N.Y. State Teamsters Conference Pension v. C&S Wholesale Grocers, Inc.

• Decision Date: 27 January 2022
• Docket Number: No. 20-1185-cv,August Term 2020,20-1185-cv
• Parties: NEW YORK STATE TEAMSTERS CONFERENCE PENSION AND RETIREMENT FUND, by its Trustees, Michael S. Scalzo, Sr., John Bulgaro, Daniel W. Schmidt, Tom J. Ventura, Bob Schaeffer, Brian Hammond, Mark May and Paul Markwitz, Plaintiff-Appellant, v. C&S WHOLESALE GROCERS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

24 F.4th 163

NEW YORK STATE TEAMSTERS CONFERENCE PENSION AND RETIREMENT FUND, by its Trustees, Michael S. Scalzo, Sr., John Bulgaro, Daniel W. Schmidt, Tom J. Ventura, Bob Schaeffer, Brian Hammond, Mark May and Paul Markwitz, Plaintiff-Appellant,

v.C&S WHOLESALE GROCERS, INC., Defendant-Appellee.^*

No. 20-1185-cv

August Term 2020

United States Court of Appeals, Second Circuit.

Argued: May 3, 2021

Decided: January 27, 2022

Edward J. Meehan (Mark C. Neilsen, Samuel I. Levin, on the brief), Groom Law Group, Chartered, Washington, D.C. (Vincent M. DeBella, Paravati, Karl, Green & DeBella, LLP, Utica, NY, on the brief), for Plaintiff-Appellant.

Yaakov M. Roth (Evan Miller, Stephen J. Petrany, on the brief), Jones Day, Washington, D.C., for Defendant-Appellee.

Before: Cabranes, Raggi, and Carney, Circuit Judges.

José A. Cabranes, Circuit Judge:

This case presents four questions: (1) whether the United States District Court for the Northern District of New York (Frederick J. Scullin, Jr., Judge ) erred in dismissing the claim of Plaintiff New York State Teamsters Conference Pension and Retirement Fund (the "Fund") that Defendant C & S Wholesale Grocers ("C & S") "evaded and avoided" withdrawal liability under the Employee Retirement Income Security Act ("ERISA"); (2) whether the District Court erred in dismissing the Fund's claim that C & S was subject to withdrawal liability under a theory of "common control"; (3) whether the District Court erred in not finding that C & S was subject to withdrawal liability as an "employer"; and (4) whether the District Court erred in granting C & S's motion for summary judgment on the Fund's claim that C & S was subject to withdrawal liability as a "successor" under the "substantial-continuity doctrine." We hold that the District Court did not err in dismissing the claims based on the first two liability theories or in failing to find that C & S was an "employer." We also hold that while a "successor" can be subject to withdrawal liability under ERISA, the District Court, in the circumstances presented here, did not err in granting the Defendant's motion for summary judgment as to that claim. Accordingly, we AFFIRM the District Court's order and judgment.

I. BACKGROUND

Penn Traffic Company ("Penn Traffic") was a company based in Syracuse, New York, that operated approximately 80 retail grocery stores. Penn Traffic also operated two warehouses—one in Syracuse and one in DuBois, Pennsylvania—where it stored wholesale groceries, which it then distributed both to its own retail stores and to other "independent" retail stores.

At its Syracuse warehouse, Penn Traffic employed approximately 450 members of the Teamsters Local 317 union ("Union") under a collective bargaining agreement ("CBA") that required Penn Traffic to contribute to the Fund. The Fund, the Plaintiff-Appellant in this action, is organized as a "multiemployer plan" regulated by ERISA, under which Penn Traffic was subject to significant "withdrawal liability" if it ceased to make contributions. Briefly, if Penn Traffic "withdrew" from the Fund by ceasing to make contributions to it, Penn Traffic was liable to the Fund for its share of the Fund's unfunded vested benefits.¹

Defendant C & S is a grocery wholesaler that also operates warehouses and distributes groceries to retailers. In March 2008, C & S began investigating a possible acquisition of Penn Traffic. C & S did not want to acquire Penn Traffic's Syracuse warehouse because of the pension withdrawal liability associated with it. C & S therefore attempted to structure its $43 million acquisition transaction, executed in December 2008, in such a way as to limit its exposure to that liability: C & S acquired "Penn Traffic's wholesale distribution contracts, customers, equipment, files, records, goodwill, intellectual property, accounts receivable, and employees dedicated to Penn Traffic's wholesale distribution division who were not members of Teamsters Local 317."² And C & S did not purchase the Syracuse warehouse.

