Opposition Brief — New York Hotel Trades Council & Hotel Ass'n v. Park South Hotel Corp.

N ;

__No. 88-522 — |

2.

OCT 28 1988

JOSEPH F. SPANIOL, JR.

RK

Supreme Court of the

October Term, 1988

NEW YORK HOTEL TRADES COUNCIL AND HOTEL

ASSOCIATION OF NEW YORK CITY, INC. PENSION

FUND and VITO J. PITTA AND ALBERT A. FORMI-

COLA, as Trustees of New York Hotel Trades Council and

Hotel Association of New York City, Inc. Pension Fund,

Petitioners,

Vv.

PARK SOUTH HOTEL CORP.,

Respondent.

BRIEF IN OPPOSITION TO PETITION FOR A WRIT OF

CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

— — —

a

ee — 7

q ANDREW IRVING

Counsel of Record

Rosrnson, SILVERMAN, PEARCE,

ARONSOHN & BERMAN

230 Park Avenue

New York, New York 10169

(212) 687-0400

Attorneys for Respondent

October 26, 1988

Question Presented

If a change in the identity of a partnership’s partners does

not cause the partnership to cease paying contributions to a mul-

tiemployer pension plan or to cease having an obligation to pay

such contributions or to cease operations covered by such plan,

may the plan nevertheless assert that the partnership has with-

drawn from the plan and collect withdrawal liability from the

partnership’s former general partner?

ill

TABLE OF CONTENTS

Page

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See Ge AUREL ........... Peaks eee sae ee Vv

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Seeing kk ss dua ped henciadaes ra

I. THE PETITION PRESENTS NO SIGNIFICANT IS-

SUE OF FEDERAL LAW MERITING REVIEW

SE rs hee er ee ee 5

A. The Issues Raised by the Petition Concern Inter-

pretation of Various Agreements and New York

acca kh tpe peas «keds acy 6

B. Consideration of the Issues Decided by the Court

of Appeals Will Not Contribute to Settling an Im-

portant Legal Issue of General Concern ......... 8

Il. THE DECISION OF THE COURT OF APPEALS

DOES NOT CONFLICT WITH EITHER THE

HOLDING OR THE LOGIC OF ANY OTHER

Teeter Vc ah ans sexe ee h adh y whee kena’ 9

A. The Seventh Circuit Has Not Issued a Conflicting

he MA eg are ope 9

B. The Decision Below is Consistent with the Only

Other Relevant Precedent .............0s0s000. 11

Ill. THE DECISION OF THE COURT OF APPEALS

DOES NOT JEOPARDIZE ANY POLICY INTER-

EST EMBODIED IN ERISA’S WITHDRAWAL

SEE 8 RP WRITES 5 occ dacs cons sceasecceee 13

ee raed vee V keeles ede siawes as ae awe 16

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Page

APPENDIX

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TABLE OF AUTHORITIES

Cases: Page

Central States, Southeast and Southwest Areas Pension

Fund v. Belmont Trucking Co., 788 F.2d 428

Co Oe a elas perce Vee touke he bcedncdeacey 9, 10

Connors v. B&W Coal Co., 646 F.Supp. 164

a nC he ee eee 11, 12

Kanarek v. Gadflex Assoc., 115 A.D.2d 592, 496

N.Y.S. 2d 253 (2d Dept. 1985), app. denied, 67

a Es eee ee 8

Neuberger, Loeb & Co. v. Gross, 611 F.2d 423

wee | PPT Creer rer errs Tr ere TE e Terre 8

Rice v. Sioux City Memorial Parks Cemetery, 349 U.S. 70

fe ERECTOR CEE CO Ree CORY Ee Te Pree Eee F 12

Rockford Life Insurance Co. v. Illinois Department of

Mevemiet, Ua. nn Wt Be OR ZOEZ CIID) occ cc ccs sensss 5

Teamster Pension Trust Fund of Philadelphia v.

