Huber v. Casablanca Industries, Inc.

Citation916 F.2d 85
Decision Date22 October 1990
Docket Number89-3780,Nos. 89-3776,s. 89-3776
Parties, 12 Employee Benefits Ca 2393 Ray HUBER, Edward L. Rees, Carl C. Huber, and James Bono as Trustees of the UFCW, Local 23 and Giant Eagle Pension Fund, Appellants at 89-3776, Cross-Appellees at 89-3780, v. CASABLANCA INDUSTRIES, INC., Cross-Appellants at 89-3780, Appellees at 89-3776.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

William P. Getty (argued), Joseph A. Vater, Jr., Meyer, Unkovick & Scott, Pittsburgh, Pa., for appellants-cross-appellees.

E. Calvin Golumbic (argued), Ronald L. Castle, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., for appellees-cross-appellants.

Carol Connor Flowe, Gen. Counsel, Jeanne K. Beck, Deputy Gen. Counsel, Israel Goldowitz, Asst. Gen. Counsel, Steven A. Weiss, Atty. (argued), Office of the Gen. Counsel, Washington, D.C., for amicus curiae Pension Ben. Guar. Corp.

K. Peter Schmidt, Douglas L. Wald, Arnold & Porter, Washington, D.C., for amicus curiae Nat. Coordinating Committee for Multiemployer Plans.

Before STAPLETON and GREENBERG, Circuit Judges, and POLLAK, District Judge *.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

This case raises a number of questions regarding the calculation of withdrawal liability under the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. Sec. 1381 et seq.:

1) How is an investment contract to be valued?

2) How is the interest rate on amortization of withdrawal liability selected when the most recent actuarial valuation of the plan uses more than one interest rate?

3) What, if any, interest is to be assessed on the withdrawal liability for the period between the calculation date and the start of payments?

4) If, after arbitration, it is ascertained that the interim liability payments exceed the employer's total withdrawal liability, may the employer be paid interest on the overpayment?

5) May lump-sum post-retirement death benefits be included in the calculation of vested benefits?

6) Can informal written amendments to a plan be effective?

7) Can a fund make a second assessment of withdrawal liability?

We conclude that assets must be valued consistently with liabilities; that if there is more than one interest rate used in the most recent actuarial valuation, that rate which was used to value vested liabilities should be used for MPPAA amortization; that one year of presumed pre-demand interest is included in the amortization schedule; that interest should be paid on overpayments of withdrawal liability; that lump-sum death benefits may not be included when calculating MPPAA unfunded vested benefits; that informal written amendments to a plan may be effective if made pursuant to the plan's amendment procedure; and that the validity of the second assessment will be determined in arbitration.

FACTS AND PRIOR PROCEEDINGS

The United Food and Commercial Workers, Local 23-Giant Eagle Pension Fund (the "Fund") is a multi-employer pension plan covered by the withdrawal liability provisions of the MPPAA. The Fund was created in 1957 in collective bargaining involving Thorofare Markets, Inc. 1 (the "Employer"), Local 1407, Retail Clerks International Association (which later became part of Local 23 of the UFCW) and Giant Eagle Markets, Inc. The only contributing employers to the Fund have been Thorofare, Giant Eagle, and the local union on behalf of some of its own employees. Casablanca Industries, Inc. and UFCW Local 23-Giant Eagle Pension Fund, 7 EBC 2705, 2707 (1986) (Arbitrator's first opinion). On April 6, 1982, Thorofare withdrew from the Fund. Despite the requirement of 29 U.S.C. Sec. 1399(b)(1) that a demand for withdrawal liability must be issued by a multiemployer plan "[a]s soon as practicable" after an employer's withdrawal, no demand letter was issued to the Employer until November 28, 1984--more than two and one half years after the withdrawal. App. at 1931. This delay seems to have been due to the Fund's poor records, see 7 EBC at 2710, and its inability to obtain adequate records from the Vector Group, its outside administrators. 2

The Employer disputed the amount of the demand and, as it invoked arbitration under 29 U.S.C. Sec. 1401(a), an impartial Arbitrator, Ira F . Jaffe, Esq., was selected. Arbitration hearings were held on 11 days from December 4, 1985, until April 15, 1986, and the Arbitrator issued an Opinion and Award on December 13, 1986.

