Central States, Southeast & So v. International Comfort Products

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 09a0371p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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CENTRAL STATES, SOUTHEAST AND

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SOUTHWEST AREAS PENSION FUND, and

HOWARD MCDOUGALL, Trustee, -

Plaintiffs-Appellants, -

No. 08-5949

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v.

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INTERNATIONAL COMFORT PRODUCTS, LLC,

Defendant-Appellee. -

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Appeal from the United States District Court

for the Middle District of Tennessee at Nashville.

No. 07-00383—Aleta Arthur Trauger, District Judge.

Argued: March 10, 2009

Decided and Filed: October 23, 2009

*

Before: KETHLEDGE and WHITE, Circuit Judges; POLSTER, District Judge.

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COUNSEL

ARGUED: John Joseph Franczyk, Jr., CENTRAL STATES LAW DEPARTMENT,

Rosemont, Illinois, for Appellants. Lee T. Polk, BARNES & THORNBURG LLP,

Chicago, Illinois, for Appellee. ON BRIEF: John Joseph Franczyk, Jr., Anthony E.

Napoli, CENTRAL STATES LAW DEPARTMENT, Rosemont, Illinois, for Appellants.

Lee T. Polk, BARNES & THORNBURG LLP, Chicago, Illinois, Bart A. Karwath,

BARNES & THORNBURG LLP, Indianapolis, Indiana, for Appellee.

KETHLEDGE, J., delivered the opinion of the court, in which POLSTER, D. J.,

joined. WHITE, J. (pp. 11–12), delivered a separate concurring and dissenting opinion.

*

The Honorable Dan Aaron Polster, United States District Judge for the Northern District of Ohio,

sitting by designation.

1

No. 08-5949 Central States S.E. and S.W. Areas Pension Fund, Page 2

et al. v. Int’l Comfort Products

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OPINION

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KETHLEDGE, Circuit Judge. Central States, Southeast and Southwest Areas

Pension Fund, and Howard McDougall, Trustee (collectively, the “Fund”) appeal the

district court’s grant of summary judgment to International Comfort Products, LLC

(“ICP”) with respect to the Fund’s claims for withdrawal liability under the

Multiemployer Pension Plan Amendments Act (“MPPAA” or the “Act”), 29 U.S.C.

§§ 1381 et seq., and for breach of contract. We affirm as to the latter claim. The

principal question presented as to the former is whether an entity need be contractually

obligated to contribute to a pension fund, as opposed to obligated under applicable labor-

management relations law, in order to be an “employer” for purposes of the MPPAA.

Relying upon authority from other circuits, the district court held that the obligation must

be contractual. We respectfully disagree with that authority, and thus vacate and remand

as to the MPPAA claim.

I.

A.

ICP is a Delaware corporation that, during the period relevant to this case,

manufactured heating and cooling products at a facility in Lewisburg, Tennessee. (We

refer to ICP’s predecessor entities also as “ICP”). In 1971, ICP entered into an

agreement with Top Transportation Services, Inc. (“Top”), under which Top agreed to

provide ICP with truck drivers for its Lewisburg operations. Under the agreement, Top

paid the drivers’ salaries and benefits, and then sought reimbursement for those costs,

among others, from ICP. Accordingly, the relevant version of the agreement—executed

in 1992 (the “Agreement”)—provided that, on a weekly basis, “[Top] shall bill [ICP] its

actual costs and expenses of operations hereunder . . . . Such costs and expenses shall

include, but not be limited to, direct wages, salary payments, payroll taxes and necessary

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et al. v. Int’l Comfort Products

fringe benefits, insurance and administration applicable to the operations.” Agreement

¶ 3.

The Agreement also provided that Top “will . . . handle all labor relations and the

negotiating of union contracts and shall enter into any and all labor contracts covering

the drivers who are its drivers and are in the service of [ICP].” Id. ¶ 2. Per that

provision, Top, but not ICP, was a signatory to collective bargaining agreements with

Local Union No. 327 of the International Brotherhood of Teamsters. Those agreements

required Top to make contributions to the Fund—which is a “multiemployer pension

plan” as defined by the Employment Retirement Income Security Act (“ERISA”),

29 U.S.C. § 1002(37)—on behalf of the drivers. During all periods relevant here, Top

invoiced ICP for Top’s contributions to the Fund, and ICP then reimbursed Top those

amounts.