Central Michigan Trucking, Inc., No. 87-2023

(6th Cir. Sept. 28, 1988), 1988 U.S. App. LEXIS

BEE Saad ikke see RCURARe kee dente eweRsehinaasy 7, 10, 15

Statutes

FF a ED kn 0h 506 64 onnaeneeenuseetareeaes 15

ee ainda & heed bean deedectaddanesaceeeel 6

Fe x03 5 oc dancane yy cinaenbere aerate 7, 13

Be ee ED 0h a on s4o cused hin dandamasererees caae 6

PP SNe ED hen nndco na donrddcaeeanceaneeeeaenes 14

Be ae Ee on bee acim sna drew keane eee Sd 0h Be

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Pie; PIE 6 5 5 a a cab odacs sens en eens eees 8

Pas EE is pc hvac ccundesdassakakaeceues 8

ce ern er ee 8

Court Rules

Rule 17, Rules of the Supreme Court of the

United States ..... Se Ea eS ae eck il Goa k Pr EA a xe 5

Rule 28.1, Rules of the Supreme Court of the

2 RE? AraP ly Soe lon nr or renee 1

STATEMENT OF THE CASE

The Petition for a Writ of Certiorari seeks review of the deci-

sion of the United States Court of Appeals for the Second Circuit

in Park South Hotel Corp. v. New York Hotel Trades Council,

851 F.2d 578 (2d Cir. 1988). This brief is submitted in opposition

to that Petition.

Respondent Park South Hotel Corp.' (“Hotel Corp.”) was,

until August 11, 1981, the general partner of Park South Associ-

ates, a limited partnership which owned the Barbizon Plaza Hotel

in New York City. On August 11, 1981, Hotel Corp. and the lim-

ited partners of Park South Associates sold their interests in the

partnership. The buying and selling partners all executed an

Amended and Restated Certificate of Limited Partnership ad-

mitting the new partners as general and limited partners of Park

South Associates. 851 F.2d at 580.

Both before and after the 1981 transfer of interests in the

partnership, Park South Associates paid contributions to the pe-

titioner New York Hotel Trades Council and Hotel Association

of New York City, Inc. Pension Fund (the “Fund”), a multi-

employer pension plan, on behalf of its employees pursuant to a

collective bargaining agreement. Park South Associates contin-

ued to own the hotel and continued its membership in the em-

ployer association whose collective bargaining agreement with a

union required contributions to the Fund. Jd. at 580-81.

Despite this continuity of the contribution relationship be-

tween the Fund and Park South Associates, the Fund demanded

that Hotel Corp., as the partnership's former general partner, pay

withdrawal liability to the Fund pursuant to Part 1 of Subtitle E of

Title IV of the Employee Retirement Income Security Act of 1974

(“ERISA”), P.L. 93-406, as amended by Title I of the Multi-

employer Pension Plan Amendments Act of 1980 (“MPPAA”),

P.L. 96-364, 29 U.S.C. §§ 1381-1405 (1982). The Fund claimed that

the sale of the partnership interests in Park South Associates

' Park South Hotel Corp. has no affiliates, parents or subsidiaries within the

meaning of Rule 28.1 of the Rules of this Court

———————————————ororrS

2

meant that the partnership had withdrawn from the Fund. Hotel

Corp. protested the claim, contending that the continuity of Park

South Associates as the owner and operator of the hotel and con-

tributor to the Fund meant that no withdrawal had taken place.

Nevertheless, the Fund persisted in its view. Required by law to

make quarterly installments in excess of $32,000 each in payment

of the claimed withdrawal liability totaling $1,000,000 in order to

avoid acceleration of the full amount of the claim, Hotel Corp.

began making the quarterly payments under protest and com-

menced this action. /d. at 581.

Hotel Corp. sought a declaratory judgment that the August

1981 transfer of partnership interests did not trigger an obligation

to pay withdrawal liability under ERISA. While cross-motions

tor summary judgment were pending, the Fund filed counter-

claims against both Hotel Corp. and Park South Associates, as

additional counterclaim defendant. The counterclaims sought a

declaratory judgment allocating between Hotel Corp. and Park

South Associates such withdrawal liability to the Fund as may

arise out of a future withdrawal by Park South Associates in the

event that the District Court agreed with Hotel Corp. that the

1981 transfer of partnership interests was not a withdrawal.

Counterclaims and crossclaims were interposed as a result of this

procedural maneuver. The District Court conducted an evide-

ntiary hearing on the cross-motions for summary judgment on

March 13 and 14, 1984. Shortly after the hearing, but before the

District Court’s decision, the Fund and Park South Associates

agreed to dismiss the Fund’s counterclaim against the partner-

ship concerning the hypothetical future withdrawal. The District

Court dismissed the counterclaim without prejudice.

On October 30, 1987, the District Court issued its Opinion

and Order, reported at 671 F. Supp. 1000. The District Court held

that the partnership had permanently ceased covered operations

under the Fund and permanently ceased to have an obligation to

the Fund as a result of the transfer of the partnership interests.

