Amicus Curiae Brief — Connolly v. Pension Benefit Guaranty Corp.

VU OUPI CIS vou, wean

FILED

@) @ JUL 25 1985

Nos, 84-1555, 84-1567 ALEXANDER L. STEVAG,

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

JOHN L. CONNOLLY, et al.,

Appellants,

V.

PENSION BENEFIT GUARANTY CORPORATION, et al.,

Appellees.

On Appeal from a Three Judge Court of the

United States District Court

for the Central District of California

BRIEF FOR THE

AMERICAN TRUCKING ASSOCIATIONS, INC.,

AMICUS CURIAE,

IN SUPPORT OF REVERSAL

Of Counsel: CARL L. TAYLOR

WILLIAM S. BUSKER Counsel of Record

DANIEL R. BARNEY GLENN SUMMERS

KENNETH E. SIEGEL KIRKLAND & ELLIS

ATA LITIGATION CENTER 655 Fifteenth Street, N.W.

2200 Mill Road Washington, D.C. 20005

A‘exandria, VA 22314 (202) 879-5000

(703) 838-1857 Counsel for the

American Trucking

Associations, Inc.,

Amicus Curiae

Dated: July 25, 1985

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

BEST AVAILABLE COPY "4

QUESTION PRESENTED

Can Congress constitutionally attempt to preclude com-

panies from going out of business by penalizing such

changes through the imposition of withdrawal liability,

where the companies have neither causal nor contractual

responsibility for the problem addressed?

(i)

a |

—_—

TABLE OF CONTENTS

I. The Brooks-Scanlon Doctrine Prohibits Legis-

lative Effort to Force Companies to Stay in

Business Against Their Will -..............00000000....

Il. The Brooks-Scanlon Right Cannot Be Abro-

gated Where the Company Has Not Agreed To

Be Responsible for the Financial Stability of a

Multiemployer Plan and Had No Share in the

Creation of the Problem.........................................

SS I aelilaN iaiaat

(iii)

10

iv

TABLE OF AUTHORITIES

Cases Page

Brooks-Scanlon Co. v. Railroad Commission, 251

if FF, ES eso Re.) eS ee passim

Bullock v. Florida ex rel. Railroad Commission,

RE RR * Re ee 4

Debreceni v. Healthco-D.G. Stoughton Co., 579 F.

eS e: | ee 8

In re Central Railroad Co. of New Jersey, 485

F.2d 208 (3d Cir. 1973), cert. denied, 414 U.S.

\ 2) —- SENe Re 5

In re Chicago, Milwaukee, St. Paul & Pacific Rail-

road Co., 611 F.2d 662 (7th Cir. 1979) ............. 5

In re New York, Susquehanna & Western Rail-

road Co., 504 F. Supp. 851 (D.N.J. 1980)... 5

In re Penn Central Transportation Co., 458 F.

eS £2 3 ae 5

In re Penn Central Transportation Co., 494 F.2d

270 (3d Cir.), cert. denied, 419 U.S. 883

STITT sccsinvesicrmnenctseresindaphaitiatppeiiiiaibaleainineinisadliceaslanAaatDmabinazadde 4,5

NLRB v. Amaz Coal Co., 453 U.S. 322 (1981)... 7

NLRB v. Teamsters Union Local 582, 670 F.2d

AEE Sey ts! UES rr ene i)

Nachman Corp. v. PBGC, 592 F.2d 947 (7th Cir.

1979), aff'd on statutory grounds, 446 U.S. 359

SPRITE arcu CRE es ted ene os Ae Oa 8

Pacific Telephone & Telegraph Co. v. Tax Commis-

re f£ OS Sennen 5

Peick v. PBGC, 539 F. Supp. 1025 (N.D. Til. 1982),

aff'd, 724 F.2d 1247 (7th Cir. 1983), cert. denied,

i i HE I dors ciccttahniid sesinniadihe lett ciiesinis 8

Railroad Commission v. Eastern Texas Railroad

ig: Te I Di iicentietiai citi 5

Sinai Hospital v. National Benefit Fund, [1982]

