# Petition — Ouimet Corp. v. Pension Benefit Guaranty Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0859%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1981 - **Citation:** 450 U.S. 914 ## Text Supreme Court, U.&: no. 8 0.- 860 FILED NOV 26 1980. In the Supreme Court of the United Statesi *00ak. 1, cua — ree OcrosBer TERM, 1980. OUIMET CORPORATION, OUIMET STAY & LEATHER COMPANY, OUIMET WELTING COMPANY, EMIL 8. OUIMET WAREHAM TRUST, AVON SOLE COMPANY, TENN-ERO CORPORATION anp HERBERT KAHN, TRUSTEE, PETITIONERS, v PENSION BENEFIT GUARANTY CORPORATION anp UNITED RUBBER, CORK, LINOLEUM anp PLASTIC WORKERS OF AMERICA, SOLOMON REDDIX anp ALEX WILLIAMS, RESPONDENTS. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT. Petition for Writ of Certiorari. RicHarp G. MALONEY, RicHarp M. ZINNER, MaLoney, WituraMs & Barer, P.C., FRIEDMAN & ATHERTON, 133 Federal Street, 28 State Street, Boston, Massachusetts 02110. Boston, Massachusetts 02109. (617) 482-9120 (617) 227-5540 Attorney for Petitioners, Attorney for Petitioners, Ouimet Corporation, Avon Sole Company, Ouimet Stay & Leather Tenn-ERO Corporation Company, Ouimet Welting and Herbert Kahn, Company and Emil R. Ouimet Trustee in Bankruptcy. Wareham Trust. BATEMAN & SLADE, INC. BOSTON , MASSACHUSETTS Questions Presented. 1. Whether Congress imposed under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, 29 U.S.C. § 1001 et seq., and, if so, did it violate the Due Process Clause of the Fifth Amendment to the United States Constitution by imposing, joint and several liability on members of a controlled group of corporations to fund a law- fully terminated pension plan contracted for and maintained by one of its bankrupt members? 2. Whether the decision of the United States Court of Ap- peals for the First Circuit erroneously imposed liability on two bankrupt corporations, neither of whom had any positive net worth, contrary to the wording and intent of ERISA? 3. Assuming arguendo that Congress did have the constitu- tional power to so impose joint and several liability on mem- bers of a controlled group of corporations, was Pension Benefit Guaranty Corporation’s denial of a waiver of such liability as permitted by § 4004(f)(4) of ERISA, 29 U.S.C. § 1304(f)(4) “arbitrary, capricious [and an] abuse of discretion”? Table of Contents. Opinion below Statement of jurisdiction Statutory provisions involved Statement of the case Reasons for allowing the writ I. The decision below conflicts with applicable deci- sions of this court holding that retroactive imposi- tion of liability combined with appropriation of property of one employer for payment of retire- ment benefits to employees of another is unconsti- tutional II. The decision below is erroneous and creates a conflict of rationale among the circuits III. The case presents critical issues of federal law which should be settled by this court Liability Bankruptcy Financial statements . Waiver of liability Petitioners’ construction of statute HOO > Conclusion Appendix Ib Wb 11 ii TABLE OF AUTHORITIES CITED. Table of Authorities Cited. CASES. Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978) 15, 16, 17 A-T-O, Inc. v. Pension Benefit Guaranty Corporation, 456 F.Supp. 545 (N.D. Ohio 1978); appeal docketed, No. 78-3269, 6th Cir., May 24, 1980 24, 25 Bendix Home Systems, Inc. v. Hurston Enterprises, Inc., 566 F.2d 1039 (5th Cir. 1978), rehearing de- nied February 28, 1978 20n Environmental Defense Fund, Inc. v. Hardin, 428 F.2d 1093 (D.C. Cir. 1970) 25 Fornaris v. Ridge Tool Co., 423 F.2d 563 (1st Cir. 1970), rev'd on other grounds, 400 U.S. 41 (1970) 17 Gulfco Investment Corporation v. Hogan, 593 F 2d 921 (10th Cir. 1978), rehearing denied April 10, 1979 20n Howard Johnson Co., Inc. v. Detroit Local Joint Ex- ecutive Board, Hotel & Restaurant Employees, 417 U.S. 249 (1974) 20n Nachman Corp. v. Pension Benefit Guaranty Corp., __U.S. ___, 100 S.Ct. 1723 (1980) 14 N.L.R.B. v. Burns International Security Services, Inc., 406 U.S. 272 (1972) 12n, 20n, 21n Pension Benefit Guaranty Corp. v. Ouimet Corp., 470 F.Supp. 945 (1979) 13, 21n Railroad Retirement Board v. Alton Railroad Co., 295 U.S. 330 (1935) 12, 13, 14, 15, 17 et seq. United Paperworkers International Union v. T.P. Prop- erty Corp., 583 F.2d 33 (1st Cir. 1978) 12, 20n TABLE OF AUTHORITIES CITED. iii United States v. Thirty-Seven Photographs, 402 U.S. 363 (1971) 27 Usery v. Turner Alkon Mining Co., 428 U.S. 1(1976) 14,15 York Chrysler-Plymouth, Inc. v. Chrysler Credit Cor- poration, 447 F.2d 786 (5th Cir. 1971) 20n CONSTITUTIONAL PROVISIONS. United States Constitution Article I, § 10 2 Amendment V 2 Administrative Procedure Act, 5 U.S.C. § 706 25 § 706(1) 6, 25 § 706(2) 25 § 706(2) (a) 6, 7, 24 Employee Retirement Income Security Act of 1974 (ERISA) § 302 16n § 1013 16n § 1017 18 § 4001 19 § 4001(b) 3, 18, 19, 20, 25 et seq. § 4003(e) 10 § 4004(f) 4 § 4004(f) (4) 24, 25 § 4022(a) 14n § 4062 4,5, 10, 13, 17 et seq. § 4062(a) 19, 20 § 4062(b) 22 § 4062(b) (1) 6 § 4062(b) (2) 6, 21 iv TABLE OF AUTHORITIES CITED. ERISA (continued) § 4062(d) 19 § 4063 4 § 4064 6, 21 § 4068(c) 16 Internal Revenue Code of 1954 § 401 § 401(c)(1) § 404(a) § 404(g) § 408(k) § 410 § 411 § 412 § 414(b) 3, § 414(c) 3, 4, 18, § 1563 § 1563(a) 3, 9, 10, 1 § 1563(a) (4) § 1563(e)(3)(c) § 4971 Multiemployer Pension Plan Amendments Act of 1980 (Pub. Law 96-364) — Enacted September 26, 1980, § 205 19n 28 U S.C. § 1254(1) 2 29 U.S.C. § 1301(b) 3 § 1304(f) 4 § 1362 5 § 1364 6 oo mo ow ff oy RR oo co oo w Www e® © No. In the Supreme Court of the United States. OcTosBEerR TERM, 1980. OUIMET CORPORATION, OUIMET STAY & LEATHER COMPANY, OUIMET WELTING COMPANY, EMIL R. OUIMET WAREHAM TRUST, AVON SOLE COMPANY, TENN-ERO CORPORATION anp HERBERT KAHN, TRUSTEE, PETITIONERS, G. PENSION BENEFIT GUARANTY CORPORATION aAnpb UNITED RUBBER, CORK, LINOLEUM anp PLASTIC WORKERS OF AMERICA, SOLOMON REDDIX anp ALEX WILLIAMS, RESPONDENTS. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT. Petition for Writ of Certiorari. Opinion Below. The opinion of the Court of Appeals, not yet reported, ap- pears in the Appendix hereto. The opinion of the United 2 States District Court for the District of Massachusetts, which was affirmed by the Court of Appeals, appears at 470 F. Supp. 945. The opinion and order of the Bankruptcy Judge, Bank- ruptcy Nos. 75-1520-HL, 75-1521-HL (D.C. Mass. May 13, 1977) are unreported but appear in the Appendix hereto. Statement of Jurisdiction. The judgment of the United States Court of Appeals for the First Circuit was delivered and entered on August 29, 1980. This Court's jurisdiction is invoked under 28 U.S.C. § 1254(1). Statutory Provisions Involved. UNITED STATES CONSTITUTION, ARTICLE I, § 10 No State shall ... pass any ... Law impairing the Obligation of Contracts. UnitTep STATES CONSTITUTION, AMENDMENT V No person shall . . . be deprived of life, liberty, or prop- erty, without due process of law... . 3 INTERNAL REVENUE Cope oF 1954 Section 414 (b) EMPLOYEES OF CONTROLLED GROUP OF CORPORATIONS. — For purposes of sections 401, 408(k), 410, 411 and 415, all employees of all cor- porations which are members of a controlled group of corporations (within the meaning of section 1563(a), determined without regard to section 1563(a) (4) and (e) (3) (C)) shall be treated as employed by a single em- ployer. With respect to a plan adopted by more than one such corporation, the minimum funding standard of sec- tion 412, the tax imposed by section 4971, and the appli- cable limitations provided by section 404(a) shall be de- termined as if all such employers were a single employer, and allocated to each employer in accordance with regu- lations prescribed by the Secretary. (c) EMPLOYEES OF PARTNERSHIPS, PRO- PRIETORSHIPS, ETC., WHICH ARE UNDER COM- MON CONTROL. — For purposes of sections 401, 408(k), 410, 411 and 415, under regulations prescribed by the Secretary, all employees of trades of businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer. The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (b). Tite IV or ERISA § 4001(b), 29 U.S.C. § 1301(b) An individual who owns the entire interest in an unin- corporated trade or business is treated as his own em- ployer, and a partnership is treated as the employer of » a 4 each partner who is an employee within the meaning of section 401(c) (1) of the Internal Revenue Code of 1954. For purposes of this title, under regulations prescribed by the corporation, all employees of trades or businesses (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 pre- scribed for similar purposes by the Secretary of the Treas- ury under section 414(c) of the Internal Revenue Code of 1954. Tit.e IV or ERISA § 4004(f), 29 U.S.C. § 1304(f) In addition to its other powers under this subchapter, for only the first 270 days after the date of enactment of this Act [September 2, 1974] the corporation may — (4) waive the application for the provisions of sections 4062, 4063 and 4064 to, or reduce the liability imposed under such sections on, any employer with respect to a plan terminating during that 270 day period if the corpo- ration determines that such waiver or reduction is neces- sary to avoid unreasonable hardship in any case in which the employer was not able, as a practical matter, to con- tinue the plan. 5 Tir.e IV or ERISA § 4062, 29 U.S.C. § 1362 (a) This section applies to any employer who maintained a plan (other than a multiemployer plan) at the time it was terminated... . (b) Any employer to which this section applies shall be li- able to the corporation, in an amount equal to the lesser of — (1) the excess of — (A) the current value of the plan’s benefits guar- anteed under this title on the date of termination, over (B) the current value of the plan’s assets allocable to such benefits on the date of termination, or (2) 30 percent of the net worth of the employer de- termined as of a day, chosen by the corporation but not more than 120 days prior to the date of termination, computed without regard to any liability under this section. (d) For purposes of this section the following rules apply in the case of certain corporate reorganizations: (1) If an employer ceases to exist by reason of a re- organization which involves a mere change in identity, form, or place of organization, however effected, a successor corporation resulting from such reorgani- zation shall be treated as the employer to whom this section applies. (2) If an employer ceases to exist by reason of a liq- uidation into a parent corporation, the parent cor- 6 poration shall be treated as the employer to whom this section applies. (3) If an employer ceases to exist by reason of a merger, consolidation, or division, the successor corporation or corporations shall be treated as the employer to whom this section applies. Trr.e IV or ERISA § 4064, 29 U.S.C. § 1364 (a) This section applies to all employers who maintain a plan under which more than one employer makes con- tributions at the time such plan is terminated, or who, at any time within the 5 plan years preceding the date of termination, made contributions under the plan. (b) The corporation shall determine the liability of each such employer in a manner consistent with section 4062 except that the amount of the liability determined under section 4062(b) (1) with respect to the entire plan shall be allocated to each employer by multiplying such amounts by a fraction — (1) the numerator of which is the amount required to be contributed to the plan by each employer for the last 5 plan years ending prior to the termination, and (2) the denominator of which is the total amount re- quired to be contributed to the plan by all such em- ployers for such last 5 years, and the limitation described in section 4062(b)(2) shall be applied separately to each employer. The corporation may also determine the liability of each such employer on 7 any other equitable basis prescribed by the corporation in regulations. ADMINISTRATIVE ProcepureE Act, 5 U.S.C. § 706(1) anp (2)(A) To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall — (1) compel agency action unlawfully withheld or unreasonably delayed; and (2) hold unlawful and set aside agency action, find- ings, and conclusions found to be — (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. . . Statement of the Case. In 1959, Avon Soie Company (Avon) entered into a Retire- ment Plan Agreement as part of its collective bargaining agree- ment with its union to create the Avon Plan for the benefit of its union employees. Thereafter, Avon paid the salaries and benefits to its employees required under its collective bargain- ing agreement, including contributions under and to the Avon Plan. Avon's obligations were set forth in its agreement and the Avon Plan satisfied all requirements of the Internal Rev- enue Code of 1954 for deductibility of the contributions and for the tax exemption of trust created thereunder. In ad- dition, the Avon Plan gave Avon “the right to amend, modify, suspend or terminate the Plan” and limited the benefits pay- 8 able on termination of the Plan to “the assets of the Retirement Fund,” with Avon having “no liability or obligations . . . to make any contribution or payment to establish or maintain the Plan, whether in event of termination of the Plan or other- wise.” In September 1968 Ouimet Corporation (Ouimet), a Dela- ware corporation, acquired all of the stock of Avon, some nine years after the Avon Plan was established. At the time of ac- quisition the Avor. Plan was in effect, continued to be qualified under the Int. Rev. Code of 1954, and was under- funded. Also at the time of acquisition, Ouimet operated a manufacturing facility in Nashville, Tennessee. In 1973, Avon formed a wholly-owned subsidiary, Tenn-ERO Cor- poration (Tenn-ERO), to manufacture its product line in a new and different plant in Tennessee. At all times relevant to this case, Ouimet owned 100% of the stock of Avon which owned 100% of the stock of Tenn- ERO. Ouimet Stay & Leather Company (Ouimet Stay) owned 100% of the stock of Ouimet Welting Company (Welting), a dormant corporation, and 50% of the stock of Brockton Plastics Company (not a member of the controlled group). Emil R. Ouimet, an individual, owned in excess of 80% of the outstanding stock of Ouimet and Ouimet Stay, and owned 100% of Wareham Trust. Such stock ownership is shown as follows: Q Emil R, Ouimet 100% 80% + oe + Wareham Trust — ates Stay 7 %o | % Avon Welting 50% 100 % Brockton Tenn-ERO Plastics Following the 1968 acquisition of Avon, Ouimet and Avon filed consolidated federal income tax returns and, beginning in 1973, Tenn-ERO joined as a member of the affiliated group in the consolidated return (Ouimet Affiliated Group). The Emil R. Ouimet Wareham Trust (Wareham Trust), a Massa- chusetts trust with transferable shares, and Ouimet Stay & Leather Company (Ouimet Stay) were members of the con- trolled group of corporations, as defined in § 1563(a) of the Int. Rev. Code of 1954, which required inter alia the appor- tionment of the $25,000 surtax exemption among the members of the controlled group. However, neither Ouimet Stay and its affiliates nor Wareham Trust were members of the Ouimet Affiliated Group and therefore could not and did not join with Ouimet, Avon and Tenn-ERO in the filing of a consolidated income tax return.’ In 1974 Avon experienced severe financial difficulties with the result that in 1975 it closed its only plant located in Massa- chusetts. Also as a result of these financial difficulties, Avon ' The Court of Appeals erroneously stated to the contrary in its Opinion. ite WE cnt, CD. A 10 terminated the Avon Plan on March 25, 1975. ERISA became law on September 2, 1974. Under the ERISA formula, the Avon Plan was determined to have a deficiency in assets of some $552,000 to fund the ERISA insured benefits under the Avon Plan. Thereafter, Avon and Tenn-ERO Corporations, were adjudicated bankrupt. Pension Benefit Guaranty Corporation (PBGC) originally determined that Avon “was the employer -ho maintained the Plan” and therefore was liable under ERISA § 4062 for the underfunding. PBGC filed a proof of claim for the alleged underfunding on February 6, 1976. Thereafter, as a result of further investigation, PBGC determined Avon, Tenn-ERO, Ouimet, Ouimet Stay, Welting and Wareham Trust were to be “treated as the employer who maintained the Plan” and commenced a civil action against the non-bankrupt members in the United States District Court for the District of Massa- chusetts pursuant to ERISA § 4003(e). PBGC then filed a complaint in the Bankruptcy Court seeking relief from the automatic stay in bankruptcy in order to proceed against Avon and Tenn-ERO (Bankrupts) by joining them in the civil ac- tion. The District Court (Tauro, J., presiding) referred the complaint to the bankruptcy judge (Lavien, J.) to serve as a master in the civil action. The Bankruptcy judge concluded that Avon alone had liability under ERISA § 4062 and, since it had no positive net worth, there was no liability. After a hearing, the District Court (Tauro, J.) concluded that all of the petitioners, as members of a controlled group of corporations within § 1563(a) of the Int. Rev. Code of 1954, were jointly and severally liable to PBGC under ERISA § 4062 for the under- funding of the Avon Plan, subject to the 30% net worth limita- tion of ERISA; that the time for granting a waiver had expired and no consideration could be given to such issue by the Court; granted PBGC’s motion for partial summary judgment against 11 petitioners herein; and, remanded the case to the Bankruptcy judge for a determination of the net worth of the controlled group. Finding conditions existed which permitted an immediate appeal, the Court of Appeals for the First Circuit granted peti- tioners’ request for permission to appeal from the District Court’s interlocutory order and thereafter affirmed the judg- ment of the District Court. Reasons for Allowing the Writ. I. Tue Decision BELow ConFLicrs WITH APPLICABLE DECI- SIONS OF THIS Court HoLDING THAT RETROACTIVE IMPOSITION or LIABILITY COMBINED WITH APPROPRIATION OF PROPERTY oF ONE EMPLOYER FOR PAYMENT OF RETIREMENT BENEFITS TO EMPLCc ’kES OF ANOTHER IS UNCONSTITUTIONAL. The Court of Appeals for the First Circuit adopted the con- struction urged by PBGC in the lower courts that ERISA im- posed joint and several liability on all members of a controlled group of corporations for the underfunding of the Avon Plan in an amount in excess of $552,000 despite: (a) the provisions of the Avon Plan which limited liability for benefits to the assets in the Trust; (b) the fact that Avon made all required payments to its employees under its collective bargaining agreement including the Avon Plan; (c) neither Avon nor Tenn-ERO, the Bankrupts, in- dividually or combined, had positive net worth on the termination date; (d) no member of the controlled group, other than Avon, had signed or adopted the Avon Plan; and 12 (e) the employees of Avon alone were members of and beneficiaries under the Avon Plan. This holding is in direct conflict with this Court’s decision in Railroad Retirement Board v. Alton Railroad Co., 295 U.S. 330 (1935). Prior to the enactment of ERISA, Avon had no liability for the Avon Plan’s asset deficiency in the event of its termination. Avon had complied with the pre-ERISA requirements for qualification of its pension plan under § 401 of the Int. Rev. Code of 1954. Its only responsibility was to make annual con- tributions, actuarially determined, during the term of the col- lective bargaining agreement to which it was a party. Clearly, its parent corporation, Ouimet, had no liability or responsibil- ity for Avon’s undertakings and liabilities under Avon’s collec- tive bargaining agreement (United Paperworkers Internation- al Union v. T. P. Property Corp., 583 F.2d 33 (1st Cir. 1978) ;? a fortiorari, the other members of the controlled group had no liability for Avon’s obligations under its collective bargaining agreement. Any liability of Avon to its employees and PBGC prior to September 2, 1974 was, like PBGC itself, non-existent. It arose if at all by the passage of ERISA. It should be noted that during the period from September 2, 1974 through March 25, 1975, the date the Avon Plan was terminated, the asset “defi- ciency” actually declined from $606,000 to $550,000 so that if 2 Wherein the Court of Appeals for the First Circuit rejected the union’s at- tempt to impose liability on the parent corporation to arbitrate and assume a subsidiary’s obligations under its collective bargaining agreement, including pension fund payments, since to do so would require the Court to disregard the well-established legal precedent of recognizing separate corporate en- tities “in favor of a novel rule of imputed liability.” 583 F.2d at 36. Accord, N.L.R.B. v. Burns International Security Services, Inc., 406 U.S. 272 (1972). 13 the liability under § 4062 was limited to a deficiency created after the passage of ERISA, no liability would exist. The District Court, in holding that Avon was, together with all members of the controlled group of corporations, jointly and severally liable for the deficiency in assets on the termina- tion of the Avon Plan, concluded that ERISA as so interpreted, although admittedly retroactive, did not violate due process, since it “would not substantially impair the provisions of the Avon plan” (Pension Benefit Guaranty Corp. v. Ouimet Corp., 470 F.Supp. 945, 956 [1979]) and that such liability would “upset settled contractual expectations only to a minimal degree.” 470 F.Supp. at 958. In Alton Railroad, supra, this Court struck down the Rail- road Retirement Act because it imposed liability on the nation’s railroads to pay retirement benefits based not only on future services, but also based on employment prior to enact- ment of the Act. By so doing, the Act was, in essence, retroac- tively altering the compensation contracts between the rail- roads and their employees. In rejecting the government’s argument that funding pension benefits based in part on past services was in the best interests of the nation and the railroad industry by promoting efficiency and safety in the future operations of the railroad, the Supreme Court held that such payment would deprive the employers of their property without due process. Plainly this requirement [of the Act], alters contractual rights; plainly it imposes for the future a burden never contemplated by either party when the earlier relation existed or when it was terminated. The statute would take from the railroads’ future earnings amounts to be paid for services fully compensated when rendered in ac- cordance with contract, with no thought on the part of either employer or employee that further sums must be 14 provided by the carrier. The provision is not only retroactive in that it resurrects for new burdens transac- tions long since past and closed; but as to some of the railroad companies it constitutes a naked appropriation of private property upon the basis of transactions with which the owners of the property were never connected. Thus the Act denies due process of law by taking the property of one and bestowing it upon another. This onerous financial burden cannot be justified upon the plea that it is in the interest of economy, or will promote efficiency or safety. 295 U.S. at 349-350. Notwithstanding the teachings of Alton Railroad, supra, the First Circuit concluded, based on its reading of the legislative history of ERISA and in reliance upon this Court’s decision in Nachman Corp. v. Pension Benefit Guaranty Corp., ___ U.S. ___, 100 S.Ct. 1723 (1980),° that “despite the retroactivity in- herent in the Act, there is no constitutional due process viola- tion.” Ultimately, the First Circuit based its conclusion of “no constitutional due process violation” upon Usery v. Turner Alkon Mining Co., 428 U.S. 1 (1976). Reliance upon Turner Alkon is improper since the retroac- tivity of benefits for black lung victims imposed in that case was essentially compensation for a tort injury, and the pay- ment fell upon the employers who created “the dangerous con- ditions under which the former employee labored” (428 U.S. at 19) and on the employers “who have profited from the fruits of their labor” (428 U.S. at 18). However, in the instant case, the claim is in the nature of additional wages, i.e., increased compensation over that re- 3This Court limited its review in Nachman, supra, to the question of statutory interpretation of ERISA § 4022(a) and did not consider the consti- tutional questions. 442 U.S. 940 (1980). 15 quired by the collective bargaining agreement, in order to meet the former Avon employees’ or PBGC’s “generalized need for funds” (428 U.S. at 19). The burden of this conclu- sion will fall upon the creditors of the bankrupts‘ or the other members of the controlled group having no direct relationship with the Avon employees rather than on the former employer, as was the situation in Turner Alkon.® Thus, this case should be considered and determined by the rationale and holding in Alton Railroad rather than Turner Alkon. Moreover, the decision of the Court of Appeals for the First Circuit conflicts with the rationale and holding of this Court in Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978), wherein this Court held that a Minnesota statute which imposed liability on employers who terminated pension plans for the payment of an unfunded benefit to all employees who worked at least ten years, including periods of employ- ment prior to the effective date of the Act, was unconstitu- tional as it violated the Contract Clause of the Constitution. In so holding, this Court said that the effect of the Minnesota statute on the company’s contractual obligations was “severe” in that it essentially telescoped a normal funding period during which the company could set aside funds necessary to meet its obligations thereunder to one day. Such is the result of the First Circuit’s holding that Avon (and other members of its controlled group of corporations) became instantly and im- mediately liable for the full underfunding of the Avon plan when it was terminated. There was no liability on September 1, 1974. On September 2, 1974, a liability arose which had ‘(I]t is probable that PBGC will receive all of the bankrupt’s assets with the creditors receiving nothing.” __ F.2d ____ (App. 3a). 5Ouimet and Ouimet Stay filed proofs of claim in the bankruptcy pro- ceedings for any amounts they may be required to pay PBGC. The Trustee in Bankruptcy filed a cross-claim seeking reimbursement from Ouimet and Ouimet Stay for any amounts the estate may be required to pay PBGC. 16 the priority of a tax lien. ERISA § 4068(c). Such liability uni- laterally amended all collective bargaining agreements con- taining a defined benefit plan with employees as well as all se- curity agreements with creditors. In addition, it rendered ex- isting financial statements and credit reports invalid and ob- solete. In striking down the Minnesota statute, this Court stated that [The Minnesota statute] . . . here nullifies express terms of the company’s contractual obligation and imposes a com- pletely unexpected liability in potentially disabling amounts. 438 U.S. at 247. Although Avon made the r quisite contributions to the Avon Plan required under the bargaining agreement throughout its existence, its premature termination on March 25, 1975 due to dire financial circumstances deprived it of the time necessary to fund the benefits which had accrued.® The Master found the cause of the underfunding to be three-fold: (1) the Plan gave credit for service prior to 1959; (2) the collective bargain- ing agreement provided for automatic increases in benefits; and (3) the value of the Plan’s assets reduced in value due to market conditions. Under the holding of the First Circuit, ERISA imposes im- mediate liability for such deficiency contrary to the terms of the Plan. Where no liability existed under its agreement on September 1, 1974, suddenly and unexpectedly, on September 2, 1974, a substantial liability arose, with no time to prepare for, avoid or protect against it. In the words of this Court in Allied Structural Steel, supra, such change in its obligations ® ERISA § 302 and § 1013 imposed for the first time an obligation to amor- tize past service costs, increases in liabilities and experience losses less decreases in pension liabilities and experience gains over periods ranging from 15 to 40 years. 