Commercial Carriers and IAM Pension Fund 10-23-87
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Transcript of Commercial Carriers and IAM Pension Fund 10-23-87
AMERICAN ARBITRATION ASSOCIATION
Multiemployer Pension Plan Arbitration Tribunal
In the Matter of the Arbitration between AAA No. 16-621-00018-86G COMMERCIAL CARRIERS, INC. and I.A.M. NATIONAL PENSION FUND. _________________________________/
OPINION OF THE ARBITRATOR
October 23, 1987
After a Hearing Held May 13 and July 10, 1987 In the Offices of the American Arbitration Association At 1730 Rhode Island Avenue, N.W., Washington, D.C.
For the Fund: Robert T. Osgood, Esq. Manager, Legal Services, and Joseph P. Martocci, Jr., Esq. Assistant Manager, Legal Services 1150 17th St., N.W., Ste. 501 Washington, D.C. 20036
For the Company: R. Ian Hunter, Esq. Sandra F Plezia, Esq. Hunter, Luke & Martin, P.C. 555 S. Woodward Avenue Suite 777 Birmingham, Michigan 48011
2
I. Decision Commercial Carriers, Inc. ("Company") complains that it was expelled
from the I.A.M. National Pension Fund ("Fund") and assessed liability for a
partial withdrawal within the meaning of ERISA Sec 4205(a)(2),1 because the
Company closed its Los Angeles facility and transferred work to its facility at
Long Beach, California. On the basis of the governing plan documents and
Central Hardware Co v Central States, Southeast and Southwest Areas Pension
Fund, 770 F2d 106 (CA 8, 1985), the Fund's actions are sustained.
II. Background The Company is a subsidiary of Ryder Systems, Inc. ("Parent").2 Over
the years, the Company has transported automobiles for most of the well-known
automobile manufacturers in the world. In the late '70s and early '80s, the
Company maintained facilities in Los Angeles, California (which will be treated
as a single facility) and in Long Beach, California. Company mechanics in L.A.
were covered by the Western States Automobile Transporters Maintenance
Agreement, 1979-1982 [CX 12]3 ("Machinists Contract") with the International
Association of Machinists and Aerospace Workers, AFL-CIO ("Machinists"),
whereas those mechanics in Long Beach were covered by the Western 1 "ERISA" is the acronym for the Employee Retirement Income Security Act of 1974, PL 93-406, 88 Stat 832, as amended, which is codified in scattered sections of 5, 26 and 29 USC The portions relevant here may be found in 29 USC Secs 1001 et seq, particularly Secs 1381-1405. 2 Corporate history and organization were presented in great detail. However, the operative facts are really quite simple, so much detail has been omitted. 3 "CX" denotes Company Exhibit.
3
Conference Automotive Shop Servicing, Truck Servicing Agreement
("Teamsters Contract") [Tr 81]4 with the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America ("Teamsters").
The Company made contributions to the Fund on behalf of L.A. mechanics
pursuant to the I.A.M. National Pension Fund Trust Agreement (with
attachment) [FX 3]5 ("Trust Agreement") and a Standard Form of Participation
Agreement [FX 4] ("Participation Agreement").
In 1980, due to the loss of General Motors' business, the Company's L.A.
operations began a downturn [CX 2-4, 9], which culminated with the loss of
Chrysler's business in early 1982 [CX 5, 10, 4, 9]. Not only was Chrysler's
business lost, but the Company's lease on its L.A. facility was terminated [CX
6]. As a result of the loss of business and leasehold in L.A., the Company
consolidated its operations in Long Beach [CX 7, 8].
When L.A. mechanics were transferred to Long Beach, they initially
continued to work under the Machinists Contract, because it provided:
This Agreement shall also apply to any * * * existing facility of an individual Employer to which work is transferred in whole or in part from a shop of that Employer which is covered by this Agreement. CX 12, p 3.
Accordingly, the Company continued to make contributions to the Fund on
4 "Tr " denotes the hearing transcript. 5 "FX" denotes Fund Exhibit.
4
behalf of transferred mechanics.
However, there was a conflict between the Machinists and the Teamsters,
because Long Beach was a Teamsters facility. The two unions resolved their
conflict in a memorandum of understanding dated April 7, 1982 [CX 15]
("Memorandum Agreement"):
Due to the change of operations Commercial Carriers (Auto Transporters) made in the Los Angeles, California area, the International Brotherhood of Teamsters and the International Association of Machinists have mutually agreed to the following:
1. The I.A.M. represented members who transferred to the existing maintenance facility will maintain their membership in the I.A.M.
2. The I.A.M. members will continue to be covered by the I.A.M. Health and Welfare and Pension Programs.
3. It is agreed that this protection is only made for those members who initially transferred and by attrition will be replaced by Teamsters
4. Effective April 7, 1982, these members will begin working under the Teamsters Automotive Shop and Truck Servicing Supplemental Agreement.
Although the Company was not signatory to the Memorandum Agreement, it
fully acquiesced therein. Thus from and after April 7, 1982, all Long Beach
mechanics, including those transferred from L.A., worked under the Teamster
Contract.6
The Company continued to make contributions to the Fund on behalf of 6 Presumably the Teamsters Automotive Shop and Truck Servicing Supplemental Agreement was a local rider to the master agreement, the Teamsters Contract; neither was introduced into evidence.
5
transferred mechanics, per the Memorandum Agreement. However, early in
1983, the Fund became apprised of the transfer to Long Beach and of the
Memorandum Agreement and began raising objections to the arrangement [CX
18]. After an investigation, the Fund refused to accept further contributions on
behalf of mechanics at Long Beach and cancelled all service credits earned after
April 7, 1982, the date of the Memorandum Agreement. The Company then
demanded, and the Fund gave, a refund of all contributions made after April 7,
1982.
