Amicus Curiae Brief — Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp. of Cal.

Ww

~ ey No. 96-370

—. —————————————

os IN THE

‘Supreme Court of the United States

OCTOBER TERM, 1996

BOARD OF TRUSTEES, BAY AREA LAUNDRY AND

Dry CLEANING PENSION TRUST FUND,

w. Petitioner,

FERBAR CORPORATION OF CALIFORNIA, INC.;

STEPHEN BARNES,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF OF THE NATIONAL COORDINATING

COMMITTEE FOR MULTIEMPLOYER PLANS

AND THE CENTRAL STATES, SOUTHEAST

AND SOUTHWEST AREAS PENSION FUND

AS AMICI CURIAE

IN SUPPORT OF PETITIONER

THOMAS C. NYHAN GERALD M. FEDER *

General Counsel DIANA L.S. PETERS

JAMES P. CONDON FEDER & ASSOCIATES, P.C.

JOHN J. FRANCZYK, JR. 1350 Connecticut Avenue, N.W.

CENTRAL STATES, SOUTHEAST AND Suite 600

SOUTHWEST AREAS PENSION FUND Washington, D.C. 20036-1712

9377 West Higgins Road (202) 955-8305

Rosemont, IL 60018-4938 Attorneys for National

(847) 518-9800 Coordinating Committee

Attorneys for the Central States for Multiemployer Plans

Pension Fund

July 16, 1997 * Counsel of Record

WILSON - Eres PRINTING Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

oS ~

mA

Supreme our af the ted State

OcTOBER TERM, 1996

No. 96-370

BOARD OF TRUSTEES, BAY AREA LAUNDRY AND

Dry CLEANING PENSION TRUST FUND,

. Petitioner,

FERBAR CORPORATION OF CALIFORNIA, INC.;

STEPHEN BARNES,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

To the Honorable Chief Justice and Associate Justices

of the Supreme Court of the United States:

On November 18, 1996, this Court granted the National

if

pogee 78

tet

INTEREST OF THE NCCMP AND CENTRAL STATES

The NCCMP is a nonprofit, tax-exempt organization

that was formed after the enactment of the Employee

Retirement Income Security Act of 1974 (“ERISA”) to

participate in the development of employee benefits legis-

lation and government regulations promulgated to imple-

ment ERISA and other laws affecting multiemployer plans.

Currently, more than 240 multiemployer plans and related

international unions, located in at least 37 states, are

affiliated with the NCCMP. These affiliated plans repre-

sent a majority of participants in multiemployer plans

throughout the nation and are representative of the multi-

employer plan community generally.

Because of the broad range of experience of the

NCCMP’s constituent organizations and its close, ongoing

contacts with the hundreds of trustees charged with oper-

ating multiemployer plans, the NCCMP believes that it is

uniquely qualified to state the position of the trustees,

participants, and beneficiaries of such plans. For this

reason, the NCCMP frequently participates as an amicus

curiae in this Court as well as in the various courts of

appeals. With regard to withdrawal liability assessments

under the Multiemployer Pension Plan Amendments Act

of 1980 (“MPPAA”), the NCCMP has represented the

interests of multiemployer plans in Concrete Pipe and

Prods. v. Construction Laborers Pension Trust, 508 U.S.

602 (1993); Connolly v. PBGC, 475 U.S. 211 (1986);

and PMGC v. R. A. Gray & Co., 467 U.S. 717 (1984).

The NCCMP also filed an amicus brief in Board of

Trustees of the Dist. No. 15 Machinists’ Pension Fund v.

Kahle Eng’g Corp., 43 F.3d 852 (3d Cir. 1994), which

addressed the precise issue at bar. In addition, the

NCCMP has been recognized as having had a “signifi-

cant impact” on MPPAA by the Senate cosponsors of

that legislation. See 126 Cong. Rec. $9835 (daily ed.

July 24, 1980); 126 Cong. Reg. $10,100 (daily ed. July

29, 1980).

