Pension Ben. Guar. Corp. v. Mize Co., Inc.

• Decision Date: 25 February 1993
• Docket Number: No. 92-1351,92-1351
• Citation: 987 F.2d 1059
• Parties: , 16 Employee Benefits Cas. 1693 PENSION BENEFIT GUARANTY CORPORATION, Plaintiff-Appellee, v. MIZE COMPANY, INCORPORATED; Velma C. Rothwell; William Rothwell, Sr., Administrators of Retirement Plan for Employees of Mize Company, Incorporated, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1059

987 F.2d 1059

61 USLW 2564, 16 Employee Benefits Cas. 1693

PENSION BENEFIT GUARANTY CORPORATION, Plaintiff-Appellee, v. MIZE COMPANY, INCORPORATED; Velma C. Rothwell; William Rothwell, Sr., Administrators of Retirement Plan for Employees of Mize Company Incorporated, Defendants-Appellants.

No. 92-1351.

United States Court of Appeals Fourth Circuit.

Argued Oct. 26, 1992.

Decided Feb. 25, 1993.

Margaret Behringer Maloney, Moore & Van Allen, Charlotte, NC, argued (C. Wells Hall III, Charles E. Johnson, on brief), for defendants-appellants.

James J. Armbruster, Office of the Gen. Counsel, Pension Benefit Guar. Corp., Washington, DC, argued (Carol Connor Flowe, Gen. Counsel, Jeffrey B. Cohen, Deputy Gen. Counsel, Valerie R. Dinkins, Asst. Gen. Counsel, David J. Gzesh, Mary K. Bentley, Office of the General Counsel, Pension Benefit Guar. Corp., Washington, DC; James M. Sullivan, Asst. U.S. Atty., Charlotte, NC, on brief), for plaintiff-appellee.

Before HALL, WILKINSON, and LUTTIG, Circuit Judges.

OPINION

K.K. HALL, Circuit Judge:

Mize Company, Inc., appeals the district court's summary judgment order establishing a termination date for the company's pension plan. We affirm.

I.

Mize, a small North Carolina company, established a pension plan for its employees in 1954. The plan was to be funded through a group annuity contract with Life Insurance Company of Virginia. In 1974, the Employee Retirement Income Security Act (ERISA), Pub.L. 93-406, 88 Stat. 832, was enacted. Tony Harris, Mize's owner from 1972-82, was informed by Life Insurance that ERISA mandated certain amendments to the pension plan. Harris responded on May 3, 1976, that he intended to terminate the pension plan and to establish a profit sharing plan in its stead. However, despite being explicitly advised to do so by Life Insurance in May, 1976, Harris never notified the Pension Benefit Guaranty Corporation (PBGC) of the plan termination, as was required under § 4041(a) of Title IV. ¹

Harris sold the company to Verna Rothwell in 1982. The company ceased operations on July 3, 1985, and was liquidated. In 1989, a former Mize employee attempted to secure his pension, but Rothwell directed Life Insurance to refuse payment. On June 21, 1991, PBGC applied to the district court for an order requiring Mize to show cause why the plan should not be terminated effective July 3, 1985; the application also prayed that PBGC be appointed statutory trustee of the plan and that all plan records and assets be delivered to PBGC.

Mize objected to only the proposed termination date of July 3, 1985. The company argued that the proper date was December 31, 1975, allegedly the latest date by which all of Mize's employees had been told by then-owner Harris that the pension plan was being terminated and that no future benefits would accrue. ² In support of this earlier date, Mize filed an affidavit by Harris in which he stated that "all employees who were participants in the Plan were notified by me either in letter or in person that the Plan was being terminated."

The district court granted the relief requested by PBGC. Noting that there was no dispute about Mize's failure to follow the statutory termination requirements, the court ruled that the proposed 1975 or 1976 dates could not be used. July 3, 1985, was chosen as the termination date because, as the court explained, the employees would be deemed to have had constructive notice that their benefits would cease to accrue when the company closed down operations.

Mize appeals.

II.

Mize complains that the district court erred in granting summary judgment in the absence of a motion by PBGC and without an evidentiary hearing. This argument is meritless.

A district court has the power to grant summary judgment sua sponte. U.S. Development Corp. v. Peoples Fed. Sav. & Loan, 873 F.2d 731, 735 (4th Cir.1989). The district court gave Mize ample opportunity to respond to PBGC's complaint; discovery was conducted, extensions were granted, and Mize filed at least two pleadings, with accompanying memoranda of law, objecting to PBGC's application. Mize has yet to identify a genuine issue of material fact that is in dispute. Although PBGC, in its briefs to this court, takes issue with two factual allegations by Mize, neither is material. ³ We are unable to envision what additional facts Mize would attempt to show were we to vacate the judgment below and remand for further proceedings.

