Appellants Brief — Pension Benefit Guaranty Corporation v. RA Gray & Co.

Nos, 83-245, 83-291

In the Supreme Court

of the United States

OCTOBER TERM, 1983

PENSION BENEFIT GUARANTY CORPORATION,

Appellant,

V.

R. A. GRAY & COMPANY,

Appellee.

OREGON-WASHINGTON CARPENTERS-

EMPLOYERS PENSION TRUST FUND,

Appellant,

V.

R. A. GRAY & COMPANY,

Appellee.

ON APPEAL FROM THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

APPELLANT'S BRIEF

OF OREGON-WASHINGTON CARPENTERS-EMPLOYERS

PENSION TRUST FUND

DAVID S. PAULL WILLIAM B. CROW*

PAULL & BARNETT JAMES N. WESTWOOD

5441 S.W. Macadam Ave. WILLIAM H. WALTERS

Portland, Oregon 97201 MILLER, NASH, WIENER,

(503) 221-0077 HAGER & CARLSEN

111 S.W. Fifth Avenue

Portland, Oregon 97204

(503) 224-5858

* Counsel of Record

—_—_

STEVENG-NESS LAW PUBLISHING CO,., PORTLAND, OR. 87204 ta-63

QUESTION PRESENTED

In enacting the Multiemployer Pension Plan

Amendments Act of 1980, Congress amended certain

provisions of the Employee Retiremen: Income Security

Act of 1974. In particular, Congress modified the with-

drawal liability of employers who withdraw from mul-

tiemployer pension plans. The question presented is

whether in giving this modification limited retrospec-

tive effect Congress offended the due process clause of

the Fifth Amendment.

ii

TABLE OF CONTENTS

Page

mmm POU ann acess i

Table of Cases and Authorities... 0 2 sv

SIMI, ‘icactesssaces ip aol SecRctca seers mepiciscohaneiniee 2

FSI Renee en rcs RUA OP OT ae {esse tbealaslaipoacanes 3

Constitutional and Statutory Provisions

Statement of the Case

Seen 25 RS... kL

I ihicietabontsecictticdincaieanbshtnn itl cesta talbaaiace 8

I. Congress, during the course of its consider-

ation of the Act, provided such notice of the

content and retrospective application of

the Act as is constitutionally required... 9

A. This Court has not recognized a lesa

tive notice requirement . 10

B. Normal legislative processes afford

such notice as is constitutionally due . 11

C. Gray did not ceugaeed rely on ~—

NERD ER De MR BM TS 12

II. Congress acted rationally in giving limited

retrospective effect to the multiemployer

withdrawal liability provisions of the Act. 16

A. The analysis of Turner Elkhorn re-

quires only that the legislative approach

be rgd not that its eer

We Wal te ae

iii

TABLE OF CONTENTS (Cont. )

Page

B. The Ninth Circuit, in applying the

Nachman test, unavoidably assessed the

wisdom and fairness of the Act... 20

C. Specific objections to the content of the

Act go to the wisdom, and not the ra-

tionality, of the Act... =. ee SO

ND oe ee a ee

iv

TABLE OF CASES AND AUTHORITIES

Page

CASES ©

Allied Structural Steel Co. v. Spannus, 438 U.S.

234, reh’g denied, 439 U.S. 886 (1978) .__ 14, 23

Bi-Metallic Invest. Co. v. State Bd. of —

Gen, Gee Ue. SE) CURES) qn .. 11

Day-Brite Lighting, Inc. v. Missouri, 342 U.S, 421

(1962) -............ PSE Na OP er CORR SLE 8 RENTS 17

Ferguson v. Skrupa, 372 U.S. 726 (1963) - 17, 24

R. A. Gray & Co. v. Oregon alti Ete., 549

F, Supp. 531 (D. Or. 1982) —..... .... 5

Nachman Corp. v. Pension Ben. Guaranty Corp.,

592 F.2d 947 (7th Cir. 1979), aff’d, 446 U.S.

359, reh’g denied, 448 U.S. 908 (1980). 20, 22, 28

Peick v. Pension Ben. Guaranty Corp., 539 F. Supp.

1025 (N.D. Ill. 1982) _..... 12, 14, 16, 22, 28, 25

Republic Industries, Inc. v. Teamsters Joint Coun-

cil, No. 83 of Virginia Pension Fund, 718 F.2d

628 (4th Cir. 1983) soabieieaig .. 2, 28, 25

Shelter Framing Corp. v. Pension Ben. Guar. _— *

705 F.2d 1502 (9th Cir. 1983) 6

United States Trust Co. v. New or 432 U.S.

1 (1977) . eieapecend ... 8

Usery v. Turner Elkhorn Mining Co., 428 U.S.

1 (1976) _ 7,8, 9, 10, 11, 12, 17, 18, 22, 23, 25, 26

Vv

Page

FEDERAL STATUTES

28 U.S.C. § 1252 Fro ali acc eh Oe na 3

Employee Retirement Income Security Act, 88 Stat.