In February 2002, ICP terminated its agreement with Top, which in turn ceased

all operations the following month. That cessation triggered withdrawal liability under

the MPPAA, which the Fund assessed to be in the principal amount of $570,694.35. In

letters dated April 30, 2002, the Fund demanded payment of the assessment from both

Top and ICP. Top never paid the assessment—it was by then a defunct entity—but it

did invoice ICP for the assessment amount. ICP paid neither the assessment nor the

invoice.

The Fund sued Top in May 2003 and obtained a default judgment for the

assessment amount that July. Top never paid the default judgment. In February 2005,

however, Top executed an assignment of its rights under the Agreement to the Fund.

The Fund thereafter brought this action against ICP, asserting that ICP owed withdrawal

liability under the MPPAA and that ICP breached its Agreement with Top—in whose

shoes the Fund purported to stand—when it failed to pay Top’s invoice for the

assessment amount. The district court eventually granted summary judgment to ICP

with respect to all of the Fund’s claims.

This appeal followed.

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et al. v. Int’l Comfort Products

II.

We review de novo a district court’s decision granting summary judgment.

McMullen v. Meijer, Inc., 355 F.3d 485, 489 (6th Cir. 2004).

A.

1.

We turn first to the Fund’s claim under the MPPAA. “Congress passed the

MPPAA as an amendment to ERISA in order to protect multi-employer pension plans

from the financial burdens that result when one employer withdraws from a multi-

employer plan without first funding uncovered liabilities of the plan attributable to the

employer.” Carriers Container Council, Inc. v. Mobile S.S. Assoc. Inc.-Int’l

Longshoreman’s Ass’n, 896 F.2d 1330, 1342 (11th Cir. 1990). The Fund asserts its

claim against ICP under § 1381(a) of the Act, which provides: “If an employer

withdraws from a multiemployer plan in a complete withdrawal or a partial withdrawal,

then the employer is liable to the plan in the amount determined under this part to be the

withdrawal liability.” Only an “employer,” therefore, can be subject to withdrawal

liability under the MPPAA.

“The MPPAA does not itself contain a definition of the word ‘employer[,]’”

Carriers, 896 F.2d at 1342, which has made the task of constructing one unavoidable for

the courts. All of the circuits to have addressed the issue, however, agree upon a

common definition. That definition is “drawn from Title I of ERISA[,]” id. at 1343,

whose definitions “do not apply elsewhere in the Act of their own force,” but “may

otherwise reflect the meaning of the terms defined as used in other Titles[.]” Nachman

Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 371 n.14 (1980). Title I of ERISA

defines “employer” as “any person acting directly as an employer, or indirectly in the

interest of an employer, in relation to an employee benefit plan[.]” 29 U.S.C. § 1002(5).

Adapting that definition to the MPPAA context, four circuits have held that the term

“employer,” for purposes of the Act, means “a person who is obligated to contribute to

a plan either as a direct employer or in the interest of an employer of the plan’s

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et al. v. Int’l Comfort Products

participants.” Korea Shipping Corp. v. New York Shipping Ass’n-Int’l Longshoremen’s

Ass’n Pension Trust Fund, 880 F.2d 1531, 1537 (2d Cir. 1989) (emphasis added); see

also Carriers, 896 F.2d at 1343 (same); Seaway Port Auth. of Duluth v. Duluth-Superior

ILA Marine Ass’n Restated Pension Plan, 920 F.2d 503, 507 (8th Cir. 1990) (same);

Central States, S.E. and S.W. Areas Pension Fund v. Central Transport, Inc., 85 F.3d

1282, 1287 (7th Cir. 1996) (same).

This definition furthers the Act’s purposes by “prevent[ing] a contributor to a

plan from withdrawing its support without covering its share of unfunded liabilities.”

Carriers, 896 F.2d at 1343. The definition is also consistent with the structure of the

Title I definition of employer. The Title I definition is different in kind from “the

common law definition, which looks for direct employer-employee relationships (e.g.,

direct supervision, direct payment).” Id. Under Title I, the focus is instead upon the

entity’s “relation to an employee benefit plan[.]” 29 U.S.C. § 1002(5) (emphasis added).

