Petition — New York State Teamsters Conference Pension & Retirement Fund v. Pension Benefit Guaranty Corp.

Supreme Court, U. &-

FILED

MAY 2 1979 ]

ia sedi MICHABL RODAK, JR., CLERK

Supreme Court of the United States

OctToBeR TERM, 1978

No. 28.717 6 63

New York State TEAMSTERS CONFERENCE PENSION

AND RETIREMENT F'UND, ET AL., Petitioners

V.

PENSION BENEFIT GUARANTY CCRPORATION, AND

BREWERY WORKERS PENSION FUND, ET AL., Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

S. G. Lippman, Esq.

Tuomas J. Hart, Esq.

LippMAN & Hart

1801 K Street, N.W.

Suite 220

Washington, D.C. 20006

(202) 467-6520

Counsel for Petitioners

ROE NRRL SE ANTS SOLITAIRE

Press or Byron 8S. ADAMS PRINTING, INC., WASHINGTON, D. C.

-_—~— _——_-

Page

Se a On ee a ee 2

thas ce bon C64 eRe y 61404 OY ce 0054080 2

SN TIED 6 occ ccc mecccccesdsceccccscsas 2,3

Statutory Provisions INVOLVED ..............eeeee0: 4,5

PRATURERNT OF THE CAGB «ooo s csc cccscccccccccccccees 5

Reasons FoR GRANTING THE WRIT ................05: 11

I. The Court’s Opinion Denying Application of

ERISA to the Merger had a Devastating Im-

pact on the Pension Benefits of 25,000 Team-

sters Fund Participants ................000.

II. The Court, in Failing to Hold That the Merger

Agreement was Governed by ERISA, Decided

an Important Federal Question in a Way Which

ae With Applicable Decisions of This

SE Pbdns 66 oe} osc ue oneae 60006006494 0.0000

III. The Doctrine of Anticipatory Breach was Im-

roperly Invoked and Seriously Misapplied to

liminate IRS Approval as a Basis for ERISA

ie fee ela kesh haned oaibs s

IV. It is Not Anomalous but Consistent With the

Purposes of the Statute for State Law to Com-

pel tees Preliminary to the Merger While Pro-

visions of ERISA Control the Substantive

ME ED POU occ ci cctossesenccsss

Ne eee ekeee

Aprenpix (Opinion and Judgment of the Court of

Appeals; Memorandum Opinion of the

United States District Court) ............

11

13

17

24

ii CITATIONS

CasEs: Page

Atlantic Coast Line Railroad Co. v. Goldsboro, 232

CE ii 5 0k Kans 440 seb aS RO Bae 14

Bidwell v. Long, 218 N.Y.S.2d 108, 14 A.D.2d 168

ARTES i UREES Sy nna Serene re ry eee 20

Brewing Corp. of America v. Cleveland Trust Co., 185

Ne GE, BPD a. din Mine cca Sods sqeseuces 16, 23

Chicago B & O Railroad v. McGuire, 219 U.S. 567

I ile Ube neh 6 cha sawae ede ueake rhe tie Rea Os 14

Condor Operating Co. v. Sawhill, 514 F.2d 351 (Emer.

PO IE CN ce K640 4 AN sod CORES ARES M4500) 058 14-15

Don’t Tear It Down v. Washington, 339 F. Supp. 153

i ates ae a Me aun ov ube Scns 4

Fisher v. Cushman, 103 F. 860, 51 L.R.A. 292 (1900) .. 23

Fleming v. Rhodes, 331 U.S. 100 (1947) ......... 16, 17, 23

Franko v. Olszewski, 316 Mich. 485, 25 N.W.2d 593

RSE ES AE ae ne ee ee ee Tee 20, 23

Hudson County Water Co. v. McCarter, 209 U.S. 349

SN i hae itl eee A ieee bss bean oes t 14

In Re Becker, 98 F. 407 (D.C. Pa. 1899) ............ 23

In Re Fisher, 98 F. 89 (D.C. Mass. 1899) ............ 23

In Re John F. Doyle, 209 F. 1 (3d Cir. 1913) ........ 23

In Re McArdle, 126 F. 442 (D.C. Mass. 1903) ........ 23

In Re Wiesel, 173 F. 718 (D.C. Pa. 1909) ............ 23

Kaneko v. Okudo, 15 Cal. Rptr. 792, 195 Cal. App. 2d

SED MDa ah s 45 -add Pes’ ohh i nddd ke etea wane '

Keller v. Graphic Systems, 422 F. Supp. 1005 (N.D.

EE 6 Kk ia whch Wiki eR ARGS OSES REMC) aD 16

Louisville € Nashville R. Co. v. Mottley, 219 U.S. 467

2 REET IS Ta RE eee ee 15, 16

Malone v. White Motor tog ot 46 U.S.L.W. 4295 (1978) 16

Manigault v. Springs, 199 U.S. 473 (1905) ........... 14

Martin v. Bankers Trust, 417 F. Supp. 923 (W.D. Va.

as oe as oes be eee ENE Eee behs 16, 17

Nolan v. Meyer, 520 F.2d 1276 (2d Cir. 1975), cert.

denied, 423 U.S. 1034 (1975) ..........eceeeees 16, 17

Norfolk Southern Bus Corp. v. Virginia Dare Trans-

portation Co., 159 F.2d 306 (4th Cir. 1947) ..... 15

eps us WOW, Inc. v. Johnson, 326 U.S. 120

ES Acad ka the dan ake peinon tk emaeees

Regents of University System of Georgia v. Carroll,

Be ED iw bbb iwa Nedcbseeceabacets.s

Reuther v. Trustees of Trucking, 575 F.2d 1074 (3d

Ss PE CE ee caksd sekb eRe ees cdawendhe 16

I ne

Citations Continued iil

Page

Securities Exchange Commission v. Chenery, 332 U.S.

SP NUP. 0 ea bbb es okby Chace heb bwcks chee as 14

Sproles v. Binford, 286 U.S. 374 (1932) ............. 14

Switchmen’s Union of North America v. National Medi-

ation Board, 135 F.2d 785 (D.C. Cir. 1943), rev’d

on other grounds, 320 U.S. 297 (1948) .......... 15

Watson Bros. Transp. Co. v. Jaffa, 143 F.2d 340 (8th

et MEE 3 uk baaals S900 vada ten inie aus sean esse 20, 22

Wong v. Bacon, 445 F. Supp. 1189 (N.D. Cal. 1978) .... 16

STATUTES:

PF Oe I Ns Cade Seah cea awk ned Whddos Ade ek 6

26 U.S.C. 414(1) (ERISA, §1015(1)) ........ 2, et passim

29 U.S.C. 1001 et seq. (ERISA, §2 et seq.) ....... 2,5

29 U.S.C. 1088 (ERISA, $208) ............. 2, et passim

BO Umea TERS Coes BOOED wks ka vicacnccccces 4,5

2D UBC. LEST CHEER, SGOT) vice ccccccccsecucs 6

29 U.S.C. 1144(a) (ERISA, §514(a)) .......... 5, 21, 22

29 U.S.C. 1144(b)(1) (ERISA, § 514(b)(1)) ....9, = *,

29 U.S.C. 1201(a) (ERISA, §3001(a)) ............ 9, 10

29 U.S.C. 1303(f) (ERISA, § 4003(f)) ............. 5

MISCELLANEOUS:

5A Corbin on Contracts, § 1141, p. 113 .............. 19

10 Williston on Contracts, (3d Ed.) § 1134A, p. 351... 23

IRS Temporary Regulations 11.7476-2(a) (26 C.F.R.

Scene CaMAET sab Whar eens 5060606000 d0wes 9, 10

IRS Final Regulations 1.7476-1 ..................... 10

Restatement (Second) of Contracts, § 277 (1), Com-

WRUINE. DCR. BOUe EOCED 8c. s cckicacccseveness

Restatement (Second) of Contracts, § 278 (Tent. Draft

RS PPR tre ere cay were eee erence 19

IN THE

Supreme Court of the United States

OcToBER TERM, 1978

es el Ba ew) wate

No.

New York State TEAMSTERS CONFERENCE PENSION

AND RETIREMENT F'unp, ET AL., Petitioners *

ne

Vv.

PENSION BENEFIT GUARANTY CORPORATION, AND

BREWERY WORKERS PENSION F'UND, ET AL., Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

The petitioners respectfully pray that a writ of certi-

orari issue to review the judgment and opinion of the

United States Court of Appeals for the District of

Columbia Circuit entered in this proceeding on Janu-

ary 10, 1979.

1The caption includes the following appellant trustees of the

Teamsters Fund who similarly file this petition for certiorari:

Rocco DePerno, Stanley Clayton, Irving Wisch, Lyle Dixon, Kepler

Vincent, Victor Mousseau, Paul Bush, and Charles H. Mosley, Sr.,

administrator.

Re ne aE Te a a eR

2

OPINIONS BELOW

The opinion of the Court of Appeals and the memo-

randum opinion of the United States District Court

appear in the Appendix hereto.

