Opposition — Ouimet Corp. v. Pension Benefit Guaranty Corp.

No. 80-860

In The

Supreme Court of the United States

October Term, 1980

OUIMET CORPORATION, OUIMET STAY & LEATHER

COMPANY, OUIMET WELTING COMPANY, EMIL R.

OUIMET WAREHAM TRUST, AVON SOLE COMPANY,

TENN-ERO CORPORATION and HERBERT KAHN,

Trustee,

Petitioners,

VS.

PENSION BENEFIT GUARANTY CORPORATION and

UNITED RUBBER, CORK, LINOLEUM and PLASTIC

WORKERS OF AMERICA, SOLOMON REDDIX and

ALEX WILLIAMS,

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE FIRST CIRCUIT

BRIEF IN OPPOSITION FOR

URW, REDDIX AND WILLIAMS

Charles R. Armstrong

General Counsel

United Rubber, Cork Linoleum

and Plastic Workers of America

87 South High Street

Akron, Ohio 44308

(216) 376-6181

Bertram Diamond, Esq.

441 Summer Street

Stamford, Connecticut 06901

(203) 324-9284

Counsel For URW, Reddix and Williams

QUESTIONS PRESENTED

Ve Whether 29 U.S.C. §1301(b) makes

all trades or businesses under common

control a single employer for purposes of

Title IV of the Employee Retirement

Income Security Act of 1974?

2. Whether the Pension Benefit Guar-

anty Corporation abused its discretion

under 29 U.S.C. §1304(£)(4) in refusing

to consider a liability waiver request

made after May 30, 1975?

36 Whether controlled group lia-

bility for the value of guaranteed pen-

Sion benefits under 29 U.S.C. §1362, in

Title IV of the Employee Retirement

Income Security Act of 1974, violates the

Fifth Amendment to the United States

Constitution?

ii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED. ccccccccccccccecse i

TABLE OF CONTENTS .cccccccccvccvccccce ii

TABLE OF AUTHORITIES.cccccccccccccce ALi

TITLE PAGE ccc cc ccc ccc cecccccesceece 1

STATEMENT OF THE CASE. ccccccccccccce 2

ARGUMENT ..ccccccccccccccccssecccseccecs 5

CONCLUS Felco ccc cee ece eee eee eee eeeees 16

iii

TABLE OF AUTHORITIES CITED

Page

CASES

Allied Structural Steel Co. v.

Spannaus, 438 U.S. 234 (1978).... 13,14

A-T-O v. PBGC, 318 Pens. Rep.

(BNA) D-1 (Nov. 24, 1960) eoccccvce 10,14

In re Williamsport Milk Products

Company, Inc., Retirement Plan,

309 Pens. Rep. (BNA) A-16 (3d

Cir. Aug. 29, 1980) .cccccccccccce 14

Nachman Corp. v. Pension Benefit

Guaranty Corp., 592 F.2d 947

(7th Cir. 1979), cert. denied

in past and granted in past, 442

U.S. 940 (1980), affirmed,

U.S. , 100 S. Ct. 1723

(1980) wecccccccccceseceseeccoccos Vapte

14

Railroad Retirement Board v. Alton

Railroad Co., 295 U.S. 330

(TPFD>) cocccvescseeeessesesessasses 13,14

Usery v. Turner Elkhorn Mining

Co., 482 U.S. 1 (197Sdcccvcscacse 13

UNITED STATES CODE CITED

Title 26, Section 141(¢) -cccccccccce

Title 28, Section 1292(b) cccccccces

Title 29, Section TIOTecccccecccosece

Title 29, Section 1302(a)..ccccccees

Title 29, Section 1301(BD) ccccccsece

Title 29, Section 1302(a) cccccccecce

Title 29, Section 13046(£).cccesceses

ul

~

9

wmwmowo udd

iv

Title 29, Section WT32l.ccccccceccseccs 5

PAClLSe 29, SeECtion WSs. cccccccccccecs 5

Title 29, Section W362 cccccccccvececr 5

Title 29, Section 1362(b)..ceeeeeeee 6,7

REGULATIONS

Title 29, Code of Federal Regula-

tions, Section 2612.1-3.cccccccee 6

Temporary Treasury Regulations,

Section TT .414(C) ccccccccccecccscoce 6

CONGRESSIONAL MATERIALS CITED

Cong., 2d Sess. 376, SOG cccccces 7

No. 80-860

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

OUIMET CORPORATION, OUIMET STAY & LEATHER

COMPANY, OUIMET WELTING COMPANY, EMIL R,.

OUIMET WAREHAM TRUST, AVON SOLE COMPANY,

TENN-ERO CORPORATION and HERBERT KAHN,

TRUSTEE,

PETITIONERS,

VS.

PENSION BENEFIT GUARANTY CORPORATION AND

UNITED RUBBER, CORK, LINOLEUM AND PLASTIC

WORKERS OF AMERICA, SOLOMON REDDIX AND

ALEX WILLIAMS,

RESPONDENTS.