The District Court relied upon the particulars of the agreerrents

3

executed at the 1981 closing allocating among the former partners

and the new partners various liabilities arising before, at and after

the closing.

The Court of Appeals unanimously reversed. Finding that

Park South Associates, the partnership, owned the hotel, contrib-

uted to the Fund and continued to do so after the transfer of part-

nership interests, the Court of Appeals determined that the

partnership, and not its general partner, was contributing em-

ployer. The Court of Appeals further found that the change in

partners did not cause the partnership to terminate. Accordingly,

the Court of Appeals found that because the partnership contin-

ued its covered operations under the Fund and continued to have

an obligation to contribute to the Fund, there was no withdrawal

from the Fund as a result of the change in partners. 851 F.2d at

582-3.

The Court of Appeals rejected the Fund’s claim that the

terms of the sales agreement required a finding that a withdrawal

had occurred. The Court found that the agreement between the

old partners and the new as to their respective liabilities for obli-

gations to third persons “does not affect the liability of the part-

nership to the Fund, which federal law created and the

determination of which federal law governs. The parties cannot

by agreement change or eliminate any liability that federal law im-

poses upon the partnership.” Jd. at 583.

The Court of Appeals observed that ERISA Section 4218, 29

U.S.C. § 1398 (1982), demonstrates “that Congress did not intend

to treat, as an employer withdrawal from a plan, mere changes in

the form or structure of an employer that do not alter the employ-

er’s basic relation with, participation in, or obligation to, the plan

or change the nature of the employer’s operations.” Id. at 583-4.

Had the hotel’s owner been a corporation and the August 1981

transaction constituted a sale of stock, there would have been no

withcrawal by operation of § 1398.

Finally, the Court rejected the Fund’s argument that impos-

ing withdrawal liability in this case was necessary to advance the

—————— — ———-

4 a

Congressional purpose underlying the concept of withdrawal li-

ability. The Court again pointed out that the partnership contin-

ued to contribute to the Fund and to be liable to the Fund for

those contributions and concluded:

In these circumstances the sale of the partnership interests

did not create the problems for the Fund that Congress

sought to ameliorate by imposing withdrawal liability.

Id. at 584.

SUMMARY OF ARGUMENT

This case raises no issue of general importance sufficient to

merit review by this Court. Determination of the withdrawal li-

ability implications of the change in the identity of the partners in

Park South Associates turns upon an analysis of the particular

operational arrangements at the hotel before and after the trans-

action. The Fund does not challenge the analysis by the Court of

Appeals of those arrangements or the conclusion that the part-

nership continued to operate the hotel and to contribute to the

Fund without interruption after the substitution of partners. In-

stead, the Fund argues that the details of the purchase agreement

and other documents executed when the partnership interests

were sold, and the New York Partnership Law implications of the

transaction, have the effect of creating a fictitious interruption in

contributions constituting a withdrawal from the Fund.

The argument is not only wrong, but it is so narrow and par-

ticularized that its consideration by this Court would provide no

guidance to anyone other than the parties herein. Moreover, the

record shows that the transaction was negotiated in early 1981,

when withdrawal liability was a new concept. Now, more than

eight years after withdrawal liability has been a fact of life, it is

extremely unlikely that a major transaction such as this would be

negotiated without reference to its withdrawal liability implica-

tions.

The decision below does not conflict with the decision of any

other court. The decision by the United States Court of Appeals

«ts

5

for the Seventh Circuit cited by Petitioner involves an entirely dif-

ferent set of facts. There, it was undisputed that the employer had

withdrawn from the multiemployer pension plan; here, with-

drawal is the issue in dispute. Notwithstanding this distinction,

the decision below in fact adheres to the logic of the Seventh Cir-

cuit’s opinion. The narrow issue of the withdrawal liability impli-

cations of changes in the identity of a partnership’s partners has

not been addressed by any courts other than in the decision below

and a decision in the District of Columbia District, both of which

reach the same result.

Finally, the decision below does not threaten to undermine

successful accomplishment of the Congressional purpose behind

the enactment of ERISA’s withdrawal liability provisions. The

transaction at issue did not cause the number of contributing em-

ployers to diminish and neither caused nor threatened to cause a

drop in the number of covered participants or in the amount of

incoming contributions. Protecting multiemployer pension plans

against the loss of contributing employers does not require im-

posing withdrawal liability upon a transaction which causes no

such loss. The specter of employers scheming to evade with-

drawal liability through baroquely devised transactions may be

remedied by invocation of ERISA’s anti-sham provision. The

distortion of the statutory schcme which underlies the Fund’s po-

sition is no way to accomplish that result.