JURISDICTION

The judgment of the Court of Appeals for the Dis-

trict of Columbia Circuit was entered on January 10,

1979. A timely Petition for Reconsideration and Sug-

gestion that the Case Be Heard En Bane was denied

on February 27, 1979, and this petition for certiorari

was filed within 90 days of that date. This Court’s

jurisdiction is invoked under 28 U.S.C. §1254(1).

QUESTIONS PRESENTED

The Employment Retirement Income Security Act

of 1974 (29 U.S.C. 1001 et seq.), hereinafter ‘‘ERISA’’

or ‘‘the Act’’ is a comprehensive federal statute regu-

lating private pensions and other employee bene‘it pro-

grams. Sections 208 and 1015(1) (29 U.S.C. 1058 and

26 U.S.C. 414(1)) prohibit a merger of pension funds

which result in the dilution of pension benefits.’ Sec-

tion 514 of the Act (29 U.S.C. 1144) provides for pre-

emption of all state laws relating to any employee bene-

fit plan with the exception of any ‘‘cause of action

which arose, or any act or omission which occurred

before January, 1975.’’ The questions presented are:

2 In essence, the merger of two pension plans is prohibited un-

less each participant would be entitled to receive a benefit ‘‘im-

mediately after the merger . . . equal to or greater than the bene-

fit he would have been entitled to receive immediately before the

merger.’’ The restriction applies to multiemployer plans only to

the extent determined by the PBGC. Sections 208 and 1015(1).

3

(1) Whether a pre-ERISA execution and repudia-

tion of a merger agreement gave rise to a cause of ac-

tion within the meaning of § 514(b)1) precluding ap-

plication of ERISA, notwithstanding that an express

condition of the merger agreement, IRS approval, and

the actual merger, the statutory event, could only and

did take place more than two years subsequent to the

effective date of ERISA.

(2) Whether the Court of Appeals in reaching its

decision holding ERISA inapplicable to the merger

agreement, improperly invoked and misapplied princi-

ples of anticipatory breach of contract, and thereby

decided an important federal question in a way in con-

flict with decisions of this Court.

(3) Whether the lower court improperly denied ap-

plication of the statutory protections of §§208 and

1015(1) on the ground that it would be ‘‘anomalous”’

to hold that state law governed the respondent’s cause

of action to force steps preliminary to the actual

merger while ERISA controlled subsequent action to

bring the merger to fruition.

STATUTORY PROVISIONS INVOLVED

United States Code, Title 26:

§ 414. Definition and Special Rules

(1) Mergers And Consolidations Of Plans Or

Transfers Of Plan Assets.—A trust which forms

a part of a plan shall not constitute a qualified

trust under section 401 and a plan shall be treated

as not described in section 403(a) or 405 unless in

the case of any merger or consolidation of the plan

with, or in the case of any transfer of assets or

liabilities of such plan to, any other trust plan

after the date of the enactment of the Employee

a ee NM keen Ue sy te e tse n var ney eR ae

4

Retirement Income Security Act of 1974, each

participant in the plan would (if the plan then

terminated) receive a benefit immediately after the

merger, consolidation, or transfer which is equal

to or greater than the benefit he would have been

entitled to receive immediately before the merger,

consolidation, or transfer (if the plan had then

terminated). This paragraph shall apply in the

case of a multiemployer plan only to the extent

determined by the Pension Benefit Guaranty Cor-

poration. (ERISA, Section 1015)

United States Code, Title 29:

§ 1058. Mergers and consolidations of plans or

transfers of plan assets

A pension plan may not merge or consolidate with

or transfer its assets or liabilities to any other plan

after the date of enactment of this Act [Sept. 2,

1974], unless each participant in the plan would

(if the plan then terminated) receive a benefit im-

mediately after the merger, consolidation, or trans-

fer which is equal to or greater than the benefit he

would have been entitled to receive immediately

before the merger, consolidation or transfer (if the

plan had then terminated). This paragra h shall

apply in the case of a multiemployer plan only

to the extent determined by the Pension Benefit

Guaranty Corp. (ERISA, Section 208)

§ 1132. Civil enforcement

(e)(1) Except for actions under subsection (a)

(1) (B) of this section, the district courts of the

United States shall have exclusive jurisdiction

of civil actions under this title ete by the

Secretary or by a participant, beneficiary, ov

fiduciary. State courts of competent jurisdic-

tion and district courts of the United States

shall have concurrent jurisdiction of actions un-

4)

der subsection (a)(1)(B) of thi

(ERISA, Section 503) a oe

§ 1144. Effect on other laws

(a) Except as provided in subsection i

section, the provisions of this title aed idle Vv

shall supersede any and all State laws insofar as

they may now or hereafter relate to any employee

benefit plan described in section 4(a) and not

exempt under section 4(b). Thi i

ellock on Fumsate © cone s section shall take

(b)(1) This section shall not aply with

to any cause of action which ene as pn os ap

omission which occurred, bef.

(ERISA, Section 514) ore January 1, —

STATEMENT OF THE CASE:

On J anuary 19, 1977 the Teamsters Fund filed this

action in U.S. District Court for the District of Colum-

bia seeking a declaration that §§ 208 and 1015(1) are

applicable to mergers involving multiemployer plans

and a mandatory injunction directing the PBGC to

assert jurisdiction over the imminent merger, and to

determine whether it should be prohibited pursuant to

the criteria set forth in §§ 208 and 1015(1).

The jurisdiction of the District Court was invoked

pursuant to the Employee Retirement Income Security

Act of 1974 (29 U.S.C. 1001 et seq.), specifically §§ 502

(a)(3) and 4003(f) (29 U.S.C. 1132(a)(3) and 1303

* Unless otherwise noted, facts stated herein a i

; re derived f

—— 8 Statement of Material Facts About Which ens

o Genuine Issue (and uncontested supporting affidavits) filed in

ph - oy Motion for Summary Judgment below. Al! refer

es . . . < ¥ A

pr , ppendix refer to the Appendix filed with the Court

6

(f), and the Administrative Procedure Act (5 U.S.C.

702).*

Petitioners New York State Teamsters Conference

Pension and Retirement Fund (hereinafter “‘Team-

sters Fund”) is a multiemployer pension trust estab-

lished pursuant to collective bargaining agreements be-

tween 13 different local unions in New York State and

approximately 1,200 employers. Its principal office is

located in Ui.ca, New York. It has more than 25,000

participants and beneficiaries and holds assets in excess

of $100,000,000.

Respondent Brewery Workers Pension Fund (here-

inafter ‘‘Brewery Fund’’), with a principal office in

New York City, is also a multiemployer pension trust

established pursuant to collective bargaining agree-

ments. In August 1973 twenty-four employers contrib-

uted to the Brewery Fund on behalf of approximately

3,500 participating employees who belonged to two

different locals. At that time the Brewery Fund held

assets valued at approximately $30,000,000. Its liabili-

ties are in excess of $70,000,000 (not including liability

for benefits to retirees). Its assets are continually de-

clining and the Fund currently operates at a loss of

approximately $400,000 per month.

Respondent Pension Benefit Guaranty Corporation,

hereinafter ‘‘PBGC”’ is a government corporation es-

tablished by § 4002 of ERISA (29 U.S.C. 1302). Its

principal function is to protect participants and bene-

ficiaries from loss of benefits resulting from involun-

tary pension plan terminations through administration

*The Administrative Procedure Act is expressly made appli-

eable to agency action pursuant to § 507 of the Act (29 U.S.C.

1137).

7

of a system of benefit insurance. Congress has charged

the corporation to investigate mergers of multiemployer

pension funds to make determinations as to whether

particular mergers may take place. 29 U.S.C. 1058, 26

U.S.C. 414(1) (ERISA, Sections 208 and 1015(1).

On August 7, 1973, petitioners Teamsters Fund and

respondents Brewery Fund entered into an ‘‘Agree-

ment’’ and ‘‘Plan of Integration’’ to merge the Brew-

ery Fund into the Teamsters Fund. Appendix, p. 70.

The Agreement was expressly conditioned upon: (a)

ratification of the merger agreement by the employees

participating in the Brewery Fund and (b) approval

by the IRS that the merger complied with the applica-

ble provisions of the Internal Revenue Code relative

to continued tax qualifications. Under the terms of the

Agreement, the merger was to be consummated 30 days

after the parties were informed that a merger applica-

tion was approved by the IRS. Appendix, pp. 76-78, 79.

In November of 1973 the participants in the Brewery

Fund approvec the merger agreement by mail ballot.

The merger agreement was not submitted to the partici-

pants of the Teamsters Fund for approval.