Initially, the Fund charged the Company for a complete withdrawal under
ERISA Sec 4203(a). However, the Company informed the Fund that it and its
Parent were members of a controlled group of corporations which continued to
make contributions to the Fund pursuant to other collective bargaining
agreements, so the Fund revised its determination to a partial withdrawal [JX
1F].7 See ERISA Sec 4001(b)(1). The Company requested that the Fund review
its determination [JX 1C], as provided in ERISA Sec 4219(b)(2)(A). The Fund
did so and reiterated the correctness of its decision [JX 1E]. The Company then
demanded arbitration under ERISA Sec 4221 [JX 1D & A].
A hearing was held May 13, 1987 and July 10, 1987, in the offices of the
American Arbitration Association in Washington, D.C. The arbitration was
7 "JX" denotes Joint Exhibit.
6
conducted in accordance with the Multiemployer Pension Plan Arbitration
Rules for Withdrawal Liability Disputes (Revised Effective September 1, 1986),
sponsored by the International Foundation of Employee Benefit Plans and
administered by AAA ("Arbitration Rules").
III. The Definition of "Partial Withdrawal" ERISA Sec 4205(a) provides that "there is a partial withdrawal by an
employer from a plan on the last day of a plan year if for such plan year * * *
there is a partial cessation of the employer's contribution obligation." This latter
phrase is then defined as follows:
There is a partial cessation of the employer's contribution obligation for the plan year if, during such year --
(i) the employer permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute under the plan but continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required or transfers such work to another location, or (ii) an employer permanently ceases to have an obligation to contribute under the plan with respect to work performed at one or more but fewer than all of its facilities, but continues to perform work at the facility of the type for which the obligation to contribute ceased. ERISA Sec 4205(b)(2)(A).
For the definition of "obligation to contribute," see ERISA Sec 4212(a). The legislative history of MPPAA8, which added the withdrawal liability 8 "MPPAA" denotes the Multiemployer Pension Plan Amendments Act of 1980, PL 96-364, 94 Stat 1208, which principally amended Title IV of ERISA. Unless otherwise indicated, sections of MPPAA will be referenced by their ERISA section numbers.
7
provisions to ERISA, provides examples of partial withdrawals:
I would also like to clarify the meaning of one of the partial withdrawal liability tests -- that described by proposed ERISA section 4205(b)(2)(A)(i) which is contained in section 104 of the bill -- about which there may be some confusion. This provision describes a partial withdrawal in a case where the employer permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute to the plan but continues to perform the same type work under the collective bargaining agreement for which contributions were previously required or where the employer transfers the same type work to another geographical location. Examples of these two situations are where an employer bargains out of making contributions to a plan that the employer was previously required to make under a collective bargaining agreement that is otherwise in effect with respect to other requirements, or where an employer's collective bargaining obligation has ceased altogether but the employer continues to perform work of the same type which was previously covered by the agreement and for which contributions were required without the obligation to contribute to that plan, or where work that was undertaken at one geographic location for which contributions to a plan were made is transferred by the employer to another of his plants at a different geographic location where contributions to a plan for the work performed are not required.
It is important to emphasize and to understand that in no case do these rules impose liability on an employer for merely ceasing or terminating an operation; rather, they address only situations where work of the same type is continued by the employer but for which contributions to a plan which were required are no longer required.
Statement by Rep. Frank Thompson, Jr. (D-NJ), House debate, August 25, 1980, reprinted in Pension Reporter (BNA), Special Supplement No. 310, p 43 (September 29, 1980) [emphasis supplied].
I do not read ERISA Sec 4205(b)(2)(A)(i) as exclusively governing
multiple contract cases. For example, suppose an employer is obligated to
contribute to a plan under two collective bargaining agreements, each of which
8
covers two facilities. Suppose further that the employer ceases to have an
obligation to contribute to the plan for employees at one of the four facilities but
that the collective bargaining agreements and work at the facilities otherwise
continue on as before. Intuitively, this is a "partial withdrawal" (as explained by
Representative Thompson), but the scenario cannot be fitted into the literal
language of ERISA Sec 4205(b)(2)(A)(i); it can, however, be fitted nicely into
Sec (A)(ii).
IV. The Issue Presented The principal issue in this arbitration is whether the Company's closure of
its L.A. facility and consolidation of operations in Long Beach gave rise to a
partial cessation of the employer's contribution obligation for 1982, within the
meaning of ERISA Sec 4205(b)(2)(A).
V. Fraser Shipyards Distinguished Authority on partial withdrawals is scarce. Although Fraser Shipyards,
Inc and IAM National Pension Fund, 7 EBC 2562 (Arb, 1986) was an
arbitration over a partial withdrawal, the particular issue presented here was not
addressed. Recall that ERISA Sec 4205(b)(2)(A) has two requirements:
(I) a permanent cessation of the obligation to contribute for some, but not all, covered work; and (II) a continuation of work previously covered.
In Fraser Shipyards, at issue was when (I) occurred, not whether (II) was
9
satisfied.
In the Fraser Shipyards matter, the company closed its shipyard machine
shop and consolidated operations with another company machine shop nearby.
During the arbitration, the company did not attack the pension fund's
determination regarding requirement (II) but argued only that the fund's
determination regarding (I) was unreasonable or clearly erroneous.