829 (1974) (codified at 29 U.S.C. $81 1001-

1461 (1976) .................. i,3

Multiemployer Pension Plan Amendments Act of

1980, 94 Stat. 1208 (1980) (codified at 29

U.S.C. §§ 1001a-1461 (Supp. V. 1981) _i, 1, 6, 15, 27

OTHER AUTHORITIES

Note, ERISA’s Title IV and the Multiemployer

Pension Plan, 1979 Duke LJ 644 (1979) 15

Nos. 83-245, 83-291

In the Supreme Court

of the United States

OCTOBER TERM, 1983

PENSION BENEFIT GUARANTY CORPORATION,

Appellant,

V.

R. A. GRAY & COMPANY,

Appellee.

OREGON-WASHINGTON CARPENTERS-

EMPLOYERS PENSION TRUST FUND,

Appellant,

Vv.

R. A. GRAY & COMPANY,

Appellee.

ON APPEAL FROM THE

UNITED STATES COURT OF APPEALS

FoR THE NINTH CIRCUIT

APPELLANT'S BRIEF

OF OREGON-WASHINGTON CARPENTERS-EMPLOYERS

PENSION TRUST FUND

This appeal is from the judgment of the Court of

Appeals for the Ninth Circuit entered May 20, 1983,

declaring that the Multiemployer Pension Plan Amend-

ments Act of 1980 (the “Act”) violates the Fifth

Amendment due process rights of employers who with-

2

drew from multiemployer pension fund plans prior

to the date the Act was signed into law but after its

effective date. R. A. Gray & Company (‘Gray’)

brought an action on September 29, 1981, seeking a

declaration of the unconstitutionality of the Act. Gray

named the Oregon-Washington Carpenters-Employers

Pension Trust Fund (the “Trust Fund”) and the Pen-

sion Benefit Guaranty Corporation (the “PBGC’’) as

defendants. The District Court found for defendants.

Gray appealed and the Ninth Circuit reversed. In con-

trast to the holding of the Ninth Circuit, the Fourth

Circuit more recently has concluded “that the provisions

of the 1980 Act for retroactive withdrawal liability are

valid and constitutional.” Republic Industries, Inc. v.

Teamsters Joint Council, No. 83 of Virginia Pension

Fund, 718 F.2d 628, 639 (4th Cir. 1983).

The Trust Fund joins in the opening brief of its

co-appeliant, the PBGC. As a consequence, the Trust

Fund’s statement of the case will be abbreviated and

its argument supplementary to that provided by the

PBGC.

OPINION BELOW

The opinion of the District Court for the District

of Oregon is reported at 549 F. Supp. 531 and the opin-

ion and order are reproduced in the PBGC’s jurisdic-

tional statement at App. B 30a-49a. The opinion of

the Court of Appeals for the Ninth Circuit is reported

at 705 F.2d 1502 and is reproduced in the PBGC’s ju-

risdictional statement at App. A la-29a.

°

JURISDICTION

The judgment of the Court of Appeals was entered

on May 20, 1983. The Trust Fund filed its notice of

appeal on June 16, 1988. The Trust Fund filed its ju-

risdictional statement on August 19, 1983. On October

17, 19838, this Court noted probable jurisdiction and

consolidated for purposes of oral argument the appeal

of the Trust Fund, No. 83-291, with the appeal of the

PBGC, No. 88-245. The jurisdiction of this Court is

based on 28 U.S.C. § 1252.

CONSTITUTIONAL AND STATUTORY PROVISIONS

The Fifth Amendment of the Constitution provides,

in pertinent part, that “[n]Jo person shall... be

deprived of life, liberty, or property, without due pro-

cess of law... .” The relevant statutory provisions

are provided in the PBGC’s jurisdictional statement

at Appendix F 76a-104a.

STATEMENT OF THE CASE

Under the Employee Retirerhent Income Security

Act of 1974 (“ERISA”) the PBGC administers a sys-

tem of insurance designed to protect employees whose

pension plans terminate with insufficient funds. As

originally enacted, ERISA provided that if an employer

withdrew from a multiemployer pension plan, and that

plan terminated within five years of the withdrawal,

the employer would be liable for its proportionate share

of any funds that the PBGC expended to provide re-

4

quired employee benefits. In 1977, Congress, concerned

about the financial stability of multiemployer pension

plans, asked the PBGC to prepare a comprehensive re-

port on these plans. The PBGC submitted its report to

Congress on July 1, 1978. On February 27, 1979, the

agency presented Congress with a legislative proposal

addressing the potential financial weakness of multi-

employer pension plans. On May 8, 1979, legislation

incorporating the PBGC’s proposal was introduced in

both houses of Congress. The formally introduced leg-

islation adopted the PBGC’s proposal to replace the

contingent liability of employers with a requirement

that an employer’s withdrawal be subject to a fixed li-

ability equal to his proportional share of the plan’s

unfunded vested liability. Both bills introduced on

May 38, 1979, specified February 27, 1979, as the ef-

fective date for the proposed change in withdrawal

liability.

After approval! by the House Education and Labor

Committee on April 3, 1980, and the House Ways and

Means Committee on April 23, 1980, the House passed

the Act on May 22, 1980, by a vote of 374-0. The Sen-

ate followed suit on July 29, 1980, by a vote of 85-1,

after consideration and endorsement by the Senate

Labor and Human Resources and Finance committees.

President Carter signed the bill into law on September

26, 1980. In its final form, the Act made the new with-

drawal provisions effective as of April 29, 1980.