On January 5, 1974, six months after the merger

agreement was executed but before any transmission to

the IRS was made, Rheingold Breweries, which was

one of the two largest contributing employers to the

Brewery Fund, announced that it intended to close its

operations. Rheingold closed its New York brewery on

February 1, 1974. The closing and loss of 1,500 em-

ployees for whom contributions would no longer be

made impaired the actuarial solvency of the merger

and would require a substantial reduction in pension

8

benefits for participants in the Teamsters Fund.‘

Thereupon, on February 15, 1974, the Teamsters Fund

voted not to proceed with the proposed merger.

On May 24, 1974 the Brewery Workers filed suit in

the Supreme Court of the State of New York (Queens

County) to obtain specific performance of the merger

agreement. The Teamsters defended against this suit

on the ground that the curtailment of operations at

Rheingold was a material change of conditions excus-

ing performance of the merger agreement. On April

29, 1975 the New York Supreme Court granted sum-

mary judgment and specifically ordered the Teamsters

Fund to carry out the terms of the merger agreement

by executing those documents necessary to request ap-

proval of the merger from the IRS.* The Court’s de-

cision was founded exclusively upon common law con-

tract principles. Appeals to the Appellate Division and

the Court of Appeals proved unavailing. Brewery

Workers Pension Fund v. New York State Teamsters

Conference Pension and Retirement Fund, 49 A.D.2d

755, 374 N.Y.S.2d 590 (App.Div.2d Dept., 1975) ; leave

* The Brewery Fund’s bleak economic condition was made worse

when Schaeffer, the largest brewery in New York City, also closed

its doors. Together Rheingold and Schaeffer had been responsible

for 82% of the annual contributions made by all employers in the

Brewery Workers Fund. The merger would create an unfunded

liability in excess of $70,000,000 which would have to be borne by

the Teamsters Fund. While the closing of Schaeffer occurred sub-

sequent to the filing of the complaint and was not embraced in the

N.Y. State Court litigation, it was a prominent circumstance

brought to the attention of the PBGC in support of the request

that PBGC exercise its jurisdiction in connection with the then

pending merger. See p. 9 infra.

*The Court did not—and could not—direct that a merger take

place because, under the terms of the mergér agreement, the

merger itself was conditioned upon IRS approval.

9

to appeal to the New York Court of Appeals was de-

nied the Teamsters Fund in February of 1976. 38 N.Y.

2d 709, 382 N.Y.S.2d 1028, 346 N.E.2d 558 (1976). The

effect of ERISA, which was enacted in September

1974 while the suit was pending before the New York

Court, was neither litigated nor decided by the New

York courts.

On March 24, 1976, the Teamsters Fund petitioned

the PBGC to assert jurisdiction and to evaluate its

propriety under § 208 criteria to determine whether the

merger should be prohibited.’ PBGC refused to assert

jurisdiction. Appendix, p. 94. The grounds for the

PBGC’s refusal were (a) Section 208 is not effective

with respect to mergers involving multiemployer plans

until such time as the PBGC issues regulations of gen-

eral applicability ; and (b) ERISA is not applicable in

any event because the merger would be the result of a

‘*cause of action’’ which arose prior to ERISA’s effec-

tive date and is thereby exempted by 514(b) (1) of the

Act.

On March 29, 1976, the Brewery Fund for the first

time applied to the IRS for an approval of the merger.

The application was made unilaterally and without

notice to the Teamsters Fund and the Teamsters par-

ticipants and beneficiaries as required by ERISA.’ The

application gave no indication that there were serious

* Section 208 contains the substantive rules governing mergers

of private pension plans, Section i1015(1) provides that a trust

maintained under a pension plan must abide by the merger rules

in order to acquire and maintain favorable tax treatment (Court

of Appeals Slip Opin. at 4, note 3).

* Appendix, pp. 95-102; ERISA, § 3001(a), (29 U.S.C. § 1201

(a); LRS. Reg. § 11.7476-2 (26 C.F.R,. § 11.7476-2); and Rev.

Proc. 75-33.

10

objections to the merger or that the merger would have

an adverse impact on the participants and beneficiaries

of the Teamsters Fund. One year and eleven months

after ERi3A had become effective (November, 1976),

the merger was approved by the IRS. On October 6,

1978 the [RS remanded the application to the regional

office for reconsideration on the ground that the Brew-

ery Fund violated ERISA in failing to give notice of

its application to interested parties. (ERISA, Section

3091(a) ; §11.7476-2(a) of the temporary regulations;

§ 1.7476-1 of the final regulations). The matter of IRS

approval is still pending.

On April 13, 1977, Respondent Brewery Fund ob-

tained a supplemental order from the New York Su-

preme Court which declared that the Teamsters and

Brewery Funds were merged as of December 31, 1976

and directing the Teamsters Fund to receive all assets

of the Brewery Fund and to assume all liability and

responsibilities for the Brewery Fund. Appendix, p.

110. The State Court totally ignored Petitioner’s argu-

ment that ERISA had ousted it of jurisdiction over

the merger.

On May 22, 1977 the Brewery Fund moved to have

Plaintiff Trustees adjudged in contempt for refusing

to proceed with the merger as directed by the New York

Supreme Court’s supplemental order. On August 19,

1977 Petitioners were adjudged in contempt of the sup-

plemental order and fined the maximum amount per-

mitted by the statute. Having no other options available

to them, Petitioners have merged the two Funds rather

than suffer penalties for contempt of the New York

supplemental order. However, under the guidance of

Petitioner’s actuaries and consultants, the assets and

records of the Brewery Fund are being held and admin-

istered separately so that the merger may be dissolved

11

and assets and liabilities be retransferred to the Brew-

ery Fund pending disposition of judicial proceedings.

On August 22, 1977 the District Court dismissed the

Teamsters complaint and granted summary judgment

in favor of the PBGC and the Brewery Fund. The

court ruled that the New York State court decision re-

specting the validity and enforceability of the merger

agreement was res judicata as to the instant action, and

as an additional ground held that application of

ERISA would be impermissibly retroactive. In a de-

cision dated January 10, 1979, a division of the Court

of Appeals for the District of Columbia Circuit af-

firmed the District Court’s judgment. On February 27,

1979, the Court of Appeals denied the Petition for

Reconsideration and Suggestion that the Case be Heard

En Bane. The opinion of the Court of Appeals is fully

discussed in subsequent sections of this Petition under

the heading of Reasons for Granting the Writ.

REASONS FOR GRANTING THE WRIT

Il. The Court's Opinion Denying Application of ERISA to the

Merger Had a Devastating Impact on the Pension Benefits of

25.000 Teamsters Fund Participants.

The United States District Court granted a motion

for summary judgment in favor of respondents Brew-

ery Fund and PBGC based, in part, on its conclusion

that “ERISA had no retroactive effect and thus could

not be applied where an agreement, and a mature cause

of action based thereupon, pre-dated the Act’s adop-

tion.’’ Slip Opin. at 6. The Court of Appeals affirmed

the judgment of the United States District Court, not

on any rationale adopted by that court, but instead on

a sua sponte application of the doctrine of anticipatory

breach, to which it gave decisive weight. The court also

12

concluded, as a basis for denying the application of

ERISA, that allowing state law to govern the contract

to merge while ERISA controlled the merger itself

would produce an anomalous result, contrary to con-

gressional policy.”

Involved here is a highly improvident merger which,

if allowed to stand, will require the Teamsters to fund

an additional $70,000,000 or more on behalf of the

insolvent Brewery Fund. The absorption of this mas-

sive liability will require a substantial reduction in the

benefits of 25,000 Teamsters Fund participants or the

termination of the Teamsters plan itself. This is pre-

cisely the situation which $$ 208 and 1015(1) of ERISA

were designed to prevent. This Court is therefore

ealled upon to determine whether the participants of

the Teamsters Fund were improperly denied the pro-

tection of ERISA.

®°The District Court, in granting summary judgment, princi-

pally relied on res judicata, holding that the New York courts

could have entertained the issue. The Court of Appeals discussed

this issue, but did not resolve it. Neither did the District Court

nor the Court of Appeals pass on the principal reason for PBGC’s

refusal to assert jurisdiction, i.e., that the PBGC had not yet

drafted regulations to make §§ 208 and 1015(1) of the Act opera-

tional over multi employer plans.

The court in its decision (fn 1, Slip Opin. at 3), stated that the

necessary ruling from the IRS was not obtained until September,

1976 because of the Teamsters’ recalcitrance in providing neces-

sary documentation. There is no support for this surmise in the

uncontested facts. Indeed, the Brewery Workers do not contend

that they sought to obtain IRS approval prior to March 9, 1976.

Since the court reached its opinion and judgment on the express

assumption that the Teamsters’ refusal to assist in preparation for

the merger was not a breach of the merger agreement (Slip Op.

at 9), the question is not in issue and need not be further dis-

cussed.

13

II. The Court, in Failing to Hold That the Merger Agreement Was

Governed by ERISA, Decided an Important Federal Question

in a Way Which Conflicted With Applicable Decisions of This

Court.