Consequently, the arbitrator did not discuss, and made no ruling on, requirement
(II), which is at issue here.9
VI. The Transfer to Long Beach Unlike Fraser Shipyards, here there is no doubt that all of the operative
9 The arbitrator's decision in Fraser Shipyards is being challenged by the employer, IAM National Pension Fund v Fraser Shipyards, Inc, Civ Action No. 86-3492 (D DC). In Fraser Shipyards, there was evidence in the record which might tend to support the fund's implicit determination that the work previously done at the shipyard machine shop was subcontracted to third parties or transferred to the other machine shop nearby. Indeed, after the closing of the shipyard machine shop, former shipyard machinists filed numerous protests that their work was being subcontracted to outside companies or being performed by machinists from the other shipyard. The subcontracting of work previously performed by employees of an employer participating in a multiemployer plan may give rise to withdrawal liability; see e.g., HC Elliott, Inc v Carpenters Pension Trust Fund, 663 F Supp 1016; 8 EBC 2121 (ND Cal, 1987). It is with respect to the transfer of work to another facility that the true difficulty arises. Recall that Representative Thompson explained that the transfer of work provision of ERISA Sec 4205(b)(2)(A)(i) was intended to cover the transfer "by the employer to another of his plants at a geographic location where contributions to a plan for the work performed are not required" (emphasis supplied). However, the statutory provision does not contain this limiting language and the transfer of work to a covered facility (as in Fraser Shipyards, 7 EBC 2562) may have the same effect as the transfer to a non-covered one. Suppose, for example, that the transferred work is performed during overtime hours for which contributions to the pension plan are not required. In such a case, the employer is still performing the same volume of covered work but the plan is experiencing the identical decline in contributions it would have experienced if the work had been transferred to a non-covered facility. Thus, when an employer permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute under the plan but transfer work of the type for which contributions were previously required to a different geographic location where contributions to the plan for the work performed also are required, it is unclear whether the transfer (a) is within the ambit of ERISA Sec 4205(b)(2)(A)(i), or (b) is wholly outside the ambit, or (c) must be investigated to determine the effect on the plan. The point here is that, in Fraser Shipyards, these issues were not raised by the parties and so not ruled upon by the arbitrator. Instead, the employer based its entire defense on the labor dispute exception in ERISA Sec 4218. 7 EBC 2573.
10
events occurred in a single plan year, 1982. The Company's L.A. lease expired
February 1, 1982 [CX 6] and the move to Long Beach was completed by
February 15, 1982 [CX 7 & 8; Tr 92-93]. The issue presented is whether the
consolidation of operations in Long Beach resulted in a continuation of work
previously covered; if not, then the mere closure of the L.A. facility in and of
itself would not have constituted a partial withdrawal. The evidence is
overwhelming that millions of dollars in trucking business was transferred from
L.A. to Long Beach.
At the outset, it should be noted that the work with which we ultimately
are concerned is that for which contributions were required to be made to the
Fund, not necessarily that which constituted the Company's principal business.
However, it is instructive to analyze the business which was transferred, as such
an analysis bolsters the conclusion with respect to covered work.
The Company presented revenue data for L.A. and Long Beach during
the years 1979-1982 [CX 4]. Reproduced below are the data for all L.A.
business other than General Motors and Chrysler; the 1982 figures for L.A.
have been annualized:10
10 It is unclear whether the L.A. data for 1982 represent only the month of January or the first six weeks of the year [CX 4]. To keep the annualized figures conservative, it is assumed that they represent 6-week totals. I am not unmindful that a Company witness, Jack N. Cate, twice remarked that the 1982 figures were for "the first few months of 1982" [Tr 55]. However, Mr. Cate's remarks were somewhat offhand and, if taken literally, were against the great weight of the evidence pointing to February 1, 1982 and February 15, 1982 as the dates the Company lost its L.A. lease and completed the move to Long Beach.
11
REVENUE 1979 1980 1981 1982 LOS ANGELES IMPORTS 4,800,001 5,215,654 4,712,952 4,935,571 OTHER LINEHAUL 1,166,910 1,367,779 1,041,338 912,817 INTERDIVISION 1,931,268 1,325,104 78,841 1,234,350 MISCELLANEOUS 170,410 122,644 135,435 44,425 TOTAL $8,068,589 $8,031,181 $5,968,566 $7,127,163 Although it may be true that the Company lost millions of dollars in Chrysler
business in 1982 [CX 9], the year was not destined to be a complete dud insofar
as the Company's other L.A. business was concerned.
From an examination of the Long Beach figures, it is clear that a
substantial amount of trucking business was transferred from L.A. to Long
Beach in 1982:
1979 1980 1981 1982 LONG BEACH IMPORTS 2,184,659 2,587,027 1,952,584 4,555,175 OTHER LINEHAUL 109,579 277,027 280,503 911,319 INTERDIVISION 56,403 1,251 64,588 799,374 MISCELLANEOUS 111,055 206,149 27,317 213,045 VAN NUYS 0 0 0 2,763,904 CHRYSLER 0 0 0 7,279 TOTAL $2,461,696 $3,071,454 $2,324,992 $9,250,096 The Company argues that the Van Nuys business ought not to be considered
because it represented a stop-gap effort to bolster sagging revenues. Even
without it, in 1982, the Company's revenues in Long Beach almost tripled over
the previous year, due in large measure to the transfer of business from L.A.
12
Indeed, an examination of these figures suggests that the consolidation in Long
Beach was as much the result of the loss of the lease in L.A. as it was the result
of the loss of Chrysler business. That is, if the Company had not lost its lease in
L.A., it could have remained there and done perhaps as much as $7,127,163 in
business, and even handled the $2,763,904 in Van Nuys business out of L.A., as
L.A. is closer to Van Nuys than is Long Beach. The Company's own revenue
figures compel a finding of the transfer of a substantial amount of trucking
business from L.A. to Long Beach, notwithstanding the loss of Chrysler
business in L.A.