On Writ of Certiorari to the United States

Court of Appeals for the First Circuit

BRIEF IN OPPOSITION FOR URW, REDDIX

AND WILLIAMS

STATEMENT OF THE CASE

For the sake of brevity, Respondents

United Rubber, Cork, Linoleum and Plastic

Workers of America (herein called "URW"),

Reddix and Williams adopt the statement

of Respondent Pension Benefit Guaranty

Corporation (herein called "PBGC"). The

facts are also detailed in the opinion of

the Court of Appeals for the First Cir-

cuit (Pet. App. 1la-20a).

In 1959, Avon Sole — and two

unions representing its hourly employees

instituted a pension plan by collective

bargaining agreement and this plan was

continued in effect by succeeding agree-

ments.

After 1968, URW represented the pro-

duction employees of Avon. Reddix and

Williams are retired employees who earned

vested rights to pensions under the plan

and who presently receive monthly bene-

fits from PBGC as trustee for the plan,

in amounts guaranteed by ERISA.

In February 1975, after enactment of

ERISA and Title IV's effective date of

September 2, 1974, URW and Avon entered

into a supplemental collective bargaining

agreement that renewed and revised the

pension plan agreement, extending its

term to July 1, 1975, unless renego-

tiated. Avon notified PBGC that the plan

would be terminated on March 25, 1975 and

PBGC agreed to the date.

On the termination date guaranteed

vested benefits were underfunded by

$552,339.64. The plan's assets would

have paid only about 40% of its guar-

anteed benefit liabilities. Without the

PBGC guaranty, average monthly pension

benefits to former Avon employees or

their beneficiaries would fall from

$85.00 to $35.00. If there were no

guaranty, Reddix would lose 74.3% of his

present monthly benefits and for Williams

the loss would be total.

Avon and its wholly-owned subsidiary

Tenn-ERO, both affiliates of the Ouimet

Group, were ajudicated bankrupts on March

22, 1976.

ARGUMENT

Title IV of ERISA enacted a program

for insuring unfunded vested benefits on

plan termination; established the Pension

Benefit Guaranty Corporation (PBGC) to

administer the program; provided for its

financing through employer contributions;

and required employers to reimburse PBGC

for the cost of unfunded guaranteed

benefits in an amount not to exceed 30%

of thetic net worth. 29 @.6.C. BSET3s2l¢

1322, 1362.

In the definitions section of Title

IV, Congress took over from the Internal

Revenue Code the controlled group con-

cept, treating all business under common

control as a “single employer." 29

U.S.C. §1301. This concept was expressly

incorporated into 29 U.S.C. §1301(b),

"for purposes of [Title IV of ERISA],

under regulations prescribed by the

{[PBGC]."

On an interlocutory appeal heard under

28 U.S.C. §1292(b) the court of appeals

affirmed the ruling of the district court

that Ouimet, Trust, Stay, Welting and

Avon/Tenn-ERO constituted a group under

common control for purposes of Title IV

of ERISA and, particularly, the section

dealing with employer liability on plan

termination, 29 U.S.C. §1362(b).

Petitioners do not dispute that the

Ouimet Group consists of trade or busi-

nesses under common control as defined in

temporary Treasury regulations’ promul-

gated under 26 U.S.C. §141(c). Temp.

Treas. Reg. §11.414(c). These regula-

tions were incorporated into PBGC's own

regulation on the subject. 29 C.F.R.

§2612.1-3.

Petitioners contend that the statutory

provision which defines as a "single

employer" all trades or businesses under

common control does not mean what it

Says. They argue that the provision lays

down no definition but merely a special

rule, that the reading of the court of

appeals runs counter to the language of

the statute and its legislative history,

and that it imposes liability on bankrupt

corporations contrary to the 30% net

worth limitation in 29 U.S.C. §1362(b).

None of these arguments raises any

question meriting review by this Court.

The statutory provision does define the

term "employer" for purposes of Title IV.

As stated in the Conference Report on the

bill that became ERISA, Congress intended

that termination liability should apply

to the entire controlled group. H.R.

Rep. No. 93-1280, 93d Cong., 2d Sess.

376, 380, (1974), reprinted in 1974 U.S.

Code Cong. & Ad. News 5038, 5159. This

means that the 30% net worth limit is

calculated on the basis of the net assets

of the whole group, rather than any

Single one of its affiliates.

Congress enacted §1301(b) to prevent

employers from using corporate compart-

mentalization to .avoid termination

liability. Such liability serves the

declared policies of Title IV's termina-

tion insurance program by encouraging the

continuance and maintenance of private

pension plans, by providing for the

timely and uninterrupted payment of

pension benefits to participants and

beneficiaries under covered plans, and by

maintaining PBGC premiums at the lowest

level consistent with its obligations.

29 U.S.C. §1302(a).

All of petitioners' arguments were

carefully considered by the district

court and court of appeals. They were

properly rejected on the basis of the

language of the statute, its legislative

history, and the applicable regulations.

Such decisions were clearly correct.

There is no conflict in the circuits.