In short, this case hardly merits discretionary review. See

Rockford Life Insurance Co. v. Illinois Department of Revenue, ___

US. __, —. n.3, 107 S. Ct. 2312, 2314 n.3 (1987).

ARGUMENT

I

THE PETITION PRESENTS NO

SIGNIFICANT ISSUE OF FEDERAL LAW

MERITING REVIEW BY THIS COURT

There are no “special and important reasons” within the

meaning of Rule 17 of the Rules of this Court for granting review

of the decision of the Court of Appeals in this case.

6

A. The Issues Raised by the Petition Concern

Interpretation of Various Agreements and New York

Partnership Law.

The Court of Appeals decided that the transfer of partner-

ship interests did not cause the partnership to cease having an

obligation to contribute to the Fund or to cease its covered opera-

tions under the Fund. The Court found that the partnership’s

continuing ownership of the hotel, relationship with the union,

employment of the hotel’s employees and, most importantly, its

continuing payment of contributions to the Fund support this

conclusion. Of course, cessation of either the contribution obli-

gation or the covered operation is the essential element of a with-

drawal. ERISA Section 4203, 29 U.S.C. § 1383 (1982). The Fund

does not, and cannot, quarrel with these facts or their inevitable

consequences under the relevant statutes.2

The Fund focuses upon, and misconstrues, the particulars of

the documents which effected the transfer of the partnership in-

terests. Unraveling the Fund’s contorted construction of the

documents hardly constitutes the kind of compelling federal

question which would justify invocation of this Court’s power of

review on certiorari.

The purchase agreement for the transfer of the partnership

interests contained language of indemnity by which the selling

general partner, Hotel Corp., relieved the purchasing partners

2 The Fund has always based its claim against Hotel Corp. upon the asserted

withdrawal of Park South Associates when the partnership interests were

transferred and Hotel Corp.’s liability as general partner for the partnership

debts. Hotel Corp. had no relation to the Fund other than as a general partner

of the limited partnership, Park South Associates. That relationship arose un-

der state partnership law, not a collective bargaining agreement or labor-man-

agement relations law, and therefore did not give rise to an “obligation to con-

tribute” within the meaning of ERISA Section 4212 (a), 29 U.S.C. §1392 (a)

(1982). Since the partnership owned the hotel, employed the employees and

contributed to the Fund, Hotel Corp. itself had no operations under the Fund.

Accordingly, Hotel Corp. did not withdraw from the Fund within the meaning

of 29 U.S.C. § 1383, since it had no obligation to contribute or covered opera-

tions which ceased when it left the partnership.

7

from liability for obligations “between or among [the former part-

ners] or for any obligation of the [former partners] or any them to

a third party.” Appendix, Park South Hotel Corp. v. New York

Hotel Trades Council, supra, Docket No. 87-9025 at 366-67 (here-

inafter “2d Cir. App. ”). Indemnification agreements are simply a

means of completely shifting a liability from one party to another.

They do not themselves create a liability to be shifted. In context

of the transaction at issue, the indemnification agreements pro-

tect the new partners from lurking preexisting debts or obliga-

tions of the old partners and were incorporated into the purchase

documents with the purpose, as stated therein, of inducing the

purchasing partners to purchase the partnership interests. With-

drawal liability is not a debt that arises before withdrawal merely

because it is calculated upon the basis of pre-withdrawal contri-

butions and unfunded vested liabilities. Teamsters Pension Trust

Fund of Philadelphia v. Central Michigan Trucking, Inc., No.

87-2023 (6th Cir. Sept. 28, 1988), 1988 U.S. App. Lexis 13013. To

argue that the indemnification agreements in fact created a with-

drawal liability is circular and wholly unpersuasive.

Even if this Court were inclined to delve into the details of

this transaction as the Fund requests, the fact remains that with-

drawal liability arises out of the objective facts of relations be-

tween an employer and a pension fund. Congress has decreed

that only a sale of assets transaction may be deliberately struc-

tured on paper by the parties to affect the question of whether

withdrawal liability accrues as result of the transaction. See,

ERISA Section 4204, 29 U.S.C. § 1384. The instant transaction,

however, was not a sale of assets but, rather, a transfer of interests

in a limited partnership. Hotel Corp. has never contended that

§ 1384 has any relevance to this case.