17 was “severe” and in the words of the First Circuit in Fornar’s v. Ridge Tool Co., 423 F.2d 563, 568 (1st Cir. 1970), rev'd on other grounds, 400 U.S. 41 (1970); such was a change of “great magnitude” as to violate the due process provisions of the Con- stitution, considering only Avon’s rights and responsibilities. More serious constitutional constraints are violated in apply- ing this instant liability to the members of the controlled group, other than Avon and Tenn-ERO, since such liability rests solely upon their indirect relationship to Avon (through common but not identical stock ownership) and not upon any signature, action in adopting the Plan, or conduct of a pro- scribed nature requiring the court to disregard the separate corporate entities so as to impose common liability. As to the other members of the controlled group, the imposition of this novel liability under ERISA § 4062 is predicated solely on their relationship to Avon. [Such] constitutes a naked appropriation of private prop- erty upon the basis of transactions with which the owners of the property were never connected. Thus the Act denies due process of law by taking the property of one and bestowing it upon another. This onerous financial burden cannot be justified upon the plea that it is in the interest of economy, or will promote efficiency or safety. Railroad Retirement Board v. Alton Railroad Co., supra at 350. Finally, the decision of the Court of Appeals for the First Circuit disregards the distinction drawn by this Court in Allied Structural Steel, supra, between the Minnesota Act which “became fully effective the day after its passage” (438 U.S. at 249, n.23) and ERISA which provided “gradual ap- plicability or grace periods” (438 U.S. at 246) thereby soften- 18 ing its impact and preserving its constitutionality. Assuming arguendo that Congress intended and did impose joint and several liability on members of a controlled group of corpora- tions for ERISA § 4062 liability, time should be given to af- fected employers to adjust to this “novel” concept. Time is made available through the requirement of ERISA § 4001(b) that it be applied “consistent and coextensive” with section 414(c) of the Int. Rev. Code of 1954. The latter section was expressly made applicable to “plan years beginning after December 31, 1975.” ERISA § 1017. Il. Tue Decision BELOW 1s ERRONEOUS AND CREATES A ConF.ict OF RATIONALE AMONG THE CIRCUITS. Although the liability section of ERISA, § 4062, 29 U.S.C. § 1362 applies to “any employer who maintained a plan (other than a multi-employer plan) at the time it was terminated” and the facts show that only Avon signed the plan agreement; contributed to the plan trust; and, only its employees par- ticipated, the First Circuit held that each member of the Ouimet Group comprising the controlled group of corpora- tions within the meaning of § 1563(a) of the Int. Rev. Code of 1954, was jointly and severally liable for the deficiency under § 4062, 29 U.S.C. § 1362. The First Circuit based such liabili- ty on its reading of § 4001(b), 29 U.S.C. 1301(b) which states, in part, that: “all employees of trades or businesses (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.” Neither the language of the statute nor its legislative history supports this reading of § 4001(b) by the First Circuit which omits the words “all employees” and converts § 4001(b) into a 19 definitional statement of the term “single employer.” Such rewriting of the section is erroneous because it: (a) Adds a new “definition” to § 4001; (b) Alters § 4001(b) by eliminating the subject of the sentence, namely “employees,” and substitutes for it either “corporations under common control” or “trades or businesses under common control;” (c) Requires an administrative amendment to the Internal Revenue Code of 1954 which was effected, as found by the District Court, by the exchange of letters between the Treasury and PBGC, so as to permit a deduction under § 404(g) of the Int. Rev. Code of 1954 for the payment by a company other than the actual employer which deduction was not al- lowable prior to ERISA;’ (d) Ignores the word “single” in § 4001(b); (e) Imposes joint and several liability on each member of the controlled group for the § 4062 liability without any basis or justification in the statutory language or legislative history; (f) Makes § 4062(d) surplusage since it is not necessary to impose § 4062(a) liability on a parent corporation on liquida- tion if it is already liable as a member of the controlled group of corporations; (g) Imposes joint and several! liability on Avon and Tenn- ERO, the bankrupts, having no positive net worth contrary to the express wording of the § 4062 limiting liability to “30 per- cent of the net worth of the employer;” and 7 Section 404(g) of the Int. Rev. Code of 1954 was amended by § 205 of the Multiemployer Pension Plan Amendments Act of 1980 to allow a deduction, effective from the enactment of the Act, for employer liability payments under ERISA § 4062 to a taxpayer whose liability for the payments arises solely out of membership in a controlled group of companies. 20 (h) Overrules well established and important judicial prec- edent and rationale recognizing the limited liability of sepa- rate entities by this and other federal courts.® II]. Tue Case Presents Critica Issues oF FEDERAL LAw WHICH SHOULD BE SETTLED BY THIS Court. A. Liability. Five judges in this case have considered and construed the interrelationship of § 4001(b) with § 4062(a) of ERISA and have arrived at three different meanings for the words used in the statute. This issue is critical to: (a) the many employers who are members of a con- trolled group and their employees; (b) any corporation considering acquiring another which may have an underfunded pension plan; (c) a company experiencing financial difficulties and having an underfunded plan who is seeking to be ac- quired by a stronger corporation so as to enable it to stay in business and continue to pay wages and make contri- butions under its plan;® and * Railroad Retirement Board v. Alton Railroad Co., supra; N.L.R.B. v. Burns International Security Services, Inc., supra; Howard Johnson Co., Inc. v. Detroit Local Joint Executive Board, Hotel & Restaurant Employees, 417 U.S. 249 (1974); York Chrysler - Plymouth, Inc. v. Chrysler Credit Cor- poration, 447 F.2d 786 (5th Cir. 1971); Bendix Home Systems, Inc. v. Hurston Enterprises, Inc., 566 F.2d 1039 (5th Cir. 1978), rehearing denied February 28, 1978; Gulfco Investment Corporation v. Hogan, 593 F.2d 921 (10th Cir. 1979), rehearing denied April 10, 1979; United Paperworkers In- ternational Union v. T. P. Property Corp., supra. °See N.L.R.B. v. Burns International Security Services, Inc., supra, wherein this Court stated: “A potential employer may be willing to take 21 (d) PBGC itself which is obligated to fund the insured benefits of the Avon plan as well as other similarly situated plans. The differing approaches and interpretations of the judges on this critical issue and its importance not only to employees and employers under ERISA but as it impacts on other areas of the law require review and restatement by this Court. If Congress intended to impose joint and several liability on all members of a controlled group of corporations solely based on their relationship, one would expect very clear statutory language to that effect supported by extensive legislative find- ings and history. In this case, § 4062 says not one word as to how the liability is to be apportioned where there are multiple entities and a single employer plan.'® Contrast this with ERISA § 4064 which allocates liability among employers under a multi-employer plan based on contributions and ap- plies the 30% limitation of liability under § 4062(b)(2) to each employer separately. Since imposition of liability on employ- ers who had not signed or adopted the plan would at least be “novel,” one should not have to seek out this liability and find it only upon an extensive rewrite of the statute. If Congress had intended the result found by the First Circuit, it was one of the best kept Congressional secrets of all times. over a moribund business only if he can make changes in corporate structure, composition of the labor force, work location, task assignment, and nature of supervision. Saddling such an employer with the terms and conditions of employment contained in the old collective-bargaining contract may make these changes impossible and may discourage and inhibit the transfer of capital.” 406 U.S. at 287-288. '!°The District Court (Tauro, J.) suggested that the failure of Congress to apportion liability among members of the controlled group could be at- tributable to “legislative oversight or to a determination that such apportion- ment is better left as a business decision.” 470 F.Supp. at 953-954, n.20. Fairness requires that, at least, the creditors and minority shareholders of all affected members should have a vote in any such decision. 22 B. Bankruptcy. Avon, which created and maintained the Avon Plan and whose employees were the only ones covered by and benefited from the plan, and Tenn-ERO, its wholly u-wned subsidiary, which the parties and the Courts have combined herein, were adjudicated bankrupt on March 22, 1976. On the critical valuation date for § 4062 liability, neither had any positive net worth. Under § 4062, neither should have any liability. However, PBGC, by adding Ouimet, Ouimet Stay, Welting and Wareham Trust, as members of a controlled group, alleges that such combination creates an “employer” entity which has a positive net worth and thereby creates a liability, where none otherwise existed. However, the use of the term “net worth” in § 4062 to define the limit of an employer’s liability underscores the unmistakable intent of Congress to ex- pose to PBGC only the funds of an employer as are not subject to claims of general creditors. The concept of “net worth” by its very nature shields from PBGC sufficient assets of the em- ployer to cover outstanding liabilities, i.e., it prevents harm to the creditors. The claim asserted against Avon and Tenn- ERO by PBGC’s lien and claim and sustained by the lower courts attains the very result which Congress through § 4062(b) sought to avoid, viz., PBGC has a priority lien on all of the re- maining assets of the bankrupts, despite the lack of any net worth. Not only does the First Circuit’s decision have an ad- verse impact on all creditors’ rights and their expectations in bankruptcy, it has a chilling effect on all financial statements issued from and after September 2, 1974. C. Financial Statements. The decision of the Court of Appeals for the First Circuit that all members of a controlled group of corporations have 23 joint and several liability for an underfunded pension plan which is terminated has far reaching effects on financial state- ments, the financial community and on the credit worthiness of every business organization. At the least, it requires that each member of a controlled group note as a contingent liabil- ity the amount of any underfunding of any member's plan each year; if such a plan is thereafter terminated, each corpor- ation must bring on its books and reflect as an actual liability the amount of the deficiency under ERISA, regardless of the net worth and ability to pay of the employer contracting for and maintaining the plan; the liability may exceed 30% of an individual member’s net worth when the net worth of other members is added; and the liability may greatly exceed its obligations under its own plan (of which a creditor would be advised) since it must reflect liability under all other defined benefit plans of every other member of a controlled group, regardless of its ability to participate in the decision of adopt- ing such a plan; each employer (and their creditors and share- holders) must await the decision and action by PBGC as to which member it will proceed against to collect the § 4062 li- ability; and thereafter the paying entity must seek reimburse- ment from or contribution by the other members having some or all or no responsibility for the Plan. How does an un- secured creditor protect himself against the priority of the PBGC lien where the debtor is a known or unknown member of a controlled group of corporations? What assurances can a member of the controlled group seeking credit give that its declared assets less disclosed liabilities are and will remain available to an unsecured creditor if the maintenance or termi- nation of an underfunded plan by another member (known or unknown, existing or not yet a member) can wipe out or sub- stantially reduce the net worth of the proposed debtor? The legislative silence on this critical aspect of the issue is strong, if not conclusive, evidence that Congress never envis- 24 ioned or intended to impose liability on multiple entities for single employer plans. D. Waiver of Liability. By ERISA § 4004(f)(4), PBGC was given the power “for on- ly the first 270 days after the date of enactment of the Act” to waive or reduce the liability imposed by § 4062 “on any em- ployer with respect to a plan terminating during that 270 day period if the corporation determines that such waiver or re- duction is necessary to avoid unreasonable hardship in any case in which the employer was not able, as a practical matter, to continue the plan.” Because of horrendous losses, the Avon Plan was terminated on March 25, 1975, within the 270 day period. However, since neither Avon nor any member of the controlled group submitted a written request for a waiver, PBGC declined to consider or grant a waiver. The District Court and Court of Appeals for the First Circuit both held that a written request was not necessary to qualify for a waiver under § 4004(f)(4). However, the courts below held that the expiration of the 270 day period terminated PBGC’s authority to act and peti- tioners’ right to a waiver was thereby lost. The District Court in A-T-O, Inc. v. Pension Benefit Cue anty Corporation, 456 F. Supp. 545 (N.D. Ohio 1978) appeal docketed, No. 78-3269, 6th Cir., May 24, 1980, held that PBGC violated 5 U.S.C. § 706(2)(A) as being “arbitrary, cap- ricious, [and] an abuse of discretion” where it failed to apply the statutory standards of unreasonable hardship and im- practicability of continuation in denying the plaintiff's request for a waiver. Since “inaction is tantamount to an order deny- ing” relief because it results in a final disposition of petitioner’s rights, (Environmental Defense Fund, Inc. v. Hardin, 428 25 F.2d 1093[D.C. Cir. 1970]), the reviewing court is directed to “compel agency action unlawfully withheld or unreasonably delayed,” and to set aside agency action found to be “arbi- trary, capricious [and] an abuse of discretion.” 