In 1980, Gray was a contributor to a multiemployer

pension plan administered by the Trust Fund. Gray

5

withdrew from the plan effective June 1, 1980. On

July 24, 1981, the Trust Fund’s trustees formally no-

tified Gray of its withdrawal liability.

Gray filed a declaratory judgment action in the

United States District Court for the District of Ore-

gon on September 29, 1981. Gray sought, inter alia, a

judgment that the retrospective application of the

newly imposed withdrawal liability violated Gray’s

right to due process under the Fifth Amendment. On

cross-motions for summary judgment, Judge James A.

Redden upheld the constitutionality of the Act and, on

August 11, 1982, entered judgment for the Trust Fund

and the PBGC, the defendants. On the “Due Process

and Retroactivity” issue specifically, the court found

that

“imposition of withdrawal liability was intended to

remove existing statutory incentives for employers

to withdraw from troubled or potentially troubled

plans, while providing that newly entering employ-

ers would not be saddled with obligations incurred

prior to their entry into the plan. The withdrawal

liability also was intended to insure that a withdraw-

ing employer would fund a share of the obligations

incurred during that employer’s association with the

plan.” R. A. Gray & Co. v. Oregon Washington, Etc.,

549 F. Supp. 531, 5386 (D. Or. 1982).

The court concluded that Gray had “not shown that

the [Act] and its retroactive application are irrational

solutions to a serious problem.” Jd. at 538,

6

Gray appealed to the Ninth Circuit. Gray’s appeal

was heard at oral argument with appeals in five related

cases, and the Court of Appeals reversed the Oregon

District Court. The Ninth Circuit balanced a variety

of factors, including the equities of all involved, and

concluded that “retroactive application of the with-

drawal liability provision of the [Act] violates the due

process right of employers who withdrew from the

multiemployer pension plans before the Act became

law.” Shelter Framing Corp. v. Pension Ben. Guar.

Corp., 705 F.2d 1502, 1505 (9th Cir. 1983).

SUMMARY OF ARGUMENT

The Court of Appeals for the Ninth Circuit has

held that the Multiemployer Pension Plan Amendments

Act, in its retrospective application, violates the due

process clause of the Fifth Amendment, The circuit

court found two due process failings with the Act.

These alleged difficulties are distinguishable, even

though they are not clearly distinguished in the lower

court’s opinion; neither, however, supports the court’s

conclusion.

First, did Gray receive fair notice that Congress

was likely to pass the Act? This Court has not recog-

nized a due-process-of-lawmaking notice requirement.

The Court, however, may find that although the public

deserves notice of legislative activity, normal legisla-

tive processes normally provide constitutionally suffi-

cient notice. In this case, Gray has not shown any di-

vergence from generally acceptable legislative proce-

7

dures which would support a charge of inadequate

legislative notice. Furthermore, the Jegislative history

of the Act lends no credence to such a charge. In addi-

tion, although it has been argued below that employers

such as Gray justifiably relied on pre-Act law, this

argument would rule equally unconstitutional all legis-

lation with retrospective effect, contrary to the teach-

ings of this Court.

Second, is the Act substantively rational? An act

of Congress is presumed constitutional until proven

otherwise. Usery v. Turner Elkhorn Mining Co., 428

U.S. 1 (1976). Gray, the complaining party, must es-

tablish that the Act is “arbitrary and irrational.”

Furthermore, as is clear from Turner Elkhorn, inquiry

ends if the Court finds that the legislation in issue

reflects a rational approach to a problem within Con-

gress’ power to address. The Court will not second-

guess the wisdom of the legislature’s chosen approach,

nor will it review the elegance of the legislative crafts-

manship nor the fairness of the end result. The Ninth

Circuit, however, inappropriately based its constitu-

tional judgment on the wisdom and fairness of the Act.

Similarly, Gray’s specific charges of substantive in-

adequacy concern only the wisdom of the Act. The

rationality of the approach which Congress chose, and

which the Act embodies, remains unimpugned.

8

ARGUMENT

The question presented here is the power of Con-

gress to determine that the limited retrospective ap-

plication of proposed regulatory modifications is need-

ed to prevent the imminent passage of the corrective

legislation from itself worsening the problem the legis-

lation aims to correct. The Ninth Circuit, by a “balanc-

ing of the equities” test, found such legislation unwise

and therefore unconstitutional. However, “the burden

is on one complaining of a due process violation to es-

tablish that the legislature has acted in an arbitrary

and irrational way.” Usery v. Turner Elkhorn Mining

Co., 428 U.S. 1, 15 (1976). Gray, the complaining

party in the present case, is unable to meet its “heavy

burden.” 428 U.S. at 44 (Powell, J., concurring).

The question of whether the retrospective appli-

cation of the withdrawal liability provisions of the

Act violates due process comes to the Court with

the benefit of two circuit court opinions as well as

numerous opinions of district courts, In addition, the

PBGC has provided extensive discussion in its open-

ing brief. These facts, together with the requirement

that Gray carry the burden of proof in this proceed-

ing, suggest casting the Trust Fund’s opening brief

in the form of a response to arguments made below.

In this way the Trust Fund may supplement, without

duplicating, the argument of the PBGC and provide a

more intensive analysis of some of the issues presented.