In asking the Court to hold that the provisions of the pur-

chase agreement are dispositive of the question of withdrawal li-

ability, the Fund proposes that purchasers and sellers of

partnership interests be given a totally free hand to make any kind

of deal they want in order to manipulate withdrawal liability. The

8

suggestion invites determination of withdrawal liability issues

without regard to whether there has been a withdrawal in the

statutory sense enacted by Congress—actual cessation of either

the contribution obligation or plan-covered operations. Such a

result would be inconsistent with the law and detrimental to the

policy it embodies since it would leave multiemployer plans at the

mercy of creative fashioners of business transactions.

The Fund also argues that the the transfer of partnership in-

terests constituted a withdrawal from the Fund by referring to

New York Partnership Law, claiming that the decision of the

Court of Appeals construing the New York Partnership Law im-

plications of the change in partners was “clearly erroneous.”

(Cert. Petition at 14.) Again, the Fund fails to present an issue

worthy of review by this Court.

In the first place, this Court does not usually sit to correct

erroneous interpretations of state law.* Second, the Court of Ap-

peals reached a correct result under state law. The original part-

nership agreement creating Park South Associates permitted the

general partner and the limited partners to transfer their inter-

ests. 2d Cir. App. at 875. New York Partnership Law permits a

limited partnership to continue nonwithstanding a change in the

identity of its partners. Kanarek v. Gadflex Assoc., 115 A.D. 2d

592, 496 N.Y.S.2d 253 (2d Dept. 1985), app. denied, 67 N.Y.2d 602

(1986). See N.Y. Partnership Law §§ 53(1), 98 and 108 (McKinney

1988). Dissolution of a partnership does not cause its termina-

tion. N.Y. Partnership Law § 61 (McKinney 1988). See also

Neuberger, Loeb & Co. v. Gross, 611 F.2d 423, 427 (2d Cir. 1979).

B. Consideration of the Issues Decided by the Court of Appeals

Will Not Contribute to Settling an Important Legal Issue of

General Concern.

First, as stated above, resolution of this action depends upon

the specifics of the 1981 transaction and its aftermath at the hotel.

? Conflict between a decision of a Court of Appeals and state law was eliminated

in 1980 from the enumeration of grounds for granting a writ of certiorari ap-

pearing in Fermer Rule 19.

9

The withdrawal liability implications of those particulars will give

little guidance to participants in other business transactions.

Second, the circumstances giving rise to this action are un-

likely to recur. The negotiations leading up to the transfer of part-

nership interests began early in 1981, only four months after

Congress enacted ERISA’s withdrawal liability provisions. In

fact, the law was so new that the question of withdrawal liability

never came up during any of the negotiations leading to the trans-

fer. Now withdrawal liability has been a fact of commercial life

for more than eight years, and business transactions routinely

comprehend the withdrawal liability implications. The paucity of

reported cases on the subject of partnerships and withdrawal li-

ability demonstrates the absence of a need for this Court’s inter-

vention on the subject.

THE DECISION OF THE COURT OF

APPEALS DOES NOT CONFLICT

WITH EITHER THE HOLDING OR

THE LOGIC OF ANY OTHER DECISION

A. The Seventh Circuit Has Not Issued A Conflicting Ruling.

The Fund’s selection of Central States, Southeast and South-

west Areas Pension Fund v. Belmont Trucking Co., Inc., 788 F.2d

428 (7th Cir. 1986), as the decision conflicting with the decision

below in this action demonstrates a thorough misunderstanding

of the issue before the Seventh Circuit in that case. In Central

States the employer acknowledged that it stopped paying contri-

butions to the multiemployer plan and argued only that with-

drawal liability should not be assessed because its employees had

been hired by other contributing employers. The employer relied

upon the continuing relationship between its employees and the

Fund to argue that it did not owe any withdrawal liability. The

Seventh Circuit’s rejection of this argument has no bearing on

10

this case,* which turns upon the continuing relationship between

the Fund and the employer, Park South Associates. In Central

States, the fact of withdrawal was undisputed and the Seventh Cir-

cuit never discussed it; in the present case, the threshold question

of whether a withdrawal occurred in the only issue.

The rationale of the Seventh Circuit Court of Appeals in

Central States actually supports Hotel Corp.’s position in this

case.* The court in Central States observed that the policy un-

derlying withdrawal liability includes the need to compensate a

muliemployer pension plan for the shrinkage of the plan which

results when the number of employers decreases. There is a pre-

sumptive loss of jobs when an employer goes out of business as

did the employer in Central States. The court went on to say:

But this presumption should not attach merely because a

covered enterprise changes its name, its ownership or its

structure while its operations are carried on generally

intact....