Daily Lab. Rep. (BNA), No. 249 (4th Cir.

i ia 9

Textile Workers Pension Fund v. Standard Dye &

Finishing Co., 725 F.2d 843 (2d Cir.), cert. de-

nied, 104 S. Ct. 3554 (1984) 2.22. 5

T.I.M.E.-DC, Inc. v. I.A.M. National Pension

Fund, 597 F. Supp. 256 (D.D.C. 1984) 0.00000... 8

v

TABLE OF AUTHORITIES—Continued

Page

T.1.M.E.-DC, Inc. v. Trucking Employees of North

Jersey Welfare Fund, 560 F. Supp. 294 (E.D.

a aeons 8

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1

LEE SAE SERRE EN AR, A TO y

Statutes

Employee Retirement Income Security Act of

1974, Pub. L. No. 93-406, 88 Stat. 829, as

Amended by the Multiemployer Pension Plan

Amendments Act of 1980, Pub. L. No. 96-364,

a cconsennansnciniinett oa. Passim

as ieciaduebcialion 9

29 U.S.C. §§ 1381-1405 (West Supp. 1985) _............ 1

ee capensmtiniisbseiaseteiinnainiat 6

en senentenuenssundaenenet 6

Motor Carrier Act of 1980, Pub. L. No. 96-296,

ER EES RT Re ee ee 2

Legislative Materials

House Comm. on Education and Labor, The Multi-

employer Pension Plan Amendments Act of

1979, H.R. Rep. No. 869, Part I, 96th Cong.,

EAN Fi a EC PN 9

126 Cong. Rec. H4163 (daily ed. May 22, 1980).... 10

Government Agency Materials

PBGC, Multiemployer Study Required by P.L.

I 6, 9, 10

PBGC, Recommendations to the Congress for Re-

vising Multiemployer Plan Termination Insur-

"EST ae aan ee 6

United States Department of Labor, The Funding

Status of Multiemployer Pension Plans and Im-

plications for Collective Bargaining ..................... 2

Miscellaneous

F.W. Liddell, Financial Analysis of the Motor

Carrier Industry (1981)

4

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

Nos. 84-1555, 84-1567

JOHN L. CONNOLLY, et al.,

Appellants,

v.

PENSION BENEFIT GUARANTY CORPORATION, et al.,

Appellees.

On Appeal from a Three Judge Court of the

United States District Court

for the Central District of California

BRIEF FOR THE

AMERICAN TRUCKING ASSOCIATIONS, INC.,

AMICUS CURIAE,

IN SUPPORT OF REVERSAL

INTEREST OF THE AMICUS

The American Trucking Associations, Inc. (“ATA’’)

is the national trade association of the trucking industry,

which includes more than 31,000 carriers regulated in

interstate commerce. Many of these firms contribute to

multiemployer pension plans and are thus subject to

withdrawal liability under the Multiemployer Pension

Plan Amendments Act of 1980 (“MPPAA”), as amend-

ed, 29 U.S.C. §§ 1881-1405 (West Supp. 1985).

2

The MPPAA newly imposed on employers signatory to

collective bargaining agreements, pursuant to which con-

tributions to multiemployer pension plans were required,

an absolute liability for a share of the pension plan’s

underfunding if the employer ceased making contribu-

tions for any reason including going out of business.’

The Act thus made such employers the guarantors of the

unfunded vested liabilities of the plans. This imposition

has had a devastating impact on the trucking industry

for two reasons.

The first reason is the very size of the imposition.

The two largest Teamsters Union plans—the Western

Conference of Teamsters Plan and the Central States,

Southeast and Southwest Areas Teamsters Plan—alone

in 1981 had a combined unfunded vested liability of $5

billion. United States Department of Labor, The Fund-

ing Status of Multiemployer Pension Plans and Impli-

cations for Collective Bargaining at 21 n.4.? In 1980 the

stockholder’s equity of the entire trucking industry—

nonunion as well as union—was approximately $5 bil-

lion. See F.W. Liddell, Financial Analysis of the Motor

Carrier Industry at 22, 37 (1981).