The Central States Pension Fund is the largest multi-

employer defined benefit pension fund in the United States

with assets of $14.473 billion. The plan covers 178,000

retirees currently drawing benéf®, 217,000 active par-

ticipants, and 69,000 vested inactive participants. At

present, the Fund receives contributions from over 5,000

employers through over 9,000 billing accounts in 42

states and Canada. As of September 30, 1986, Central

States had 305 outstanding assessments of withdrawal

liability totalling approximately $267 million. Of these,

80 occurred in 1996 in the amount of $35 million. Since

September 26, 1980, the effective date of MPPAA, the

Fund has collected about $400 million in withdrawal

liability. However, its vigorous collection efforts, which

have been heretofore successful, have been recently under-

mined by the decision of the Ninth Circuit at bar and by

the somewhat earlier decision of the Seventh Circuit,

which conflicts both with that of the Ninth Circuit and

with the sounder decisions of the District of Columbia and

Third Circuits, infra.’

Due to its size, and long experience in enforcing

MPPAA on behalf of the Fund’s participants and bene-

ficiaries, Central States, like the NCCMP, is able to bring

a broad perspective to the issues raised in this case, in

1 Central States has vested benefit liabilities of $16.524 billion,

$2.051 billion in excess of its assets. The Fund's liability for un-

funded vested benefits (“UVBs”) is not immediately due because

the liabilities represent the present value of benefits payable over

decades into the future. The expected time to amortize the UVBs

at current funding rates is about 29 years. The principal means

for funding the UVBs, as well as current benefit accruals, is the

contributions made by the employers pursuant to their collective

bargaining agreements. However, substantial additional funding,

as contemplated by Congress, comes from the Trustees’ systematic

and rigorous enforcement »f MPPAA. The Ninth and Seventh

Circuits’ approaches have impermissibly curtailed the Trustees’

ability to collect withdrawal liability; hence, resolution of the issues

raised in this appeal are of critical importance to the Central States

Pension Fund.

particular, with respect to the practical problems for na-

tional multiemployer plans generated by the present con-

flict among the circuits as well as the inherent difficulties

of enforcing MPPAA within the time constraints imposed

by the Courts of Appeals for the Ninth and Seventh

Circuits.

For the reasons set forth in the accompanying brief, the

NCCMP and Central States respectfully request this Court

to clarify as fully as possible consistent with the facts

of the conflicting decisions the operation of the 6-year

statute of limitations applicable to actions to collect with-

drawal liability.

Congress chose not to include a statute of limitations

provision applicable to actions to collect delinquent con-

tributions under Title I of ERISA. However, Congress

did intend that a uniform 6-year limitations period would

govern actions to collect withdrawal liability under Title

IV of the statute. However, in spite of the text of

Section 1451(a) and (f) of MPPAA’s civil enforcement

provision, this has not occurred, and there is substantial

disarray and confusion among the courts. Moreover, in

contrast to the Courts of Appeals for the District of

Columbia and Third Circuits, both the Ninth and Seventh

Circuits have construed MPPAA’s limitations provision in

a manner that is inconsistent with other specific provisions

of the statute as well as with the structure and design of

the statute as a whole. As a result, the time for bringing

a collection action in those two jurisdictions has been

impermissibly foreshortened, as has been the time within

which trustees may exercise their statutory discretion

whether or not to accelerate payment and demand the

entire amount due.

The NCCMP and Central States are concerned that

unless the Ninth and Seventh Circuits’ approaches are

rejected by this Court, in favor of the more flexible and

reasonable approach taken by the Courts of Appeals for

the District of Columbia and Third Circuits, MPPAA’s

statutory scheme for collecting withdrawal liability will

be substantially undermined and the effectiveness of

MPPAA reduced. In addition, the trustees’ ability to

encourage withdrawn employers to re-enter the plan under

MPPAA’s abatement rules will be substantially impeded

unless they retain the statutory discretion not to declare

a default and accelerate the debt within six years of the

date of withdrawal (under the Ninth Circuit’s reasoning)

or within six years from the date the first installment

payment was due and not paid (under the Seventh Cir-

cuit’s presumptive acceleration approach).

