H.C. Elliott, Inc. v. Carpenters Pension Trust Fund for Northern California

• Decision Date: 21 October 1988
• Docket Number: No. 87-2451,87-2451
• Parties: , 10 Employee Benefits Ca 1312 H.C. ELLIOTT, INC., Plaintiff-Appellant, v. CARPENTERS PENSION TRUST FUND FOR NORTHERN CALIFORNIA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 808

859 F.2d 808

57 USLW 2300, 10 Employee Benefits Ca 1312

H.C. ELLIOTT, INC., Plaintiff-Appellant, v. CARPENTERS PENSION TRUST FUND FOR NORTHERN CALIFORNIA,

Defendant-Appellee.

No. 87-2451.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 13, 1988.

Decided Oct. 21, 1988.

John T. Hayden, Littler, Mendelson, Fastiff & Tichy, San Francisco, Cal., for plaintiff-appellant.

Robert M. Hirsch, Van Bourg, Weinberg, Roger & Rosenfeld, San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before SCHROEDER, NOONAN and O'SCANNLAIN, Circuit Judges.

SCHROEDER, Circuit Judge:

This is an action by a housing contractor against the Carpenters Pension Trust Fund for Northern California. The contractor, H.C. Elliott, Inc., sought declaratory and injunctive rulings that it had no liability to the Trust Fund under the withdrawal liability provisions of ERISA, the Employee Retirement Income Security Act of 1974, 29 U.S.C. Secs. 1001 et seq. The Trust Fund counterclaimed seeking an order directing Elliott to pay its delinquent withdrawal liability payments, to submit disputes concerning withdrawal liability to arbitration and to pay installments as they become due. The case came before the district court on cross motions for summary judgment. The district court granted the Trust Fund's motion and ordered the parties to proceed to arbitration as to the amount of the liability. Chief Judge Peckham's careful opinion is reported at 663 F.Supp. 1016 (N.D.Cal.1987). We affirm.

The case calls for interpretation of 29 U.S.C. Sec. 1383(b)(2). ERISA provides that when an employer withdraws from obligations under a collective bargaining agreement requiring trust fund contributions, the employer must pay an assessment to the fund. 29 U.S.C. Sec. 1381(a). In the construction industry this obligation is imposed only on withdrawing employers who continue to perform the type of work covered by the agreement. 29 U.S.C. Sec. 1383(b)(2). The principal issue in this appeal is whether Elliott, after its obligations under the collective bargaining agreement ceased, continued to perform such work by contracting with other companies for carpentry work within the carpenters' union jurisdiction.

Elliott is a housing contractor working in Northern California. Up until June of 1983, Elliott was signatory to the Carpenters Master Agreement for Northern California with the Carpenters 46 Northern California Counties Conference Board. Its obligations under the collective bargaining agreement, including its obligation to contribute to a trust fund on behalf of its workers, ceased in December 1983 when negotiations for a new agreement reached an impasse. Beginning in November of 1982, however, Elliott had begun subcontracting its carpentry work and had ceased making contributions to the Carpenters trust fund. Although it continued as a housing contractor, the carpentry work on its projects was done by subcontractors rather than by its own employees.

The subcontracting provisions of the collective bargaining agreement to which Elliott was signatory are important for our resolution of the case. They affect our decision as to whether Elliott is continuing to perform the type of work covered by the agreement. Section 50 of the agreement required that signatory employers subcontract only to contractors willing to comply with the provisions of the agreement. The agreement further required that when a subcontractor was delinquent in making payments to the trust fund, the signatory employer was required to make those payments. In addition, the agreement placed upon the employer the "primary" responsibility for trust fund payments. Thus, the trust fund could look to a signatory employer for payments to the fund regardless of whether the work was done by employees of that employer or by employees of a subcontractor. Work covered by the agreement, therefore, included work done by subcontractors for purposes of the signatory employer's fund payment obligations.

Also important to our resolution of this case is the statutory history and purpose of withdrawal liability. The statutory provisions on withdrawal liability are part of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), 29 U.S.C. Secs. 1381-1453, and constitute amendments to ERISA. MPPAA was enacted to reduce the incentive for employers to terminate their affiliation with multiemployer pension plans. The MPPAA was intended to make it onerous and costly for them to withdraw. H.R. No. 96-869, 96th Cong., 2d Sess., pt. 1, at 67, reprinted in 1980 U.S.Code Cong. & Admin.News 2918, 2935.