The equipment figures presented by the Company [CX 16] corroborate
the revenue figures and reinforce the conclusions drawn from them, namely,
that there was not a mere closing of the L.A. facility, but the transfer of a
substantial amount of trucking business, equipment, and personnel, including
mechanics, to Long Beach:
COMMERCIAL CARRIERS, INC. EQUIPMENT – TRACTORS
12/31/79 12/31/80 12/31/81 12/31/82 LOS ANGELES TOTAL UNITS 273 192 160 0 TOTAL ACTIVE 191 149 119 0 LONG BEACH TOTAL UNITS 37 45 41 197
13
The personnel data are, of course, the most important [CX 11]:
COMMERCIAL CARRIERS, INC. PERSONNEL
12/31/79 6/30/80 12/31/80 6/30/81 12/31/81 6/30/82 LOS ANGELES DRIVERS 204 127 117 114 55 0 YARD MEN 44 37 18 16 3 0 MECHANICS 18 17 12 12 8 0 SERVICE MEN 12 12 12 12 3 0 TOTAL 278 193 159 154 69 0 LONG BEACH DRIVERS 19 21 18 16 17 104 YARD MEN 6 6 6 6 6 10 MECHANICS 4 4 4 4 4 11 SERVICE MEN 1 1 1 1 0 5 TOTAL 30 32 29 27 27 130 At the end of 1981, there were eight mechanics in L.A. and four in Long Beach.
When the Company lost Chrysler's business early in 1982, one of the L.A.
mechanics went to work for the company which took over the Chrysler account
[Tr 58]; the rest moved to Long Beach so that by 6/30/82, there were eleven
mechanics in Long Beach.
At Long Beach, the mechanics transferred from L.A. performed the same
type of work (in many cases, on the very same vehicles) that they had
performed in L.A. A few quotes from the testimony are instructive on this
crucial point:
Q. With reference to the maintenance employees, what work would they be performing at Long Beach as of that date? A. They would be performing the same work as they performed whether
14
they were in Long Beach originally or whether they came down from L.A.: the maintenance of the fleet.
Testimony of Michael T. McLarry, then Operations Manager for the Company's L.A. facility [Tr 99]; see also Tr 104-105.
Q. What happened to that equipment after the closing of the [L.A.] facility in early 1982?
A. That equipment was transferred to Long Beach.
* * * Q. And those mechanics were in 1982 transferred to Long Beach to repair that same equipment?
A. Yes, sir.
Testimony of Loyd E. Shockley, former Maintenance Supervisor for the Company's L.A. facility [Tr 130].
The marked increases in all Long Beach data for 1982, revenues,
equipment, personnel, leave no doubt that the closure of the L.A. facility
resulted in the transfer of work, including covered work, to Long Beach. The
closure of the L.A. facility definitely was not the type of terminal event,
discussed by Representative Thompson, which is excluded from ERISA's
partial withdrawal provisions.
The Company, of course, strongly disagrees. In its brief dated September
21, 1987 ("Co Brief"), the Company writes:
The present matter is more analogous to a permanent closing of the Los Angeles facilities without further transfer of employees or equipment. For example, if Commercial's Los Angeles facilities had been closed and
15
Commercial did not operate at Long Beach, there would have been no basis for the Fund to impose a withdrawal liability. Co Brief, p 36.
The facts of the matter are that the Company did operate at Long Beach and that
the Company did transfer millions of dollars in trucking business (primarily
interstate import business11 to Long Beach, together with drivers, equipment,
and support personnel, including mechanics. See Co Brief, pp 11-14.
VII. The Statutory Framework The events just chronicled can be fit into the statutory framework in
several ways, the easiest of which is to fit them into ERISA Sec
4205(b)(2)(A)(ii). After April 7, 1982, the controlled group no longer had an
obligation to contribute to the Fund for work performed at its Long Beach
facility but otherwise continued to perform the same work at Long Beach and
continued to contribute to the Fund for work done at other facilities. There was
no significant difference between the duties of transferred mechanics under the
Machinists Contract, which called for contributions to the Fund, and their duties
under the Teamsters Contract, which did not [Tr 108].
The Company, of course, argues strenuously that it did have a continued
obligation to contribute to the Fund under the Memorandum Agreement, but
11 It is interesting to note that, prior to the transfer, all of the Company's interstate import business emanated from Los Angeles, whereas Long Beach was restricted to intrastate imports. See CX 4; Co Brief, pp 11-13.
16
this argument ignores controlling provisions of the Participation Agreement12,
which provide:
3. The parties further agree that this Participation Agreement shall be considered a part of the Collective Bargaining Agreement between the I.A.M. Lodge and the Employer, that this Participation Agreement shall supersede any conflicting provision of the Collective Bargaining Agreement, and that no other agreement between the Employer and the I.A.M. Lodge regarding pensions or retirement is in effect or will be effective during the period covered by the said Collective Bargaining Agreement. 4. * * * Trustees' written acceptance of continued participation shall not be required in the case of renewal Collective Bargaining Agreements so long as the terms of the renewal agreements are changed only with respect to increasing the contribution rate or increasing the categories of hours or weeks for which contributions are made. FX 4 (emphasis supplied).
Whether the Memorandum Agreement is viewed as a modification of the
Machinists Contract or as a renewal Collective Bargaining Agreement (the
Machinists contract [FX 12] was due to expire May 31, 1982), it violated
section 3 or 4 (or both) of the Participation Agreement. By its terms, the
Memorandum Agreement addressed "pensions or retirement" and made changes
other than merely "increasing the contribution rate or increasing the categories
of hours or weeks for which contributions are made." 12 Although the Participation Agreement recites that a signed copy of the Collective Bargaining Agreement is attached, none was, and the parties were unable to agree as to which document was supposed to be attached [Tr 168-171]. It is important to know which Collective Bargaining Agreement is applicable, because its duration determines the initial term of the Participation Agreement; see subparagraph 1 of section 1 [FX 4]; see also section 3. The Machinists Contract [CX 12] is the logical choice because of its commencement date of April 1, 1979, the commencement date for contributions under the Participation Agreement, and because the Machinists Contract is the Collective Bargaining Agreement which was in force when the Participation Agreement purportedly was signed, August 27, 1979.