5 U.S.C. § 706(1) and (2). The decision below fails to heed this clear mandate. The holdings by the First Circuit and District Court below on this issue render the statutory provisions allowing a waiver meaningless and makes the action, or inaction, by PBGC non- reviewable. Such clearly must fail for lack of due process and as violative of 5 U.S.C. § 706. Where PBGC would not act on the grounds that a waiver was not requested by petitioners herein (which the First Circuit and District Court both found was not required by ERISA) and where the facts relevant to the statutory standards are in the record, the courts should and must act in determining whether a waiver under § 4004(f)(4) should be granted. Accord, A-T-O, Inc. v. Pension Benefit Guaranty Corporation, supra. It is difficult to conceive of a case in which waiver would be more appropriate than in this case. E. Petitioners’ Construction of Statute. Petitioners contend that the phrase in § 4001(b): “all employees of trades or businesses (whether or not incor- porated) which are under common control shall be treated as employed by a single employer” (emphasis added) has the same meaning as similar language of § 414(b) and (c) of the Int. Rev. Code of 1954. The Congressional reports clearly show that the “treatment of employees of trades or businesses under common control,” as used in § 414(b) and (c) of the Int. Rev. Code of 1954 did not require all members of a controlled group to adopt the same plan or indeed to even have a plan. Instead, § 414(b) and (c) were designed as a special rule to 26 prevent the use of the controlled group to circumvent the anti- discriminatory provisions dealing with the qualification and operation of the Plan. The same words should have the same meaning in determining the amount of employees’ insured benefits under a terminated plan and the employers liable therefor. Viewed in the same light, § 4001(b) is meant to be a special rule and not a definition to prevent the controlled group from reducing or adversely affecting the amount of in- sured benefits payable to employees of a terminated plan merely by moving employees among members of the con- trolled group so that liability, if any, would rest on having par- ticipated in the proscribed misconduct or having received the benefit of the employee’s services whose benefits are being re- duced or eliminated, where such employer had not signed or otherwise adopted the plan. Under this construction, the employer who sets up and maintains a plan by adopting and contributing to it is prima- rily liable for any underfunding on its termination under ERISA § 4062. Where, however, (1) such employer does not have the necessary funds to pay the underfunding or such is not collectible due to the limitations of § 4062 when applied to such employer, and (2) a portion or all of the underfunding arises from costs attributable to treating some employees of the controlled group “as employed by a single employer,” then upon the happening of both conditions, the other members of the controlled group who are involved by their action are li- able for all or such portion of the underfunding in proportion to the benefit, if any, they have gained. As so construed, the responsibility and payment are tied to and coextensive with such benefit. To adopt petitioners’ construction of the statute would give the words used in the statute their ordinary meaning and make them consistent with the other provisions of the statute. It would leave ERISA intact and fuily effective to prevent any 27 abuse on termination, as it has to prevent abuse on quali- fication and operation. It eliminates any constitutional ques- tions. Such construction is favored. United States v. Thirty- Seven Photographs, 402 U.S. 363 (1971). Conclusion. For the foregoing reasons, petitioners pray that this Court allow a writ of certiorari to issue to the United States Court of Appeals for the First Circuit for purposes of reviowing and re- versing the decision of that Court. Respectfully submitted, RICHARD G. MALONEY, MALONEY, WILLIAMS & BAER, P.C., 133 Federal Street, Boston, Massachusetts 02110. (617) 482-9120 Attorney for Petitioners, Ouimet Corporation, Ouimet Stay & Leather Company, Ouimet Welting Company and Emil R. Ouimet Wareham Trust. RICHARD M. ZINNER, FRIEDMAN & ATHERTON, 28 State Street, Boston, Massachusetts 02109. (617) 227-5540 Attorney for Petitioners, Avon Sole Company, Tenn-ERO Corporation and Herbert Kahn, Trustee in Bankruptcy. la United States Court of Appeals For the First Circuit No. 79-1414 PENSION BENEFIT GUARANTY CORPORATION, PLAINTIFF-APPELLEE, and UNITED RUBBER, CORK, LINOLEUM AND PLASTIC WORKERS OF AMERICA, SOLOMON REDDIX AND ALEX WILLIAMS, PLAINTIFFS-INTERVENORS- APPELLEES, v. OUIMET CORPORATION, OUIMET STAY & LEATHER COMPANY, OUIMET WELTING COMPANY, EMIL R. OUIMET WAREHAM TRUST, AVON SOLE COMPANY, TENN-ERO CORPORATION AND HERBERT KAHN, TRUSTEE, DEFENDANTS-APPELLANTS. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. JosepH L. Tauro, U.S. District Judge] Before Corrin, Chief Judge, CAMPBELL and Bowness, Circuit Judges. Richard G. Maloney and Sidney Werlin, with whom Maloney, Williams & Baer, Richard M. Zinner, Friedman & Atherton, Paul P. Daley, Hale & Dorr, Richard E. Mikels, and Riemer & Brauns- tein were on brief, for appellants. Judith F. Mazo, with whom Henry Rose, James R. Dulcan, and Burns, Jackson, Miller, Summit & Washington were on brief, for Pension Benefit Guaranty Corporation, appellee. Bertram Diamond for United Rubber, Cork, Linoleum and Plastic Workers of America, Soloman Reddix and Alex Williams, ap- pellees. PREVIOUS PAGE WAS BLANK 2a 2 PENSION BENEFIT GUARANTY CORP. 0. OUIMET CORP. August 29, 1980 Bownes, Circuit Judge. Jurisdiction in this interlocutory ap- peal from the United States District Court for the District of Massachusetts is predicated upon 28 U.S.C. § 1292(b).! The issue is one of first impression involving the interpretation of the Employee Retirement Income Act of 1974 (ERISA), Pub. L. No. 93-406, 88 Stat. 832, 29 U.S.C. §§ 1001-1381. The case? began with the bankruptcy of a corporation, Avon, and its wholly owned subsidiary, Tenn-ERO, which were part of a larger group of corporations, the Ouimet Group.’ A brief prefatory explanation of ERISA, and the role in it of the Pension Benefits Guaranty Corporation (PBGC), is necessary to appreciate the issues. Under ERISA, PBGC assumes the administration and payment of benefits of a terminated pension plan whose assets are insufficient to cover all guaranteed benefits. PBGC may recover from the employer 30% of its net worth determined as of a date within one hundred twenty days of the plan termination, or the deficit, whichever is less. The bankrupts, here, had no positive net worth as of the valuation date. This means that, if the term “employer” is limited to the bankrupts, PBGC recovers 1 In pertinent part, 28 U.S.C. § 1292(b) provides: (b) When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order... . * The opinion of the district court is reported at 470 F. Supp. 945. > The Ouimet Group challenges certain retroactively-applied pro- visions of ERISA. After oral argument in the instant case, the Supreme Court heard oral arguments in Nachman Corporation v. PBGC, 48 U.S.L.W. 4524 (May 12, 1980), which also involved a retroactivity challenge to the Act. Accordingly, we postponed our decision until the Supreme Court had decided Nachman. 3a OPINION OF THE COURT 3 nothing and a dividend will be paid to the creditors. If, on the other hand, “employer” is construed to mean the Ouimet Group of corporations, including the bankrupts, it is probable that PBGC will receive all of the bankrupts’ assets with the creditors receiving nothing. The Ouimet Group of Corporations Over forty years ago, Emil R. Ouimet purchased the Brockton, Massachusetts, shoe-trim manufacturing concern for which he had worked for several years. In 1940, he changed its name to Ouimet Leather Company. He renamed it Ouimet Stay & Leather Company (Stay) when production expanded to include shoe upper strippings as well as other types of shoe findings.‘ In 1950, he founded Ouimet Corpora- tion (Ouimet), a Delaware corporation with its principal place of business in Nashville, Tennessee. Ouimet manufactures shoe findings, laminations, and vinyl-coated fabrics. Emil also founded Brockton Plastics (Brockton), a Massachusetts cor- poration producing, among other things, shoe welting, and Ouimet Welting (Welting), a now-dormant corporation. In 1968, Ouimet purchased the Avon Sole Company (Avon), a shoe sole manufacturing factory located in Holbrook, Massachusetts. In 1972, Avon formed a wholly-owned sub- sidiary, Tenn-ERO, to operate a nonunion plant in Lawrenceburg, Tennessee. In 1971, Emil Ouimet created the Wareham Trust (Trust) as a tax device. Its assets include the combined Stay-Brockton factory and the houses in which Emil and his son Richard reside. Emil Ouimet owns 100% of Trust; 80% of Ouimet; and 80% of Stay He owned all stock in Avon which, in turn, held 100% of Tenn-ERO’s stock. Stay has a 100% interest in Ouimet Welting; and a 50% interest in Brockton. At all times ‘ A finding is a trim, decorative item, or small stripping stitched onto the upper portion of a shoe. The terms finding and stay are in- terchangeable. 4a 4 PENSION BENEFIT GUARANTY CORP. 0. OUIMET CORP. pertinent to this litigation, Emil Ouimet was president of all Ouimet Group corporations except Ouimet and Stay, of which Richard was president. The Plan Pursuant to a collective bargaining agreement with the Rubber Workers Union and the International Brotherhood of Firemen and Oilers, Avon instituted a pension plan for its hourly workers in 1959. The plan provided for full vesting® after ten years of service, if certain age criteria were satisfied. It gave the company the right to “amend, modify, suspend or terminate the Plan” and limited the benefits payable upon ter- mination of the plan to “the assets then remaining in the Trust Fund.” Avon made all actuarily mandated contributions, but at all times the plan was underfunded. There were three reasons for this. (1) Initial underfunding occurred because credit was given for past years of service while no immediate contribution to the plan for this credit was required. Rather, the deficit was expected to be amortized over thirty years. (2) Ouimet negotiated several benefit increases which were not met by current contributions. (3) A decrease in the value of certain fund investments in 1974 and 1975 led to a devaluation of the plan assets. When Ouimet purchased Avon, the under- funding amounted to $92,000. By March 25, 1975, the day Avon closed its doors, it was $552,339.64. Prior Proceedings On June 18, 1975, Avon and Tenn-ERO filed Chapter XI bankruptcy petitions; on March 22, 1976, they were ad- judicated bankrupts. When the plant shut-down appeared im- minent, Avon notified PBGC of its intent to terminate the pen- sion plan.® PBGC responded to Avon’s request to terminate the plan with a letter stating: ° Vesting is defined as the “nonforfeitable right of interest which an employee acquires in the pension fund.” Employee Retirement Income Security Act of 1974, H.R. Rep. No. 93-533, reprinted in [1974] U.S. Cope Conc. & Ap. News 4639, 4643. ® 29 U.S.C. § 1341(a) requires plan administrators to notify PBGC of proposed terminations at least ten days prior to the proposed termination date. 5a OPINION OF THE COURT 5 It has been determined that Avon Sole Company was the employe: who maintained the Plan at the date of ter- mination for purposes of Section 4062 of the Act, 29 U.S.C. § 1362. It estimated Avon’s liability to be $717,500 and filed a proof of claim in the Avon/Tenn-ERO bankruptcy proceeding for that amount. After examining the bankrupts’ books,’ PBGC deter- mined that Ouimet, Stay, and Welting should also be con- sidered employers who maintained the plan. It computed the liability of the five corporations at $552,339.64,° and filed an amended proof of claim in that amount in the bankruptcy proceedings. Ouimet and Stay filed proofs claiming that, if held liable, they should be subrogated to the rights of PBGC against Avon and Tenn-ERO. The bankruptcy trustee cross- claimed alleging that Ouimet and Stay should reimburse the estate for any payments which Avon and Tenn-ERO would be required to make to PBGC. On March 31, 1976, PBGC filed suit against the Ouimet Group in the United States District Court for the District of Massachusetts.* After filing 7 PBGC has broad investigatory authority under 29 U.S.C. § 1303(a)-(c). ® Maximum liability to PBGC is the lesser of the pension under- funding or 30% of the employer's net worth. 29 U.S.C. § 1362(b). PBGC determined the net worth of the Ouimet Group, excluding Trust and Brockton, to be $1,875,283 on December 31, 1974. Because 30% of net worth ($562,601.70) exceeds the amount of pen- sion underfunding ($552,339.64) the liability equals the pension fund deficit. * 29 U.S.C. § 1303(e) authorizes PBGC to bring suit for legal and/or equitable relief. Jurisdiction is vested in the United States district courts. After commencement of plan termination, if PBGC finds that the plan is unable to pay basic benefits, 29 U.S.C. § 1341(e) empowers PBGC to apply to the district court for a deciee adjudicating that the plan must be terminated according to procedures outlined in 29 U.S.C. § 1342. Pending adjudication, “such court shall stay .. . any pending bankruptcy.” 29 U.S.C. § 1342(f). 6a 6 PENSION BENEFIT GUARANTY CORP, 0, OUIMET CORP. suit against Ouimet, Stay, Welting, Avon, and Tenn-ERO, PBGC determined that Trust should be treated as an employer as well and it was joined as an additional defendant. The district court named PBGC trustee of the Avon plan.’° It appointed the bankruptcy judge sitting on the Avon/Tenn- ERO proceedings to serve as master.'! Following a twelve-day trial in December, 1976, the bankruptcy judge recommended that no liability attach to the Group and that Avon/Tenn- ERO’s negative net worth relieved them of liability to PBGC. After release of the bankruptcy judge’s memorandum, Union moved to intervene to protect the interests of former Avon employees and the district court granted the motion. The court held a hearing on March 13, 1979. In its opinion, it ruled that ERISA imposes joint and several liability on all members of a controlled group of corporations. After a careful analysis of the statutory and constitutional issues, it granted PBGC’s motions for partial summary judgment and for relief from the automatic stay in bankruptcy and remanded the case to the bankruptcy court for a determination of the net worth of the Ouimet Group of corporations. Pension Benefit Guaranty Corp. v. Ouimet Corp., 470 F. Supp. 945, 954, 958 (D. Mass. 1979). We affirm, but on somewhat different grounds. The Statutory Scheme The employer-sponsored retirement income program, as one form of worker compensation, came into prominence in '0 29 U.S.C. § 1342(b) authorizes the appointment by the district court of PBGC as trustee. The court named PBGC trustee of Avon's plan on April 20, 1976, ordering that the termination be effective as of March 25, 1975. PBGC now pays monthly benefits averaging $87 to 108 employees. An additional 150 workers will receive no pension because their rights were not vested when Avon went out of business. '! A district court may appoint a special master “in matters of ac- count and of difficult computation of damages.” Fed. R. Civ. P. 53. The proceedings were consolidated because the issues in both cases were “substantially identical.” PBGC v. Tenn-ERO Corp., No. 76-1314 (D. Mass. May 13, 1977). 