Park South Hotel Corp. v. New York Hotel Trades Council, 947

• Decision Date: 29 June 1988
• Docket Number: No. 947,D,947
• Citation: 851 F.2d 578
• Parties: , 9 Employee Benefits Ca 2425 PARK SOUTH HOTEL CORPORATION, Plaintiff-Appellant, v. NEW YORK HOTEL TRADES COUNCIL and Hotel Association of New York City, Inc., Pension Fund, Defendant-Appellee. ocket 87-9025.
• Court: U.S. Court of Appeals — Second Circuit

Page 578

851 F.2d 578

57 USLW 2037, 9 Employee Benefits Ca 2425

PARK SOUTH HOTEL CORPORATION, Plaintiff-Appellant, v. NEW YORK HOTEL TRADES COUNCIL and Hotel Association of New York City, Inc., Pension Fund, Defendant-Appellee.

No. 947, Docket 87-9025.

United States Court of Appeals Second Circuit.

Argued March 28, 1988.

Decided June 29, 1988.

Andrew Irving, New York City (Michael F. O'Toole, Robin Roger, Robinson, Silverman, Pearce, Aronsohn & Berman, New York City), for plaintiff-appellant.

Michael Lesch, New York City (Christopher J. Sues, Clifford L. Davis, Shea & Gould, New York City), for defendant-appellee.

Before FEINBERG, Chief Judge, KEARSE and FRIEDMAN, ^* Circuit Judges.

FRIEDMAN, Circuit Judge:

This is an appeal from a declaratory judgment of the United States District Court for the Southern District of New York that the appellant Park South Hotel Corporation and Park South Associates are jointly and severally liable for withdrawal liability payments under the Multiemployer Pension Plan Amendments Act of 1980 (MP-PAA), 29 U.S.C. Sec. 1381 et seq. (1982). Park South Hotel Corp. v. New York Hotel Trades Council and Hotel Ass'n of New York City, Inc., Pension Fund, 671 F.Supp. 1000 (S.D.N.Y.1987). We reverse.

I

A. We recently summarized the background and pertinent provisions of MPPAA in ILGWU National Retirement Fund v. Levy Bros. Frocks, Inc., 846 F.2d 879, 880-81 (2d Cir.1988) MPPAA was enacted by Congress in September 1980 for "[t]he primary purpose of ... protect[ing] retirees and workers who are participants in [multiemployer] plans against the loss of their pensions." In particular, Congress was concerned that as of 1980:

(1) the magnitude of the risk and the potential exposure of the [multiemployer plan] system are intolerably high; and (2) existing law and particularly the plan termination insurance provisions are inadequate to assure financially sound multiemployer plans, may accelerate declines and further weaken and hasten the termination of financially weak plans.... [T]here are serious defects in current law which undermine the benefit security of multiemployer plan participants.

Thus, in T.I.M.E.-DC, Inc. v. Management-Labor Welfare & Pension Funds, 756 F.2d 939, 943 (2d Cir.1985), we pointed out that "[t]he policy of the MPPAA ... was to protect the interests of participants and beneficiaries in financially distressed multiemployer plans and to encourage the growth and maintenance of multiemployer plans."

Under MPPAA an employer who withdraws from a multiemployer plan, with certain exceptions, is assessed "withdrawal liability," that is, the employer is required to continue funding its proportionate share of the plan's unfunded vested benefits. 29 U.S.C. Secs. 1381, 1391. The purpose of withdrawal liability "is to relieve the funding burden on remaining employers and to eliminate the incentive to pull out of a plan which would result if liability were imposed only on a mass withdrawal by all employers." ....

When an employer withdraws from a multiemployer plan, the plan sponsor, that is, the entity maintaining the plan, must determine the amount of the employer's withdrawal liability, notify the employer of the amount and make a demand for payment. [Citations omitted.]

An employer's withdrawal liability is equal to the employer's proportionate share of the plan's unfunded vested employee benefits. The unfunded vested benefits are calculated as the difference between the present value of vested benefits and the current value of the pension plan's assets. See 29 U.S.C. Secs. 1381, 1391 (1982); Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 725, 104 S.Ct. 2709, 2715, 81 L.Ed.2d 601 (1984). An employer's past contribution history is considered in determining its proportionate share of unfunded benefits. Park South Hotel Corp., 671 F.Supp. at 1004.