17
The changes made in the participant group by paragraph 3 of the
Memorandum Agreement cannot be dismissed as insignificant. At the hearing,
the Fund's actuary testified as to the undesirability of accepting a shrinking
participant group of the type created by the Memorandum Agreement [FX 2; Tr
142-144]. Under the funding policy adopted for the plan, it is assumed that
contributions will be made on behalf of replacement employees; paragraph 3 of
the Memorandum Agreement runs counter to this assumption because
Machinists, on whose behalf contributions were required, were to be replaced
by Teamsters who were not covered. The Fund was well within its contractual
rights when it refused to accept the Memorandum Agreement.
This conclusion is buttressed by an analysis of the Trust Agreement [FX
3]. After execution of the Memorandum Agreement [CX 15] on April 7, 1982,
all mechanics in Long Beach were represented by the Teamsters [Tr 109, 112,
131, 207; CX 22]. Although the Trust Agreement does provide for coverage of
non-Machinists groups (e.g., Teamsters), it does so conditionally:
The term "Employees" may also include such other class or classes of employees who are not within the bargaining unit represented by the Local or District Lodges of the I.A.M., or the I.A.M., but who are employed by an Employer making contributions in their behalf, provided that the acceptance of such class or classes is not discriminatory and in each case is subject to actuarial evaluation by the Trustees, whose decision with regard to their acceptance or rejection shall be final. Art I, Sec 2(c) [emphasis supplied].
As indicated, the Fund actuary testified against acceptance of a shrinking
18
participant group such as that created by the Memorandum Agreement. Under
the express terms of the Trust Agreement, the Trustees' decision in this regard is
final.
It is settled law that an individual employer and a single local union
representing its employees cannot force their will upon the trustees of a
multiemployer plan to which other unrelated employers contribute. Gainey v
Vema, 627 F Supp 408, 411 (WD Wash, 1986) ["(I)f an employer * * * could
force its individualized labor contract on the Trustees, then such an employer
would to some degree control Fund administration and, ultimately, control
distribution of its assets." (citation omitted)]; Talarico v United Furniture
Workers Pension Fund, 479 F Supp 1072, 1082 (D Neb, 1979) ["A multi-
employer pension plan * * * cannot be forced to jeopardize * * * actuarial
soundness by violating a policy essential to that soundness to accommodate the
desires of a single employer. While the contribution program which Mastercraft
seeks to impose upon the Fund is contained in a collective bargaining
agreement, the Fund's trustees have the right under the Plan and the duty under
ERISA to exercise their independent judgment on the acceptability of that
program."]. In the present matter, it is undisputed that the Fund was not a party
to, had no prior knowledge of, and has not consented to the Memorandum
Agreement. See, for example, Tr 213. Consequently, neither the Company nor
19
the Machinists nor the Teamsters can force the Fund to abide by it.
The case of Central Hardware Co v Central States, Southeast and
Southwest Areas Pension Fund, 770 F2d 106 (CA 8, 1985), cert den 106 S Ct
1515 (1986), is very much applicable to the instant matter. In that case, the
trustees of a multiemployer pension fund refused to allow further participation
by an employer which had negotiated a renewal collective bargaining agreement
providing that employees hired after the execution of the agreement would be
covered under a different plan. The trustees' rationale was founded upon the
actuarial assumption that the contributions of new members who replaced
retiring members would be used in part to pay the benefits due retired members.
In the absence of replacements, the fund would suffer an actuarial loss. 770 F2d
110. The Fund's actuary testified to the same effect in this matter, and the same
result should follow as in Central Hardware.
The Company does not contest the Fund's actuarial theory but argues
only that it is irrelevant to any express statutory provision and that its
application to the Company is unfair. On the first point, the Company writes:
In part to justify its action, the Fund offered testimony by the enrolled actuary under the Plan that continued acceptance of the contributions would theoretically adversely affect the actuarial status of the Plan (Tr 143). Commercial does not contest this actuarial theory, instead, Commercial contends that these actuarial consequences are irrelevant to a demand for partial withdrawal liability under ERISA. Co Brief, p 24 (emphasis supplied).
20
The Fund submitted actuarial evidence to justify its actions under plan
documents in refusing to accept the Memorandum Agreement. Once the Fund
determined that the Company's compliance with the Memorandum Agreement
constituted a breach of the Participation Agreement, withdrawal liability was
triggered.
With respect to the second point of unfairness, the actuary ably answered
the Company's suggestion that its situation was no different than that of any
employer caught in a declining industry and its participation should be
continued accordingly [Co Brief, p 32]. The actuary pointed out that just
because a pension plan unwittingly may become the victim of industrial decline
does not mean that it knowingly should submit to adverse selection [Tr 146-
147].
In its brief, the Company makes numerous assertions which seem
inconsistent with the express terms of the plan documents:
[N]othing within that Trust Agreement precludes continued participation in the Fund due to the substitution of collective bargaining agreements. Co Brief, p 29. * * * Commercial did not violate any other provisions of the Fund documents which would allow the Fund to refuse contributions. Co Brief, p 30. [T]he Fund documents do not require the Fund's involvement in the transfer [from one collective bargaining agreement to another]. Co Brief, p 31.
21
[The Company] was not required to take any further actions such as a request for written approval from the Fund, to substitute collective bargaining agreements. Co Brief, p 31.
The plain language of the governing documents, especially that quoted above
from section 4 of the Participation Agreement, makes it clear that the Company
cannot foist any old collective bargaining agreement on the Fund.