788 F.2d at 433 (emphasis added). Of course, that is precisely

what happened in the present case. The change in the

partnership’s owners did not cause any diminution in the number

of employers contributing to the Fund and posed no threat of any

loss of jobs. Thus, the decision of the Court of Appeals herein

simply cannot be said to create a conflict within the federal

judiciary requiring resolution by this Court.

« The Fund cited the Central States decision only in passing in its brief to the

Court of Appeals and did not argue that a decision in favor of Hotel Corp.

would conflict with the decision in Central States. See Brief for Appellee at 49,

Park South Hotel Corp. v. New York Hotel Trades Council, supra, Docket No.

87-9025.

S The same may be said of the recent decision by the Sixth Circuit in Teamster

Pension Trust Fund of Philadelphia, supra, 1988 U.S. App. LEXIS 13013, hold-

ing that a parent company which spins off a subsidiary has no contingent with-

drawal liability which becomes due should the spun-off company subsequently

withdraw.

_ TE

11

B. The Decision Below is Consistent with the Only Other

Relevant Precedent.

The only other reported decision concerning partnerships

and withdrawal liability reached the same conclusion as did the

Court of Appeals herein. In Connors v. B&W Coal Co., Inc., 646

F. Supp. 164 (D.D.C. 1986), the employer, a partnership, argued

that withdrawal from a multiemployer plan took place before

MPPAA’s effective date. The claimed withdrawal was said to

have occurred when one of the two partners sold his interest in the

partnership. The Court rejected the argument, relying upon

ERISA Section 4218, 29 U.S.C. § 1398, which provides in relevant

part:

Notwithstanding any other provision of this part, an

employer shall not be considered to have withdrawn from a

plan solely because —

(1) an employer ceases to exist by reason of —

(A) a change in corporate structure described in

section 1362 (d) of this title, or

(B) a change to an unincorporated form of

business enterprise,

if the change causes no interruption in employer

contributions or obligations to contribute under plan... .

The Court rejected the notion that Section 1398 exempted from

withdrawal liability only those changes in business form which

corporations, as opposed to partnerships or sole proprietorships,

undergo:

[SJection 4218(1) (b) [29 U.S.C., Section 1398 (1) (B)]

explicitly applies whenever an “employer” ceases to exist

because of a “change to an unincorporated form of business

enterprise.” It does not state, as defendant would have it,

that the section applies only when there is 2 change from a

corporate to an unincorporated enterprise. Indeed, an

“employer” is defined by ERISA to include not only

12

corporations, but also individuals, partnerships, and

unincorporated a:sociations. 29 U.S.C. § 1002(5), (9).

Second, by substituting the word “corporation” for

“employer,” defendants would exempt reorganizations of

partnerships from section 4218, a result totally inconsistent

with its purposes.

Connors at 168. Thus, the Court in Connors held that Section

1398 carves out from the ambit of the Act’s definition of

“permanent cessation” the situation in which an “employer,” be it

a corporation, individual, partnership or unincorporated

association, undergoes a “change to an unincorporated form of

business.” As a result, the transfer of the partnership interest did

not constitute a withdrawal from the plan.

The Court of Appeals herein reached the identical conclu-

sion with respect to the transfer of the interests in Park South As-

sociates. While the Court of Appeals used slightly different

reasoning with respect to Section 1398, the most that can be said

is that the difference may “present an intellectually interesting

and solid problem. But this Court does not sit to satisfy a schol-

arly interest in such issues.” Rice v. Sioux City Memorial Parks

Cemetery, 349 U.S. 70, 74 (1955). Connors and the decision below

herein both hold that a change in a partnership’s partners does

not trigger withdrawal liability if the partnership’s operations and

contributions to the plan survive the change. ® There is no deci-

sion to the contrary.

® The Court of Appeals correctly concluded that Section 1398 does not bear

directly on this case. Like any exemption, Section 1398 presumes that a with-

drawal has occurred; otherwise no exemption would be necessary. Section

1398 applies when a withdrawal occurs because an employer “ceases to exist.”

Park South Associates never ceased to exist and did not otherwise withdraw

from the Fund. The significance of Section 1398 lies in its articulation of the

principle that mere changes in business form that do not disrupt contribution

obligations should not trigger withdrawal liability. The decision of the Court

of Appeals is consistent with that principle.

pe

ee

4

13

Ill.