B. The facts in this case are undisputed. The appellant, Park South Hotel Corporation (Park South), was the sole general partner of Park South Associates (the partnership), a limited partnership organized under the laws of New York. The partnership owned the Barbizon Plaza Hotel (Hotel). The partnership was a member of a multiemployer bargaining unit, the Hotel Association of New York City (Hotel Association). Pursuant to a collective bargaining agreement between the Hotel Association and the union, the partnership was required to contribute to the appellee New York Hotel Trades Council and Hotel Association of New York City, Inc., Pension Fund (the Fund). The Fund is a multiemployer pension plan under MPPAA.

The Hotel Association and the union regarded the partnership as the employer. The union directed complaints filed against the management of the Hotel to the partnership. The general partner, Park South, never was a member of the Hotel Association employers' bargaining unit. The member was the partnership in its trade name, Barbizon Plaza Hotel.

In August 1981, Park South and all the limited partners sold their partnership interests to Donald Trump. Trump became the new general partner, and Barbizon Plaza Realty Corporation and Trump became the new limited partners. To effectuate the sale of the partnership interests, the parties executed an Amended and Restated Certificate of Limited Partnership, and an Amended Partnership Agreement, for Park South Associates, which recited that the old partners will have withdrawn from, and that Trump and Barbizon Plaza Realty The purchase agreement provided that Trump "shall not be responsible, as a consequence of the purchase intended hereby, for any obligation between or among the Sellers or for any obligation of the Sellers or any of them to any third party."

would be "admitted" as partners of Park South Associates. The amended Partnership Agreement and Certificate recognized that the partnership would continue.

The sale of the partnership interests transferred control and management of the Hotel from the former general partner, Park South Corporation, to the new general partner, Donald Trump. The partnership, Park South Associates, continued to own the Hotel.

The transaction was structured as a sale of the partnership interests rather than as a direct sale of the Hotel because a direct sale would have resulted in substantial real estate transfer taxes and an increase in real property taxes.

After the sale, the partnership, through its new partners, agreed to recognize the union as the collective bargaining agent of the Hotel employees. The partnership continued its payments to the Fund.

Although following the sale Park South wrote a letter to the union purporting to dismiss all the Hotel's employees, the new management retained all the Hotel's employees. The district court noted that following the sale, the partnership "agreed to recognize the Union as the collective bargaining agent of the Hotel employees" and "agreed to continue [the employees'] seniority for purposes of lay-offs, vacations, personal days, bereavement leave, jury duty absence, sick days, leaves of absences, severance pay, and other conditions of employment that are non-economic in nature." 671 F.Supp. at 1002, and n. 4.

Approximately four months after the sale, the Fund demanded payment from Park South for withdrawal liability of approximately $1 million. Park South denied liability. It argued that prior to the sale of the partnership interests, "Park South Associates was the owner and operator of the Barbizon Plaza Hotel. It still is. Contributions continue to be made to the Pension Plan for the same employees pursuant to a collective bargaining agreement with the same union." Park South Hotel Corp., 671 F.Supp. at 1003. In April 1982, Park South began making quarterly payments to the Fund under protest and reserved the right to dispute its withdrawal liability.

C. Park South then filed the present suit against the Fund, seeking a declaratory judgment that it had not incurred withdrawal liability under MPPAA by reason of the sale of the partnership interest because that sale did not constitute a "withdrawal" under the Act. The Fund counterclaimed for a declaratory judgment that Park South and Park South Associates (which it described as a "former New York limited partnership") were jointly and severally liable to the Fund for withdrawal liability. After an evidentiary hearing, the district court held for the Fund and granted the following declaratory judgment:

Park South Corporation and Park South Associates I are jointly and severally liable to the Fund for withdrawal liability pursuant to 29 U.S.C. Sec. 1381.

Id. at 1009.

The court held, as the parties agreed, that the dispute was not required to be arbitrated. 671 F.Supp. at 1005 n. 8. See part II below. The court ruled that Park South Associates had withdrawn from the Fund when the partners sold their interests to Trump. The court agreed with the Fund that Park South Associates "permanently ceased covered operations and permanently ceased to have an obligation to contribute to the Fund following the transfer of the partnership interests." Id. at 1006 (footnote omitted). The court stated:

It would exalt form over substance, and would clearly be inconsistent with the broad remedial purposes of MPPAA, to find no change in employer status where, as here, there are no common partners between the two partnerships, where the new partners have expressly disavowed any obligations of the old partners, and, indeed, where the only thing the two partnerships have in common is the partnership name. It simply defies common sense to say that Park South Associates Id.

II, a partnership made up of Donald Trump and the Barbizon Plaza Realty Corporation, is the same employer as Park South Associates I, a partnership made up of Park South Corporation and several independent limited partners.

II

The Act provides that "[a]ny dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under," among...