The Company also appeals to ERISA Sec 4205(b)(2)(B):
For purposes of subparagraph (A), a cessation of obligations under a collective bargaining agreement shall not be considered to have occurred solely because, with respect to the same plan, one agreement that requires contributions to the plan has been substituted for another agreement. (Emphasis supplied).
Based upon this statutory provision, the Company argues that the Memorandum
Agreement was but a substitute for the Machinists Contract and hence it cannot
be assessed withdrawal liability for merely substituting one agreement for
another.
Implicit in the statutory language (if not actually encompassed within the
meaning of "solely because") is the assumption that the substitute collective
bargaining agreement will be at least as favorable to the plan as the agreement it
replaces; if this were not so, participating employers could virtually rewrite a
plan simply by renegotiating their collective bargaining agreements. The
Company is not being penalized "solely because" it sought to substitute one
collective bargaining agreement for another but rather because, in addition, it
22
sought to radically alter the terms of the Participation Agreement without the
Fund's written permission.
Finally, the Company urges that it is entitled to the labor dispute
exception in ERISA Sec 4218(2). The Company argues that a "labor dispute"
need not be restricted to a conflict between employer and union but may be
instigated by a third party, in this case, the Fund. Surely, if the labor dispute
exception applied to disputes between employer and plan, the whole MPPAA
scheme would be undermined; see, for example, ERISA Sec 4219(c)(2)
requiring the making of installment payments pending the resolution of a
dispute over withdrawal liability. Any dispute between an employer and a
multiemployer plan over withdrawal liability is governed by ERISA Sec 4221.
If the dispute is resolved in favor of the employer, then the employer is entitled
to a reduction in future payments or to a refund of overpayments. ERISA Sec
4221(d); 29 CFR Sec 2641.7(a)(2). The labor dispute exception has no
application to the dispute between employer and plan.
Although the analysis under ERISA Sec 4205(b)(2)(A)(ii) is sufficient to
resolve this matter, the operative events also can be fit into ERISA Sec
4205(b)(2)(A)(i). Effective April 7, 1982, the Company ceased to have an
obligation to contribute to the Fund under the Machinists Contract but continued
to perform work otherwise in the jurisdiction of the collective bargaining
23
agreement of the type for which contributions were previously required.13 The
controlled group [the "employer" for purposes of Title IV, ERISA Sec 4001(b)]
continued to have an obligation to contribute to the Fund under other
unspecified collective bargaining agreements [Co Brief, p 8]. The events further
can be fit into the "transfer" portion of ERISA Sec 4205(b)(2)(A)(i) by viewing
the L.A. mechanics' work as having been transferred to Long Beach and
dismissing their initial continuation under the Machinists Contract as being
negligible pending resolution of the Machinists-Teamsters conflict. Any one of
these views leads to the conclusion that the Company (more precisely, the
controlled group) experienced a partial withdrawal within the meaning of
ERISA Sec 4205(a)(2) and that the Fund's determination to that effect is correct.
VIII. The Burden of Proof The burden of proof in a withdrawal liability arbitration was discussed at
length in Fraser Shipyards, 7 EBC 2568-2573, and applied in Oolite Industries,
Inc and Central States, Southeast and Southwest Areas Pension Fund, 8 EBC
2009, 2018-2019 (Arb, 1987), and so only will be summarized here. ERISA Sec
4221(a)(3)(A) provides:
For purposes of any proceeding under this section, any determination made by a plan sponsor under sections 4201 through 4219 and section 4225 is presumed correct unless the party contesting the determination
13 Recall that the transferred mechanics continued to operate under the Machinists Contract from the date of transfer in early February to April 7, 1982.
24
shows by a preponderance of the evidence that the determination was unreasonable or clearly erroneous.
In Fraser Shipyards, it was observed that the notion of showing by a mere
preponderance of the evidence that something is "clear" is somewhat confusing,
if not nonsensical. 7 EBC 2571 & n 19. The phrase, "the party contesting the
determination shows by a preponderance of the evidence", was interpreted to
place the burden of persuasion as to fact and law on the party contesting the
determination (in this case, the Company). Id.
"Clearly erroneous" was held to have the same meaning as in FRCP
52(a). 7 EBC 2571 & n 20. Under the federal rules, findings of fact shall not be
set aside unless the reviewer on the entire evidence is left with the definite and
firm conviction that a mistake has been committed. United States v United
States Gypsum Co, 333 US 364, 395 (1948). "Unreasonable" was related to
conclusions of law, and legal conclusions were held to be unreasonable if:
(1) they are against controlling law, or
(2) if no law is controlling, then they do not represent intelligent choices of legal principles.
7 EBC 2571-2572. "Unreasonable" was further reduced to (a) against
controlling law, or (b) unsupported by coherent argument. 7 EBC 2572.
These principles then were combined into a functional formulation of the
burden of proof in a withdrawal liability arbitration: In order to prevail, the party
25
contesting the plan sponsor's determination must (A) prove to the arbitrator,
definitely and firmly, on the basis of the entire evidence, that a mistake has been
committed, or (B) convince the arbitrator that the determination is against
controlling law or is unsupported by a coherent legal argument. 7 EBC 2572.14
In the matter before me, the Company has not convinced me that the Fund's
determination is unreasonable or clearly erroneous.