Due process arguments found in the pleadings and

opinions below are of two sorts, procedural and sub-

stantive. One type of argument suggests that Gray did

9

not receive fair warning that the Act would contain

retrospectively applicable withdrawal liability provi-

sions. Gray has argued, for instance, that it justifiably

relied on existing law and thereby was precluded from

changing its position in anticipation of the newly-to-

be-imposed withdrawal liability. In other words, ac-

cording to Gray, Congress did not provide Gray with

adequate notice of the lawmaking process.

The second type of argument questions substance

rather than procedure, Gray’s claim, generally stated,

is that the presence or absence of certain features in

the Act, as applied retrospectively, marks this legisla-

tion as arbitrary and irrational.

Section I below discusses the notice issue; section

II, that of the rationality of the Act. Turner Elkhorn,

it is argued, applies in each instance; it disposes of

the contention of inadequate legislative procedure as

well as the claim of irrational substance,

1. Congress, during the course of its consideration of the

Act, provided such notice of the content and retrospec-

tive application of the Act as is constitutionally required.

Gray has argued that the Act is unconstitutional

because Congress failed to give fair warning of the

Act’s expected retrospective application. The conclu-

sion of Gray’s opening brief to the Ninth Circuit, for

instance, reads in its entirety as follows:

“The virtually unlimited withdrawal liability

imposed by [the Act] was an entirely new departure.

If Congress has the power to take that step at all

in the face of collective bargaining agreements en-

10

tered into prior to enactment and relied upon by

employers, it must at least be required to give such

employers advance warning and an opportunity to

adjust to their radically altered potential obliga-

tions. This court should hold the law invalid as ap-

plied to Gray and should further hold that Gray’s

motion for summary judgment should have been

granted.” Appellant’s Brief of R. A. Gray & Co.

at 20.

In its motion to this Court to affirm the decision of

the Ninth Circuit, Gray likewise charges that Congress

failed “to provide individual notice to persons contem-

plating behavior that might later become the basis for

liability.” Motion to Affirm at 8-9.

In addition, parties combined with Gray for oral

argument at the Ninth Circuit contended—and the

Ninth Circuit agreed—that employers, Gray included,

reasonably relied on the state of the law as it existed

prior to the passage of the Act. The reasonableness of

such reliance would reflect the sufficiency or insuffi-

ciency of legislative notice.

A. This Court has not recognized a legislative

notice requirement.

Turner Elkhorn, the Court’s most recent case deal-

ing with retroactive legislation, reaffirmed that “leg-

islation readjusting rights and burdens is not unlaw-

ful solely because it upsets otherwise settled expecta-

tions,” and that “[t]his is true even though the effect

of the legislation is to impose a new duty or liability

based on past acts.” Turner Elkhorn, 428 U.S. at 16

(citations omitted). No mention is made of any con-

11

stitutional requirement of notice, let alone individual

notice, prior to the passage of legislation with retro-

spective effect. The test is simply whether the com-

plaining party establishes that the legislation is arbi-

trary and irrational.

B. Normal legislative processes afford such notice

as is constitutionally due.

As an alternative to holding that the due process

of lawmaking involves no notice requirement, Turner

Elkhorn may be read to hold that the legislative

process itself, when conducted in a normal and legiti-

mate manner, provides the public with constitutionally

sufficient notice of Congress’ legislative activities.

Cf. Bi-Metallic Invest. Co. v. State Bd. of Equaliza-

tion, 239 U.S. 441 (1915).

Turner Elkhorn speaks of the burden on the party

who complains of a due process violation “to estab-

lish that the legislature has acted in an arbitrary and

irrational way.” 428 U.S. at 15 (emphasis added).

The opinion in Turner Elkhorn focuses on whether

the product of the legislative process was arbitrary

and irrational. However, a claim of deprivation of due

process as a result of insufficient notice of congression-

al lawmaking raises the question of whether the legis-

lative process itself was arbitrary and irrational. On

this issue also, the legislation comes to the Court with

a presumption of constitutionality. If lack of legisla-

tive notice is alleged, the burden remains on the com-

12

plaining party to establish that Congress did not pro-

ceed to its legislative conclusion in a normal, accepted

and acceptable manner. The complainant must show

that Congress “acted in an arbitrary and irrational

way,” with a resulting denial of fair notice.

Gray complains of inadequate notice but has not

alleged any failure on Congress’ part to follow normal

legislative procedures. Motion to Affirm at 8-9, Fur-

thermore, the legislative history of the Act shows that

Gray could not sustain such an allegation. See, e.g.,

Peick v. Pension Ben. Guaranty Corp., 589 F. Supp.

1025, 1029-33 (N.D. Ill. 1982).

Gray may not have received the “individual notice”

which it claims is its right. However, that is of no con-

stitutional moment. Normal legislative procedures

afford public notice of congressional activities. Due

process requires no more. Any requirement of individ-

ual notice of impending legislation to potentially af-

fected individuals would be enormously disruptive of

the legislative process.

C. Gray did not justifiably rely on existing law.

Gray has argued, and the Ninth Circuit found,

705 F.2d at 1511, that employers in Gray’s position

justifiably relied on statutory provisions which regu-

lated employers’ withdrawal liabilities from multiem-

ployer pension plans prior to the Act’s becoming law.