Sections 208 and 1015(1) are concerned essentially

with the substantive provisions of merger agreements

sought to be implemented post-ERISA. They are not

concerned with the common law validity of such agree-

ments. These are matters traditionally controlled by

state law. That jurisdiction is in no way touched upon

by ERISA. In this case, the requirements and protec-

tions of ERISA only became significant after the va-

lidity of the common law contract to merge was estab-

lished by the state courts. ERISA jurisdiction over the

instant merger was not triggered until the IRS ap-

proved the merger, which approval occurred post-

ERISA, and when a subsequent order of the New

York State Court directed the merger and the con-

comitant transfer of assets and liabilities. The appli-

eation of §§ 208 and 1015(1) to the instant merger

agreement, therefore, would have been entirely pro-

spective and not retroactive in any respect.

Agreements between private parties may not be im-

plemented in any way which conflicts with the execu-

tion of Congressional policy. When Congress, in the

exercise of its regulatory authority, preempts an area,

and, in doing so, sets forth a regulatory scheme, federal

courts are:

. not fettered by the necessity of maintaining

existing arrangements which would conflict with

the execution of its [Congress’] policy, as such a

restriction would place the regulation of interstate

commerce in the hands of private individuals and

withdraw from the control of Congress so much of

the field as they might choose by prophetic discern-

14

ment to bring within the range of their agree-

ments.

Sproles v. Binford, 286 U.S. 374, 390-391 (1932).

No contract between private parties which is en-

tered into prior to the enactment of comprehensive,

specific and preemptive federal legislation can be en-

forced subsequent to enactment of a comprehensive

regulatory scheme if such enforcement would result in

frustration of the express will of the legislature.

Sproles v. Binford, 286 U.S. 374, 390-391 (1932) (con-

tracts relating to the use of the highways are deemed

to have been made in contemplation of the regulatory

authority of the State); Fleming v. Rhodes, 331 U.S.

100, 197 (1947) (rights acquired by valid judgments

are also subject to subsequent federal legislation) ;

Louisville & Nashville R. Co. v. Mottley, 219 U.S. 467,

482 (1911) (contract to provide free rail transporta-

tion made unenforceable by subsequent federal legis-

lation) ; S.E.C. v. Chenery Corporation, 332 U.S. 194,

203 (1947) (S.E.C. ruling operates to deny effective-

ness to corporate reorganization plan previously law-

ful); Manigault v. Springs, 199 U.S. 473, 480 (1905)

(state interests to construct a dam override previously

existing contract of landowners to the contrary) ; Hud-

son County Water Co. v. McCarter, 209 U.S. 349, 357

(1908) (landowners’ contract to divert water made un-

lawful by subsequent state legislation) ; Chicago B & O

Railroad Co. v. McGuire, 219 U.S. 567 (1911) (con-

tractual settlement cannot bar action for damages

based on subsequent legislation) ; Atlantic Coast Line

Railroad Co. v. Goldsboro, 232 U.S. 548, 558 (1914)

(contract between railroad and town granting right

of way can be modified by subsequent municipal ordi-

nances); Condor Operating Co. v. Sawhill, 514 F.2d

15

301, 361 (Emer. App. 1975) (F.E.A. regulation can

validly modify existing supplier/purchaser contrac-

tual relationships); Norfolk Southern Bus Corp. v.

Virgina Dare Transportation Co., 159 F.2d 306 (4th

Cir. 1947) (preexisting pooling contract between car-

riers made unlawful by amendments to Interstate Com-

merce Act) ; Switchmens’ Union of North America v.

National Meditation Board, 135 F.2d 785 (D.C.Cir.

1943), rev’d on other grounds, 320 U.S. 297 (1943)

(National Mediation Board unit determination can

invalidate preexisting collective bargaining contracts).

As the Supreme Court stated in Louisville & Nashville

R. Co. v. Mottley, 219 U.S. 467, 482 (1911):

. . contracts must be understood as made in ref-

erence to the possible exercise of the rightful au-

thority of the governments, and no obligation of a

contract can extend to the defeat of legitimate gov-

ernment authority. (Emphasis added)

In Louisville & Nashville R. Co. v. Mottley, supra.,

a case remarkably similar to the one at bar, plaintiffs

had agreed to settle a personal injury claim against

defendant railroad in consideration of lifetime passes.

Subsequent to the settlement agreement, Congress en-

acted a statute precluding the granting or use of such

passes. When the railroad refused to continue honor-

ing the passes, plaintiffs sought specific enforcement

of the agreement. Ruling for the defendant railroad,

the Supreme Court noted, at 219 U.S. 485-486:

. as the contract in question would have been

illegal if made after the passage of the commerce

act, it cannot now be enforced against the railroad

company, even though valid when made. If that

principle be not sound, the result would be that

individuals and corporations could, by contracts

16

between themselves, in anticipation of legislation

render of no avail the exercise by Congress, to the

full extent authorized by the Constitution, of its

power to regulate commerce. No power of Con-

gress can be thus restricted.

Savings clauses such as 514(b) (1) are traditionally

treated as a Congressional statement that the act con-

strued not be applied retroactively to deprive one of

fully vested rights. Fleming v. Rhodes, supra; Louts-

ville and Nashville R. Co. v. Mottley, supra; Brewing

Corp. of America v. Cleveland Trust Co., 185 F.2d 482

(6th Cir. 1950).

Similarly, courts which have construed § 514(b) (1)

have treated that section as nothing more than a decla-

ration that ERISA cannot be applied retroactively.

Martin v. Bankers Trust, 417 F. Supp. 923 (W.D.Va.

1976) ; Nolan v. Meyer, 520 F.2d 1276 (2d Cir. 1975),

cert. denied, 423 U.S. 1034 (1975); Malone v. White

Motor Corp., 46 U.S.L.W. 4295 (1978); Keller v.

Graphic Systems, 422 F. Supp. 1005 (N.D. Ohio 1976) ;

Reuther v. Trustees of Trucking, 575 F.2d 1074 (3d

Cir. 1978); Wong v. Bacon, 445 F. Supp. 1189 (N.D.

Cal. 1978).

It is equally well established that, for the purposes of

§514(b)(1) or similar savings clauses, a preexisting

1 Respondents sought below to distinguish Fleming, supra, as

well as Mottley, supra, and other cases cited here by arguing that

these cases did not involve statutes which contained a provision

comparable to §514(b)(1) exempting pre-existing causes of ac-

tion. Fleming and cases following did contain a § 514(b)(1) type

clause. Despite the presence of such provisions, the courts found,

in factual contexts nearly identical to the case at bar, that the

application of newly enacted statutes was neither retroactive nor

barred by the savings clause of the statute. Fleming, supra; Brew-

ing Corp. of America, supra.

17

cause of action which would take the controversy out-

side of the preemptive statute exists only when there

is a mature cause of action in which every significant

condition to the action has occurred prior to the enact-

ment of the federal preemptive statute. See Martin v.

Bankers Trust Co., supra; Nolan v. Meyer, supra. Con-

versely, when a critical condition to the cause of action

does not occur until after an enactment of the pre-

emptive statute, or when the specific event addressed

by the statute does not occur until after enactment,

there is no pre-existing cause of attion and the matter

is governed by the intervening Federal law. See Flem-

ing Vv. Rhodes, supra; Don’t Tear It Down v. Washing-

ton, 339 F. Supp. 153 (D.D.C. 1975)."

It is submitted that the decisions reviewed here are

controlling. Accordingly, the lower court in reliance

on these authorities should have directed the PBGC to

assert its authority over the merger to protect the

Teamsters participants. The court failed to do so. As a

consequence, the pension benefits of more than 25,000

Teamster participants will be significantly reduced.

Indeed, the continued existence of the plan itself has

been seriously jeopardized. A grant of certiorari is

required.

Ill. The Doctrine of Anticipatory Breach Was Improperly Invoked

and Seriously Misapplied to Eliminate IRS Approval as a

Basis for ERISA Jurisdiction.

The Court of Appeals did not affirm the grant of

summary judgment on the theory relied on by the Dis-

trict Court: that application of ERISA to the merger

In the Don’t Tear It Down case, a Superior Court order per-

mitted demolition of the Willard Hotel was superseded by the sub-

sequent enactment of the Pennsylvania Development Act.

18

of the Teamsters and Brewery Funds would be imper-

missibly retroactive. Rather, it sua sponte applied the

doctrine of anticipatory breach.

While IRS approval, an express condition of the

merger contract, occurred post-ERISA, the court, con-

trary to established law, would not permit such fact

to trigger PBGC jurisdiction. The court instead held

that the repudiation of the agreement was an anticipa-

tory breach which eliminated IRS approval as a pre-

condition to the merger. In this process, the court im-

plicitly recognized that a pre-ERISA merger agree-

ment could not be implemented post-ERISA except in

compliance with $§ 208 and 1015(1). However, solely

because of the pre-ERISA repudiation of the merger

agreement, IRS approval was deemed forfeited.

Through this unprecedented and novel doctrine, ap-

parently based on perceived equities between the

parties, the court limited the application of a signifi-

cant federal statutory protection against an improvi-

dent merger.