The question of construing §1301(b) was

important for advancing the ultimate ter-

mination of this case. That task was

well performed below. There is no need

for this Court to replough the same

ground.

as For the first 270 days after the

enactment of ERISA, PBGC had authority to

waive or reduce termination liability

where "necessary to avoid unreasonable

hardship." 29 U.S.C. §1304(f). The

power of the PBGC to grant emergency

relief expired on May 30, 1975. Although

Avon had earlier been advised by its

plan administrator to make a waiver

request by the deadline date, it ne-

glected to do so until too late. PBGC,

which received the waiver request on June

10

10, 1975, refused to consider it because

it was untimely.

The court of appeals ruled that Avon

did have knowledge that PBGC had insti-

tuted a waiver-request procedure and that

PBGC's authority to grant a waiver had

expired before it received Avon's re-

guest.

The A-T-O decision cited by peti-

tioners (Pet. 24) has been reversed on

appeal. A-T-O v. PBGC, 318 Pens. Rep.

(BNA) D-1 (Nov. 24, 1980).

In view of the facts and the terms of

the statute, the decision of the court

of appeals was manifestly right. Further

review is not warranted.

36 Notwithstanding the finding that

there was a negligent failure to seek a

timely waiver of liability on grounds of

unreasonable hardship, petitioners

challenge on due process grounds the

11

retroactive imposition of liability on

members of the controlled group. The

Court should refuse to consider this

constitutional question.

First, the decision below was rendered

on an appeal from an interlocutory order.

The district court had remanded the case

to the bankruptcy court for determination

of the net worth of the controlled group

and for apportionment of the liability

among the members of the Ouimet Group.

This has not yet been done. Until net

worth has been established and appor-

tionment accomplished, it is not possible

to ascertain the impact of controlled

group liability upon solvent or insolvent

affiliates of the group or upon (heir

creditors. Without a complete factual

record depicting such impact, this Court

should avoid consideration of the con-

stitutional question as premature.

12

Second, if retroactivity alone is the

issue, then the question is no different

for members of a controlled group than it

is for unaffiliated businesses. The

Court refused to consider that constitu-

tional issue in Nachman Corp. v. Pension

Benefit Guaranty Corp., 442 U.S. 940

(1980). Moreover, in resolving the

statutory question on Nachman, this Court

recognized that ERISA necessarily has a

retroactive impact and it quoted with

approval the conclusion of the Seventh

Circuit Court of Appeals that "Congress

had adequately tempered the Act's burdens

on employers and that those burdens were

sufficiently justified by the public pur-

poses supporting the legislation."

U.S. , 100 S. Ct. 1723 (1980).

The court below followed the Seventh

Circuit's decision in Nachman, 592 F.2d

me

13

947 (7th Cir. 1979). In rejecting pe-

titioner's constitutional challenge, it

relied on Usery v. Turner Elkhorn Mining

Co., 482 U.S. 1 (1976) upholding the

constitutionality of a statute requiring

the payment of benefits to miners with

black lung disease who had left the

industry before the effective date of the

act. Acknowledging the act's retroactive

effect, the Court in Usery found no lack

of due process:

"But our cases are clear that

legislation readjusting rights and

burdens is not unlawful solely

because it upsets otherwise

settled expectations...

This is true even though the

effect of the legislation is to

impose a new duty or liability

based on past events..." 482 U.S.

1, 16.

Neither Railroad Retirement Board vv.

Alton Railroad Co., 295 U.S. 330 (1935)

nor Allied Structural Steel Co. v. Span-

naus, 438 U.S. 234 (1978) is controlling

—<——-° —— = —<— — ET TK TT Tt —_- — eee ee — — —— | lll hhh tSS—S

here. Alton is an outmoded precedent

founded on the doctrine of substantive

due process. Both Alton and Allied deal

with statutes quite different from

ERISA. Title IV of ERISA imposes care-

fully limited termination liability on

employers only with respect to employees

whose right to a pension had already

vested under a pension plan. Moreover,

as the Court noted in Nachman, in enact-

ing ERISA Congress "adequately tempered

the Act's burdens on employers."

There is no conflict among the cir-

cuits on the question of constitu-

tionality. The Third and Sixth Circuits

have joined the Seventh Circuit in

upholding the constitutionality of

employer termination liability under

ERISA. In re Williamsport Milk Products

Company, Inc. Retirement Plan, 309 Pens.

Rep. (BNA) A-16 (3d Cir. Aug. 29, 1980);

A-T-O v. PBGC, supra.

15

Consequently, this Court should

decline to review petitioners’ claim of

unconstitutionality.

16

CONCLUSION

The petition for a writ of certiorari

should be denied.

Respectfully submitted,

CHARLES R. ARMSTRONG

General Counsel

United Rubber, Cork, Linoleum

and Plastic Workers of America

87 South High Street

Akron, Ohio 44308

(216) 376-6181

BERTRAM DIAMOND, ESQ.

441 Summer Street

Stamford, Connecticut 06901

(203) 324-9284

Counsel for URW, Reddix and Williams

December 1980