Under ERISA, as amended by MPPAA, employers contribute to a pension plan on behalf of each of their employees who is a member of a participating union. The amount of the payments is determined by a collective bargaining agreement between each employer and its employees. The plan is administered by trustees, half of whom are chosen by contributing employers and half by the union. 29 U.S.C. Sec. 186(c)(5)(B).

When an employer withdraws from a pension plan, it incurs "withdrawal liability," the amount of which is determined by the plan trustees. 29 U.S.C. Sec. 1381. A withdrawal is defined by Sec. 1383:

For purposes of this part, a complete withdrawal from a multiemployer plan occurs when an employer--

(1) permanently ceases to have an obligation to contribute under the plan, or

(2) permanently ceases all covered operations under the plan.

However, there are several statutory exemptions to withdrawal liability. The exception most germane to this case, Sec. 1398, establishes that a withdrawal has not taken place in the case of certain "change[s] in corporate structure." As noted, in the instant case the district court found that, by virtue of Sec. 1398, no withdrawal took place.

The district court also found that Sec. 1301 exempted Dorn's from withdrawal liability. Section 1301(b) states that "commonly controlled" companies are to be treated as a single employer for the purposes of ERISA, see supra note 2. Finding that Oneida and Dorn's were commonly controlled, and that Oneida continued to make payments to the Plan, the district court held that by virtue of Sec. 1301, no withdrawal had taken place. 596 F.Supp. at 354-55.

On appeal, the Plan argues that the district court erred in its interpretation of both Secs. 1301 and 1398. Because we find that the transaction at issue was exempt under Sec. 1398, we leave for another day the correctness of the district court's problematic holding with respect to Sec. 1301. ⁴

III. IS DORN'S EXEMPT UNDER Sec. 1398?

Section 1398 provides that no withdrawal has taken place if

(1) an employer ceases to exist by reason of--

(A) a change in corporate structure described in Sec. 1362

... if the change causes no interruption in employer contributions or obligations to contribute under the plan.

The definition of a change in corporate structure in Sec. 1362 is:

(1) ... a reorganization which involves a mere change in identity, form or place of organization.

(2) ... a liquidation into a parent corporation

(3) ... a merger, consolidation, or division.

The question presented here is whether the Dorn's/Oneida transaction falls under this statutory exemption. The district court believed that it did. The Plan makes essentially two arguments in opposition. First, the Plan argues that a straightforward reading of Sec. 1398 shows that the Dorn's/Oneida transaction is not covered by the statute. The Plan points out that, while payments continued, the obligation to make payments was interrupted, removing the transaction from Sec. 1398's coverage.

In the alternative the Plan argues that the Dorn's/Oneida transaction may have been a bad faith effort to avoid liability, hence governed by Sec. 1392(c) which states that "If a principal purpose of any transaction is to evade or avoid liability under this part, this part shall be applied (and liability shall be determined and collected) without regard to such transaction." Thus the Plan contends that additional fact-finding (with respect to the bona fides of the Dorn's/Oneida transaction) was necessary and that the district court abused its discretion by denying the Plan's discovery request and bypassing arbitration.

It would seem logical to discuss first the bypassing of arbitration and denial of discovery because if the district court should not have ruled at all, then its judgment must be reversed regardless of the correctness of its statutory interpretation. However, the question at the...