The Court of Appeals cited only the Restatement

(Second) of Contracts, §277 (1) comment b (Tent.

Draft 1974) in support of its conclusion that the:

‘Teamsters Fund’s repudiation of its agreement

with the Brewery Fund was an anticipatory breach

thereof, and effectively eliminated IRS approval

as a precondition to a suit by the Brewery Fund

to enforce specifically the agreement’s terms.’’

(Emphasis added)

Slip Opin. at 10.

Concededly, in the event of the total repudiation of

a contract where damages only are sought, the ag-

grieved party should not be required to perform a use-

19

less act, even though it may be an express condition of

the contract. 5 Williston, Contracts § 699 p. 344. How-

ever, where specific performance is sought as distin-

guished from damages, no condition necessary to per-

formance may be excused since such is the essence of

specific performance. The court, moreover, failed to

observe that a condition which can not be fulfilled in

any event discharges both parties to a contract, even

if an anticipatory breach occurs. Restatement (Sec-

ond) of Contracts, § 278 (Tent. Draft 1974).

Disapproval of the merger by the IRS would auto-

matically render the agreement null and void, in ac-

cordance with the express agreement of the parties, as

well as by operation of law. IRS approval in an action

for specific performance could not be eliminated be-

cause of an anticipatory repudiation of the agreement.

Indeed, fulfillment of the condition of IRS approval

was absolutely necessary to bring the merger to frui-

tion. 5A Corbin on Contracts, § 1141, p. 713.”

Finally, the court failed to perceive that conditions

which may be eliminated or excused under appropriate

circumstances are those which do not involve statutory

requirements or the approval of a public agency. Re-

statement (Second) of Contracts, § 278 (Tent. Draft

1974). The public interest requiring compliance with

statutory conditions may not be eliminated where spe-

cific performance is sought because of an underlying

12 There is no way in which specific performance to compel the

merger could take place without IRS approval since such approval

is necessary to obtain tax qualification. Surely the Court would

not have compelled a merger if IRS disapproved it. Tax qualifica-

tion is the foundation of a contributory pension program. Indeed,

it was an express condition of the contract. The Court’s view,

therefore, that the breach of contract eliminated IRS approval as

a condition for specific performance is puzzling.

20

breach of contract, anticipatory-or otherwise. Indeed,

there is no rational relationship between a breach of an

agreement and the public interest in achieving a statu-

tory standard where performance of the agreement is

compelled.

A state court, in enforcing a contract, may require

preliminary steps to be undertaken. It may not, how-

ever, eliminate the statutory condition enacted to pro-

tect the public interest in the performance of the agree-

ment. Watson Bros. Transp. Co. v. Jaffa, 143 F.2d 340

(8th Cir. 1944); 5A Corbin on Contracts, § 1141, p.

713; Franko v. Olszewski, 25 N.W.2d 593 (1947) ;

Kaneko v. Okudo, 15 Cal. Rptr. 792, 195 Cal. App. 2d

217 (1961); Bidwell v. Long, 218 N.Y.S.2d 108, 14

A.D.2d 168 (1961).

It must be concluded that the Court of Appeal’s un-

precedented reliance on the doctrine of anticipatory

breach as a basis for avoiding application of ERISA

or any other preemptive federal protective statutes

is unsupportable. That doctrine does not furnish any

justification for ignoring the controlling authorities

reviewed in Section 2 of this petition. The court’s

error significantly diminished ERISA jurisdiction and

unfairly deprived more than 25,000 participants of the

protection of the merger provisions of that statute.

Such an egregrious misapplication of law deserves

review by this Court.

IV. It Is Not Anomalous But Consistent With the Purposes of the

Statute for Stale Law to Compel Steps Preliminary ito the

Merger While Provisions of ERISA Control the Substantive

Terms of the Merger.

The court refused to apply ERISA even though it

expressly recognized that the Brewery Fund could

21

not compel a final merger prior to obtaining IRS ap-

proval. To do so, the court opined:

‘‘would produce the anomalous result that state

law governed the Brewery Workers’ cause of ac-

tion to force the Fund to proceed with steps pre-

liminary to the actual merger while the provisions

of ERISA controlled any subsequent action to

bring the matter to fruition—the exact situation

the preemption and savings provisions of § 514 of

ERISA were designed to avoid.”’

Slip Opin. at 10, 11.

We submit that this holding is an egregious misap-

plication of the statute. While a state cause of action

may have occurred prior to the enactment of ERISA,

the court failed to fully recognize that there is a funda-

mental distinction between an action for specific per-

formance relating to the validity of the merger agree-

ment and agency action measuring the merger against

the standards set forth in ERISA. Enforcement of the

ERISA merger criteria is vested exclusively with the

PBGC and the federal courts. Yet, the lower court,

under the guise of finding an ‘‘anomaly’’, would elimi-

nate PBGC jurisdiction over the instant merger. Such

a ruling flies in the face of the statute fixing January

1, 1975 as the effective date of §§ 208 and 1015(1), the

merger sections of ERISA.

Significantly, it also departs from clearly expressed

congressional intent. Senator Harrison Williams, chair-

man of the Senate Committee on Labor and Public

Welfare, in presenting the conference report, declared

that the preemptive substantive provisions of ERISA

are to be given a broad interpretation and § 514(b) (1)

is to be narrowly construed. Senator Williams stressed :

22

that with the narrow ——— specified in the

bill, the substantive and enforcement provisions of

the conference substitute are intended to preempt

the field for Federal regulations, thus eliminatin

the threat of conflicting or inconsistent state an

local regulations of employee benefits plans. This

principle is intended to apply in its broadest sense

to all actions of state or local “ame o8y or any

instrumentality thereof, which have the force or

effect of law. 1974 U.S. Code Cong. & Admin. News

pp. 5188-89.

The lower court’s holding giving § 514(b)(1) an ex-

pansive construction and a narrow interpretation to

the preemptive provisions set forth in § 514(a) stands

the statute on its head since it permits the exception,

contrary to established law and statutory intent, to

totally obliterate the basic preemptive provisions of

the statute.

It is not uncommon for disputes involving the va-

lidity of a contract to be determined by state law while

the ultimate approval of substantive provisions of the

agreement is controlled by a federal regulatory statute

or a state licensing authority. The fact that a contract

requires the approval of a public agency is not a bar

to a decree compelling a party to execute the necessary

documents for the consummation of a contract or trans-

fer. The decree, however is subject to the ultimate ap-

proval of the public agency. Watson Bros. v. Jaffa,

supra. Such is the case in the transfer of ownership

of a radio station, interstate trucking routes, or liquor

licenses. A dispute respecting the common law enforce-

ability of the contract of sale in such cases will be

governed by state law, while the ultimate issue will be

23

governed by the appropriate regulatory agency. See,

Radio Station WOW, Inc. v. Johnson, 326 U.S. 120

(1945); see also, Regents of University System of

Georgia, 338 U.S. 586 (1950); Watson Bros. v. Jaffa,

supra; Franko v. Olszewski, 316 Mich. 485, 25 N.W.2d

593 (1947); In re Fisher, 98 F. 89 (D.C.Mass. 1899) ;

Fisher v. Cushman, 103 F. 860, 51 L.R.A. 292 (1900) ;

In re McArdle, 126 F. 442 (D.C.Mass. 1903); In re

Becker, 98 F. 407 (D.C.Pa. 1899); In re Wiesel, 173

F. 718 (D.C.Pa. 1909) ; In re John F. Doyle, 209 F. 1

(3rd Cir. 1913); 10 Williston, Contracts (3rd Ed.)

§ 1134 A, p. 351. Cases cited by petitioners, involving

§ 514(b) (1), or similar clauses, have held that steps

preliminary to effectuation of the transactions may be

governed by state law, yet ultimate fruition is governed

by the intervening Federal standards. See Fleming Vv.

Rhodes, 331 U.S. 100 (1947) (judgment for eviction

governed by state law; enforcement of judgment and

actual eviction governed by intervening Federal pro-

hibition); Brewing Corp. of America v. Cleveland

Trust Co., 185 F.2d 482 (6th Cir. 1950) (sale and

shipment governed by state law, payment governed by

intervening Federal prohibition).

The court termed these concepts anomalous. They

are nothing of the sort. Actually, in contrast with the

Appellate Court’s treatment, which destroys significant

statutory rights, the views urged here affect a sound

accommodation between § 514(b)(1) and the substan-

tive preemptive, protective provisions of the statute.

24

For these reasons, a writ of certiorari should issue

to review the judgment and opinion of the United

States Court of Appeals for the District of Columbia.

Respectfully submitted,

S. G. Lippman, Esq.

Tuomas J. Hart, Esq.