That Opinion and Award directed the Fund to recompute certain figures, resulting in a substantial reduction of the Employer's liability, and provided for the Arbitrator to retain jurisdiction for review of that recomputation. In the recomputation, the Fund included calculations for liabilities based on data not provided at the initial hearing. The Employer moved to strike this new information, and the Arbitrator issued an Opinion on August 27, 1987, granting that motion. See App. at 2023-49. The Arbitrator issued a third Opinion on February 8, 1988, dealing with remaining issues, including a claim by the Employer for interest on the overpayment it had made on account of the demand initially made by the Fund. On March 21, 1988, the Arbitrator issued a Final Order setting the withdrawal liability of the Employer to the Fund, and the amount of the overpayment which must be returned by the Fund to the Employer.

This action was originated in the district court while the arbitration was still pending, as the Fund filed a complaint on January 12, 1987, challenging the portions of the first Opinion and Award of the Arbitrator unfavorable to the Fund. The action was, however, stayed pending the resolution of the remaining issues by the Arbitrator. Subsequently, an amended complaint and a supplemental complaint were filed and, in addition, the Employer counterclaimed seeking to invalidate portions of the award unfavorable to it, as well as the second assessment. The district court decided the case on cross-motions for summary judgment in an opinion dated October 30, 1989, and the appeal and cross-appeal have been taken from the accompanying order. 3

STANDARD OF REVIEW

It is clear that, in a MPPAA arbitration, the Arbitrator's factual findings are presumed to be correct and are "rebuttable only by a clear preponderance of the evidence." 29 U.S.C. Sec. 1401(c); United Retail & Wholesale Employees v. Yahn & McDonnell, Inc., 787 F.2d 128, 135 n. 9 (3d Cir.1986), aff'd per curiam by an equally divided court sub nom. Pension Benefit Guarantee Corp. v. Yahn & McDonnell, 481 U.S. 735, 107 S.Ct. 2171, 95 L.Ed.2d 692 (1987) ("Yahn & McDonnell "). The statute does not prescribe the standard of review for legal conclusions of the Arbitrator but the parties, including the amicus curiae Pension Benefit Guarantee Corporation ("PBGC"), and the district court agree that the legal conclusions of the Arbitrator must be reviewed de novo, and we concur. 4

Of course, our review of the order of the district court is plenary.

DISCUSSION
I. There is no "Clear Preponderance of the Evidence" to Rebut the Arbitrator's Valuation of the Fund's Assets.

The Fund's calculation of the unfunded vested benefits was based on an asset valuation of $9,829,599. 7 EBC at 2711. The Arbitrator found that this did not represent the "best estimates" of the actuary, Mr. Halliwell, but "had its genesis in the Board of Trustees ... and had as an objective the intention of inflating the withdrawal liability payments assessed against the Employer...." 7 EBC at 2724. The Arbitrator concluded that the assets of the fund as of the calculation date 5 were $14,280,901. See 7 EBC at 2726. The district court upheld this finding on the basis of the MPPAA's presumption in favor of the Arbitrator's findings of fact.

The key dispute is over the valuation of two long-term investment contracts made by the Fund with the Great West Life Assurance Company. The Trustees sought to value these at $5,677,616, their value if liquidated as of the calculation date, while the Arbitrator valued them at $10,111,474, their "guaranteed contract" or book value. 6 As described by the Arbitrator:

The long-term investment contracts held deposits of the Fund in calendar year funds which matured over a 15 year period and which retained a fixed interest rate during that period. Each year, 6 2-3% (i.e., one-fifteenth) of the initial principal amount plus the interest earned during that year would be released into a short-term fund which the Fund could then either deposit into the next calendar year fund as part of the initial principal for that calendar year fund, maintain under the terms of short term investment contract (from which withdrawals could be made without penalty), or withdraw the sum without penalty for investment in some other asset or for use in paying benefits. Thus, absent the premature cancellation of the long-term investment contract, it would take the Fund a total of 15 years after the last deposit to recover all of the funds held on deposit under that contract by Great West.

7 EBC at 2712-13.

The process of withdrawing the funds in the long-term contracts without reinvestment is referred to as "rolling out." As one alternative to "rolling out" the contracts, the Trustees could immediately cash out the contracts before their scheduled maturity, but if they did so would only receive the "current capital value." The current capital value took account of the difference between the contract interest rates--which ranged from 8.7% to 12.25%, see 7 EBC at 2713--and the current, or "new money" interest rate, which, as of the calculation date, September 30, 1981, was 15.25%. See 7 EBC at 2714. The contractual formula used to determine the current capital value magnified the economic loss

                resulting from the difference in rates, in the sense that there was a penalty provided for cashing out which reduced the recovery on the contracts to an amount below that
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