THE DECISION OF THE COURT OF APPEALS

DOES NOT JEOPARDIZE ANY POLICY

INTEREST EMBODIED IN ERISA’S

WITHDRAWAL LIABILITY PROVISIONS

The Fund argues that review and reversal of the decision by

the Court of Appeals is necessary to alleviate a supposed threat to

the contribution bases of multiemployer pension plans. The sug-

gested threat is entirely illusory.

An inability to impose withdrawal liability upon a transac-

tion when the employer continues to contribute to the plan after

the transaction at issue does not deprive the Fund of any protec-

tion Congress intended to provide. By definition, there is no

downward spiral in the number of contributing employers or par-

ticipating employees in such a circumstance, and there is no loss

in future contributions for which the Fund and its contributing

employers require compensation in the form of withdrawal liabil-

ity.

The decision below certainly does not imperil the Fund with

respect to this particular set of facts. The change in partners can-

not be said to have jeopardized the Fund’s ability to collect future

contributions or future withdrawal liability since the new general

partner is Donald Trump. The risk that a court adjudicating a

claim for withdrawal liability arising out of a real future with-

drawal might disagree with the Court of Appeals, leaving the

Fund with nothing, is extremely remote. It could have been

avoided entirely had the Fund not agreed to discontinue the coun-

terclaims, which were interposed to eliminate that very possibil-

ity.

The decision below likewise does not create extrastatutory

opportunities to evade the obligation to pay withdrawal liability.

The Fund’s argument in this regard assumes that Section 1384,

the sale of asset provision, prescribes the only manner in which a

business may be sold without incurring withdrawal liability. The

14

assumption lacks validity because it ignores the plain fact that

certain transactions, like the change in partners involved in the

present case, do not create a withdrawal at all. When a contribut-

ing employer sells its assets and thereby ceases to have an obliga-

tion to contribute to the plan, it has withdrawn and withdrawal

liability will be attached absent the statutory exemption embod-

ied in Section 1384. When there is no withdrawal to begin with,

there is no need to invoke any statutory exemption since with-

drawal liability may not be imposed absent a withdrawal.

The Fund’s observation that no statutory exemption ex-

pressly bars imposition of withdrawal liability when partnership

interests are sold is beside the point. When, as in the present case,

there is no withdrawal an exemption is not needed to defeat the

Fund's claim. The Fund is asking this Court to amend ERISA by

adding a provision commencing, “Notwithstanding the absence

of a withdrawal, a plan may collect withdrawal liability when the

following occurs. ...” The provision would then presumably cata-

log the various kinds of deals from which the Fund wou!d collect a

windfall of the type it attempted to claim from Hotel Carp. Con-

gress, rather than this Court, is the proper venue for such a plea,

where it would undoubtedly be rejected as well since Congress did

not intend to provide a windfall to multiemployer plans when it

created withdrawal liability.

The Fund raises the specter of employers rushing to struc-

ture transactions as partnership transfers in order to evade the

duty to pay withdrawal liability without complying with the bond-

ing and other requirements in Section 1384. First, the Fund

makes no such allegation against Hotel Corp., and it has never

relied upon ERISA’s anti-sham provision discussed immediately

infra. Second, the decision below offers no “escape hatch” except

in situations like the one in this case in which withdrawal liability

should not be imposed to begin with. Moreover, Congress fore-

saw the evasion problem and provided a remedy by enacting an

anti-sham provision as part of MPPAA, ERISA Section 4212%c),

29 U.S.C.§ 1392(c) (1982), which provides:

eons he

15

If a principal purpose of any transaction is to evade or avoid

liability under this part, this part shall be applied (and

liability shall be determined and collected) without regard to

such transaction.

Congress having adequately protected multiemployer plans

from evasion, judicial revision of the concept of “withdrawal” to

accomplish that purpose is unnecessary, as well as jurispruden-

tially unwarranted. “There is no congressional mandate to en-

gage in legal gymnastics in order to guarantee pension plans at all

costs ... or to apply the statute in a nonsensical fashion in order to

assure full payment of withdrawal liability.” Teamsters Pension

Trust Fund of Philadelphia, supra, 1988 U.S. App. Lexis 13013 at

I

Finally, the Fund complains that the Court of Appeals has

contravened an alleged policy which is said to encourage changes

in business form which cause the number of “responsible parties”

to increase while discouraging those changes which cause a de-

crease in their number. The Fund cites no legislative history an-

nouncing this so-called policy and there is no reason to believe

that Congress enacted MPPAA with that idea in mind. More sig-

nificantly, there is nothing inherent in either incorporating or

unincorporating, selling stock or selling partnership interests, to

justify a presumption that any one necessarily increases or de-

creases the number of “responsible parties” more than any other.