LippMAN & Hart

1801 K Street, N.W.

Suite 220

Washington, D.C. 20006

(202) 467-6520

Counsel for Petitioners

APPENDIX

la

APPENDIX A

Notice: This opinion is subject to formal revision before publication

in the Federal Reporter or U.S.App.D.C. Reports. Users are requested

to notify the Clerk of any formal errors in order that corrections may be

made before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 77-1821

NEW YORK STATE TEAMSTERS CONFERENCE PENSION AND

RETIREMENT FUND, ET AL., APPELLANTS

Vv.

PENSION BENEFIT GUARANTY CORPORATION, ET AL.

Appeal from the United States District Court

for the District of Columbia

(Civil Action No. 77-0100)

Argued November 1, 1978

Judgment. -

Decided January 10, 197 aw:

S. G. Lippman, with whom Thomas J. Hart was on

the brief, for appellants.

William F. Hanrahan, Attorney, Pension Benefit

Guaranty Corporation, with whom E. Calvin Golumbic,

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

2a

Assistant General Counsel, was on the brief, for appellee

Pension Benefit Guaranty Corporation.

Bettina B. Plevan, with whom George G. Gallantz was

on the brief, for appellee Brewery Fund. David J. Taylor

and Charles R. Work also entered appearances for ap-

pellee Brewery Fund.

Susan Joan Martin entered an appearance for appellee

Brewery Workers Pension Fund and Trustees.

Before J. EDWARD LUMBARD,* Senior Circuit Judge

for the Second Circuit, and TAMM and LEVENTHAL, Cir-

cuit Judges.

Opinion for the court filed by Senior Circuit Judge

LUMBARD.

LUMBARD, Senior Circuit Judge: The New York State

Teamsters Conference Pension and Retirement Fund

(“Teamsters Fund”) sued in the district court to compel

the Pension Benefit Guaranty Corporation (“PBGC”),

a government corporation charged with various admin-

istrative responsibilities under the Employee Retirement

Income Security Act of 1974 (“ERISA” or “the Act”),

29 U.S.C. § 1001 et seg., to intervene and disapprove a

1973 merger agreement between the Teamsters Fund

and Brewery Workers Pension Fund (“Brewery Fund”).

We affirm the order of the district court denying the

Teamsters Fund request for declaratory and injunctive

relief and granting summary judgment to defendants

PBGC and Brewery Fund.

The essential facts are uncontested. The Teamsters

Fund and the Brewery Fund are multiemployer defined

benefit pension plans within the meaning of $§ 3(2), (35),

and (37) of ERISA. A “multiemployer plan” is a pension

plan to which no one employer contributes more than 50%

* Sitting by designation pursuant to 28 U.S.C. § 294(d).

3a

of the total yearly contributions and under which benefits

are payable to a retired participant even if his em-

ployer ceases to make contributions. ERISA § 3(37). In

August of 1973 the Teamsters Fund and the Brewery

Fund agreed to merge their two funds in order to

“minimize the impact upon the funds of possible future

declines in employment or other subsequent events af-

fecting any one employer or industry.” The merger

agreement was made contingent on its approval by par-

ticipants in the Brewery Fund and on obtainment of a

ruling from the Internal Revenue Service that the

merged plan would be eligible for favorable tax treat-

ment.*

Some six months after the merger agreement was

signed, Rheingold Breweries, one of the two largest con-

tributing employers to the Brewery Fund, announced that

it intended to terminate its operations. This develop-

ment made the merger much less attractive to the Team-

sters Fund since it dramatically reduced the Brewery

Fund’s prospective contributions to the joint plan without

a proportionate reduction in the joint plan’s prospective

liabilities to Brewery Fund participants. Consequently,

the Teamsters Fund, in February of 1974, citing changed

economic circumstances, repudiated the merger agree-

ment and refused to take any further steps to consum-

mate the merger.* The Brewery Fund responded several

1The merger agreement was ratified by Brewery Fund

participants in November of 1973. The necessary tax ruling

from the IRS was not obtained until November of 1976, ap-

parently because of the Teamsters Fund’s recalcitrance in

providing necessary documentation.

2 The Brewery Fund’s already bleak economic condition was

made worse when the F&M Schaefer Brewing Corporation

closed its New York operations in January of 1976. The

Schaefer action, however, was taken well after the Teamsters

Fund’s decision to repudiate the merger agreement.

ta

months later with a suit for specific performance in

New York State Supreme Court. That court, on May

1, 1975, ruled that the merger agreement remained valid

and enforceable and ordered the Teamsters Fund spe-

cifically to perform its obligations thereunder. The

lower court judgment was unanimously affirmed by the

Appellate Division, Second Department, in September of

1975, Brewery Workers Pension Fund v. New York State

Teamsters Conference Pension and Retirement Fund, 49

A.D.2d 755, 374 N.Y.S.2d 590 (App.Div.2d Dept., 1975),

and leave to appeal to the New York Court of Appeals

was denied the Teamsters Fund in February of 1976.

38 N.Y.2d 709, 382 N.Y.S.2d 1028, 346 N.E.2d 558

(1976).

In September of 1974, while the Brewery Fund’s ac-

tion for specific performance was pending before the

New York courts, Congress enacted ERISA. The Act

was designed to protect individual pension rights and

established minimum financial and fiduciary standards

for private employee benefit plans as well as a system of

benefit insurance. Of specific relevance to this proceeding

are §§ 208 and 1015(1) of ERISA, parallel provisions

that set out pre-conditions for the merger of pension

plans within the Act’s jurisdiction.’ In essence, the

merger of two pension plans is prohibited unless each

participant would be entitled to receive a benefit “im-

mediately after the merger . . . equal to or greater than

the benefit he would have been entitled to receive im-

mediately before the merger.” ERISA §§ 208 and 1015

(1). That restriction, however, applies “in the case of

*§208 contains the substantive rules governing mer-

gers of private pension plans. Section 1015(1) provides that

a trust maintained under a pension plan must abide by the

merger rules in order to acquire and maintain favorable tax

treatment.

5a

a multiemployer plan only to the extent determined by

the PBGC.” Id.

Where applicable, ERISA preempts state law con-

cerning emplovee benefit plans, ERISA § 514(a), and,

with exceptions not here relevant, provides for exclusive

federal jurisdiction over actions brought under the Act.

ERISA § 502(e) (1). Congress made clear, however, that

the transition from state to federal regulation was to

be gradual by providing that ERISA would not preempt

state law with respect to “any cause of action which

arose, or any act or omission which occurred before

January 1, 1975.” ERISA § 514(b) (1). Congress thus

ruled out concurrent federal and state regulation‘ but

left to the states “what is essentially a clean-up role,

. . . the disposition of causes of action and disputes with

respect to employee benefit plans existing before Jan-

uary 1, 1975.” Azzaro v. Harnett, 414 F.Supp. 473,

474 (S.D.N.Y. 1976), aff'd, 553 F.2d 93 (2nd Cir. 1977).

The Teamsters Fund first made its claim that ERISA

applied to its merger agreement with the Brewery Fund

in March of 1976 when it requested the PBGC to dis-

approve the merger under §§ 208 and 1015(1) of the

Act. By letter dated June 4, 1976, the PBGC declined

that request on grounds 1) that the merger agreement

‘In introducing the conference report on ERISA, Senator

Harrison A. Williams Jr., Chairman of the Senate Committee

on Labor and Public Welfare, stated:

“It should be stressed that with the narrow exceptions

specified in the bill, the substantive and enforcement pro-

visions of the conference substitute are intended to pre-

empt the field for Federal regulations, thus eliminating

the threat of conflicting or inconsistent State and local

regulation of employee benefit plans. This principle is

intended to apply in its broadest sense to all actions of

State or local governments, or any instrumentality there-

of, which have the force or effect of law.” 1974 U.S. Code

Cong. & Admin. News pp. 5188-89.

Ou

and the Teamsters Fund’s repudiation thereof occurred

prior to January 1, 1975 and were thus outside the

PBGC’s jurisdiction by virtue of the savings provision

in §514(b) (1) of ERISA; and 2) that the PBGC had

not yet drafted regulations to make §§ 208 and 1015(1)

of the Act operational with respect to multiemployer

plans such as the Teamsters Fund and the Brewery

Fund.

Following its rebuff from the PBGC, the Teamsters

Fund, in January of 1977, filed the instant action in the

District Court for the District of Columbia. The Fund

sought a declaration that §§ 208 and 1015(1) of ERISA

were applicable to its agreement with the Brewery Fund

and an injunction directing the PBGC to intervene and

assert jurisdiction over the merger. The district court’s

denial of that relief and its order granting summary

judgment for the defendants Brewery Fund and PBGC

rested on two legal determinations. The court concluded

first that the Teamsters Fund’s claims as to the appli-

cability of ERISA were res judicata since they could

have been raised as affirmative defenses to the Brewery

Fund’s state court action for specific performance.’ In

addition, the court ruled that ERISA had no retroactive

effect and thus could not be applied where an agreement,

and a mature cause of action based thereupon, pre-dated

the Act’s adoption.*®

5 The question of ERISA’s applicability to the merger agree-

ment was not raised before the New York State Supreme

Court, but apparently was brought to the attention of the

Appellate Division. That court’s opinion does not address

the issue, however.