Second, the trucking industry has been particularly

hard-hit by withdrawal liability because of the Motor

Carrier Act of 1980 (“MCA”), Pub. L. No. 96-296, 94

Stat. 793. That Act substantially deregulated the truck-

ing industry and has caused a significant increase in both

nonunion and union competition. It thus has forced a

major restructuring of the unionized portion of the in-

dustry. Yet, the MPPAA, enacted only 87 days after

1 The term “going out of business” is used in this brief to mean

any method by which a company can withdraw the value of its

assets from a particular use, including dissolution, liquidation, and

sale of the business.

2 Several other Teamsters plans have unfunded vested liability in

excess of $100 million each. See, e.g., id. Appendix D at 173, 188.

—

° =

the MCA, penalizes through the imposition of withdrawal

liability the actions necessary for such an industry-

wide restructuring and deters unprofitable businesses

from going out of business. ATA believes that the penal-

ization of such business decisions and the attempt to

force unprofitable companies to stay in business violates

the Takings Clause of the fifth amendment. ATA there

fore files this brief urging reversal of the court below.®

SUMMARY OF THE ARGUMENT

The MPPAA imposes withdrawal liability for neces-

sary changes in a business operation such as selling a

business or going out of business. Yet withdrawal lia-

bility is a noncontractual imposition and the employer

has neitier contractual nor causal responsibility for the

problem tc which withdrawal liability is directed, pen-

sion plan underfunding. The Act thus burdens and re

stricts an employer in his business decisions—including

the decision to cease business altogether—without a suf-

ficient nexus to the problem. The unwarranted restric-

tion on the employer’s rights with respect to his assets

violates the Takings Clause under the Brooks-Scanlon

doctrine.

ARGUMENT

I. The Brooks-Scanlon Doctrine Prohibits Legislative

Effort to Force Companies to Stay in Business Against

Their Will.

The threat of withdrawal liability effectively precludes

employers desiring to retrieve and transfer assets to

other uses from going out of business. Such a preclu-

sion violates the Takings Clause.

The Supreme Court sustained the constitutional right

to go out of business in Brooks-Scanlon Co. v. Railroad

3 This brief is filed with the written consent of the parties. The

letters of consent have been filed with the Clerk of the Court.

4

Commission, 251 U.S. 396 (1920). The Brooks-Scanlon

Company owned a small railroad company, primarily

used as a logging road, and also owned a sawmill and

lumber business. The railroad company became unprof-

itable because of declining volume. Brooks-Scanlon

sought to discontinue the railroad business, but the state

railroad commission and state supreme court ordered

that it must operate.

The Supreme Court reversed, holding that to compel

the railroad to stay in business against its will was an

unconstitutional taking of private property by the state.*

The Court held, first, that the carrier “cannot be com-

pelled to carry on” its business at a loss. 251 U.S. at

399. Thus, the carrier’s obligation to fulfill state regula-

tory commands lasts only so long as it “continues to

exercise the power conferred upon it by a charter from

a State.” Id.

Second, the Court made explicit the right of property

owners to withdraw from a losing business:

If the plaintiff be taken to have granted to the pub-

lic an interest in the use of the railroad it may with-

draw its grant by discontinuing the use when that

use can be kept up only at a loss.

Id. at 399 (emphasis added); accord Bullock v. Florida

ex rel. Railroad Commission, 254 U.S. 518, 521 (1921)

(“Without previous statute or contract to compel the

4 Although Brooks-Scanlon involved the fourteenth amendment,

the courts have recognized that fourteenth amendment precedents,

specifically including Brooks-Scanlon and others discussed below

“are applicable, a fortiorari, to federal action . . . since the fifth

amendment, unlike the fourteenth, contains an express prohibition

against unconstitutional takings. Congressional power under either

the bankruptcy clanse or the commerce clause is limited by the

fifth amendux.... in re Penn Central Transportation Co., 494 F.2d

270, 278 (3d Cir.), cert. denied, 419 U.S. 883 (1974) (citing Louis-

ville Joint Stock Land Bank v. Radford, 295 U.S. 555, 589-90

(1985) ). :

5

company to keep on at a loss would be an unconstitutional

taking of its property.”) ; Railroad Commission v. East-

ern Texas Railroad Co., 264 U.S. 79, 85 (1924) (“To

compel [a company] to go on at a loss or to give up the

salvage value would be to take its property without the

just compensation .. ..”’).