Either a transfer of partnership interests or incorporation of a

partnership can cause an enterprise to become part of a group of

trades or business under “common control”, 29 U.S.C. § 1301

(b\1), or to leave such a group. It all depends on the particulars of

the individual transaction. The “policy” which the Fund pro-

fesses to have found either does not exist, or has nothing to do

with whether businesses function as partnerships or corpora-

tions.

16

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

ANDREW IRVING

(Counsel of Record)

ROBINSON, SILVERMAN, PEARCE,

ARONSOHN & BERMAN

Attorneys for Respondent

Park South Hotel Corp.

Dated: New York, New York

October 26, 1988

APPENDIX

A-1

29 U.S.C. § 1301. Definitions

* * *

(b) (1).... For purposes of this subchapter, under regula-

tions prescribed by the corporation, all employees of trades or

business (whether or not incorporated) which are under common

control shall be treated as employed by a single employer and all

such trades and businesses as a single employer. The regulations

prescribed under the preceding sentence shall be consistent and

coextensive with regulations prescribed for similar purposes by

the Secretary of the Treasury under section 414(c) of Title 26.

29 U.S.C. § 1383. Complete withdrawal

(a) Determinative factors

For purposes of this part, a complete withdrawal from a mul-

tiemployer plan occurs when an employer-

(1) permanently ceases to have an obligation to contribute

under the plan, or

(2) permanently ceases all covered operations under the

plan.

29 U.S.C. § 1392. Obligation to contribute

(a) Definition

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) asaresult of a duty arising under applicable labor-man-

agement relations law, but

does not include an obligation to pay withdrawal liability under

this section or to pay delinquent contributions.

A-2

(c) Transactions to evade or avoid liability

If a principal purpose of any transaction is to evade or avoid

liability under this part, this part shall be applied (and liability

shall be determined and collected) without regard to such trans-

action.

29 U.S.C. § 1398. Withdrawal not occur because of change in

business form or suspension of contributions during

labor dispute

Notwithstanding any other provision of this part, an em-

ployer shall not be considered to have withdrawn from a plan

solely because -

(1) an employer ceases to exist by reason of -

(A) a change in corporate structure described in sec-

tion 1362 (d) of this title, or

(B) a change to an unincorporated form of business en-

terprise,

if the change causes no interruption in employer contributions or

obligations to contribute under the plan. . . .

N. Y. Partnership law § 53. Assignment of partner’s interest

1. A conveyance by a partner of his interest in the partner-

ship does not of itself dissolve the partnership, nor, as against the

other partners in the absence of agreement, entitle the assignee,

during the continuance of the partnership, to interfere in the man-

agement of administration of the partnership business or affairs,

or to require any information or account of partnership transac-

tions, or to inspect the partnership books; but it merely entitles

the assignee to receive in accordance with his contract the profits

to which the assigning partner would otherwise be entitled.

A-3

N.Y. Partnership Law § 61. Partnership not terminated by

dissolution

On dissolution the partnership is not terminated, but contin-

ues until the winding up of partnership affairs is completed.

N. Y. Partnership Law § 98. Rights, powers and liabilities of a

general partner

(1) A general partner shall have all the rights and powers and

be subject to all the restrictions and liabilities of a partner in a

partnership without limited partners, except that without the

written consent or ratification of the specific act by all the limited

partners, a general partner or all of the general partners have no

authority to

(a) Do any act in contravention of the certificate.

(b) Do any act which would make it impossible to carry

on the ordinary business of the partnership.

(c) Confess a judgment against the partnership.

(d) Possess partnership property, or assign their rights

in specific partnership property, for other than a partnership

purpose.

(e) Admit a person as a general partner.

(f) Admit a person as a limited partner, unless the right

so to do is given in the certificate.

(g) Continue the business with partnership property on

the death, retirement or insanity of a general partner, unless

the right so to do is given in the certificate.

N. Y. Partnership Law § 108. Assignment of interest

(1) A limited partner’s interest is assignable.

a a *

(4) An assignee shall have the right to become a substituted

limited partner if all the members, except the assignor, consent

thereto or if the assignor, being thereunto empowered by the cer-

tificate, gives the assignee that right.