7a OPINION OF THE COURT 7 the 1940's. Expansion of coverage and a parallel increase in plan assets were marked in the ensuing decades. The field was unregulated by the federal government until the enactment, in 1958, of the Welfare and Pension Plans Disclosure Act. 29 U.S.C. § 301 et seq. Its purpose was to curb abuses by those to whom plan administration was entrusted. In 1962, criminalization of certain acts of malfeasance gave the earlier legislation some clout. Employee Retirement Income Act of 1974, H.R. Rep. No. 93-533, 93d Cong., 2d Sess., reprinted in [1974] U.S. Cope Conc. & Ap. News 4639, 4640-41. Plans ad- ministered jointly by employers and unions were under the dominion of the Labor Management Relations Act, 29 U.S.C. § 141 et seg. The tax advantages accruing to employers prompted Congress to enact Revenue Code provisions con- trolling plan contributions. 26 U.S.C. §§ 401-404. Only a plan maintained “for the exclusive benefit of [the] employees or their beneficiaries” was deemed qualified. 26 U.S.C. § 401(a) (4). Of primary significance were antidiscrimination rules denying deductions if a plan was designed to benefit officers, shareholders, or highly compensated employees. Id. By 1974, pension plans had burgeoned to include over thirty million workers; $150 billion in assets were held in trust for pensions, H.R. Rep. No. 93-533, supra, [1974] U.S. Cope Conc. & Ap. News at 4641; and twenty thousand workers were annually affected by pension plan failures. Employee Retirement Income Security Act of 1974, S. Rep. No. 93-383, 93 Cong. 2d Sess., reprinted in [1974] U.S. Cope Conc. & Ap. News, 4890, 5036. In many instances, benefits were subject to forfeiture “even when separated employees [were] within a few months, or even days, of qualifying for retirement.” H.R. Rep. No. 93-533, supra, [1974] U.S. Cope Conc. & Ap. News at 4643. The cloud of forfeitability was attributable to lack of uniformity in vesting, the Internal Revenue provisions requir- ing funding of current, but not past-service liabilities, and 8a 8 PENSION BENEFIT GUARANTY CORP. 0. OUIMET CORP. plan agreements which generally limited employee benefits to the corpus of the pension fund if a plan terminated prematurely. Congress confronted these problems by enacting ERISA, a comprehensive statutory scheme detailing “minimum stan- - dards . . . assuring the equitable character of [pension] plans and their financial soundness.” 29 U.S.C. § 1001(a).'* 29 U.S.C. §§ 1301-81 created the Pension Benefit Guaranty Cor- poration and instituted a system of pension plan termination insurance. Designed to guarantee minimum pension benefits to workers whose employers discontinue pension plans, ter- mination insurance is an industry-wide risk — and cost- sharing program. From a pool of premiums contributed by employers who maintain plans, PBGC pays vested benefits to affected employees when a plan terminates. In addition to participation in the insurance program, which is mandatory in most instances, “any employer who maintained a plan (other than a multiemployer plan) at the time it was terminated,” 29 U.S.C. § 1362(a), is liable to PBGC for the lesser of (1) the excess of — (A) the current value of the plan's benefits guaranteed under this subchapter on the date of termina- tion over (B) the current value of the plan's assets allocable to such benefits on the date of termination, or (2) 30 percent of the net worth of the emplover deter- mined as of a day, chosen by the corporation but not more than 120 days prior to the date of termination, com- puted without regard to any liability under this section. 29 U.S.C. § 1362(b). '2 29 U.S.C. §§ 1001-1144 set out requirements of minimum par- ticipation, vesting, and funding. 26 U.S.C. §§ 401-415 contain coor- dinate tax provisions. 29 U.S.C. §§ 1201-42 detail the procedure for the agencies to whom enforcement is relegated. 9a OPINION OF THE COURT 9 Who Is The Employer? We start with the definition section of subchapter III — Plan Termination Insurance. 29 U.S.C. § 1301(b) provides in part: For purposes of this subchapter, under regulations prescribed by the corporation, all employees of trades or businesses (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 co-extensive with regulations prescribed for similar purposes by the Secretary of the Treasury under section 414(c) of Title 26! (emphasis added). Section 1301(b) applies, by its terms, only to groups “under common control” as that term is defined in regulations coex- tensive with the regulations under 26 U.S.C. § 414(c)." 13 26 U.S.C. § 414(c) states in pertinent part, “all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer.” '* Temporary Treasury Regulations promulgated under 26 U.S.C. § 414(c) provides in part: §11.414(c)-2 Two or more trades or businesses under com- mon control [TD 7388, filed 10-31-75]. (a) In general. For purposes of this section, the term “two or more trades or businesses under common control” means any group of trades or businesses which is either a “parent- subsidiary group of trades or businesses under common con- trol” as defined in paragraph (b) of this section, a “brother- sister group of trades or businesses under common control” as defined in paragraph (c) of this section, or a “combined group of trades or businesses under common control” as defined in paragraph (d) of this section. For purposes of this section and §§ 11.414 (c)-3 and 11.414(c)-4, the term “organization” means a sole proprietorship, a partnership (as defined in sec- tion 7701(a)(2)), a trust, an estate, or a corporation. (b) Parent-subsidiary group of trades or businesses under common control — (1) General. The term “parent-subsidiary group of trades or businesses under common control” l0a 10 PENSION BENEFIT GUARANTY CORP. U0. OUIMET CORP. Those regulations define a group “under common control” as a parent-subsidiary group, brother-sister group, or combined group. The regulations go on to define these terms means one or more chains of organizations conducting trades or businesses connected through ownership of a controlling in- terest with a common parent organization if— (i) A controlling interest in each of the organizations, except the common parent organization, is owned (directly and with the application of § 11.414(c)-4 (b) (1), relating to options) by one or more of the other organizations; and (ii) The common parent organization owns (directly and with the application of § 11.414(c)-4(b)(1), relating to options) a controlling interest in at least one of the other organizations, excluding, in computing such controlling interest, any direct ownership interest by such other organizations. (2) Controlling interest defined—(i) Controlling interest. For purposes of paragraphs (b) and (c) of this section, the phrase “controlling interest” means: (A) In the case of an organization which is a corporation, ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote of such corporation or at least 80 percent of the total value of shares of all classes of stock of such corporation: (B) In the case of an organization which is a trust or estate, ownership of an actuarial interest of at least 80 percent of such trust or estate: (C) In the case of an organization which is a partnership, ownership of at least 80 percent of the profits interest or capital interest of such partnership; and (D) In the case of an organization which is a sole proprietor- ship, ownership of such sole proprietorship. (ii) Actuarial interest. For purposes of this section, the ac- tuarial interest of each beneficiary of a trust or estate shall be determined by assuming the maximum exercise of discretion by the fiduciary in favor of such beneficiary. The factors and method prescribed in § 20.2031-10 of this chapter (Estate Tax Regulations) for use in ascertaining the value of an interest in property for estate tax purposes shall be used for purposes of this subdivision in determining a beneficiary’s actuarial in- terest. (c) Brother-sister group of trades or businesses under com- mon control — (1) General. The term “brother-sister group of trades or businesses under common control” means two or lla OPINION OF THE COURT ll according to the degree and nature of common stock owner- ship. The Ouimet Group, with the exception of Brockton, which was excluded by stipu'ation, clearly meets the test of stock ownership in the regulations. The group is, therefore, under common control for purposes of section 1301(b). The apparent meaning of section 1301(b) is that a group under common control is to be treated as a single employer for more organizations conducting trades or businesses if (i) the same five or fewer persons who are individuals, estates, or trusts own (directly and with the application of § 11.414(c)-4), singly or in combination, a controlling interest of each organization, and (ii) taking into account the ownership of each such person only to the extent such ownership is identical with respect to each such organization, such persons are in ef- fective control of éach organization. (2) Effective control defined. For purposes of this paragraph, persons are in “effective control” of an organiza- tion if — (i) In the case of an organization which is a corporation, such persons own stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote of such corporation or more than 50 percent of the total value of shares of all classes of stock of such corporation: (ii) In the case of an organization which is a trust or estate, such persons own an aggregate actuarial interest of more than 50 percent of such trust or estate: (iii) In the case of an organization which is a partnership, such persons own an aggregate of more than 50 percent of the profits interest or capital interest of such partnership; and (iv) In the case of an organization which is a sole proprietor- ship, such persons own such sole proprietorship. (d) Combined group of trades or businesses under common control. The term “combined group-of-trades or businesses under common control” means any group of three or more organizations, if (1) each such organization is a member of either a parent-subsidiary group of trades or businesses under common contro! or a brother-sister group of trades or businesses under common control, and (2) at least one such organization is the common parent organization of a parent- subsidiary group of trades or businesses under common control and is also a member of a brother-sister group of trades or businesses under common control. 12a 12 PENSION BENEFIT GUARANTY CORP. U. OUIMET CORP. purposes of subchapter III, which is entitled Plan Termination Insurance. It appears, then, that the term “employer,” as used in section 1362(b), which is part of subchapter III, refers, in the case of a group under common control, to all the “trades or businesses” which are members of the group. Under this reading of the statute, all members of the Ouimet Group would be jointly and severally liable to PBGC. Ouimet argues, however, that section 1301(b) does not mean what it appears to mean. Rather, in Ouimet’s view, this language was intended only to prevent employers from avoiding application of ERISA by shifting employees around among various corporate entities. Ouimet maintains that, in the absence of section 1301(b), an employer could avoid ap- plication of ERISA by dividing into several corporations, each with less than twenty-five employees. Alternatively, an employer could shift an individual employee among corpora- tions so as to minimize his length of service in any one corpora- tion to avoid allowing his benefits to become vested. Ouimet is correct in asserting that Congress intended to pre- vent such evasion of ERISA. It is clear, however, that this was accomplished through the anti-discrimination rules of Title II and the vesting and participation minimums under Title I. If Congress had intended to limit the application of section 1301(b) to certain purposes, such as computing the number of employees for application of section 1321(b)(13), or the length of an employee’s service for application of section 1322(b)(3)(A), it could have done so by referring specifically to the affected sections. Instead, Congress referred to “this sub- chapter.” We must assume that Congress meant, by that phrase, the whole subchapter, including section 1362(b). Ouimet argues that our reading of section 1301(b) renders section 1362(d)(2) superfluous. On this point, we agree with the district court’s observation; since the definition of “parent” in the regulations under 26 U.S.C. § 414(c) is not incorporated into section 1362, there may be situations in which an l3a OPINION OF THE COURT 13 employer is liquidated into a parent corporation which does not meet the definition of “parent” that is used to define a group under common control. In such a situation, section 1301(b) would not apply, and section 1362(d)(2) would be necessary to impose liability on the parent. Ouimet also asserts that our reading of section 1301(b) is in- compatible with section 1107(d)(7). Ouimet focuses on the words, “[a] corporation is an affiliate of an employer if it is a member of any controlled group of corporations . . . of which the employer who maintains the plan is a member,” 29 U.S.C. § 1107(d)(7), and argues that this means that the employer cannot be the group. Again, we agree with the district court. This argument ignores the fact that section 1301(b) is in Title IV of the Act and applies only to subchapter III of that Title. The asserted incompatible language of section 1107(d)(7) is not in Title IV, let alone subchapter III. Defendants’ construc- tion mixes apples and oranges. We do not think it necessary to track in detail each of Ouimet’s other arguments against application of the plain meaning of section 1301(b), since we consider them adequately addressed in the