The need for the MPPAA can only be understood in the context of ERISA's history. ERISA was enacted in 1974 because Congress was concerned that employees covered by pension plans were being deprived of anticipated benefits because of employer underfunding of those plans. Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 361-62, 100 S.Ct. 1723, 1726-27, 64 L.Ed.2d 354 (1980). At the initiation of pension plans, employers often guaranteed benefits to employees already employed the required amount of time, even though no contributions had yet been made to the plans to cover the past service. However, although the plans stated that employees would receive certain benefits after a certain length of employment, they also limited the employers' liability to the money actually available in the pension funds. Thus, if employers withdrew from underfunded plans, employees received only part of the benefits they had already earned.

Congress enacted ERISA to protect employees' vested interests. The statute included provisions requiring periodic reports, minimum participation, vesting and funding schedules, and standards of fiduciary conduct for plan administrators. Id. at 361 n. 1, 100 S.Ct. at 1726 n. 1. See 29 U.S.C. Secs. 1001 et seq. In addition, ERISA created the Pension Benefit Guarantee Corporation (PBGC), a wholly owned government corporation that insures covered pension plans and provides benefits if the plans terminate with insufficient assets to support guaranteed benefits. Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 720, 104 S.Ct. 2709, 2713, 81 L.Ed.2d 601 (1984) ("Gray "). If the PBGC pays benefits to employees covered by an underfunded plan, it requires reimbursement from the employer. Id. at 721, 104 S.Ct. at 2713.

The passage of ERISA in 1974 immediately obligated the PBGC to guarantee the benefits of single employer pension plans. However, the PBGC guarantee of multiemployer pension plans was delayed for a period of time during which the PBGC had discretion to pay benefits and discretion concerning whether an employer should be forced to reimburse. Id. at 720-21, 104 S.Ct. at 2713-14. The PBGC often had to guarantee existing plans that would not be fully funded until the point in the future when the employers had contributed enough money to cover all employees, including those with past service credits.

As the date for mandatory coverage of multiemployer pension plans approached, Congress became concerned that the PBGC's upcoming obligation to guarantee those plans would bankrupt the corporation because of the large amount of past liabilities still underfunded in the plans. As a result of this concern, Congress asked the PBGC to prepare a report analyzing the problems faced by multiemployer plans and recommending action. Id. at 721, 104 S.Ct. at 2713; S.Rep. No. 95-570, 95th Cong., 1st Sess., pp. 1-4 (1977), reprinted in 1977 U.S.Code Cong. & Admin.News 4128, 4129-31.

The PBGC Multiemployer Study found that ERISA did not adequately protect plans from the harm resulting from individual employer withdrawals from multiemployer pension plans:

A key problem of ongoing multiemployer plans, especially in declining industries, is the problem of employer withdrawal. Employer withdrawals reduce a plan's contribution base. This pushes the contribution rate for remaining employers to higher and higher levels in order to fund past service liabilities, including liabilities generated by employers no longer participating in the plan, so-called inherited liabilities. The rising costs may encourage--or force--further withdrawals, thereby increasing the inherited liabilities to be funded by an ever decreasing contribution base. This vicious downward spiral may continue until it is no longer reasonable or possible for the pension plan to continue.

Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 215, 106 S.Ct. 1018, 1021, 89 L.Ed.2d 166 (1986) (quoting Pension Plan Termination Issues: Hearings Before the Subcommittee on Oversight of the House Committee on Ways and Means, 95th Cong., 2d Sess. 22 (1978) ("1978 Hearings") (Statement of Matthew H. Lind, PBGC Executive Director)). Based on the PBGC findings, Congress enacted the Multiemployer Pension Plan Amendments Act.

The MPPAA requires that employers withdrawing from multiemployer pension plans pay the unfunded vested benefits attributable to the withdrawing employers' participation. Connolly, 475 U.S. at 217, 106 S.Ct. at 1022. As the PBGC Executive Director explained,

an employer withdrawing from a multiemployer plan would be required to complete funding its fair share of the plan's unfunded liabilities. In other words, the plan would have a claim against the employer for the inherited liabilities which would otherwise fall upon the remaining employers as a result of the withdrawal.... [W]e think that withdrawal liability would cushion the financial impact on the plan.

Id. at 216-17, 106 S.Ct. at 1022 (quoting 1978 Hearings, Statement of Matthew H. Lind, PBGC Executive Director). An employer's withdrawal liability is based upon its proportionate share of the plan's unfunded vested benefits, calculated as the difference between the present value of vested benefits and the current value of the plan's assets. Gray, 467 U.S....