The Brooks-Scanlon decision is a centerpiece in the

law of unconstitutional takings. Federal courts have

consistently recognized the constitutional right to with-

draw property from an existing use. This right—denom-

inated the “Brooks-Scanlon right” by contemporary

courts °—is so basic a doctrine of constitutionally pro-

tected property that courts nuw describe it as a “funda-

ment of the taking provision.” Jn re Central Railroad

Co. of New Jersey, 485 F.2d 208, 213 (3d Cir. 1973),

cert. denied, 414 U.S. 1131 (1974). The courts have

consistently reaffirmed the Brooks-Scanion right in the

last decade.®

The MPPAA imposes potentially unlimited liability *

for any permanent cessation of contributions to a pension

5 See, e.g., In re New York, Susquehanna & Western Railroad

Co., 504 F. Supp. 851, 859-60 (D.N.J. 1980): In re Penn Central

Transportation Co., 458 F. Supp. 1234, 1277 & n.48 (E.D. Pa. 1978).

Although most cases applying the Brooks-Scanlon doc’ine have

involved railroads, the doctrine is not limited to railroads. See

Pacific Telephone & Telegraph Co. v. Tax Commission, 297 U.S. 403,

413-14 (1936).

*In re Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 611

F.2d 662, 666-67 (7th Cir. 1979); In re Penn Central Transporta-

tion Co., 494 F.2d at 280-82; In re New York, Susquehanna &

Western Railroad Co., 504 F. Supp. at 859-60.

7 Textile Workers Pension Fund v. Standard Dye & Finishing

Co., 725 F.2d 843 (2d Cir.), cert. denied, 104 S. Ct. 3554 (1984)

demonstrates that withdrawal liability can exceed the value of a

company. There, the stockholder of a company liquidated the assets

and distributed net proceeds of $733,082 to the stockholders. The

pension fund subsequently demanded withdrawal liability, which

the parties stipulated to be $817,398.

6

plan, including going out of business.* The stranglehold

this places on the trucking industry can be estimated

from the size of the unfunded vested benefits of plans

to which trucking companies contribute. See supra p. 2.

The price of going out of business thus can be 100%

of the company’s assets. To so penalize the right is

to deny it, since the freedom to go out of business is

meaningful only :f the employer can transfer his assets

to a profitable use. The result in Brooks-Scanlon could

not have been diferent if, instead of commanding

Brooks-Scanlon to keep the railroad in business, the rail-

road commission had said Breoks-Scanlon could stop the

railroad but at the price of 100% of the value of the

railroad.

Indeed, a central purpose of withdrawal liability was

to seek to compel companies to stay in business against

their will. When the Pension Benefit Guaranty Corpora-

tion (“’BGC”) first proposed withdrawal liability, it

justified the imposition in part as nevessary to “provide

a disincentive to voluntary employer withdrawals.”

PBGC, Multiemployer Study Required by P.L. 95-214 at

97 (July 1, 1978) (“PBGC Study”) ; accord PBGC, Rec-

ommendations to the Congress for Revising Multiem-

ployer Plan Termination Insurance at 16 (Feb. 1979)

(“Requiring withdrawing employers to compensate the

plan would create a financial disincentive to with-

PA B

The reality is that most—if not all—withdrawals are

“voluntary” changes in business operations dictated by

8 The existence of the contingent liability provides a deterrent to

sales. Although the MPPAA has exceptions that apply to sales or

mergers, see 29 U.S.C. §§ 1384, 1398 (1982), these exceptions

merely avoid triggering the liability and thus do not change poten-

tial liability. The deterrent effect on sales is not altered. See also

PBGC Opinion Letter of November 24, 1981 (warning that selling

a company through sale of stock does not “necessarily” mean that

“the seller of the stock is forever clear of any liability to the

plan’”’).