The Company urges that, since the standard of review for trustee actions
is the same under ERISA as under the Labor Management Relations Act
("LMRA"), LMRA's "arbitrary or capricious" standard should be applied here to
judge trustee behavior, citing Elser v IAM National Pension Fund, 684 F2d 648
(CA 9, 1982) and Danti v Lewis, 312 F2d 345 (CA DC, 1962). As was pointed
out in Fraser Shipyards, the "arbitrary or capricious" standard is used by a court
to measure trustee action regarding benefit entitlement. See 7 EBC 2569-2570;
14 The argument that the phrase, unreasonable or clearly erroneous, in ERISA Sec 4221(a)(3)(A) creates a bifurcated standard of review for a plan sponsor's conclusions of law and findings of fact, receives unexpected support from IAM National Pension Fund v Stockton TRI Industries, 727 F2d 1204, 1207 n 7 (CA DC, 1984):
Under MPPAA, however, the decisions of the arbitrator, like the decisions of a typical administrative agency, are fully reviewable to determine whether applicable statutory law has correctly been applied and whether the findings comport with the evidence. See 29 U.S.C. Sec 1401(a)(3)(A) (presuming in general that the decision of the arbitrator is correct "unless the party contesting the determination shows by a preponderance of evidence that the determination was unreasonable or clearly erroneous").
The court is, of course, mistaken in asserting that this is the standard for reviewing the arbitrator's decision; rather, it is the standard by which the arbitrator reviews the plan sponsor's determination. The standard for a court's review of the arbitrator's decision is set forth in ERISA Sec 4221(c). Additional support for the bifurcated standard (and especially for the proposition that "unreasonable" in ERISA Sec 4221(a)(3)(A) refers to conclusions of law) can be found in Dorn's Transportation, Inc v IAM National Pension Fund, 578 F Supp 1222 (D DC, 1984); aff'd w/o opinion 753 F2d 166 (CA DC, 1985), where the court wrote:
Review in arbitration may thus curtail any partiality, unfairness or mistake by the plan's trustees under the "unreasonable or clearly erroneous" standard. Further, the reasonableness of a plan's legal determinations may be weighed by the arbitrator in light of the plan's interests and expertise. 578 F Supp 1238.
26
see also Struble v NJ Brewery Employees' Welfare Trust Fund, 732 F2d 325
(CA 3, 1984). At issue here is the trustees' determination of withdrawal liability.
A decision is "arbitrary or capricious" if it (1) is unsupported by substantial
evidence or (2) is based upon an error of law. 7 EBC 2569-2570. However,
"unsupported by substantial evidence" is not equivalent to "clearly erroneous";
indeed, a decision supported by "substantial evidence" nevertheless may be
"clearly erroneous". See generally 9 Wright and Miller, Federal Practice and
Procedure: Civil Sec 2585, p 735 & n 10 (West 1971). For this reason, the
"arbitrary or capricious" standard cannot be used in lieu of the higher
"unreasonable or clearly erroneous" standard. Here, we must operate under the
statutorily mandated standard of review - unreasonable or clearly erroneous - in
ERISA Sec 4221(a)(3)(A). Judged by this standard, the Fund's decision is
correct.
IX. Current Constitutional Issues The Company timely raised the issue of the constitutionality of the
arbitral standard of review [JX 1D; Tr 11]. This issue was discussed at length in
Fraser Shipyards, 7 EBC 2574-2584. In United Retail & Wholesale Employees
Teamsters Union Local No. 115 Pension Plan v Yahn & McDonnell, Inc, 787
F2d 128 (CA 3, 1986), the Third Circuit declared ERISA's arbitral standard of
review to be unconstitutional as deficient in procedural due process; an equally
27
divided Supreme Court affirmed, 107 S C. 2171; 8 EBC 1649 (1987) [White, J,
did not participate].
In light of the affirmance by the Supreme Court, the Company urges that
the arbitrator reevaluate Fraser Shipyards and proffers the following arguments,
which I address:
Commercial asserts that it as an employer is being denied procedural due process because the trustees determining whether a partial withdrawal liability payment is to be made are fiduciaries of the Fund and owe an exclusive duty to the Fund. Given the fact the trustees are deemed personally liable to the Fund, the rationale and conclusions reached by such trustees in the context of such fiduciary obligations cannot be deemed to be without inherent bias. This bias is obvious since under the principles of equity as stated by the Yahn decision, a trustee bears an uninterrupted duty of complete loyalty to the beneficiaries of the trust to the exclusion of all other parties. (NLRB v. Amax Co., 453 U.S. 322 at 330 (1981), reh'g denied, 453 U.S. 950 (1981)). Co Brief, p 19.
The Company, and every other MPPAA critic, ignores ERISA Sec 4023:
Notwithstanding any other provision of this Act, a fiduciary of a plan to which section 4021 applies15 is not in violation of the fiduciary's duties as a result of any act or of any withholding of action required by this title. (Emphasis supplied).
Whatever the trustees' duties to a plan under Title I of ERISA [especially Sec
404(a)(1)], when it comes to determining the withdrawal liability imposed by
Title IV, they are excused from those duties. Moreover, under ERISA Sec
4301(a)(1), an employer has a cause of action against trustees who deprive the
employer of its MPPAA rights. Amax is a LMRA, not a MPPAA, case and does 15 ERISA Sec 4021 applies because the plan at issue is qualified; see Trust Agreement, Art VI, Sec 6 [FX 3].
28
not address fiduciary duties under Title IV of ERISA. See generally Fraser
Shipyards, 7 EBC 2575-2577. When ERISA is read as a whole, Title IV as well
as Title I, it is impossible to conclude that a plan sponsor has anything other
than a duty of good faith and fair dealing toward employers in withdrawal
liability matters.
The Fund's trustees have the discretion to pick among four (4) actuarial methods and its conclusion in its selection of one (1) of the four (4) may very well have an adverse impact upon the Employer without benefit of a more reasonable standard. Co Brief, p 19.
ERISA Sec 4211 sets forth four methods for allocating a share of a plan's
unfunded vested liabilities. 7 EBC 2577 & n 26, viii (for correction). Trustees
do not have discretion to choose among these methods on a case-by-case basis;
rather, a method is selected initially and thereafter can be changed only by plan
amendment. Id. In the instant matter, the Fund's method was selected in 1981
and the Company was informed of this fact in correspondence dated May 22,
1986 [JX 1F].