Since the above results are inimical to the financial

health of multiemployer pension plans, the NCCMP, on

behalf of all affiliated pension plans, and the Central

States Pension Fund, on behalf of its participants and

beneficiaries, request leave to file a joint amicus brief on

the merits in support of Petitioner.

In analyzing the conflicting circuit court opinions,

amici will focus their discussion on why—for quite prac-

tical reasons—the single accrual dates selected, respec-

tively, by the Ninth and Seventh Circuits, are unworkable

and are likely to result either in a loss of plan assets or

in the general 6-year limitations rule (Section 1451(f)(1))

being swallowed up by the discovery rule (Section 1451

(f)(2)), which will lead to inconsistency and skew the

legislative balance between enforcement and repose which

Congress intended. Respectfully submitted,

THomaAS C. NYHAN GERALD M. FEDER *

General! Counsel DianA L.S. PETERS

JAMES P. CONDON FEDER & ASSOCIATES, P.C.

JOHN J. FRANCZYK, JR. 1350 Connecticut Avenue, N.W.

CENTRAL STATES, SOUTHEAST AND Suite 600

SOUTHWEST AREAS PENSION FUND Washington, D.C. 20036-1712

9377 West Higgins Road (202) 955-8305

Rosemont, IL 60018-4938 Attorneys for National

(847) 518-9800 Coordinating Committee

Attorneys for the Central States for Multiemployer Plans

Pension Fund

July 16, 1997 * Counsel of Record

TABLE OF CONTENTS

TABLE OF AUTHORITIES ....W.........-----2-----eccecesee-oee-s

PRELIMINARY STATEMENT ...............--.

INTEREST OF THE NCCMP AND CENTRAL

ee iclatthitin statin tccernininiidliinintincesinecatiinenccmpinceniteimnin

I.

Il.

THE DATE OF WITHDRAWAL IS OF NO

SIGNIFICANCE WITH RESPECT TO DE-

TERMINING WHEN A CAUSE OF ACTION

TO COLLECT WITHDRAWAL LIABILITY

THE “DATE OF WITHDRAWAL” AP-

PROACH CONFLICTS SPECIFICALLY WITH

SECTION 1399(b)(1) OF MPPAA, WHICH

REQUIRES TRUSTEES TO ISSUE A NO-

TICE AND DEMAND “AS SOON AS PRAC-

TICABLE” AFTER A WITHDRAWAL, AND

WITH SECTION 1399(c)(2), WHICH RE-

QUIRES PAYMENT NO LATER THAN 60

DAYS AFTER THE NOTICE AND DE-

NE ntrtarseannendinnabtinmsenstatbecninemseilieticiiabninperamnenseee:

III. MPPAA DOES NOT CONTEMPLATE AUTO-

CONCLUSION ......................

MATIC ACCELERATION AND TRUSTEES

SHOULD NOT BE REQUIRED TO ACCEL-

ERATE WITHIN SIX YEARS OF THE FIRST

MISSED INSTALLMENT 0000... cecenceeenee

(i)

ii

TABLE OF AUTHORITIES

Cases Page

Board of Trustees of the Constr. Laborers Pension

Trust v. Thibodo, 34 F.3d 914 (9th Cir. 1994),

cert. denied, 115 S. Ct. 1861 (1995) ......10, 12, 13, 15, 23

Board of Trustees of the Dist. No. 15 Machinists’

Pension Fund v. Kahle Eng’g Corp., 43 F.3d

ff | § Pa’ 2, 6, 15, 29

Central States v. Century Motor Freight, 1995 WL

699655 (W.D. Ill. Nov. 22, 1995) —....-... 26

Central States, Southeast and Southwest Areas

Pension Fund v. Navco, 3 F.3d 167 (7th Cir.