district court’s opinion. We hold that the Ouimet Group, as a group under common control, is one employer for purposes of liability under section 1362. We are not persuaded that, because only one of a group of corporations under common control contributes to a plan, it is unjust to make the group responsible for the plan’s deficit. The facts of this case illustrate why such a group should be treated as an integrated whole. Ouimet purchased Avon with full knowledge of the plan and its funding requirements. Ouimet participated in the labor negotiations resulting in greater pen- sion benefits that contributed to the deficit. The Ouimet Group filed a consolidated tax return on which the Avon con- tributions were deducted. We see nothing unfair in treating the Ouimet Group as a single employer. We agree with the district court that the group under com- mon contro] consists of Ouimet, Trust, Stay, Welting, and Avon/Tenn-ERO. l4a 14 PENSION BENEFIT GUARANTY CORP. 0. OUIMET CORP. Retroactivity Defendants challenge the retroactive impact of ERISA for underfunding liability on both statutory and constitutional grounds. The Sixth Circuit confronted the same challenges in Nachman Corporation v. Pension Benefit Guaranty Corpora- tion, 592 F.2d 947 (7th Cir. 1979). Its decision upholding the retroactivity features of the Act on both grounds was appealed. The Supreme Court granted certiorari, but limited its review to the statutory question. Nachman Corporation v. Pension Benefit Guaranty Corporation, 48 U.S.L.W. 4524 (May 12, 1980). It stated the statutory question as follows: The question in this case is whether former employees of petitioner with vested interests in a plan that terminated the day before much of ERISA became fully effective are covered by the insurance program notwithstanding a pro- vision in the plan limiting their benefits to the assets in the pension fund. Id. at 4524. It held that, despite the retroactive effect on the Nachman Corporation, the pension benefits were “non- forfeitable” and that PBGC had a statutory right to reimburse- ment from the employer. Since the pension plan in this case terminated prior to December 31, 1975, and contains language substantially identical to the language in the Nachman plan, defendants’ statutory retroactive challenge is foreclosed by the Supreme Court decision in Nachman. See dissent of Mr. Justice Powell. Id. at 4534. The constitutional challenge to the retroactive effects of ERISA on defendants is based on due process grounds. The battle lines are drawn around redoubtable cases. Defendants rely primarily on Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978), and Railroad Retirement Board v. Alton Railroad Co., 295 U.S. 330 (1935). PBGC counters with Usery v. Turner Elkhorn Mining, 428 U.S. 1 (1976). We agree with the Sixth Circuit that Turner Elkhorn carries the day. The record supporting the enactment of ERISA, l5a OPINION OF THE COURT 15 wholly unlike that present in Allied Structural Steel, demonstrates that “the presumption favoring ‘legislative judgment as to the necessity and reasonableness of a par- ticular measure’ ” must be allowed to govern here. 438 U.S. at 247, 98 S. Ct. at 2724. Turner Elkhorn Mining, 428 U.S. at 18, 19, 96 S.Ct. 2882; Williamson v. Lee Op- tical Co., 348 U.S. 483, 488, 75 S.Ct. 461, 99 L.Ed. 563 (1955). Title IV of ERISA satisfies Nachman’s rights to Due Process. Nachman Corporation v. Pension Benefit Guaranty Corpora- tion, 596 F.2d at 963. We note that the Supreme Court quoted extensively in a footnote the analysis the Seventh Circuit used to distinguish ERISA from the Minnesota statute in Allied Structural Steel Co. v. Spannaus. Nachman Corporation v. Pension Benefit Guaranty Corporation et al., 48 U.S.L.W. at 4526 n.12. We hold that, despite the retroactivity inherent in the Act, there is no constitutional due process violation. Waiver T.) temper the immediate impact of ERISA on employers terminating plans, Congress authorized PBGC to issue full or partial liability waivers in cases of extreme hardship during the first two hundred seventy days after ERISA’s enactment. 29 U.S.C. §§ 1304(f)(4).!5 During the two hundred seventy day period, PBGC promulgated no guidelines relative to waiver application procedures, but, on May 30, 1975, the final day of its temporary authority, it waived liability 15 29 U.S.C. § 1304(f) in relevant portion provides: In addition to its other powers under this subchapter, for only the first 270 days after September 2, 1974, the corporation may— (4) waive the application of the provisions of sections 1362, 1363, and 1364 of this title to, or reduce the liability imposed under such sections on, any employer with respect to a plan terminating during that 270 day period if the corporation determines that such waiver or reduction is necessary to avoid unreasonable hardship in any case in which the employer was not able, as a practical matter, to continue the plan. l6a 16 PENSION BENEFIT GUARANTY CORP. 0. OUIMET CORP. in most cases in which it had received a letter requesting a waiver. These waivers were contingent upon subsequent in- vestigation into qualification for hardship status. The sole pro- cedural requirement of section 1304(f)(4) is that the plan ter- minate during the applicable period. Fulfilling that require- ment triggers eligibility for consideration of relief from liability. On March 14, 1975, more than two months prior to the ex- piration of PBGC’s temporary authority, Avon notified PBGC of its intent to terminate the plan on March 25, 1975. PBGC replied with a request for information about the plan and the reasons for its dissolution. Avon made a timely reply to the cor- respondence, outlining its poor financial condition. On May 29, 1975, Avon’s plan administrator advised an Avon vice- president, Thomas Rosser, that Avon should forward a waiver request to PBGC “by registered mail on May 30.” PBGC did not receive the letter, dated June 5, until the tenth of June and refused to consider the waiver request. The Ouimet Group now asserts that it is entitled to consideration for a hardship waiver, contending that it had no knowledge that PBGC would waive liability only if a specific request were made. It contends that the June 15th letter “indicates no more than the diligence of the actuary, who became concerned about the absence of any action by PBGC.” Our reading of the record leads us to the contrary conclusion. The letter from the com- pany plan administrator to Rosser states: Enclosed is a draft of the letter I mentioned in our telephone conversation which should be forwarded on Company stationery to the PBGC by registered mail on May 30, to meet the 270 day period from September 2, 1974. It indicates that Avon knew PBGC had instituted a waiver- request procedure. Whether Avon learned this formally or in- formally, it failed to act during the requisite time period. Avon correctly states that the statute requires no_ specific 17a CONCURRING OPINION, BOWNES, J 17 request for a waiver; but, once it had knowledge of PBGC’s housekeeping rules, it should have followed them. Moreover, as the district court pointed out, the Act allowed waiver by PBGC “for only the first 270 days” after enactment. 29 U.S.C. § 1304(f)(4). That period has passed. Affirmed. Bownes, Circuit Judge (concurring specially). While I agree with the panel, I think its statutory analysis, like that of the district court, is incomplete. It glosses over, without address- ing, the main statutory problem — that ERISA recognizes two groups of businesses: businesses (whether or not incorporated) which are under common control, and a controlled group of corporations. Each is defined separately and _ treated separately under the Act. Unfortunately, the parties and the district court, to some degree, have used the terms inter- changeably. Since the key question is whether the single employer definition of businesses under common control under section 1301(b)'® brings the Ouimet Group within the liability provisions of section 1362(a),'’ and, since section 1301 does not refer to controlled groups of corporations at all, it is 6 29 U.S.C. § 1301(b) provides in pertinent part: For purposes of this subchapter, under regulations pre- scribed by the corporation, all employees of trades or businesses (whether or not incorporated) which are under com- mon 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. '7 29 U.S.C. § 1362(a) provides in pertinent part: “This section applies to any employer who maintained a plan (other than a multi- employer plan) at the time it was terminated[.].” 18a 18 PENSION BENEFIT GUARANTY CORP. 0. OUIMET CORP. necessary to examine the Act to determine how both entities are treated and into which category the Ouimet Group falls. Congress defined controlled group by adopting the Internal Revenue Code definitions of 26 U.S.C. § 1563(a)'® which make stock ownership the test. It did not, at the time it passed ERISA, define groups under common control in terms of any 16 29 U.S.C. § 1060(c) refers to 26 U.S.C. § 1563(a)(1)-(3) which contains the following definition of controlled group of corpora- tions. (a) Controlled group of corporations.—For purposes of this part, the term “controlled group of corporations” means any group of — (1) Parent-subsidiary controlled group.—One or more chains of corporations connected through stock owner- ship with a common parent corporation if— (A) stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of stock of each of the corporations, except the common parent corpora- tion, is owned (within the meaning of subsection (d) (1)) by one or more of the other corporations; and (B) the common parent corporation owns (within the meaning of subsection (d) (1) stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of stock of at least one of the other cor- porations, excluding, in computing such voting power or value, stock owned directly by such other corporations. (2) Brother-sister controlled group.—Two or more corporations if stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of stock of each of the corporations is owned (within the meaning of subsection (d) (2)) by one person who is an individual, estate, or trust. (3) Combined group.—Three or more corporations each of which is a member of a group of corporations described in paragraph (1) or (2), and one of which— (A) is a common parent corporation included in a group of corporations described in paragraph (1), and also (B) is included in a group of corporations described in paragraph (2). 19a CONCURRING OPINION, BOWNES, J. 19 existing provisions of the Internal Revenue Code. In section 1301(b), it provided that, under regulations prescribed by PBGC, all employees with trades or businesses under common control are to be treated as employed by a single employer. It further directed that the PBGC regulations “shall be consistent and coextensive with regulations prescribed for similar pur- poses by the Secretary of the Treasury under section 414(c) of Title 26.” The regulations promulgated by the Secretary of the Treasury after the enactment of ERISA under 26 U.S.C. § 414(c), see footnote 14, supra, defined groups under common control in the same terms as controlled groups. This, however, cannot change the separate treatment given these two entities under the Act. The Ouimet Group fits into the definition of both entities; it is a group of businesses under common control and also a con- trolled group of corporations. The problem inherent in this dual role is that businesses under common control and a con- trolled group of corporations are not treated in the same man- ner throughout the Act. That section defining a multiemployer plan states, “all cor- porations which are members of a controlled group of corpora- tions . . . shall be deemed to be one employer.” 29 U.S.C. § 1002(37)(B)(ii). There is no mention of trades or businesses under common control in this section of the Act. Multiemployer plans are exempted from the liability provi- sions of 29 U.S.C. § 1362(a). Liability is imposed under 29 U.S.C. § 1364(a) on “all employers who maintain a plan under which more than one employer makes contributions at the time such plan is terminated . . .” Since the plan here is not multiemployer and since Ouimet is a controlled group, it can be argued that only the employer (the bankrupts) who main- tained the plan are liable. For purposes of minimum participation, vesting and benefit accrual, a controlled group and businesses under common con- 20a 20 PENSION BENEFIT GUARANTY CORP. U. OUIMET CORP. trol receive separate but equal tandem treatment under 29 U.S.C. §§ 1060(c) and (d).'* Disparate treatment of these entities does not, however, eliminate the common control definition of employer from the liability section of the Act. I would hold specifically that where, as here, there is a controlled group of corporations that also meets the definition of businesses under common control, section 1301(b) makes the group a single employer for liability purposes under section 1362(a). 19 29 U.S.C. §§ 1060(c) and (d) provide: (c) For purposes of sections 1052, 1053, and 1054 of this title, all employees of all corporations which are members of a controlled group of corporations (within the meaning of sec- tion 1563(a) of Title 26, determined without regard to section 1563(a)(4) and (e)(3)(C) of Title 26) shall be treated as employed by a single employer. With respect to a plan adopted by more than one such corporation, the minimum funding standard of section 1082 of this title shall be determined as if all such employers were a single employer, and allocated to each employer in accordance with regulations prescribed by the Secretary of the Treasury. (d) For purposes of sections 1052, 1053, and 1054 of this title, under regulations prescribed by the Secretary of the Treasury, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer. The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (c) of this section. 2la United States Court of Appeals For the First Circuit No. 79-1414. PENSION BENEFIT GUARANTY CORPORATION, ET AL., PLAINTIFFS, APPELLEES, v. OuIMET CORPORATION, ET AL., DEFENDANTS, APPELLANTS. JUDGMENT Entered August 29, 1980 This cause came on to be heard on appeal from the United States District Court for the District of Massachusetts, and was argued by counsel. Upon consideration whereof, it is now here ordered, ad- judged and decreed as follows: The judgment of the district court is affirmed. By the Court: /s/ Dana H. Gallup. Clerk. 