The Ninth Circuit reasoned that, since employers

could not “predict with accuracy the final outcome

of the legislative process,” they reasonably relied

13

on existing law. Jd. If this remark about the in-

ability to anticipate the final outcome of the legis-

lative process is taken as a general point about pre-

dictive certainty, then the reasoning plainly proves

too much. For it would apply with equal force to any

legislative product with retrospective effect and hence

establish the unconstitutionality of all retrospective

legislation. It is accepted, however, that some laws

with retrospective effect do pass constitutional muster.

The argument, therefore, must be particularized;

the reasoning must be that employers could not

predict, i.e., had insufficient notice concerning, the

content and effective date of the Act in particular.'

However, for the reasons which follow, the particular-

ized argument is no sounder than the general one.

First, as emphasized by the District Court in Peick,

“Tt has long been a tenet of constitutional law that

‘[t]hose who do business in the regulated field can-

not object if the legislative scheme is buttressed by

subsequent amendments to achieve the legitimate

end.’ F. H. A. v. Darlington, Inc., 358 U.S. 84, 91,

1 This apparently is the position of the Ninth Circuit. See

especially the following remarks:

“We reject the argument that the employers should have

known the status of the pending legislation and should

have known that the Act, when passed, would have a

retroactive effect. See Peick, 539 F. Supp. at 1053. This

much-debated legislation went through a variety of forms

before its passage. The bill’s original effective date was

changed as late as June, 1980. Congress also extended the

effective date of the mandatory guarantee program four

times while waiting for the [Act] to pass.” 705 F.2d at

1511.

14

79 S. Ct. 141, 146, 3 L. Ed. 2d 132 (1958) (cita-

tions omitted) ; accord, Allied Steel, supra, 438 U.S.

at 249, 98 S. Ct. at 2724; Veix v. Sixth Ward

Building & Loan Assn., 310 U.S. 32, 38, 60 S. Ct.

792, 794, 84 L. Ed. 1061 (1940).” 539 F. Supp. at

1044,

Furthermore, multiemployer pension plans specifi-

cally, again in the words of Peick,

“have been subject to decades of pre-[Act] federal

regulation under Section 165 (now section 401) of

the Internal Revenue Code, section 302 of the Labor-

Management Relations Act of 1947, and the Wel-

fare and Pension Plans Disclosure Act of 1958.

Moreover, and most significant, the 1974 enactment

of ERISA demonstrated in the clearest possible way

that contractual limitations on withdrawal liability

were themselves susceptible to federal displacement.

By its terms, ERISA voided all absolute exemptions,

and installed in their place a regime of contingent

liability. See p. 1030, supra. This development alone

afforded clear warning that the federal government

might one day act again and further buttress the

legislative scheme it had created.” Id.

Thus, employers who participated in multiemployer

pension plans were on notice that future legislation

well might modify existing regulations and thereby

alter rights which employers otherwise would have.

See Note, ERISA’s Title IV and the Multiemployer

Pension Plan, 1979 Duke L. J. 644, 670-71 (1979).

Second, as the District Court found, the pension

plan to which Gray had been a contributor and from

which it withdrew “recognized that the employers’

15

obligations were subject to statutory modification.”

549 F. Supp. at 537. Moreover, as the Fourth Circuit

acknowledged in assessing employer reliance on spe-

cific provisions of ERISA prior to the passage of the

Act,

“since the enactment of ERISA, termination of

single employer pension funds [had] been fully reg-

ulated and regulation of withdrawal from multi-

employer pension funds was only postponed because

of Congressional caution about the best way to ap-

proach the problem.” 718 F.2d at 638 (emphasis

added).

Gray thus had reason to anticipate future modifica-

tions of the multiemployer trust fund provisions of

ERISA.

Finally, the legislative history of the Act reveals

that ample notice was afforded of the intended retro-

spective application of the Act to withdrawal liability.

From the outset, the Act envisaged retrospective ap-

plication. On May 3, 1979, the date the bill was for-

mally introduced, it carried a date of application of

February 27, 1979, the date on which the PBGC had

transmitted its proposal to Congress. That proposed

date remained a feature of the Act through its con-

sideration by two committees of the House and one

of the Senate until, in June, 1980, the Senate Finance

Committee advanced the effective date to April 29,

1980, where it remained. Thus, at all times from the

date the bill was introduced until its eventual passage,

the Act included an effective date of at least April 29,

1980. Furthermore, by April 29, 1980, the Act had

16

been under consideration for almost two years and

had received approval of the House Education and

Labor Committee, the House Ways and Means Com-

mittee, and the Senate Labor and Human Resources

Committee.

The legislative history of the Act, together with

the facts that multiemployer pension plans have a

significant history of governmental regulation and

that eventual changes in the withdrawal liability provi-

sions of ERISA were anticipated, provides ample rea-

son to conclude that sufficient notice was afforded

here to satisfy the due process clause of the Constitu-

tion. Thus the particularized form of the argument

that the final outcome of the legislative process was

not predictable shares the failing of the generalized

form of argument first considered. If either were ac-

cepted, Congress would be precluded from ever pro-

viding legislation with limited retrospective applica-

tion. Gray did not, therefore, justifiably rely upon the

regulatory scheme in effect prior to the passage of

the Act.

ll. Congress acted rationally in giving limited retrospective

effect to the multiemployer withdrawal liability provi-

sions of the Act.