7

economic circumstances unrelated to the contribution

obligation. Because the contribution obligation is under-

taken as part of a collective bargaining agreement, the

employer cannot at will cease contributions during the

life of the agreement, and the union can strike the em-

ployer in contract negotiations to compel him to agree to

make contributions. The employer can “voluntarily”

cease contributions only if he goes out of business alto-

gether or sells his company.”

MPPAA must be seen for what it is: an effort to lock

employers into a permanent relationship with a pension

plan by threatening them with confiscation of their as-

sets if they go out of business. Brooks-Scanlon prohibits

such an effort at statutory compulsion to stay in business.

Il. The Brooks-Scanlon Right Cannot Be Abrogated

Where the Company Has Not Agreed To Be Responsi-

ble for the Financial Stability of a Multiemployer

Plan and Had No Share in the Creation of the Problem.

Burdening the employer’s right to go out of business

might be treated as not within the Brooks-Scanlon doc-

trine if the employer had some contractual or causal re-

sponsibility for the problem addressed, i.e., if withdrawal

liability were in some sense a debt of the employer. No

such relationship exists here.

An employer contributing to a multiempivyer plan

makes no promise, express or implied, of pension benefits

® NLRB v. Amax Coal Co., 453 U.S. 322 (1981).

10 An employer also “withdraws” if his employees decertify the

union—a right of the employees under the National Labor Relations

Act over which the employer has no control. With respect to truck-

ing employers party to Teamsters collective bargaining agreements,

the employer cannot cease contributions by moving locations—he

merely makes contributions to a different fund (an event which

under the MPPAA nonetheless triggers withdrawal liability to the

first fund).

8

to his employees." In arms-length negotiations with the

union, he solely agrees to make contributions to the pen-

sion plan during the course of the collective bargaining

agreement based on the number of weeks or hours worked

by the employees. The plan itself has sole control over

the management of the plan and makes such critical de-

terminations as the length of service necessary for the

pension to vest and the level of benefits.”

Moreover, the employer’s reliance on the nature of his

obligation to the fund is significant. In view of the em-

ployer’s lack of control over the plan, he could only agree

to make negotiated contributions and could not agree to

underwrite the financial stability of the plan—otherwise,

he would be writing the plan a blank check.

With no contr’ ctual undertaking to pay pension ben-

efits, an employer can be held liable retrospectively for

the benefits promised by the plan only if it can be shown

that the employer was somehow responsible for the al-

leged financial instability of multiemployer plans. Where

11 Several district courts have recognized that withdrawal lia-

bility is noncontractual. See T.I.M.E.-DC, Inc. v. 1.A.M. National

Pension Fund, 597 F. Supp. 256, 258 (D.D.C. 1984); Debreceni v.

Healthco-D.G. Stoughton Co., 579 F. Supp. 296, 297-98 (D. Mass.

1984) ; T.I.M.E.-DC, Inc. v. Trucking Employees of North Jersey

Welfare Fund, 560 F. Supp. 294, 297 (E.D.N.Y. 1983); Peick v.

PBGC, 539 F. Supp. 1025, 1062 (N.D. Ill. 1982), aff'd, 724 F.2d

1247 (7th Cir. 1983), cert. denied, 104 S. Ct. 3554 (1984). Two

courts have expressly noted that withdrawal liability is a “penalty.”

T.I.M.E.-DC, Inc. v. I.A.M. National Pension Fund, 597 F. Supp.

at 258; T.I.M.E.-DC, Inc. v. Trucking Employees of North Jersey

Welfare Fund, 560 F. Supp. at 297.

12 These features of multiemployer plans are in stark contrast

to the single-employer plan held constitutional in Nachman Corp.

v. PBGC, 592 F.2d 947 (7th Cir. 1979), aff’d on statutory grounds,

446 U.S. 359 (1980). There, the company had agreed through

collective bargaining to pay a fixed level of benefits to its em-

ployees, based on years of service, and further agreed to fund the

plan on an actuarial basis at a level sufficient to meet the obliga-

tion of fixed benefits. The employer had thus expressly promised

benefits to his employees and had control over the funding.