22a United States District Court District of Massachusetts In re: TENN-ERO CORPORATION, AVON SOLE COMPANY, Bankrupts PENSION BENEFIT GUARANTY CORPORATION, Plaintiff v. TENN-ERO CORPORATION, AVON SOLE COMPANY and HERBERT C. KAHN, Trustee, Defendants PENSION BENEFIT GUARANTY CORPORATION vo. OUIMET CORPORATION, OUIMET STAY & LEATHER COMPANY and OUIMET WELTING COMPANY Memorandum * Bankruptcy No. 75-1520-HL No. 75-1521-HL Civil Action No. 76-1314-T This opinion concerns itself with the possible liability of a bankrupt corporation, jointly and severally with its parent and brother-sister corporations, for pension underfunding pur- suant to the Employee Retirement Income Security Act of 1974. *In Pension Benefit Guaranty Corp. v. Ouimet Corp., et al, C.A. No. 76-1314-T, this Memorandum constitutes the Master's Report and its Find- 23a Prior to 1975, the Avon Sole Company (Avon) engaged in the manufacture of shoe soling material in its plant in Massachu- setts. In 1973 Avon formed Tenn-ERO Corporation (Tenn- ERO), a wholly owned subsidiary,' to manufacture soling material in a new plant in Tennessee. During its fiscal year ending September, 1974, Avon and Tenn-ERO (the Bank- rupts) suffered consolidated operating losses of $800,000. Los- ses increased in the first quarter of 1975 and as a result management decided to discontinue manufacturing oper- ations in Massachusetts. The Avon plant closed on March 25, 1975, but heavy losses continued, and on June 18, 1975 Avon and Tenn-ERO filed petitions in this Court pursuant to Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq. Subsequently, on March 22, 1976, Avon and Tenn-ERO were adjudicated bankrupts. At the time of the closing of the Massachusetts plant, Avon was a party to a pension plan agreement, dated May 4, 1959, covering its unionized employees, all of whom worked in the Massachusetts plant. Pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), P.L. 93-4006, 29 U.S.C. § 1001 et seg, Avon notified the Pension Benefit Guaranty Corporation (PBGC) of the impending discon- tinuance of operations in Massachusetts and the need to ter- minate the pension plan. Under ERISA the PBGC is charged with the administration of the pension plan termination proc- ess and the distribution of plan benefits after termination.* ings of Fact and Conclusions of Law are submitted to the District Judge for approval. The unusual procedural posture of this case is explained infra. ' Although separate in name, the companies were for all practical purposes one. and have so been treated by all parties throughout these proceedings. 2On April 20, 1976, the PBGC was appointed trustee of the Avon Sole Company Pension Plan pursuant to ERISA § 4041 by Judge Tauro of the U.S. District Court for the District of Massachusetts. 24a The PBGC filed a proof of claim in the bankruptcy pro- ceeding of Avon and Tenn-ERO on February 6, 1976, claim- ing that pursuant to ERISA § 4062 the debtors were liable to the PBGC for an estimated $717,500. Title IV of ERISA provides that upon the termination of a pension plan, the PBGC is to assume the plan’s administration and, if necessary, to pay any guaranteed pension benefits if the plan itself has not been sufficiently funded to pay them. ERISA § 4062 provides that an employer who maintains an underfunded pension plan which terminates is liable to the PBGC for an amount that is either the deficit between the plan’s guaranteed benefits and its assets (in other words, the out of pocket expense of the PBGC) or 30% of the employer’s net worth, whichever is less.° 3 Liability of Employer Sec. 4062. (a) This section applies to any employer who maintained a plan (other than a multiemployer plan) at the time it was terminated, but does not apply — (1) to an employer who maintained a plan with respect to which he paid the annual premium described in section 4006(a)(B) for each of the 5 plan year during which the plan terminated unless the conditions imposed by the corporation on the payment of coverage under section 4023 do not permit such coverage to apply under the circumstances, or (2) to the extent of any liability arising out of the insolvency of an insur- ance company with respect to an insurance contract. (b) Any employer to which this section applies shall be liable to the cor- poration, in an amount equal to the lesser of — (1) the excess of — (A) the current value of the plan’s benefits guaranteed under this title on the date of termination over (B) the current value of the plan’s assets allocable to such benefits on the date of termination, or (2) 30 percent of the net worth of the employer determined as of a day, chosen by the corporation but not more than 120 days prior to the date of termination, computed without regard to any liability under this section. (c) For purposes of subsection (b) (2) the net worth of an employer is — 25a In September, 1968, when Ouimet Corporation acquired the stock in Avon, the Avon pension plan had unfunded vested benefits in the amount of $92,000. In September, 1974, when ERISA became effective, the underfunding amounted to $606,929.53. On March 25, 1975, upon plan termination, the underfunding was reduced to $552,339.64. The cause of the underfunding was basically three-fold. First, in 1959 when the plan was instituted participants were given credit for past years of service with Avon. So the plan owed benefits before contributions even began. Second, in 1969, pursuant to a collective bargaining agreement, auto- matic benefit increases were written into the plan and these had not been fully amortized by the date of termination. And third, the plan’s assets had been invested in certain equity and (1) determined on whatever basis best reflects, in the determination of the corporation, the current status of the employer’s operations and prospects at the time chosen for determining the net worth of the employer, and (2) increased by the amount of any transfers of assets made by the employer determined by the corporation to be improper under the cir- cumstances, including any such transfers which would be inappropriate under the Bankruptcy Act if the employer were the subject of a proceeding under that Act. (d) For purposes of this section the following rules apply in the case of cer- tain corporate reorganizations. (1) If an employer ceases to exist by reason of a reorganization which in- volves a mere change in identity, form, or place of organization, however ef- fected, a successor corporation resulting from such reorganization shall be treated as the employer to whom this section applies. (2) If an employer ceases to exist by reason of a liquidation into a parent corporation, the parent corporation shall be treated as the employer to whom this section applies. (3) If an employer ceases to exist by reason of a merger, consolidation, or division, the successor corporation or corporations shall be treated as the employer to whom this section applies. (e) If an employer ceases operations at a facility in any location and, as a result of such cessation of operations, more than 20 percent of the total number of his employees who are participants under a plan established and maintained by him are separated from employment, the employer shall be treated with respect to that plan as if he were a substantial employer under a plan under which more than one employer makes contributions and the pro- visions of sections 4063, 4064, and 4065 shall apply. 26a fixed-income securities, and at the date of termination the market value of these securities was approximately $75,000 less than their costs. None of these factors, on its face, rep- resented any illegal or improper conduct on the part of Avon. In fact, ERISA, recognizing that plan underfunding for reasons such as these would often be the case, provides for the amortization of past underfunding over a period of thirty to forty years. ERISA § 302. The reason the Avon pension plan terminated in an underfunded state in this case was because it terminated before amortization under ERISA was complete. During February and March, 1976, the PBGC examined the books and records of the Bankrupts as well as those of certain related business enterprises — Ouimet Corporation, Ouimet Stay & Leather Company, Ouimet Welting Company and the Emil R. Ouimet Wareham Trust (collectively the Ouimet Group). At all times relevant to this case, Ouimet Corporation owned 100% of the stock of Avon/Tenn-ERO. The Ouimet Stay & Leather Company owned 100% of the stock of Ouimet Welting Company and 50% of the stock of Brockton Plastics Company. Emil R. Ouimet owned in excess of 80% of the outstanding stock of Ouimet Corporation and the Ouimet Stay & Leather Company, and 100% of the stock of the Emil R. Ouimet Wareham Trust.‘ ‘ __ ll A, ~iaaaae 100 % + 80 % + 80 % Weschinn Trust Ouimet Corp. Ouimet Stay & Leather 100% 100% Avon Ouimet Welting 100 % 50 % | | Tenn-ERO Brockton Plastics 27a On March 15, 1976, the PBGC filed an amended proof of claim in the instant proceedings in the amount of $552,340 and based this figure on the treatment of the Ouimet Group as well as the Bankrupts as the plan employer for purposes of ERISA § 4062. On March 22, 1976, Ouimet Corporation and Ouimet Stay & Leather Company filed proofs of claim in the Avon and Tenn-ERO bankruptcy proceeding alleging that if Ouimet Corporation and Ouimet Stay & Leather Company were held liable to the PBGC as a result of the Avon pension plan term- ination, they were subrogated to the rights of the PBGC against the Bankrupts. The Trustee in Bankruptcy filed a cross claim asserting that if the PBGC’s claim against the Bankrupts were allowed, the estate had a right to collect from Ouimet Corporation and Ouimet Stay & Leather Company in the amount distributed to the PBGC. Ouimet Corporation and Ouimet Stay & Leather answered the cross claim with denials. On March 31, 1976, the PBGC commenced a civil action against the Ouimet Group in the United States District Court, pursuant to ERISA § 4068(d), to collect the alleged § 4062 liability of the Ouimet Group. The PBGC then filed a com- plaint in the Bankruptcy Court seeking relief from the auto- matic stay in bankruptcy in order to proceed against the Bank- rupts by joining them in the District Court action. The procedural posture of the instant case embodies an ob- jection by the Trustee in Bankruptcy to the PBGC’s claim against the Bankrupts, the complaint filed by the PBGC in this Court seeking relief from the automatic stay of Bankruptcy Act § 11 and Rule 401 of the Rules of Bankruptcy Procedure, and a reference to this Court as Master in the U.S. District Court action of the PBGC against the Ouimet Group. The issues as well as the role of the Court in all these matters are substantially identical, and for purposes of convenience they 28a will be dealt with as a single proceeding to determine the validity and amount of any liability in connection with the termination of the Avon Sole Company Pension Plan. Trial of this case began on October 19, 1976 and consumed all or part of twelve days. At least 257 pages of legal memo- randa have been filed at various stages of the proceedings. All counsel have labored diligently and competently in full recognition that this is a case of first impression, not only in this district, but, because of the novelty of the Act, in the United States. The case has important implications in bank- ruptcy administration as well as in the implementation of ERISA and the viability of certain concepts of corporate law. ERISA provides for the payment to the PBGC for monies spent to pay benefits due from a terminated pension plan whose own assets were insufficient. Payment must come from the employer and the amount is limited so as not to exceed 30% of the employer’s net worth. ERISA § 4062. It is con- ceded, and the Court so finds, that Avon and Tenn-ERO, the Bankrupts, had no positive net worth at the relevant date so that unless the Ouimet Group may be included as the respons- ible employer, the PBGC cannot recover any of its benefit ex- penditures. If the Ouimet Group is included as the employer, then the question of the meaning and proper application of the waiver provision of ERISA § 4004(f) must be resolved. Final- ly, if the Ouimet Group becomes part of the employer and waiver of liability is inappropriate, the net worth of the employer must be established in order to determine the prop- riety of the PBGC’s claim. 3 The Pension Benefit Guaranty Corporation is a “body corporate” in the U.S. Department of Labor, ERISA § 4002(a), and as such it is an agency within the meaning of 29a § 2a of the Administrative Procedure Act (APA), 5 U.S.C. § 551. See also, Joint Explanatory Statement of the Commit- tee of Conference, House Conference Report, No. 1280, 93rd Cong., 2d Sess. (1974). Because it involves the actions of an administrative agency, this case must be decided in light of the constraints existing both upon agency action and a court’s ex- amination of that action. The framework for judicial review of agency action is sup- plied by APA § 10,5 U.S.C. §§ 701, 702. That section affords a right of review to a person adversely affected by agency ac- tion “except to the extent that (1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law.” The U.S. Supreme Court has enunciated the prin- ciple that only on a showing of “clear and convincing” intent to preclude court review should courts refuse to review agency action. Dunlop v. Bachowski, 421 U.S. 560 (1975); Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); Heikkila v. Barber, 345 U.S. 229 (1953). Professor Davis argues that this statement of the Court is somewhat more extreme than is justified by the majority of Supreme Court cases in this area; however, even he defines the general rule of the Supreme Court as establishing a presumption of reviewability to be re- butted by showing either a contrary Congressional intent or the inappropriateness of judicial consideration. 4 K. Davis, Administrative Law Treatise §§ 28.08 and 28.16-1 (1958 and Supplements) (hereinafter cited as Davis). Professor Jaffe concurs in this presumption of reviewability. L. Jaffe, Judicial Control of Administrative Action at 336 and 372-3 (1965) (hereinafter cited as Jaffe). Thus, in the instant case, a finding that ERISA fails to evi- dence a Congressional intent, express or implied, to preclude review, together with a finding that review is not inappropri- ate, are enough to justify judicial review under APA § 10. 