And we agree that the relevant relation, for purposes of determining withdrawal liability

under the MPPAA, is whether the entity had an obligation to contribute to the plan in the

first place. Like the other circuits, therefore, we hold that “the contributing obligor

definition drawn from Title I applies to the term ‘employer’ in section 1381(a).”

Carriers, 896 F.2d at 1343.

2.

“Although we now have a definition of employer, we still must determine what

that definition means[.]” Seaway, 920 F.2d at 508. And there we respectfully part

company with several of our sister circuits. The Ninth Circuit has held, without

explanation or citation to authority, that “[t]he word ‘employer’ describes one who was

a signatory employer with respect to the plan.” H.C. Elliott, Inc. v. Carpenters Pension

Trust Fund for N. California, 859 F.2d 808, 813 (9th Cir. 1988) (emphasis added). The

other two circuits to have addressed the issue—the Seventh and the Eighth—trace their

holdings back to the Eighth Circuit’s holding in Seaway. There, the court surveyed the

fact patterns in five cases applying the contributing-obligor definition of employer, and

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found “one fact common to all of the parties held subject to withdrawal liability: they

were contractually bound to make pension contributions, either in collective bargaining

agreements, general cargo agreements, or shipping association agreements.” Seaway,

920 F.2d at 509 (emphasis in original). “Thus, applying the relevant case law,” the court

held that the entity at issue there was not an MPPAA employer because it had not signed

any contracts “explicitly obligating it to make pension contributions.” Id.

The Eighth Circuit reiterated its position in a case factually similar to this one,

namely Rheem Mfg. Co. v. Central States S.E. and S.W. Areas Pension Fund, 63 F.3d

703 (8th Cir. 1995). There, the court cited the “one fact common” passage from Seaway,

and proceeded directly to hold: “The nature of the obligation to contribute establishing

an entity as an ‘employer’ for MPPAA purposes, therefore, is contractual, and the party

who is signatory to a contract creating the obligation to contribute is the ‘employer’ for

purposes of establishing withdrawal liability.” Id. at 707 (emphasis added). The

Seventh Circuit applied that same rule a year later—without any analysis of its merits,

or even expressly adopting it—in Central Transport, 85 F.3d at 1287. The Seventh

Circuit thereafter expressly adopted that rule—but again without analysis of its

merits—in Transpersonnel, Inc. v. Roadway Express, Inc., 422 F.3d 456, 460 (7th Cir.

2005). Thus, in the Seventh, Eighth, and Ninth Circuits, an entity’s obligation to

contribute must be “created by contract” in order for the entity to be an employer under

the MPPAA. Id.

For several reasons, however, we respectfully disagree with that rule. As an

initial matter, the rule’s foundation, as demonstrated above, is merely the Seaway court’s

observation that, in five other cases where an entity was deemed an MPPAA employer,

the entity’s obligation to contribute was contractual in nature. With the exception of the

Ninth Circuit’s unsupported declaration in H.C. Elliott, however, none of the cases

surveyed in Seaway held, or even intimated, that a contractual obligation to contribute

is the only such obligation sufficient to trigger employer status under the Act. Those

cases merely happened to involve contractual obligations. The Eleventh Circuit’s

careful opinion in Carriers is an example: The court found that, under certain contracts,

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et al. v. Int’l Comfort Products

the subject carriers were obligated to contribute to the subject plan; and thus the court

held straightaway that the carriers “are subject to withdrawal liability” under the Act.

896 F.2d at 1344. And having had so held, the court had no reason even to consider,

much less adopt, the “contract-only” limitation thereafter inferred in Seaway. Thus, at

most, the surveyed cases merely suggest that contractual obligations might be the most

common type, and not the only type, of obligation to contribute among MPPAA

employers. And even then, five cases is not much of a sample size.