III.

PBGC was established in 1974 as a wholly-owned government corporation for the purpose of administering the single-employer pension plan termination insurance program. Under this insurance program, PBGC guarantees the payment of certain minimum pension benefits to pension plan participants in the event that a covered plan terminates with insufficient assets to pay the benefits. 29 U.S.C. §§ 1302(a)(2), 1322 and 1361. Funding for the program comes from four basic sources: (1) insurance premiums paid by employers who are maintaining ongoing covered plans (29 U.S.C. § 1306); (2) liability payments collected from employers upon plan terminations (29 U.S.C. § 1362); (3) assets acquired from terminated plans; and (4) earnings on investments. General funds of the Treasury are not used. 29 U.S.C. § 1302(g)(2).

A plan can be terminated in one of three ways. If a plan has sufficient assets to cover all benefit liabilities, an employer may pursue a "standard termination." 29 U.S.C. § 1341(b). In the case of a plan that does not have sufficient assets to cover accrued liabilities, an employer may seek a "distress termination" under 29 U.S.C. § 1341(c). Under either form of these voluntary termination routes, an employer must file with PBGC a notice of intent to terminate at least sixty days prior to the proposed termination date. 29 U.S.C. § 1341(a)(2), (c)(1). After it receives notice of the proposed termination, PBGC has 60 days (longer if extended by agreement) to determine if the termination requirements have been met. This 60-day period is designed to, among other things, enable PBGC to evaluate the fiscal soundness of the plan.

In addition to the voluntary termination routes, ERISA provides for an involuntary termination process. 29 U.S.C. § 1342. Whenever PBGC determines that a plan will be unable to pay benefits when due, it may institute court proceedings to obtain "a decree adjudicating that the plan must be terminated to protect the interests of the participants or to avoid any unreasonable deterioration of the financial condition of the plan or any unreasonable increase in the liability of the fund." 29 U.S.C. § 1342(c). Under this procedure, a trustee may be appointed by the court to administer the plan. 29 U.S.C. § 1342(b).

In many cases, the extent of a plan's deficiencies hinges largely on the date of termination. See PBGC v. Heppenstall Co., 633 F.2d 293, 297 (3d Cir.1980) (explaining various ways in which PBGC's exposure depends on termination date). In a standard termination, the prospective date proposed in the plan administrator's termination notice is used. 29 U.S.C. § 1348(a)(1). In a distress or involuntary termination, PBGC (or the trustee, if any) and the plan administrator can agree on a date; absent an agreement, however, the date of termination is established by the district court. 29 U.S.C. § 1348(a)(4). Unfortunately, Congress gave the court no express direction on how such a date should be determined. This lacuna in the statutory scheme is the subject of this action.

IV.

It is undisputed that Harris failed to follow the requirements for a standard termination of Mize's plan, and Mize is not arguing that a voluntary termination was effected when Harris notified his employees in 1975 of his intentions to switch from a pension plan to some sort of profit-sharing plan. Mize's only complaint is that the district court misapplied the standard developed in other circuits for setting the date for an involuntary termination. We believe that the district court used the proper standard and applied it correctly. Important policy considerations also buttress the choice of the 1985 termination date.

The Third Circuit considered the issue in Heppenstall, 633 F.2d 293. Noting the absence of any explicit statutory direction or evidence of legislative intent regarding the selection of a termination date, the court decided that it "must select the date which it determines is most consistent with the purposes of the insurance subtitle [29 U.S.C. § 1301 et seq.]." Id. at 297. These purposes are those given for the adjudication of an involuntary termination in § 1342(c): "... to protect the interests of the participants and to avoid any further deterioration of the financial condition of the plan or any further increase in the liability of the fund." Id. at 300. The court then dissected the respective interests of participants and PBGC; the interests of the employer were deemed to be of no consequence. Id. at 300-01.

PBGC's interest as a self-financing mutual insurer is to protect its fund and the other plans that pay into the fund in the form of termination premiums. Id. The participants' interest was deemed to be one of expectation or reliance; in other words, participants should be protected until the earliest date on which they received some notice of termination that they no longer had any "reasonable expectation in the accrual of vested pension rights." Id. at 302. The cessation of a company's operations would constitute sufficient constructive notice that no benefits would continue to accrue, and such date would, therefore, be the latest possible termination date. Id. at 301-02. Thus, the range of possible dates is bracketed by the dates of two events: actual notice to the participants and cessation of company activities.

The concept of employee expectations in the context of an involuntary termination proceeding was developed more fully a few years later in PBGC v. Broadway Maintenance Co., 707 F.2d 647 (2d...