30a In the case of ERISA, it is unnecessary to look beyond the words of the Act itself to determine the propriety of general court review. Title IV § 4003(f) provides that an employer adversely affected by any action of the PBGC may bring an ac- tion in the appropriate court. In the instant case, the Bank- rupts and the Ouimet Group, having been declared liable by the PBGC pursuant to ERISA § 4062, have clearly been ad- versely affected by an agency action and this Court may there- fore examine the validity of the PBGC’s action. Once reviewability has been established, it is necessary to define the scope of that review. The instant case involves the assessment by an administra- tive agency of a monetary liability based on factual findings obtained from examination of detailed and complicated fi- nancial data. At no time prior to the assessment were the original parties offered the opportunity to appear before the agency to explain their financial records or defend their posi- tions. Therefore, before any liability may be finally deter- mined, such a hearing is a constitutional necessity. Bi- Metallic Co. v. Colorado, 239 U.S. 441 (1915); Londoner v. Denver, 210 U.S. 373 (1908). * Actually, the express words of ERISA § 4003(f) are slightly confusing because of an apparent typographical error. Any participant, beneficiary, plan administrator, or employee ad- versely affected by any action of the corporation [PBGC] or by a receiver or trustee appointed by the corporation, with respect to a plan in which such participant, beneficiary, plan administrator or em- ployer has an interest, may bring an action against the corporation, receiver or trustee in the appropriate court. (Emphasis added) It is obvious that there is an error either in the word “employee” or “employ- er.” Since § 3(7) of ERISA defines a “participant” to include an employee, to repeat that term would be purposeless. To include employers, however, would be totally consistent with the section’s obvious intent to make court review available to all those who could suffer under Title IV. It would seem, therefore, that the error lies in the word “employee,” which should read “em- ployer.” The PBGC, in open court, has concurred with this interpretation. 3la Professor Davis formuiates this due process hearing re- quirement into an adjudicative/legislative dichotomy, saying that when an agency adjudicates facts a trial type hearing is required. 1 Davis § 7.04. Professor Jaffe speculates that cate- gorization often confuses more than clarifies, but accepts the basic due process pronouncement: When a person is the object of an administrative order which will be enforced by a writ levying upon his prop- erty or person, he is at some point entitled to a judicial test of legality. Jaffe at 384. This is not to say, however, that the hearing must always oc- cur at the agency level. So long as the aggrieved party is pro- vided a de novo hearing prior to the enforcement of the agency action, the constitutional requisites have been met. Nickey v. Mississippi, 292 U.S. 393 (1934); Phillips v. Commissioner, 283 U.S. 589 (1931); Hagar v. Reclamation District, 111 U.S. 701 (1884). Thus, when an agency assessed a tax against an individual, the U.S. Supreme Court has held that the failure of the agency to provide the taxpayer a hearing prior to the assessment did not violate due process requirements because in order to actually enforce the assessment the agency had to resort to the courts at which time a full hearing occurred. Hagar v. Reclamation District, supra. The instant case is similar to those in which the Supreme Court has held that de novo court review of agency action satisfies due process. The PBGC, without any prior evidentia- ry hearing, assessed a liability against the Bankrupts and the Ouimet Group. To enforce collection of that assessment the instant court action has been necessary. ERISA § 4068(d). Therefore, this Court, in offering all parties the opportunity to 32a present their cases, must consider the evidence presented de novo. Ewing v. Mytinger & Casselberry, 339 U.S. 594 (1950); Lichter v. U.S., 334 U.S. 742 (1948); Nickey v. Mississippi, supra. In light of the de novo hearing requirement, the Court’s scope of review of the PBGC’s action is fairly broad. To the extent necessary to its decision, the Court “shall decide all rele- vant questions of law, interpret constitutional and statutory provisions and determine the meaning or applicability of the terms of an agency action.” APA § 10(c),5 U.S.C. § 706. The Court shall set aside an agency action if it is, inter alia, ar- bitrary, capricious, contrary to constitutional right or “unwar- ranted by the facts to the extent that the facts are subject to a trial de novo by the reviewing court.” Id. The standards for this Court’s scope of review must take into account that the agency has already acted, albeit without a hearing. Even the Court’s de novo reception of evidence can- not ignore the agency’s findings. Thus, unless the weight of the evidence presented in the de novo hearing supports a con- trary finding, the Court must uphold the agency action. It is the burden of the aggrieved party to establish that the agency action complained of violates statutory or procedural require- ments or is unwarranted according to the weight of the evi- dence. Redman v. U.S., 507 F. 2d 1007 (5th Cir. 1975). Further, as part of the consideration of its scope of review of the agency’s interpretation of a statute, the Court takes note of the deference a judicial tribunal must extend to an adminis- trative agency’s specialized expertise. The rule is venerable that a reviewing court must give great weight to the inter- pretation of a statute by the agency charged with its adminis- tration. Columbia Broadcasting System, Inc. v. Democratic National Committee, 412 U.S. 94 (1973). It is also well established, however, that the courts are the final authorities on the issue of statutory construction and as 33a such the courts are not bound by an administrative interpreta- tion. Especially is this true when the agency interpretation creates internal statutory inconsistencies or is inconsistent with a statutory mandate, frustrates congressional policy or creates serious constitutional questions. Morton v. Ruiz, 415 U.S. 199 (1974); Volkswagonwerk v. Federal Maritime Commission, 390 U.S. 261 (1968); Annot. 39 L. Ed. 2d 942 (1975). The Court takes note in the instant case of the PBGC’s youth and the consequent dearth of established agency policy and prece- dent that existed at the pertinent time in areas of its jurisdic- tion. To a certain extent this inexperience must discourage notions of agency expertise that are part of the justification for a court’s deference. Furthermore, to the extent that the Court’s review concerns the meaning of the words of a statute, for instance, the definition of the term “employer” or the scope of the waiver provision within ERISA, such questions are traditionally a matter of judicial competence and concern. Jaffe at 576 et seq. I, The liability which the PBGC asserts in this case arises out of the employer liability provisions of ERISA, specifically § 4062. The PBGC claims that liability under ERISA § 4062 must be assessed not only against the Bankrupt, who was the actual employer, but also against the Ouimet Group because the term “employer” as used in § 4062 means all trades or busi- nesses under common control within the terms of ERISA § 4001(b).° The PBGC apparently maintains that in light of ®ERISA § 4001(b) states: An individual who owns the entire interest in an unincorporated trade or business is treated as his own employer, and a partnership is 34a ERISA § 4001(b), the term “employer” wherever it appears in Title IV of ERISA encompasses the control group concept. In regulations promulgated by the PBGC pursuant to ERISA § 4001(b), the PBGC adopts the regulations issued by the Treasury Department under § 414(c) of the Internal Rev- enue Code. 29 C.F.R. § 26.12 (Supp. 1976). The Treasury Department defines “trade or business under common control” in Temp. Reg. 11.414(c). See also Proposed Regs. 1.414 et seq, CCH Fed. Tax Rept. para. 2669F. The Treasury Regulations delineate three groups of business relationships as common control situations. The first two, parent-subsidiary and brother-sister, are self explanatory. The third, the combined group, consists of three or more businesses where each is a member of either a parent-subsidiary or brother-sister group and at least one is both the parent in a parent-subsidiary group and a member of a brother-sister group. The Regulation gives the following example: A, an individual, owns substantially all the stock of subsidiary ABC and DEF corporations. ABC owns substantially all the stock of subsidiary X corporation. A, ABC, X and DEF are members of a combined group since each is a member of either a parent-subsidiary or brother-sister group and ABC is both a parent in a parent-subsidiary group and a “sibling” in a brother-sister group. treated as the employer of each partner who is an employee within the meaning of section 401(c)(1) of the Internal Revenue Code of 1954. For purposes of this title, under regulations prescribed by the corpora- tion, all employees of trades or businesses (whether or not incorpor- ated) which are under common control shall be treated as employed by a single employer and all such trades and businesses as a single employ- er. The regulations prescribed under the preceding sentence shall be consistent and coextensive with regulations prescribed for similar pur- poses by the Secretary of the Treasury under section 414(c) of the In- ternal Revenue Code of 1954. (Emphasis added) 35a In the instant case the relationship of the entities places them in the combined group category of Temp. Treas. Reg. 11.414(c). The PBGC concedes that unless the term “employer” in the liability provision of ERISA § 4062 is defined to include con- trol group entities, the PBGC would not succeed in recouping any of the funds it may spend to pay benefits in the underfund- ed Avon Sole Company Pension Plan. ERISA envisions that the PBGC will assume the administra- tion and disbursement of a terminated pension plan whose assets are insufficient to cover all guaranteed benefits. ERISA further provides that within certain limits, the PBGC may re- cover from the former plan employer the funds it is forced to spend in funding the plan. The PBGC is never permitted to hold an employer liable for an amount in excess of 30% of the employer’s net worth determined as of a date within 120 days of the plan termination. ERISA § 4062(b). The PBGC through its own valuation has concluded that the Bankrupts had no positive net worth on the net worth valuation date, De- cember 31, 1974. Thus, if the employer under § 4062 is the Bankrupts alone, the PBGC recovers nothing and a dividend will be paid to the Bankrupts’ creditors. If, on the other hand, the employer consists of the Bank- rupts and the Ouimet Group, the net worth valuation, at least according to the PBGC, increases to such a degree that PBGC claims it can recover the entire potential out of pocket expense of $552,339.64, and the creditors of the Bankrupt would not receive a dividend.® The Bankrupts and the Ouimet Group, of course, strenu- ously argue that, for liability purposes under ERISA, only the Bankrupts are the employer. They further argue that even if *The bankrupt estate has assets of $374,000 and unsecured claims of $2,200,000. The PBGC’s claim is given tax priority status, ERISA § 4068(b) (2), so that after costs of administration the PBGC’s priority would exhaust the assets leaving nothing for the unsecured creditors. 36a the PBGC prevails as to the definition of “employer”, ERISA § 4004(f)(4) requires that all liability in this case be waived. Finally, they contend that if unwaived liability does exist, under a proper calculation of net worth that liability is con- siderably less than that which the PBGC demands.’ Because ERISA has been law for such a short period, the courts have had little opportunity to interpret its manifold and complex provisions. This Court has been unable to discover any judicial decision relating to the extent of employer liability under ERISA § 4062.° After careful examination of the express statutory language of ERISA, its legisiative history and the public policies it is in- tended to advance, this Court is convinced that ERISA § 4062 levies liability for the PBGC’s assumption of pension plan pay- ments only against the person or corporation acting directly as 7 The PBGC, defining net worth in terms of fair market value and assign- ing a zero net worth to the Bankrupts, concludes that the net worth of the control group on the net worth valuation date was so great that 30% of that value is not exceeded by the entire $552,339.64 potential plan underfunding to be borne by the PBGC. The Bankrupts and the Ouimet Group dispute the PBGC’s conclusion. They variously contend that net worth is based on book value, that the net worth valuation date chosen by the PBGC was erroneous, that too many businesses were included in the control group and, even accepting the PBGC’s position as to all of the aforementioned, that the Ouimet Group's net worth was far less than that calculated by the PBGC and that when the negative net worth of the Bankrupts is subtracted therefrom, the total net worth of the control group falls between $464,000 and $650,000 and that the liability is 30% of that net worth — an amount far less than $552,339.64. * This situation is not likely to continue much longer. Congressman John Erlenborn, one intimately involved in the drafting and enactment of ERISA, in a recent speech before the Midwest Pension Conference, pointed to a host of problems associated with the employer liability provisions of ERISA. He suggested that, as they now exist, the employer liability provisions should be renamed the employer extermination provisions. This suggests the prob- ability, as conglomerates attempt to clarify their potential liabilities, of future litigation and possibly Congressional action in this area. 37a an employer in relation to an employee benefit plan, or, as provided in § 4062(d), against certain successor in interest corporations when the direct plan employer attempts to avoid liability. In the instant case the employer for § 4062 purposes would be the Bankrupts. This Cou t in the first instance is guided by the basic princi- ple that a statute’s plain language is the primary indicator of its meaning. Massachusetts Financial Services, Inc. v. Securities Investors Prot [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0859%3A1. Public record. Not legal advice.