Following the transaction, Penn Traffic continued to run its Syracuse warehouse and distributed products to both its own stores and the independent stores that were now C & S customers based on the December 2008 transaction. This activity was governed by a third-party logistics agreement ("Logistics Agreement") that created an independent contractor relationship between Penn Traffic and C & S. Penn Traffic retained responsibility for "all employees, [f]acility and storage leases, material handling and transportation equipment, contracts and all other liabilities associated with" the Syracuse warehouse.³ The Logistics Agreement made clear that Penn Traffic was still responsible for employees at the Syracuse warehouse (the "Teamsters"), and that C & S was not:

Penn Traffic Employees shall not be considered or deemed in any way to be employees of C & S. C & S shall not exercise any authority over the Penn Traffic Employees, including, but not limited to, selecting, engaging, fixing the compensation of, discharging and otherwise managing, supervising and controlling the Penn Traffic Employees and no joint employer relationship shall exist.⁴

In November 2009, Penn Traffic filed for protection under Chapter 11 of the Bankruptcy Code. C & S then purchased the DuBois warehouse. A Penn Traffic competitor and longtime C & S client purchased many of Penn Traffic's retail stores. The Syracuse warehouse closed in May 2010, triggering the claimed withdrawal liability for which the Fund filed a $63.6 million claim in Penn Traffic's bankruptcy proceeding. The bankruptcy estate was able to cover only $5 million of that amount. The Fund then sought the remainder of the withdrawal liability—about $58 million—from C & S in this action, alleging various theories under which Penn Traffic's withdrawal liability was either transferred to, or jointly shared with, C & S.

The Fund's initial complaint was filed on January 22, 2016. On March 21, 2016, C & S moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the complaint for failure to state a claim upon which relief can be granted. On April 8, 2016, the Fund filed an amended complaint alleging theories of C & S's liability in four counts: (1) C & S was subject to the withdrawal liability as the "successor" to Penn Traffic ("successor liability"); (2) C & S had intentionally avoided the withdrawal liability, triggering a statutory provision, 29 U.S.C. § 1392(c), designed to re-impose the liability in such a case ("evade-or-avoid liability"); (3) C & S was subject to the withdrawal liability because it had "common control" over the Syracuse warehouse Teamsters ("common control liability"); and (4) C & S was subject to the withdrawal liability as a "joint employer" of the Syracuse warehouse Teamsters ("joint employer liability").

On April 22, 2016, C & S filed a supplemental motion to dismiss, addressing the Fund's amended complaint. On May 1, 2017, the District Court granted C & S's supplemental motion in part and denied it in part. The District Court dismissed the theories of evade-or-avoid, common control, and joint employer liability, leaving as viable only the Fund's theory of successor liability. The District Court held that withdrawal liability could obtain under a successor liability theory and that the Fund's pleadings on this count were sufficiently plausible to withstand a motion to dismiss.

C & S moved for a certificate of appealability, under 28 U.S.C. § 1292(b), seeking to argue before us that, as a matter of law, there was no successor withdrawal liability under ERISA. On February 6, 2018, the District Court denied that motion. The parties proceeded to discovery, at the conclusion of which they filed cross-motions for summary judgment.

On March 18, 2020, the District Court granted C & S's motion for summary judgment, holding that C & S "did not substantially continue Penn Traffic's business after the 2008 transaction" and therefore could not "be held responsible for Penn Traffic's withdrawal liability under the doctrine of successor liability."⁵

On appeal, the Fund challenges: (1) the District Court's dismissal of the "evade-or-avoid liability" theory; (2) its dismissal of the "common control liability" theory; (3) its finding that C & S was not an "employer" for the purpose of determining withdrawal liability;⁶ and (4) its grant of summary judgment to C & S on the "successor liability" theory. We review each of these challenges in turn.

II. DISCUSSION

We review de novo a dismissal of a complaint for failure to state a claim upon which relief can be granted.⁷ Likewise, "[w]e review de novo a district court's grant of summary judgment after construing all evidence, and drawing all reasonable inferences, in favor of the nonmoving party."⁸

A. Withdrawal Liability

Congress enacted ERISA in 1974 in part "to ensure that employees and their beneficiaries would not be deprived of anticipated retirement benefits by the termination of pension plans before sufficient funds have been accumulated in the plans."⁹ Plans to which multiple employers contributed jointly presented special concerns in this regard, because if one employer pulled out, this "reduce[d] a plan's contribution base" and "pushe[d] the contribution rate for remaining employers to higher and higher levels in order to fund past service liabilities."¹⁰ Within the first few years after ERISA's enactment, a "significant number" of multiemployer plans were experiencing "extreme financial hardship."¹¹

To address this concern, in 1980, Congress passed the Multiemployer Pension Plan Amendments Act ("MPPAA"), which amended ERISA to provide that "[i]f an employer withdraws from a multiemployer plan ... then the employer is liable to the plan in the amount determined ... to be the withdrawal liability."¹² This statutory scheme was designed to "reduc[e] the burden of withdrawal on the plan and remaining employers,"¹³ and thereby "protect the financial solvency of multiemployer...