Gray argued to the Ninth Circuit that the retro-

spective application of the withdrawal liability for

employers participating in multiemployer pension

plans was not a rational response to the problem

which Congress sought to address in the Act. The

17

Court of Appeals agreed. Gray’s present position is

that “(t]he Court of Appeals correctly concluded .. .

that Congress had acted arbitrarily and irrationally

in including [the] provision [for retroactive liability]

in the Act.” Motion to Affirm at 6. Before attempting

to assess the particular considerations adduced in sup-

port of the position of Gray and the Ninth Circuit, it is

appropriate to inquire as to the test which should be

brought to bear on a question of whether a legislative

act is substantively adequate under the due process

clause of the Fifth Amendment. Such an initial in-

quiry is particularly appropriate in this case where,

as will be argued below, the Court of Appeals has

applied an incorrect test in assessing the constitution-

ality of an act of Congress.

A. The analysis of Turner Elkhorn requires only that

the legislative approach be rational, not that its

implementation be wise.

Turner Elkhorn makes it quite clear, and it has

not been disputed in this case, “that the burden is on

one complaining of a due process violation to estab-

lish that the legislature has acted in an arbitrary and

irrational way.” 428 U.S. at 15, Furthermore, this

Court has been equally explicit that it does not “sit

as a ‘superlegislature to weigh the wisdom of legis-

lation’... .” Ferguson v. Skrupa, 372 U.S. 726, 731

(1963) (quoting Day-Brite Lighting, Inc. v. Missouri,

342 U.S. 421, 423 (1952)). See also Turner Elkhorn

428 U.S. at 18-19. What remains implicit in the

Turner Elkhorn opinion is how the Court reviews the

18

retrospective application of congressional legislation

for substantive validity so as to determine whether

the complainant has shown that the legislation is “ar-

bitrary and irrational” while at the same time es-

chewing assessment of “the wisdom of Congress’

chosen scheme.” Turner Elkhorn, 428 U.S, 18-19. For

assistance in articulating the Court’s approach we

look to the body of the Turner Elkhorn opinion.

In Turner Elkhorn the Court reviewed the Black

Lung Benefits Act of 1972 by which Congress sought

to provide for compensation to “certain miners, for-

mer miners, and their survivors for death or total

disability due to pneumoconiosis arising out of employ-

ment in coal mines... .” 428 U.S. at 5. Certain coal

mine operators contested the constitutionality of the

Act insofar as it operated retrospectively “to impose

liability upon them for former employees’ disabili-

ties... .” Id. at 15. In addressing this issue, the Court

first posted reminders that the complaining party has

the burden to prove that the Act was arbitrary and

irrational, that “legislation readjusting rights and

burdens is not unlawful solely because it upsets other-

wise settled expectations,” 428 U.S. at 16 (citations

omitted), and that “[t]his is true even though the

effect of the legislation is to impose a new duty or

liability based on past acts.” Jd. (citations omitted).

The Court then proceeded to observe that since “[i]t

does not follow . . . that what Congress can legislate

prospectively it can legislate retrospectively[,] [t]he

retrospective aspects of legislation, as well as the

prospective aspects, must meet the test of due pro-

19

cess ....” Id. at 16-17. Moreover, “the justifieations

for the latter may not suffice for the former.” Jd. at 17.

In response to the specific charge that the retro-

spective aspects of the Black Lung Act were uncon-

stitutional, the Court first determined whether, in

adopting these features, Congress had made a rational

choice, It held that “it is for Congress to choose be-

tween imposing the burden of inactive miners’ dis-

abilities on all operators .. . or to impose that liability

solely on those early operators whose profits may have

been increased at the expense of their employees’

health.” Jd. at 18. Congress in fact made the latter

choice and the Court found that it was a rational

cost-spreading approach. Jd.

The Court next took up the contention that the

Black Lung Act inequitably allocated the burdens of

providing the compensation the Act mandates. It is

unfair, it was argued, to make early mine operators

shoulder the major portion of the burden while new-

comers to the industry may escape liability altogether.

The Court’s response to this line of reasoning was to

dismiss it without any examination of its merit. Con-

gress legitimately decided to provide compensation to

victims of black lung disease and made a rational choice

2 In the course of its inquiry into whether the Black Lung

Act was rational in its approach, the Court remarked that

it was hesitant “to approve the retrospective imposition of

liability on any theory of deterrence or blameworthiness” on

the facts of the case before it, 428 U.S. at 17-18 (citations

omitted). The Court in no way suggested that deterrence

could never offer a basis for providing legislation with retro-

spective effect.

20

concerning how to spread the costs of that compensa-

tion. Whether or not the Black Lung Act operated

fairly or unfairly in its retrospective effect was not a

matter of proper judicial inquiry. In the Court’s words,

“We are unwilling to assess the wisdom of Con-

gress’ chosen scheme by examining the degree to

which the ‘cost-savings’ enjoyed by operators in the

pre-enactment period produced ‘excess’ profits, or

the degree to which the retrospective liability im-

posed on the early operators can now be passed on

to the consumer. It is enough to say that the Act

approaches the problem of cost spreading rationally;

whether a broader cost-spreading scheme would

have been wiser or more practical under the cir-

cumstances is not a question of constitutional di-

mension.” Jd. at 18-19 (citations omitted).