An overview of the many arbitration decisions rendered pursuant to the arbitration requirements under ERISA Sec. 4221, 29 U.S.C. Sec. 1401 reveals the pragmatic impact of the tainted presumption. Arbitrators have been compelled by the statute to apply this presumption and, therefore, impose upon the Employer the initial obligation to rebut the presumption before the Fund is first asked to establish a rational basis for its underlying factual or actuarial determinations. Co Brief, p 21.
Procedurally, a plan's prima facie case is to be made out during initial
contacts with the withdrawing employer. ERISA Secs 4202; 4219(b). In the
29
Oolite Industries arbitration, 8 EBC 2009, the plan, without waiving any rights
under the statutory presumption, agreed to present its prima facie case first.
Federal Regulations [29 CFR Sec 2641.5(e)] and the Arbitration Rules (Sec 24)
would seem to empower the arbitrator to utilize such a procedure anytime it
seems convenient or fair. Although the Company raised the constitutionality
issue in opening statement [Tr 11], it did not claim to be unaware of the Fund's
position and made no request that the customary procedural order be varied. It
thus does not appear that the statutory presumption, insofar as its reversal of the
usual order of proof is concerned, had any negative impact on the Company.
See Fraser Shipyards, 7 EBC 2580-2581 & n 34.
Nor does the presumption seem to have had any profound impact on the
outcome of withdrawal liability arbitrations generally. According to an informal
tally of decisions which have been reported in Employee Benefits Cases (BNA),
beginning with Herman Segall, Inc and ILGWU Retirement Fund, 3 EBC 1609
(Arb, 1982) through Don Hutson, Inc and Central States Pension Fund, 8 EBC
2319 (Arb, 1987), employers have obtained meaningful relief in 17 out of 40
arbitrations analyzed. See, for example, Oolite Industries, 8 EBC 2009. The
statutory presumption has not made arbitration a rubber stamp of plan sponsor
determinations. In summary, the Company raises no argument which compels a
reassessment of Fraser Shipyards. The effect of the Supreme Court's affirmance
30
in Yahn & McDonnell was explained in Oolite Industries, 8 EBC 2027-2028; it
leaves the judgment below in force but is not of any precedential value. Thus,
the split over the constitutionality of ERISA Sec 4221(a)(3) remains, with the
First, Second, Fourth, Ninth and D.C. Circuits upholding constitutionality, and
with the Third Circuit voting against. Fraser Shipyards, 7 EBC 2574. The
matter before me is not governed by the law of the Third Circuit nor is this
arbitration being conducted under the auspices of a federal district court which
has sided with the Third Circuit, e.g., Robbins v Pepsi-Cola Metropolitan
Bottling Co, 636 F Supp 641; 7 EBC 2033 (ND Ill, 1986) [later case history
omitted]. Therefore, as in Fraser Shipyards, 7 EBC 2584, I follow the majority.
Actually, the evidence in this matter is so convincing that the standard of
review is virtually irrelevant. Although the Company presented copious
evidence, when interpreted in light of ERISA's requirements and the governing
plan documents, it compels the determination which the Fund in fact made.
Even if I were to decide this matter de novo, I would reach the same conclusion.
X. Costs of Arbitration Each party seeks costs and attorneys' fees. In particular, the Fund
complains of the reluctance of arbitrators to grant such requests.16 16 An
arbitrator will, in a proper case, award costs and attorneys' fees. See, for 16 Fund Reply Brief dated October 15, 1987, p 19. With its Reply Brief, the Fund tendered some exhibits not previously submitted. In reaching a decision on this matter, it is unnecessary to consider this additional material.
31
example, EA Nord Co and Western Council LPIW-TOC Pension Fund, 8 EBC
2171, 2177-2178 (Arb, 1987); see also Oolite Industries, 8 EBC 2026-2027.
Federal Regulations make splitting the costs of arbitration the norm, 29 CFR
Sec 2641.9(b), and limit an award of attorneys' fees:
The arbitrator may require a party that initiates or contests an arbitration in bad faith or engages in dilatory, harassing, or other improper conduct during the course of the arbitration to pay reasonable attorneys' fees of other parties. 29 CFR Sec 2641.9(c).
I am unable to conclude that the Company has acted in bad faith. Indeed,
the Company recites that it itself has expended over $36,000 in attorneys' fees in
pursuing this matter.17 As part of the relief requested, the Company asks to be
reinstated to participation in the I.A.M. National Pension Fund,18 a move that
could cost the Company as much as $67,000 in back contributions.19 It is indeed
difficult to find bad faith on the part of a party which asked to be allowed to pay
contributions which ultimately will far exceed the amount of the withdrawal
liability at issue.
Costs are to be divided equally, there being no compelling reasons to the
contrary.
17 Co Reply Brief dated October 15, 1987, pp 20-21. 18 Co Brief, p 47. 19 For the period April 1982 through October 1987, based upon an extrapolation of refunded contributions [Tr 7-8].
32
XI. Observation The Company is not so much seeking to evade withdrawal liability as to
comply with the terms of the Memorandum Agreement and thereby protect the
pensions of those mechanics transferred from L.A. The Company worries:
There * * * is not an agreement which can be executed to remedy the situation that the beneficiaries will find themselves in if Commercial's contributions are refused. Co Reply Brief, p 17.
Although the Company cannot force the Fund to accept the terms of the
Memorandum Agreement, it can offer the Fund a premium for covering the
shrinking participant group created by the Memorandum Agreement. See
Participation Agreement, section 4; Trust Agreement, Art I, Sec 2(c).
XII. Findings of Fact and Conclusions of Law The findings of fact and conclusions of law required by the Arbitration
Rules Sec 37 are included (but not explicitly designated as such) in this opinion.
DATED: October 23, 1987 _____________________ E. Frank Cornelius