* On this appeal, defendants PBGC and the Brewery Fund

urge a third ground in support of the decision below. Since

the merger provisions of §§ 208 and 1015(1) of ERISA are

expressly made applicable to multiemployer plans such as the

Teamsters Fund and the Brewery Fund “only to the extent

determined by the PBGC,” the defendants contend that the

Ta

In contending on this appeal that the issues raised

by this action are not res judicata, the Teamsters Fund

argues that the normal rule barring a party from litigat-

ing in federal court claims that were or could have been

raised in a prior state court action does not apply to

matters with respect to which federal courts have ex-

clusive jurisdiction. Though the Teamsters Fund does

not appear to deny that the New York state courts could

have entertained, as an affirmative defense, an argu-

ment that the Teamsters Fund—Brewery Fund agree-

ment violated the merger provisions of ERISA, it con-

tends that any determination the state courts might have

made as to the applicability of the Act would not be

entitled to binding effect in a subsequent federal action.

Primary support for the Teamsters Fund’s position

traces to the Second Circuit’s decision in Lyons v. West-

ingho@se Electric Corp., 222 F.2d 184, cert. denied, 350

U.S. 825 (1955). In that case, plaintiff’s treble damage

action charged a conspiracy to monopolize trade, a claim

that had been raised defensively in a state court con-

tract action. Vacating a stay of the federal anti-trust

suit pending final judgment in the state court action,

Judge Learned Hand’s opinion held that the state court’s

disposition of the conspiracy claim would not be entitled

to collateral estoppel effect since the federal courts’ ex-

clusive jurisdiction over treble damage actions “impl [ied]

an immunity of their decisions from any prejudgment

elsewhere.” Id. at 189.

The decision in Lyons has received a mixed response

from legal commentators, compare 1B J. Moore, Federal

fact that the PBGC has not yet promulgated regulations gov-

erning multiemployer plans provides a further reason that

ERISA cannot be applied to the merger agreement. Because

of our disposition of the other issues presented by this case,

there is no need for us to reach this question.

8a

Practice $0.445 at 4113-14 (2d ed. 1974) with De-

velopments in the Law: Section 1983 and Federalism,

90 Harv. L. Rev. 1138, 1835, n.20 (1977), and a number

of courts have refused to follow it. See, e.g., Azalea

Drive-In Theatre, Inc. v. Hanft, 540 F.2d 713 (4th Cir.

1976). A rule that prevents parties from relitigating

claims that could have been or were raised in a prior

forum does, in fact, have much to recommend it. At

the same time, we note that the strongest case for ad-

herence to the Lyons rationale exists in situations where,

as is true in the instant case, 1) the party against whom

the estoppel is urged did not elect the state court forum,

see, Note, Res Judicata: Exclusive Federal Jurisdiction

and the Effect of Prior State-Court Determinations, 53

Va.L.Rev. 1360, 1365-66 (1967); and 2) the federal

claim to which the state court judgment is set up as a

bar turns predominantly upon a legal rather than factual

determination and involves the interpretation of federal

rather than state law.

We need not, however, resolve this difficult question

of federal law since we agree with the district court that

the federal court lacks subject matter jurisdiction due

to the fact that the execution and repudiation of the

merger agreement occurred prior to the effective date of

ERISA. The Teamsters Fund does not dispute that

ERISA’s preemption of state law is conditioned by § 514

(b) (1) of the Act which indicates that ERISA does not

apply to “any cause of action which arose, or any act or

omission which occurred before January 1, 1975.” Nor

does it deny that the merger agreement and its repudia-

tion thereof predated January 1, 1975. What the Team-

sters Fund does contend is that no cause of action ex-

isted before January 1, 1975, since the merger agree-

ment was made contingent on a favorable IRS ruling

9a

and no such ruling was obtained until November of

1976.’

This objection, however, disregards both the character

of the merger agreement and the consequences of the

Teamsters Fund’s repudiation of it. In the first place,

not all of the Teamsters Fund’s obligations under the

merger agreement were contingent on IRS’ approval.

For example, both parties were expressly obligated to

execute “any and all documents necessary to implement”

the agreement, which clearly would include the docu-

ments needed to support an application for a ruling from

the IRS. The Teamsters Fund, however, refused to pro-

vide such documentation,* and a cause of action to compel

its cooperation was obviously not contingent on IRS’

approval.

But even assuming that the Teamsters Fund’s re-

fusal to assist in preparations for the merger was not

a breach of the merger agreement by non-performance,

there would be no merit to its argument that the Brewery

Fund’s cause of action did not arise prior to IRS’ ap-

proval. Under traditional doctrine, repudiation consti-

tutes a breach of contract even though made in advance

*The Teamsters Fund also contends that regardless of

whether a cause of action arises prior to January 1, 1975,

§§ 208 and 1015(1) of ERISA must be read to prohibit any

merger which occurs after that date. This argument simply

ignores the savings provision in § 514(b) (1) of the Act. The

Teamsters Fund offers no explanation as to why Congress

would leave to state law causes of action arising before Janu-

ary 1, 1975 but make their enforcement after that date con-

tingent on the provisions of ERISA.

* Part of the relief requested by the Brewery Fund, and

granted by the New York Supreme Court, was an order

directing the Teamsters Fund “to execute those documents

that are necessary in order to request approval from the

Internal Revenue Service pursuant to the terms of the inte-

gration agreement.”

10a

of the time performance is due. Restatement (Second)

of Contracts §277(1) (Tent, Draft 1974). The Team-

sters Fund’s repudiation of its agreement with the

Brewery Fund was an anticipatory breach thereof, and

effectively eliminated IRS’ approval as a pre-condition

to a suit by the Brewery Fund to enforce specifically

the agreement’s terms. Jd. at § 277, comment b. Ipn-

deed, the Teamsters Fund’s own legal maneuverirg sug-

gests its awareness of this fact. Certainly the Teamsters

Fund did not think that its repudiation of the merger

agreement in February of 1974, over two years before

the necessary IRS ruling was obtained, was an idle step

without legal consequence. Rather, because it believed

that the merger agreement was unenforceable, the Team-

sters Fund sought to test the contract’s validity by openly

renouncing its terms. Consistent with this intention,

the Teamsters Fund’s defense to the Brewery Fund’s suit

for specific performance was that changed economic

conditions nullified the agreement, not that the Brewery

Fund’s suit on the contract was premature.

In sum, a cause of action on behalf of the Brewery

Fund to enforce the merger agreement according to its

terms was not contingent upon IRS’ approval of the

merger. To the contrary, the Brewery Fund’s cause of

action arose at the time of the Teamsters Fund’s re-

pudiation and thus is well outside the scope of ERISA

by virtue of § 514(b)(1).' It should also be recognized

that the fact that the Brewery Fund could not have

sued prior to the IRS ruling to compel a final merger

of the two funds does not alter the conclusion that

ERISA cannot apply. To rule otherwise would produce

the anomalous result that state law governed the Brewery

Fund’s cause of action to force the Teamsters Fund to

proceed with steps preliminary to the actual merger

while the provisions of ERISA controlled any subsequent

action to bring the merger to fruition—the exact situa-

lla

tion the preemption and savings provisions of § 514 of

ERISA were designed to avoid. By mandating that

ERISA would preempt state law and yet leaving to state

law the determination of causes of action predating

January 1, 1975, Congress sought to provide an orderly

transition from state to federal regulation. The result

we reach today is consistent with that objective.

Judgment affirmed.

12a

APPENDIX B

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Civil Action No. 77-0100

New York Strate Teamsters ConFrERENCE

PEeNnsION AND RetirEMENT F'unp, et al., Plaintiffs,

Vv.

Pension Benerir Guaranty Corporation, et al., Defendants.

Memorandum Opinion

(Filed Aug. 22, 1977)

Barrincton D. Parker, District Judge:

This proceeding concerns the effort of the plaintiffs, New

York State Teamster Conference and Pension Retirement

Fund and its trustees (Teamsters Fund), to void a 1973

merger agreement with the Brewery Workers Pension

Fund and its trustees (Brewery Fund). The Teamsters

Fund seeks declaratory and injunctive relief against the

defendants, the Brewery Fund and the Pension Benefit

Guaranty Corporation (PBGC or Corporation). The two

funds are multiemployer pension trusts operated by labor

unions located in New York State. The PBGC, a govern-

ment corporation, was established by the Employee Retire-

ment Income Security Act of 1974, (ERISA or Act), 29

U.S.C. § 1001 et seg. It serves as an insurer of pension

plans covered by the Act and is otherwise responsible for

the regulation of voluntary private pension plans.

