United Mine Workers of Am. 1974 Pension Plan v. Energy W. Mining Co.

• Citation: 464 F.Supp.3d 104
• Decision Date: 22 May 2020
• Docket Number: Civil Action No. 1:18-cv-01905 (CJN)
• Parties: UNITED MINE WORKERS OF AMERICA 1974 PENSION PLAN, et al., Plaintiffs, v. ENERGY WEST MINING COMPANY, Defendant.
• Court: U.S. District Court — District of Columbia

464 F.Supp.3d 104

UNITED MINE WORKERS OF AMERICA 1974 PENSION PLAN, et al., Plaintiffs,

v.ENERGY WEST MINING COMPANY, Defendant.

Civil Action No. 1:18-cv-01905 (CJN)

United States District Court, District of Columbia.

Signed May 22, 2020

Charles Peter Groppe, Stanley F. Lechner, Bryan M. Killian, Morgan, Lewis & Bockius LLP, John R. Mooney, Olga Metelitsa Thall, Paul Andrew Green, Mooney, Green, Saindon, Murphy & Welch, P.C., Washington, DC, for Plaintiffs.

Christopher R. Williams, Mark H. M. Sosnowsky, Gregory James Ossi, Faegre Drinker Biddle & Reath LLP, Moxila A. Upadhyaya, Venable LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

CARL J. NICHOLS, United States District Judge

Plaintiffs United Mine Workers of America 1974 Pension Plan (the "1974 Plan" or "Plan") and several of its trustees seek to enforce an arbitration award against Defendant Energy West Mining Company. See generally Compl., ECF No. 1. Energy West counterclaims, petitioning the Court to vacate or modify the award. See generally Countercl., ECF No. 8. The Court agrees with the Plan that the arbitrator's award should not be disturbed, and therefore grants summary judgment to the Plan, denies it to Energy West, and orders Energy West to comply with the terms of the award.

I. Background

Energy West once operated a coal mine in Huntington, Utah and employed about 180 miners to staff it. See Def.’s Mem. in Supp. of Energy West's Mot. for Summ. J. ("Def.’s Mot.") at 4, ECF No. 29-1. As is standard among coal mining companies, Energy West entered into a series of collective bargaining agreements with the United Mine Workers of America ("UMWA"), the prevailing coal miners’ union. See Pls.’ Mem. of P. & A. in Supp. of its Mot. for Summ. J. to Enforce Arb. Award ("Pls.’ Mot.") at 7, ECF No. 32-1; Parties’ Joint Stipulation of Facts ("Joint Stipulation") ¶ B.3, Joint App'x (J.A.) 419, ECF No. 28. A provision of those agreements required Energy West to contribute to the Union's 1974 Pension Plan, the multi-employer plan that has covered most coal miners in the United States since the enactment of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 – 1461, as amended by the Multiemployer Pension Plan Amendments Act of 1980, Pub. L. No. 96-364, 94 Stat. 1208 (1980). See Pls.’ Mot. at 7. "The contributions made by employers participating in such a multiemployer plan are pooled in a general fund available to pay any benefit obligation of the plan." Concrete Pipe & Prods. of Calif., Inc. v. Constr. Laborers Pension Tr. for S. Calif. , 508 U.S. 602, 605, 113 S.Ct. 2264, 124 L.Ed.2d 539 (1993). "An employee obtains a vested right to secure benefits upon retirement after accruing a certain length of service for [any] participating employers." Id. at 606, 113 S.Ct. 2264.

Since 2014, the Plan has retained United Actuarial Services ("UAS") to assist in administering the Plan's finances. Joint Stipulation ¶¶ B.10–11, J.A. 420. One of United's duties is to prepare an annual valuation report, which assesses the Plan's financial health and estimates the performance of its investment portfolio for the coming year. Id. ¶ B.8; see also UAS's UMWA 1974 Pension Plan Actuarial Valuation Report for Plan Year Commencing July 1, 2015 ("2015 Valuation"), J.A. 556–630. United employee William Ruschau, the Plan's enrolled actuary, prepared the valuation reports for the years 2014 and 2015. See generally 2015 Valuation; UAS's UMWA 1974 Pension Plan Actuarial Valuation Report for Plan Year Commencing July 1, 2014 ("2014 Valuation"), J.A. 730–803; William Ruschau Dep. 33:20–36:4, J.A. 432. He categorized the Plan as being in "critical and declining status" under the Pension Protection Act of 2006, Pub. L. No. 109-280, 120 Stat. 780 (2006), as amended by the Multiemployer Pension Reform Act of 2014, Pub. L. No. 113-235, div. O, 128 Stat. 2130, 2773–882 (2014). By 2015, Ruschau anticipated that the Plan will likely be insolvent by 2022. 2015 Valuation at J.A. 571; Joint Stipulation ¶ B.7, J.A. 420.