More fundamentally, Seaway and its progeny take the courts’ exercise in

interstitial lawmaking a definition too far. It is true enough that the definition of

employer for purposes of the MPPAA was left for the courts to construct. But the

definition thus constructed asks whether the entity has an “obligation to contribute” to

a plan; and that term is expressly defined by the MPPAA. Title 29 U.S.C. § 1392(a)

provides:

(a) “Obligation to contribute” defined

For purposes of this part, the term “obligation to contribute” means an

obligation to contribute arising—

(1) under one or more collective bargaining (or related)

agreements, or

(2) as a result of a duty under applicable labor-management

relations law, but does not include an obligation to pay withdrawal

liability under this section or to pay delinquent contributions.

(Emphasis added.)

Thus, rather than “apply the relevant case law,” as in Seaway, our task should be

simply to apply the statute. In § 1392(a) Congress has made unmistakably clear that,

“[f]or purposes of” Part 1 of the MPPAA—which means for all such purposes, including

a determination of withdrawal liability under § 1381, found in Part 1—an obligation to

contribute to a plan may arise not only from a contract, but also from “applicable labor-

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management relations law[.]” 29 § U.S.C. 1392(a)(2). That definition stands before us

as clear as day. And it is that definition—rather than one constructed in the dim light

of common-law inference—that we are bound to apply.

The Supreme Court has specifically held as much. In Laborers Health and

Welfare Trust Fund for N. California, et al. v. Advanced Lightweight Concrete Co., Inc.,

484 U.S. 539 (1988)—a case apparently overlooked by the courts adopting the contract-

only definition of contributing obligor—the Supreme Court directly addressed the

meaning of “obligation to contribute” for purposes of Part 1 of the MPPAA. Observing

that withdrawal liability “arises when an employer ceases to have an ‘obligation to

contribute’ to the plan[,]” the Court declared: “That term is defined for the purposes of

the withdrawal liability portion of the statute in language that unambiguously includes

both the employer’s contractual obligations and any obligation imposed by the NLRA

[which the Court equated with applicable labor-management relations law].” Id. at 545-

46 (emphasis added). Adding a double-knot for good measure, the Court stated that the

§ 1392(a) “definition is significant because it demonstrates that Congress was aware of

the two different sources of an employer’s duty to contribute to covered plans.” Id. at

546 (emphasis added); see also id. at 549 n.16 (“withdrawal liability may arise from

either a contractual duty or a statutory duty, see [§ 1392(a)]”) (emphasis added).

The mere accumulation of contrary precedent in three other circuits does not, in

our view, give us license to disregard the plain language of § 1392(a) or the Supreme

Court’s equally plain interpretation of it. Cf. In re Sealed Case, 310 F.3d 717, 725-27

(FISA Ct. Rev. 2002) (describing, and rejecting, a similar snowballing of precedent

unconnected to the “actual statutory language” at issue) (emphasis in original). If an

obligation to contribute is the touchstone of employer status under the MPPAA—and we

agree that it is—then the dictates of the statute and Supreme Court alike compel the

conclusion that employer status may arise from not only a contractual obligation, but

also an obligation “under applicable labor-management relations law[.]” 29 U.S.C.

§ 1392(a)(2).

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et al. v. Int’l Comfort Products

The Fund has contended throughout this litigation that ICP had the latter

obligation. The district court did not reach that contention, however, because it followed

Seaway and thus considered only whether ICP had a contractual obligation to contribute

to the Fund. Per our holding today, we vacate the court’s judgment with respect to the

Fund’s MPPAA claim, and remand for a determination whether ICP had an obligation

to contribute to the Fund “under applicable labor-management relations law[.]” Id. The

question whether that determination can be made only by the National Labor Relations

Board, as ICP suggests in its brief, we leave for the district court to answer in the first

instance.

B.

The Fund’s claim for breach of contract is more easily handled. The claim rests

on two grounds. First, the Fund argues that the subject withdrawal liability was a cost

of Top’s operations—it does, after all, represent essentially an underpayment of Top’s

obligation to contribute to the Fund during the relevant period of Top’s operations—and

that ICP therefore owes Top (and the Fund itself, as Top’s assignee) the amount of the

liability. ICP counters, and the district court agreed, that a liability which by definition

arises upon the cessation of operations cannot be a “cost” of them. We need not resolve

that particular dispute, however, because the Agreement obligates ICP to reimburse Top

only for Top’s “actual costs” of operation, Agreement ¶ 3; and costs never paid are not

actual. Top never paid any withdrawal liability, so it was not entitled under the

Agreement to seek reimbursement for the assessed amount. And thus so too neither is

the Fund.