1993), cert. denied, 510 U.S. 1115 (1994) ....2, 6, 24, 28

Concrete Pipe & Prods. v. Construction Laborers

Pension Trust, 508 U.S. 602 (19938) 0.0... 23

Giroux Bros. Transp. v. New England Teamsters

& Trucking Indus. Pension Fund, 73 F.3d 1 (1st

a SED cxlissassieaisbtndannpecieneteteiienstachiiestthiiaterntadieteenmmteneninns 17

Joyce v. Clyde Sandoz Masonry, 871 F.2d 1119

(D.C. Cir.), cert. denied, 493 U.S. 918 (1989)... 2, 14,

16, 19, 29

Milwaukee Brewery Workers’ Pension Plan v. Jos.

Schlitz Brewing Co., 513 U.S. 414, 115 S. Ct. 981

IS ee Se 14, 23, 24

T.1.M.E.-DC, Inc. v. 1AM. Nat’l Pension Fund,

597 F. Supp. 256 (D.D.C. 1984) —... 22

T.1I.M.E.-DC, Inc. v. 1.A.M. Nat'l Pension Fund,

616 F. Supp. 400 (D.D.C. 1985) —........... 22

Trustees of the Amalgumated Ins. Fund v. Sheldon

Hall Clothing, Inc., 862 F.2d 1020 (3d Cir.

1988), cert. denied, 490 U.S. 1082 (1989) .......... 11

United Retail & Wholesale Employees Teamsters

Union Local No. 115 Pension Plan v. Yahn &

McDonnell, Inc., 787 F.2d 128 (3d Cir. 1986),

aff'd by an equally divided Court, 481 U.S. 735

CEG D .00000.1200.c0s0ssssssatecaivcntsoseeneccettocesesseonesceiuentstecsees 26

Federal Statutes

ee 21

29 U.S.C. § 1104(a) (1) (A) (i), (ii)... 15

gS Ree 14, 20

iii

TABLEOF AUTHORITIES—Continued

Page

EAS a Rae 20

Ee 13, 15

eR NS ee 10, 12, 13

TEES TTTTEE 7,10, 11,12

I enemies 14, 20

EE ee 13, 14, 16, 20

Br I eerie ceccececcevesccncenerccecveccsnsscousore 16

29 U.S.C. § 1885 (b) (2) (A) ........ ial iciiemiaiiaiiaae 16

BD ts Oe ED COED CID annccccececcecececcccccccovcccsccccoceve 20

ee 14

I idan 17

ETE eae ea ae re 20

Se 20

LEE RET 20

EE 24

29 U.S.C. § 1899(b) (1) 00. 8, 12, 14, 18, 20, 22

29 U.S.C. § 1899(c) (1) (A) -........... cece eee 14, 23

ee 8, 14, 20, 22

I 14

I 14, 26

29 U.S.C. § 1899 (c) (5) (A) 0.0.22... eee 25

29 U.S.C. § 1890(c) (5) (B) ..................0.. eee. 28

I uiintictn 25

RE Tee Ee Tee 25

IE RC coat arta 11

a ee ee 11

I Westy ESO 8,14

STS TC 2

ER Eo eR IB 11, 12,13

a 3,9

ES I 7,19

Regulations

29 C.F.R. § 4219.31(c) (1) (1996) 000 26

29 C.F.R. § 4219.31 (b) (2) (1996) 000 26

In THE

Supreme Court of the United States

OCTOBER TERM, 1996

No. 96-370

BOARD OF TRUSTEES, BAY AREA LAUNDRY AND

Dry CLEANING PENSION TRUST FUND,

. Petitioner,

FERBAR CORPORATION OF CALIFORNIA, INC.;