As part of his calculations, Ruschau assumed that the Plan's investments would achieve a net rate of return of 7.5% in the 2015 plan year—the same rate Plan actuaries had projected in previous years. 2015 Valuation at J.A. 565. Ruschau based that assumption on a host of factors, including the Plan's historical performance; in fact, the Plan's actual rate of return for 2014–2015 was 7.31%—not far off the mark. Id. ; see also id. at 566 (charting the Plan's "Historical Rates of Net Investment Return"). The 7.5% assumed rate of return was a critical piece in determining whether the Plan could expect to experience a funding shortfall in the coming year, and therefore whether participating employers would be on the hook to make extra contributions to keep the Plan afloat. See Def.’s Mot. at 8; 29 U.S.C. § 1084 (setting "[m]inimum funding standards for multiemployer plans").

That same year, Energy West shut down its coal-mining operations and withdrew from the Plan. Joint Stipulation ¶ C.6, J.A. 421. When an employer withdraws from a multiemployer pension plan, "the employer is liable to the plan in [an] amount" commonly known as its "withdrawal liability." 29 U.S.C. § 1381(a). In short, the Plan must calculate the employer's share of the Plan's "unfunded vested benefits," which is "the difference between the present value of the pension fund's assets and the present value of its future obligations to employees covered by the pension plan." Chicago Truck Drivers, Helpers and Warehouse Workers Union (Indep.) Pension Fund v. CPC Logistics, Inc. , 698 F.3d 346, 347 (7th Cir. 2012) (Posner, J.). The withdrawing "employer must pay [its] share to the fund ... so that the plan can pay the employer's share of the plan's unfunded vested benefits as those benefits come due in the future." Id. at 348.

The Plan asked Ruschau to compute Energy West's withdrawal liability. See Def.’s Mot. at 5. Ruschau first determined that, as of June 30, 2015, the Plan had over $3.8 billion in assets. See Pls.’ Emp'r Withdrawal Liability Notice and Demand, and Req. for Info., under 29 U.S.C. § 1399 ("Liability Notice") at J.A. 552. He then calculated that the present value of the Plan's future obligations to participating employees—the cost of benefits it was obligated eventually to pay out—stood at over $9.5 billion. Id. To reach that figure, Ruschau assumed that the Plan's assets would grow at the Pension Benefit Guarantee Corporation's (PBGC) assumed rate for annuities (2.71% for the first twenty years and 2.78% thereafter)—not the 7.5% rate of return he had used in his 2015 Valuation for the Plan's expected rate of return on its investments. Id. ; see also 2015 Valuation at J.A. 613. The resulting calculations showed a funding shortfall of over $5.7 billion. Liability Notice at J.A. 552.

Ruschau then calculated that, based on the number of hours Energy West employees had worked over the previous five-year period in comparison with the total number of hours worked by all employees participating in the plan, Energy West was responsible for just over two percent of the total, yielding a withdrawal liability of $115,119,099.34. Id. at J.A. 551. The Plan gave Energy West the option of paying a lump sum up front or paying in monthly installments of $247,251.12 that would last indefinitely.¹ Id. at J.A. 542.

Energy West balked at those numbers and took the Plan to arbitration. Def.’s Mot. at 6. The Parties submitted two questions for Arbitrator Mark L Irvings to decide:

1. Whether the actuarial assumptions used ... to calculate Energy West's withdrawal liability were unreasonable in the aggregate ...?

2. Whether the UMWA 1974 Pension Plan is exempt from the 20-year cap on withdrawal liability installment payments set forth in [ 29 U.S.C. § 1399(c)(1)(B) ]?

Award at J.A. 1. Energy West first argued that it was unreasonable as a matter of law for Ruschau to have used one rate (7.5%) to estimate the fund's expected return on investments and a much lower rate (2.71%–2.78%) to estimate the contributions required for Energy West to fund future benefits for its employees. Arb. Tr. Day 1 20:11–21:19, J.A. 78–79. Energy West argued in the alternative that even if the rates need not be identical, the stark difference between the two rates Ruschau selected caused his calculations to be unreasonable under ERISA. Id. Second, Energy West contended that the Plan was no longer subject to any exemption from the 20-year cap on installment payments because of changes in its tax consideration that removed it from the set of multiemployer pension plans that Congress exempted from the cap decades ago. Id. 21:20–24:14, J.A. 79–82.

Irvings conducted two days of hearings in late 2017. Award at J.A. 1. As to the question of reasonable discount rates, Irvings reviewed Ruschau's deposition testimony about how he had computed Energy West's withdrawal liability. Id. at J.A. 13; see also Ruschau Dep. at J.A. 423–69. Irvings then heard testimony and considered an expert report from Scott Hittner, an actuary and consultant testifying on behalf of Energy West. See Arb. Tr. Day 1 35:14–171:1, J.A. 93–229; see also Hittner's Expert Report, J.A. 523–39. Hittner explained that, in his opinion, when an actuary selects a discount rate for use in calculating an employer's withdrawal liability, "the best measure ... is a market[-]consistent discount rate" akin to the prevailing rates for bond trading. Arb. Tr. Day 1 59:19–62:8, J.A. 117–20. Because the 1974 Plan is in critical status and is projected to become insolvent in the next decade, Hittner suggested, "[a] market[-]consistent discount rate would necessarily have to reflect those factors" and would therefore need to be higher to account for the Plan's low creditworthiness. Id. 67:16–70:7, J.A. 125–28.

In other words, Hittner opined that because Ruschau knew that the Plan was going to stop paying out benefits in 2022 (or reduce retirees’ entitlements), it made little sense to use a low...