9

agreement is lacking, a showing of employer responsibil-

ity for the creation of the problem addressed is the only

other constitutional basis for retrospective employer lia-

bility.“ But the employer has no such responsibility—

he solely agreed to make contributions and had no con-

trol over the trustees’ administration of the fund.”

Indeed, Congress itself must bear a large measure of

the responsibility for the problem to which the MPPAA

was directed—financially troubled and unstable multi-

employer plans. Prior to ERISA, multiemployer plans

were sound and rarely terminated.“ ERISA increased

the plans’ unfunded liability through minimum vesting

and non-forfeitability rules** and restricted the ability

of multiemployer plans to respond to financial difficul-

ties,'7 but placed no constraints on plan adoption of ben-

18 This is the lesson of Usery v. Turner Elkhorn Mining Co., 428

U.S. 1 (1976), where the Supreme Court held that Congress could

constitutionally impose on coal mining companies retrospective lia-

bility for black lung disease contracted by employees in the course

of employment. The Court emphasized that the liability was predi-

cated on “a specific need created by the dangerous conditions under

which the former employee labored.” Jd. at 19.

14 See NLRB v. Teamsters Union Local 582, 670 F.2d 855 (9th

Cir. 1982) (court upheld a plan’s granting of a new benefit even

though the employers had specifically refused that benefit in col-

lective bargaining); Sinai Hospital v. National Benefit Fund,

[1982] Daily Lab. Rep. (BNA), No. 249, at D-1 (4th Cir. Dec. 15,

1982) (the court invalidated an employer’s effort to limit benefit

increases by obtaining union consent to a limitation in the collec-

tive bargaining agreement). Furthermore, nothing in the MPPAA

requires a fund to use withdrawal liability payments to reduce

underfunding rather than raising benefits.

15 See PBGC Study, supra p. 6, at 4 (“Before passage of ERISA,

terminations of multiemployer plans were extremely rare.”’).

16 See 29 U.S.C. § 1053 (1982).

17 House Comm. on Education and Labor, The Multiemployer

Pension Plan Amendments Act of 1979, H.R. Rep. No. 869, Part I,

96th Cong., 2d Sess. 54 (1980) (“ERISA restricts the flexibility

such plans had to defer funding, restrict vesting or reduce bene-

fits ).

10

efit increases."* The employer liabilities under ERISA

discouraged new entrants,’ thus providing no mecha-

nism for replacing the contributions of employers who

“withdrew” because they went out of business.

The MPPAA thus places the burden of the solution to

the problem of pension plan underfunding on the shoul-

ders of the withdrawing employer who had never agreed

to be the guarantor of a pension plan’s solvency. The

interests of the pension plan are protected at the expense

of a party without responsibility for the problems of

multiemployer plans and without control over the plan’s

unfunded liability.

CONCLUSION

Congress has no power to penalize and burden a com-

pany’s right to go out of business as a solution for a

problem not of the employer’s making. ATA respect-

fully suggests that the decision of the three-judge panel

below be reversed.

Respectfully submitted,

Of Counsel: CARL L. TAYLOR

WILuiaM S. BUSKER Counsel of Record

DANIEL R. BARNEY GLENN SUMMERS

KENNETH E. SIEGEL KIRKLAND & ELLIs

ATA LITIGATION CENTER 655 Fifteenth Street, N.W.

2200 Mill Road Washington, D.C. 20005

Alexandria, VA 22314 (202) 879-5000

(703) 838-1857 Counsel for the

American Trucking

Associations, Inc.,

Amicus Curiae

Dated: July 25, 1985

18 See 126 Cong. Rec. H4163 (daily ed. May 22, 1980) (remarks

of Rep. Erlenborn).

19 The PBGC feared that the ERISA rules would discourage new

entry. PBGC Study, supra p. 6, Appendix I at 7.