STEPHEN BARNES,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF THE NATIONAL COORDINATING

COMMITTEE FOR MULTIEMPLOYER PLANS

AND THE CENTRAL STATES, SOUTHEAST

AND SOUTHWEST AREAS PENSION FUND

AS AMICI CURIAE

IN SUPPORT OF PETITIONER

PRELIMINARY STATEMENT

The National Coordinating Committee for Multi-

employer Plans (“NCCMP”), joined by the Central States,

Southeast and Southwest Areas Pension Fund (“Central

States”), submits this amicus brief to urge the Court to

reverse the decision of the Court of Appeals for the

Ninth Circuit, in which the court ruled that the 6-year

limitations period governing trustee actions to collect

withdrawal liability begins to run from the date on which

an employer withdraws from a multiemployer pension

fund. Since a uniform limitations rule is of vital impor-

tance for multiemployer plans, many of which are large

national plans having contributing employers and partici-

2

pants in many states,’ we further urge the Court to resolve

the conflict that presently exists among the other circuits

by affirming the approach taken by the Courts of Appeals

for the District of Columbia* and Third Circuits*® anc

by rejecting the rationale adopted by the Court of Appeals

for the Seventh Circuit.‘

The NCCMP and Central States file this brief because

we believe that the decision below as well as the Seventh

Circuit’s Navco decision are inconsistent with the purpose

and text of the Multiemployer Pension Plan Amendments

Act of 1980, 29 U.S.C. §§ 1381-1461 (“MPPAA”),°

and that those decisions, unless repudiated by this Court,

will seriously impede the ability of multiemployer plan

trustees to recover withdrawal liability, as Congress in-

tended. Additionally, we are concerned that unless the

rulings of those courts are rejected, trustees will be

hindered in exercising their congressionally authorized

discretion to work with collective bargaining parties to

bring about the re-entry of withdrawn employers into the

1 Central States has actual or potential withdrawal liability claims

in 42 states and in each of the 11 numbered judicial circuits.

In addition, each of the five largest contributing employers does

business in virtually every judicial circuit. The conflict among the

circuits raises a serious problem for multiemployer plans which,

like Central States, cover operations in more than one federal

judicial circuit. For example, which law would apply to a with-

drawal from Central States? Because of MPPAA’s broad venue

provision (29 U.S.C. § 1451(d)), it could be the law where the

plan is administered or where the employer resides or does business.

2 Joyce v. Clyde Sandoz Masonry, 871 F.2d 1119 (D.C. Cir.), cert.

denied, 493 U.S. 918 (1989).

3 Beard of Trustees of the Dist. No. 15 Machinists’ Pension Fund

v. Kahle Eng’g Corp., 43 F.3d 852 (3d Cir. 1994).

* Central States, Southeast and Southwest Areas Pension Fund

v. Naveo, 3 F.3d 167 (7th Cir. 1993), cert. denied, 510 U.S. 1115

(1994).

5 Pub. L. 96-364, 94 Stat. 1208 (1980). All further references to

MPPAA will be to Title 29, U.S.C.

3

plan in the interests of the plan’s participants and

beneficiaries.

For the reasons to be set forth below, the NCCMP and

Central States therefore urge the Court to adopt the install-

ment contract approach suggested by both the District of

Columbia and Third Circuits and to rule (1) that trustees

have six years from the date of each missed installment

payment to file suit to collect that payment unless the

trustees have exercised their statutory discretion to accel-

erate the debt; (2) that withdrawal liability cannot be

presumptively or automatically accelerated; (3) that

trustees are not required by MPPAA’s 6-year limitations

period to accelerate the debt within six years of the first

missed installment or forever lose their right to collect

the remainder of the debt; and (4) that if trustees do opt

to accelerate the debt, at any point during the payment

schedule, they are entitled to collect the entire amount of

unpaid withdrawal liability reduced (at most) by install-

ments which fell due more than six years prior to the date

a lawsuit was filed to collect the accelerated debt.

INTEREST OF THE NCCMP AND CENTRAL STATES

The NCCMP and Central States incorporate by refer-

ence the statement of interest set forth in the attached

Motion.