B. The Ninth Circuit, in applying the Nachman test,

unavoidably assessed the wisdom and fairness

of the Act.

In determining whether the Act in its retrospective

application complies with the requirements of due

process, the Ninth Circuit applied a test derived from

Nachman Corp. v. Pension Ben. Guaranty Corp., 592

F.2d 947 (7th Cir. 1979), aff'd on statutory grounds,

446 U.S. 359, reh’g denied, 448 U.S. 908 (1980).

While acknowledging that the Act “comes to the courts

with a presumption of constitutionality and that the

burden is on the plaintiffs to establish that Congress

acted in an arbitrary and irrational way,” 705 F.2d

at 1510, the court undertook to assess the rationality

21

of the retrospective features of the Act in terms of

the following four factors:

“(1) the reliance interests of the parties affected;

(2) whether impairment of the private interest is

effected in an area previously subjected to regula-

tory control; (3) the equities of imposing the legis-

lative burdens; and (4) the inclusion of statutory

provisions designed to limit and moderate the im-

pact of the burdens.” Jd. at 1511.

These four categories are not separate and inde-

pendent. The second, “prior regulation,” is, as the

court admits, “another facet of reliance.” Jd. at 1512.

Prior regulation goes to the reliance interests of the

withdrawn employers,* though not, or only indirectly,

to the other reliance interests canvassed by the first

factor. Similarly, factor four, “moderating provi-

sions,” is simply one aspect of the court’s discussion of

number three, “equities.” With the latter category,

the court itself states that it confronts “the difficult

task of weighing the individual burdens on withdraw-

ing employers against the policies Congress hoped to

further by establishing a retroactive effect date for

the [Act].” Jd. at 1512. By moderating provisions the

court simply has in mind those provisions of the Act

that may lessen in some way “the individual burdens

on withdrawing employers.”

3 This has been elaborated upon in the earlier discussion

of whether employers were put on notice, sufficient for con-

stitutional purposes, of possible modifications in existing with-

drawal liability provisions of ERISA.

22

Collapsing the “four factors” into those of rea-

sonable reliance and equity helps to show that, al-

though the ostensible purpose of the Ninth Circuit’s

examination was to assess the rationality of the Act,

in point of fact the court engaged in a fundamentally

equitable inquiry. On the one hand, it inquired whether

employers reasonably relied on preexisting law. On the

other, it employed the chancellor’s scales to weigh

whether it was fair for employers to shoulder their

withdrawal liability, given the purpose that Congress

sought to achieve. The approach taken by the Ninth

Circuit thereby is revealed to be at odds with that set

out and followed in Turner Elkhorn. The Court of

Appeals, with its preeminently equitable perspective,

unavoidably passed on the wisdom of the Act, rather

than its rationality, in assessing the constitutionality

of the legislation.*

4 Although the Trust Fund believes that the Nachman test,

as applied by the Ninth Circuit, misconstrues the nature of

due process inquiry into the substantive adequacy of a legis-

lative act, we would maintain that the Ninth Circuit was wrong

on its own terms and that, assuming, arguendo, the appropri-

ateness of the Nachman test, Gray still fails to meet its burden

of proving a due process violation. In this regard, in addition

to the recent opinion of the Fourth Circuit, we would again

direct the Court’s attention to the thoughtful opinion of Judge

Susan Getzendanner. Peick, 589 F. Supp. 1025.

The Peick court, applying the Nachman analysis, found

that the retrospective features of the Act caused no violation

of due process, although the court considered the question a

“close call.” Jd. at 1056. In the latter regard, however, we would

note the court’s candid remark that it was assum[ing] that

contract clause principles are relevant in this suit. If they are

(Footnote continued)

23

C. Specific objections to the content of the Act go to

the wisdom, and not the rationality, of the Act

The specific objections offered by Gray and taken

up by the Ninth Circuit to the content of the Act

simply amount to the complaint that Congress did

not legislate well enough. Congress did not target the

withdrawal liability provisions as tightly as it might

not, the case for Congress is much clearer.” Jd. n.80 (citations

omitted).

Peick’s remark about contract clause principles raises two

questions. Do contract clause principles properly apply in this

case? If so, does the Nachman analysis articulate those prin-

ciples? On the first of these questions, we believe that this

Court’s recent cases have distinguished between the levels of

scrutiny called for by the contract and due process clauses

and have made it clear that the contract clause imposes a

stiffer requirement on a state than the due process clause

requires of Congress. Compare Allied Structural Steel Co. v.

Spannaus, 488 U.S, 234, reh’g denied, 489 U.S. 886 (1978),

and United States Trust Co. v. New Jersey, 482 U.S. 1 (1977),

with Turner Elkhorn, 428 U.S. 1 (1976). The due process test

of Turner Elkhorn, and not contract clause principles, applies

in this case.

On the second question, we take no position as to whether

the Nachman test would be appropriate in a contract clause

setting. Still on Nachman, however, although this Court

granted review and affirmed the Seventh Circuit’s judgment

on statutory grounds, several courts have concluded that the

Court endorsed sub silentio the constitutional aspect of Nach-

man as well. See, e.g., Republic Industries, 718 F.2d at 636 n.

9. Be that as it may, we find no reason to believe that the

Court approved the particular analysis used by Nachman in

reaching a constitutional conclusion. Thus, this Court has not

sanctioned the Nachman test for due process analysis; nor

should it.

