Shelter Framing Corp. v. Carpenters Pension Trust

• Citation: 543 F. Supp. 1234
• Decision Date: 09 July 1982
• Docket Number: No. CV 81-4457-IH,CV 81-5551-IH.,CV 81-4457-IH
• Court: U.S. District Court — Central District of California
• Parties: SHELTER FRAMING CORP., Plaintiff, v. CARPENTERS PENSION TRUST FOR SOUTHERN CALIFORNIA, Defendant. G & R ROOFING COMPANY, Plaintiff, v. CARPENTERS PENSION TRUST FOR SOUTHERN CALIFORNIA, Defendant.

543 F. Supp. 1234

SHELTER FRAMING CORP., Plaintiff, v. CARPENTERS PENSION TRUST FOR SOUTHERN CALIFORNIA, Defendant.

G & R ROOFING COMPANY, Plaintiff, v. CARPENTERS PENSION TRUST FOR SOUTHERN CALIFORNIA, Defendant.

Nos. CV 81-4457-IH, CV 81-5551-IH.

United States District Court, C. D. California.

July 9, 1982.

COPYRIGHT MATERIAL OMITTED

Acret & Perrochet, Los Angeles, Cal. by Peter Szabadi, and Cathryn Brogan, Los Angeles, Cal., for Shelter Framing Corp., plaintiff in No. CV 81-4457-IH.

Merrill, Schultz & Hersch, San Diego, Cal. by Michael E. Merrill, Steven Schultz, and Mark Bennett, San Diego, Cal., for G & R Roofing Company, plaintiff in No. CV 81-5551-IH.

Cox, Castle & Nicholson, Los Angeles, Cal. by James P. Watson, and Howard Kroll, Los Angeles, Cal., for defendant Carpenters Pension Trust for Southern California in both cases.

Peter H. Gould, Office of the Gen. Counsel, Washington, D. C., for Pension Benefit Guaranty Corp., amicus curiae in both cases.

OPINION

IRVING HILL, District Judge.

PRELIMINARY STATEMENT

In this Opinion, the Court holds unconstitutional certain provisions of the Multiemployer Pension Plan Amendment Act, 29 U.S.C. Sec. 1381 ff. (MPPAA), as applied to each Plaintiff. The Plaintiffs are employers who withdrew from a pension plan covered by the Employees Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1001 ff., prior to the enactment of MPPAA. Under the retroactive provisions of the new statute, they were assessed a substantial liability, and they sued for declaratory and injunctive relief. The Plaintiffs sought a declaration that the statute and the assessments made thereunder were unconstitutional. They also sought an injunction prohibiting collection of the assessments.

The two cases, by agreement of all parties, were consolidated for discovery and pre-trial purposes. Preliminary injunctions, enjoining further efforts to collect the assessments, were entered in both cases on January 14, 1982. Thereafter, both sides in both cases filed simultaneous mutual summary judgment motions on the issue of MPPAA's constitutionality.¹ Argument on the motions in the two cases was consolidated.

Plaintiffs challenge the validity of the statute on a number of separate grounds. As will be seen, those challenges are rejected on certain of the grounds but are sustained on the issue of retroactivity. The Court does not reach the issue of taking without just compensation.

The Opinion which follows was delivered piecemeal, orally from the bench, on March 22, 23 and 24, 1982. As an oral opinion, it does not purport to be a full and comprehensive discussion of all of the applicable case law bearing on all of the issues adjudicated. The Court's oral remarks have been somewhat edited for publication and, in the interest of clarity, a few minor additions have been made.

FACTS

Counsel for all of the parties have stipulated in open court that there are no disputed issues of material fact and that the only questions presented by the mutual summary judgment motions are questions of law. They have also agreed that the matter is ripe for decision now as to the constitutional issues, and no trial on those issues is necessary or appropriate. The lawyers have filed an extensive set of stipulated facts. Other facts not covered in that stipulation emerged during the argument as being uncontroverted and they, too, have been considered by the Court. The following is a summary of the relevant uncontested facts.

Both Plaintiffs are contractors in the construction business. Plaintiff Shelter was party to a collective bargaining agreement with a local of the Carpenters Union from 1976 to 1980. As required by the agreement, Shelter contributed to the Defendant, Carpenters Pension Trust (Trust), throughout that period. Shelter's union contract expired July 1, 1980, and negotiations for a new agreement reached an impasse on July 16, 1980. Shelter had no obligation to continue its contributions to the Trust after July 16, 1980, but in fact made payments until August 12, 1980. These dates place Shelter's withdrawal from the plan² well before September 26, 1980, the enactment date of MPPAA, but after the retroactive application date of April 29, 1980, set by the statute.