Jurisdiction is premised upon 28 U.S.C. § 1331 and 29

U.S.C. §§ 1132 and 1303(f).* Plaintiff request (1) a declara-

* While plaintiffs allege jurisdiction based on 5 U.S.C. § 701

et seq., those provisions do not afford an implied grant to dis-

trict courts of subject matter jurisdiction to review agency deci-

sions. Califano v. Sanders, ——- U.S. ——, 97 S.Ct. 980.

l3a

tion that certain restrictive provisions of ERISA are ap-

plicable to the merger and require intervention by the

PBGC; and (2) an injunction directing the PBGC to make

a determination whether the merger will adversely affect

the participants and beneficiaries of the merger and thus

violate the Act.

There are no material issues of fact, and the parties

have filed cross motions for summary judgment. After con-

sideration of the entire record, the Court concludes that the

defendants are entitled to summary judgment and that the

complaint should be dismissed.

The defendants’ motions raise a number of legal issues:

that the plaintiffs are barred by the doctrines of res judt-

cata, collateral estoppel and laches; that this Court lacks

subject matter jurisdiction because the execution and

breach of the merger agreement and all claims arising

thereunder, occurred prior to ERISA’s effective date; and

that certain restrictive provisions of the statute preclude

PBGC intervention. While these issues are all substantial,

the threshold questions concerning res judicata and the lack

of subject matter jurisdiction are sufficient to defeat plain-

tiffs’ claims for relief.

In August, 1973, the Teamsters Fund and tke Brewery

Fund entered into a merger agreement. In February, 1974,

the Teamsters Fund repudiated the agreement and refused

to consummate the merger. Several months later the Brew-

ery Fund sued for specific performance of the agreement in

the New York Supreme Court, Queens County. That court

entered judgment for the Brewery Fund on May 1, 1975,

and (1) declared that the agreement was valid, binding and

enforceable between the parties; and (2) directed the

Teamsters specifically to perform their obligations there-

under. The lower court judgment was affirmed by the

Appellate Division of the New York State Supreme Court

in September, 1975; leave to appeal to the New York Court

of Appeals was denied on February 10, 1976.

l4a

When the New York State Supreme Court action was

filed in early 1974, the ERISA legislation relating to pen-

sion mergers had not been passed. However, by September,

1974, approximately eight months before the New York

court granted summary judgment for the Brewery Fund,

federal legislation was enacted. A comprehensive statute,

ERISA covers single-employer plans where one employer

contributes to the retirement fund as well as multi-

employer plans, as here, where more than one employer

contributes. The Act establishes minimum standards for

vesting and funding of pension plans, standards of fidu-

ciary responsibility, and a system of benefit insurance. In

addition, Sections 208 and 1015 of the Act* prescribe pre-

conditions for the merger of plans subject to its jurisdic-

tion. Each of these sections has parallel provisions which

prevent the merger of two pension plans unless each par-

ticipant would receive a benefit ‘‘immediately after the

merger ... equal to or greater than the benefit he would

have been entitled to receive immediately before the mer-

ger.’’ They apply, however, ‘‘in the case of a multiemployer

plan only to the extent determined by the Pension Benefit

Guaranty Corporation.’’ (Emphasis added).

The Teamsters Fund contends that the latter provision

requires the Corporation to make an individual determina-

tion as to whether the Teamsters Fund-Brewery Fund mer-

ger violates Sections 208 and 1015. The defendant Brewery

Fund asserts, however, that plaintiffs’ claims are barred

by res judicata since the issues now raised in this Court

should have and could have been raised in the 1974 proceed-

ings before the New York State Supreme Court.

It is clear that the Teamsters were not barred from

asserting as an affirmative defense in the New York pro-

ceedings that federal jurisdiction was exclusive and that

* Pension plans and merger agreements must be approved by

the Internal Revenue Service under -applicable sections of the

Internal Revenue Code relating to tax deductions and exemptions.

15a

the merger would violate the Act. In that court, as here,

the Teamsters sought to avoid the merger because of ad-

verse economic conditions experienced by the Brewery

Fund. They did not, however, claim invalidity of the mer-

ger because of preemption by a federal statute (ERISA),

despite the fact that there is ample New York precedent

supporting such a course of action. Berry Packing v.

Packer’s Super Markets, 45 Misc. 2d 40, 41, 255 N.Y.S. 2d

691, 692 (1965); Remington Rand v. 1.B.M., 167 Misc. 108,

3 N.Y.S. 2d 515 (1937). In upholding the rights to raise as

a defense a claimed violation of the federal antitrust laws,

the Remington Rand court said:

[T]he federal laws cannot be used as a basis for

affirmative relief in our state courts, since jurisdiction

with respect to the enforcement of those laws lies

exclusively in the federal courts . . . However, a de-

fense that a cause of action does not lie by reason of a

violation of the federal laws is available in an action

brought in the courts of this state.

167 Mise. at 115; 3 N.Y.S. at 522.

Likewise, res judicata precludes a federal court from

asserting jurisdiction over claims which could have been

presented in a prior state court proceeding. Cromwell v.

County of Sac., 94 U.S. 351 (1877); Scoggin v. Schrunk,

522 F.2d 436 (9th Cir. 1975), cert. denied, 423 U.S. 1066

(1976) ; Lovely v. Laliberte, 498 F.2d 1261 (1st Cir. 1974),

cert, denied, 419 U.S. 1038 (1974). A party may not ‘‘frag-

ment a single cause of action and... litigate piecemeal...

issues which could have been resolved in one action.’’ Scog-

gin v. Schrunk, 522 F.2d at 437.

The 1975 New York State Supreme Court judgment was

a decision on the merits and involved both the Teamsters

Fund and the Brewery Fund and the same cause of action

presented here. Thus, the doctrine of res judicata will pre-

clude litigation of ‘‘not only ... every ground of recovery

léa

of defence actually presented in the [New York] action,

but also . . . every ground which might have been pre-

sented.’’ Cromwell v. County of Sac., 94 U.S. at 353. The

Brewery Fund cannot be called upon to relitigate the mer-

ger’s validity in this Court simply because a new legal

theory has been interposed.

There is an added reason why the defendants, and espe-

cially the PBGC, must prevail. While it is true that, where

applicable, ERISA preempts state and local law governing

employee benefit plans and provides exclusive federal ju-

risdiction, the law has no retroactive effect. It is an ac-

cepted rule of statutory construction that absent a clear

and unmistakable contrary legislative intent, statutes are

not to be given retroactive effect. 2 Sutherland Statutory

Construction § 41.04 at 252 (4th ed. 1973). Similarly, the

United States Supreme Court has stated that:

the first rule of construction is that legislation must be

considered as addressed to the future, not to the past

.. + [and] a retrospective operation will not be given

to a statute which interferes with antecedent rights

. .. unless such be ‘the unequivocal and inflexible im-

port of the terms, and the manifest intention of the

legislature.’

Greene v. United States, 376 U.S. 149, 160 (1964), quoting,

Union Pac. R. Co. v. Laramie Stock Yards Co., 231 U.S.

190, 199 (1913). Moreover, the legislative history of ERISA

and other federal courts that have interpreted the statute

indicate that the Act does not apply to events that predate

it. Martin v. Bankers Trust Co., 417 F. Supp. 923 (W.D.Va.

1976); Morowitz v. Bakery Drivers, Local 802 Pension

Fund, 79 Lab. Cas. 711,602 (E.D.N.Y. 1976); Nolan v.

Meyer, 520 F.2d 1276, 1278 n.2 (2d Cir. 1975), cert. denied,

423 U.S. 1034 (1975).

In the Martin case, a former employee who had termi-

nated his employment some three months prior to the pas-

17a

sage of ERISA sued under the Act claiming benefits al-

legedly due from a pension fund. The defendants, the for-

mer employer and the trustee and administrator of the

fund, sought dismissal of the complaint for lack of subject

matter jurisdiction. Ruling in favor of the defendants, the

court cited Greene for the general rule as to statutory con-

struction and Nolan for the rule relating to the construction

of ERISA. The court concluded that the plaintiff could not

bring the suit since the ‘‘cause of action . . . theoretically

arose prior to the time the law [ERISA] existed.” Id. at

925.

Similarly, in Morowitz, the widow of a former union

member brought suit in a local New York court against a

pension fund for benefits allegedly due her individually

and as executrix of her late husband’s estate. The subject

of the suit, whether plaintiff was entitled to the payment

of benefits during a preceding 36-month period, was said

by the defendant to fall under ERISA, and the case was

removed to the federal district court for the Eastern Dis-

trict of New York. That court, upon motion, remanded the

case to the New York court stating that “[n]o sound rea-

son... [was] apparent for holding that the statute should

be retroactively applied to an action fully matured prior

to... [ERISA’s enactment].’’ Jd. at 21,602.

Here, the agreement to merge and the Teamsters’ breach

occurred weil before the passage of ERISA. Since a mature

cause of action existed prior to the Act’s enactment, nei-

ther the Court nor the PBGC should interfere at this point.

The defendants are entitled to summary judgment and

an appropriate order will be entered.

Dated: August 22, 1977

/s/ Barzincton D. Parker

Barrington D. Parker

United States District Judge