24

have, consistent with its announced purposes. As a

result, it is alleged, the Act has unfairly caused hard-

ship. The following passages are quite typical, if not

quite exhaustive, of this type of complaint.

“The employers subjected to retroactive with-

drawal liability under [the Act] ... are required

to contribute to the plan’s trust fund, without any

showing of need, simply to provide a nonspecific

supplement to the fund’s other income.” Motion to

Affirm at 15.

“Congress made no attempt to limit the retro-

active application of [the Act’s] withdrawal lia-

bility to situations in which there was any danger

that the employee-beneficiaries’ legitimate expecta-

tions of the plan might not be met.”’ Motion to Affirm

at 15.

“The withdrawal liability imposed on the em-

ployers for their pre-[Act] termination may well

be disproportionate to the specific needs of the

pension trust funds. Other legislative programs

would have served the same purpose of ensuring

financially healthy multiemployer plans.” 705 F.2d

at 1514.

The fundamental response to such objections as

these is that “[u]nder the system of government cre-

ated by our Constitution, it is up to legislatures, not

courts, to decide on the wisdom and utility of legis-

lation.” Ferguson v. Skrupa, 372 U.S. at 729. Wheth-

er Congress could have more equitably tailored the im-

plementation of its chosen approach to strengthening

multiemployer pension plans “‘is not a question of consti-

25

tutional dimension.” ° Turner Elkhorn, 428 U.S. at 19.

It has been contended that “[t]he effective date

of the Act was arbitrarily fixed.” 705 at 1513.° Even

if that were true, however, it would not in the

slightest suggest that it was arbitrary and irrational

to incorporate into the Act a provision of limited

retroactivity.’

5 A separate question, but one which this Court need not

reach, is whether the Act represents such a poor job of legisla-

tive craftsmanship as Gray alleges and the Ninth Circuit

found. Other lower courts have discussed the perceived harsh-

ness to certain employers in the light of the Act’s mitigating

provisions and have concluded otherwise. See, e.g., Republic

Industries, 718 F.2d 628, and Peick, 539 F. Supp. at 1025.

In addition, and despite the Ninth Circuit’s voiced assur-

ance that the above-quoted remarks are only addressed to the

retrospective features of the Act, 705 F.2d at 1514, it would

appear that the type of objection here considered would apply

equally to the prospective application of the modifications of

employer withdrawal liability. However, the constitutionality

of the prospective features of the Act is not at issue.

6 Motion to Affirm at 23 (“No explanation for the April

29 date was offered.”’).

7 Within some range of possible dates of application of

the Act there may have been no better reason to select any

one than any other. In just that sense, then, it would be “irra-

tional” to select any specific date for the effective date of the

Act. And yet, it is not “irrational” to make the Act retroac-

tive; ie, it is not “irrational” to select some date as the

effective date of the Act.

This is a form of the familiar lottery paradox. In a fair

lottery with a large number of tickets, the odds are against

any particular ticket being the winning ticket. It is then

“irrational” to expect any particular ticket to be the winner.

And yet, it is perfectly “rational” to expect some ticket to be

the winner,

26

Congress enacted the Act to protect the financial

soundness of multiemployer pension plans. The legis-

lature was concerned that existing law encouraged

employer withdrawals. Responsive to its concern, Con-

gress chose to impose a noncontingent withdrawal lia-

bility upon employers who withdraw from a plan.

Then, so that the passage of the Act itself would not

exacerbate the problem the Act was designed to correct,

Congress gave limited retrospective effect to the new

withdrawal provisions. The legitimacy of Congress’

purpose and the rationality of its chosen approach can

scarcely be in doubt. Furthermore, consistent with

Turner Elkhorn and the cases it draws upon—con-

sistent indeed with the separation of the legislative

and judicial powers under our constitutionally created

system of government—the wisdom or fairness of the

specific measures adopted to implement the chosen

approach are not “of constitutional dimension.”

In sum, the Act’s content is not irrational and

thus does not offend the due process clause of the Fifth

Amendment,

CONCLUSION

Gray contends that Congress “acted in an arbitrary

and irrational way” both procedurally, in failing to

provide constitutionally adequate notice of the retro-

spective effect of the Act, and substantively, in making

the withdrawal liability provision retroactive at all.

First, however, the normal legislative process whereby

27

a bill becomes law normally provides such notice as

is constitutionally required and it did so in this in-

stance. Second, Congress pursued a rational approach

to the need it perceived of strengthening multiemployer

pension plans; and the legislative details employed in

implementing Congress’ chosen approach are not a

proper subject of due process scrutiny. In both its

process and its product Congress is not to be faulted

on due process grounds.

Therefore, the judgment of the Ninth Circuit that

the Act is unconstitutional in its retrospective appli-

cation should be reversed.

Respectfully submitted,

WILLIAM B, CROW

JAMES N. WESTWOOD

WILLIAM H. WALTERS

MILLER, NASH, WIENER, HAGER

& CARLSEN

111 S.W. Fifth Avenue

Portland, Oregon 97204

(508) 224-5858

DAVID S. PAULL

PAULL & BARNETT

5441 S.W. Macadam Avenue

Portland, Oregon 97201

(503) 221-0077

December 12, 1983