Second, the Fund argues that, under the Agreement’s indemnification clause, ICP

is obligated to indemnify Top (and thus again the Fund as its assignee) for the amount

of Top’s withdrawal liability. See Agreement ¶ 5. We entirely agree with the district

court that, when read as a whole, this section of the Agreement required ICP to

indemnify Top for “vehicle liability”—basically, liability arising from trucking

accidents—rather than withdrawal liability under the MPPAA.

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et al. v. Int’l Comfort Products

The district court’s judgment with respect to the Fund’s claim for breach of

contract is affirmed. The court’s judgment with respect to the Fund’s claim under the

MPPAA is vacated and remanded for proceedings consistent with this opinion.

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et al. v. Int’l Comfort Products

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CONCURRING AND DISSENTING

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WHITE, Circuit Judge, concurring and dissenting. I join in the majority opinion

except for section II.B. I would reverse and remand the contractual claim based on § 3

of the Agreement.1 Unlike the majority, I do not interpret the phrase “actual costs and

expenses of operation” to unambiguously provide that “costs” for which Top became

liable as the result of its operations under the contract with ICP, but did not pay, are not

“actual costs.”

The word “actual” means “real.” In this context, “real” or “actual” could mean

the actual amount of the costs and expenses as contrasted with the actual amount plus

a percentage markup for services, or an additional markup for overhead. This is a

common usage of the term actual. For example, a provision of the Bankruptcy Code

allows court-appointed trustees of bankrupt estates to recoup “actual, necessary

expenses.” 11 U.S.C. § 330(a)(1)(B). Federal courts interpreting that language have

distinguished “actual” expenses not from unpaid expenses, but from “estimated”

expenses, as well as from general overhead expenses not attributable to any one account.

See generally, James Lockhart, Annotation, What Expenses Qualify for Reimbursement

Under Bankruptcy Code Provision Allowing Reimbursement to Trustees, Examiners, and

Professional Persons for Actual, Necessary Expenses (11 U.S.C.A. § 330(a)(1)(B)), 169

A.L.R. Fed. 197 (2001).

Absent evidence of an alternate meaning between the parties, a reasonable

interpretation of the phrase “actual costs and expenses” in the Agreement is that it served

to make similar distinctions as those in other business interactions, and not to disqualify

incurred but unpaid liabilities. Cf. In re Washington Mfg. Co., 101 B.R. 944, 956

1

I concur in the affirmance of the district court’s grant of summary judgment dismissing

plaintiffs’ contract claim based on § 5 of the Agreement.

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et al. v. Int’l Comfort Products

(Bankr. M.D. Tenn. 1989) (stating that “actual, necessary expenses” are expenses that

are “incurred”).

Further, the fact that withdrawal liability is not mentioned in the contract is not

dispositive. The contract clearly provided that costs and expenses shall include, but not

be limited to, the enumerated items. It is undisputed that over the course of the thirty-

year relationship, Top billed ICP for, and ICP paid, the ongoing pension cost and

expense. Further, ICP and Top visited the issue in 1994, when ICP cut back on the

number of drivers supplied by Top. At that time, Top informed ICP of its potential

withdrawal liability. ICP responded that it had obtained an opinion from counsel that

“no liability will be incurred by [ICP] as a result of the downsizing.” Although the

district court interpreted this as ICP’s assertion that withdrawal liability was not an

obligation of ICP, it can also be understood as a statement that ICP believed that the

anticipated downsizing would not trigger withdrawal liability, and a tacit acceptance of

the underlying assertion that ICP might have withdrawal liability under the Agreement

under different circumstances. Indeed, it is not asserted that the downsizing triggered

such liability. If it had, no doubt Top would have billed ICP.

Because § 3 of the Agreement is not unambiguous as applied to this situation,

and the surrounding circumstances create a genuine issue of material fact as to ICP’s and

Top’s intent, I would reverse the grant of summary judgment and remand for further

proceedings on this issue as well.