After this withdrawal, the Trust assessed against Shelter a lump sum withdrawal liability of $797,648. This is more than twice Shelter's net worth. As authorized by the statute, the Trust established a monthly payment schedule of $22,737 per month for 40 months, totalling $922,489, which includes interest. These monthly payments amount to $272,850 per year, a sum which exceeds 60% of Shelter's net worth. The first monthly payment was due June 24, 1981. When Shelter did not make that payment, the Trust declared Shelter in default and thereafter accelerated the total liability. Thus, the monthly payment plan is no longer available to Shelter, and Shelter is currently obligated to pay the original lump sum of $797,648.

Plaintiff G & R was party to a collective bargaining agreement with the same local of the Carpenters Union from 1972 to 1980 and contributed to the Defendant Trust throughout that period. The collective bargaining agreement expired July 1, 1980, and renewal negotiations reached an impasse on July 18, 1980. G & R was not obligated to contribute to the Trust after July 18, 1980, but did in fact continue its contributions until August 12, 1980. The date of G & R's withdrawal from the plan is thus also well before the enactment date of MPPAA, September 26, 1980, and after its retroactive application date of April 29, 1980.

The Trust assessed a lump sum withdrawal liability against G & R in the amount of $687,387. That sum is equivalent to 40% of G & R's net worth. The Trust, acting under the statute, established a monthly payment schedule of $17,397 per month for 45 months commencing November 5, 1981. The monthly payments include interest and total $787,824. For one year, the monthly payments amount to $208,773, which would equal 94% of G & R's net income for the year 1980. Because of the preliminary injunction issued by this Court, the Trust has taken no steps to accelerate the liability and has not yet declared the full original sum of $687,387 due and payable.

THE STATUTE

I think I should begin with some brief remarks about the background of the statute and the statutory objectives.

MPPAA is an amendment to a statute passed some years earlier, the Employees Retirement Income Security Act, 29 U.S.C. Sec. 1001 ff. (ERISA). ERISA was an effort by Congress to regulate and govern the conduct and administration of employee pension plans. The Act set up duties and obligations to the beneficiaries of such plans, and gave recourse to the federal courts to participants and beneficiaries who claimed abuses and maladministration.

Along with ERISA, Congress established the Pension Benefit Guaranty Corporation (PBGC) to help insure that vested rights of beneficiaries in these plans would be vindicated, and that vested obligations would be met in cases of financial difficulty.

ERISA included an initial limited approach to the problems that might be encountered when employers in multiemployer pension plans withdrew from such plans. It established a contingent obligation on the part of withdrawing employers to pay a proportionate share of the sums needed to cover vested benefits if the plan were to become insolvent during the 5-year period following withdrawal. 29 U.S.C. Sec. 1365. "Substantial" employers who withdrew were required to post a bond to meet this contingent liability. If the plan remained solvent for five years, the withdrawing employer paid nothing. Employers could purchase insurance from PBGC to protect themselves from the contingent liability which could ensue if the plan failed within 5 years. 29 U.S.C. Sec. 1323.

As to MPPAA, the parties have furnished a great deal of material from its legislative history. That material is not controverted and is contained in the stipulation of undisputed facts. The material is also a public record, so I could take judicial notice of it. From that material, the following things can be extrapolated.

The principal purpose of MPPAA, as enunciated to Congress in a report from the PBGC, was to reduce the incentive of employers to terminate their affiliation with multi-employer pension plans by making it more onerous and costly for them to withdraw.

PBGC was concerned with the drain on its own finances which might result if it, as an insurer, had to make good on promised benefits in many plans following withdrawal by numerous employers. PBGC was also concerned with the increased financial burden created by such withdrawals upon those employers who remained, as this increased burden in turn created a greater incentive for the remaining employers to withdraw.

The statute that Congress passed under this impetus from PBGC is an extremely lengthy and complex one. The statutory scheme may be summarized in a bare-bones fashion this way:

Whenever an employer has made a complete withdrawal from a multi-employer pension fund, the fund is required to compute the withdrawing employer's proportion of the unfunded vested benefits of that fund. Each employer's share is based on the proportion of its contributions to the fund over the past five years relative to all of the contributions received by the fund during those five years.

The sum so computed becomes an obligation of the withdrawing employer to the fund. That sum bears interest from the time it is assessed until it is paid. If the employer goes 60 days without paying the amount assessed, following written notice of non-payment, the Trust may declare the full amount of the liability due and payable.

The withdrawing employer is given an option of paying the liability assessed to him in monthly installments as prescribed by the pension plan trustees; but to have this option, the first installment must be paid within 60 days of notice of the...