Section 1451(a) of MPPAA permits a fiduciary who is

aggrieved by an “act or omission” with respect to the plan

to file an action for legal or equitable relief, or both. Sec-

tion 1451(f)(1) requires such an action to be brought

within six years of the date on which the cause of action

arose. The issues to be resolved in this appeal are first.

whether the limitations period begins to min when an

installment payment is due rather than on the withdrawal

date and, second, whether the limitations period runs sep-

arately as to each installment unless the remaining pay-

ments have been accelerated.

4

In the case at bar, the Ninth Circuit ruled that MPPAA’s

6-year statute of limitations begins to run as of the date

of withdrawal, rather than as of the date an employer

fails to make a payment demanded by the trustees. This

is incorrect because a plan cannot determine—as of the

date of withdrawal—whether the employer has any liability

as a result of the withdrawal and cannot assert a legal

claim to payment as of that date.

Moreover, the date of withdrawal is itself an inappro-

priate triggering date as this date may itself be fraught

with uncertainty (and is frequently a principal subject

of an employer’s request for administrative review and

arbitration). As a significant amount of time is likely

to elapse before a plan is able to confirm with reasonable

certainty that a suspension of contributions is, in fact,

coincident with a withdrawal as defined by statute, cal-

culate the resulting liability (if any), prepare a payment

schedule, and issue a notice and demand for payment,

the Ninth Circuit’s ruling results—for practical purposes—

in trustees’ having far less than six years to collect the

scheduled payments or to declare a default and collect the

accelerated debt. Additionally, because the statute of

limitations is rigidly fixed on the date of withdrawal, the

trustees—under the Ninth Circuit’s approach—could risk

losing all installments falling due six or more years after

that date for any number of reasons; for example, if an

employer initially makes its scheduled payments but then

stops, knowing that the statute of limitations has run on

the plan’s claim for the balance and that it is also too late

to declare a default and collect the accelerated debt.

In contrast to the Ninth Circuit, the Seventh Circuit

has ruled that the limitations period begins to run from

the date of the first missed payment demanded by the plan

sponsor. However, in selecting a single triggering date,

the Seventh Circuit, like the Ninth Circuit, failed to give

proper weight to the fact that MPPAA requires plans to

permit employers to make installment payments for up

to 20 years and also gives trustees total discretion

5

whether or not to declare a default and accelerate the debt

as a result of the employer’s failure to make a scheduled

installment payment. Additionally, both courts have failed

to consider that a governing Pension Benefit Guaranty

Corporation (“PBGC”) regulation prohibits acceleration

pending administrative review and arbitration, infra.

Although various provisions of MPAA contemplate

two distinct types of claim-accrual dates—one to collect

missed installments and one to collect the accelerated debt

(upon notice of default)—the Seventh Circuit found that

pension plans can assert only one claim against with-

drawn employers; namely, for the full amount of with-

drawal liability. The court reasoned that even if a plan

may permit an employer to amortize the debt over as

long as 20 years, the entire debt is presumptively due at

the outset. Thus, the trustees’ cause of action arises only

once—on the date the first installment is missed. Con-

sequently, a fund has only six years from that date in

which to file an action to collect unpaid installments or to

accelerate the debt and collect the entire amount due.

(Alternatively, the decision can be read to mean that a

first missed installment automatically accelerates the debt.)

Although the Seventh Circuit’s approach differs from the

Ninth Circuit’s in that the triggering date is different,

both decisions suffer from the same defect because they

render meaningless MPPAA’s 20-year installment payment

cap; ignore the regulatory restraint on acceleration; and

eliminate the trustees’ discretion to determine whether and

when to declare a default and accelerate the debt following

or in the absence of review or arbitration.

A third (and much sounder) approach has been taken

by the Courts of Appeals for the District of Columbia and

Third Circuits, in recognition that Congress made a

reasoned determination that plans would be most likely

to collect a withdrawal liability debt if employers had

sufficient time to pay it; and that practical and legal

constraints exist with respect to the ability of trustees to

6

declare a default and to accelerate the debt. Under both

courts’ approach, a plan’s claim accrues only when an

employer fails to meet a demand for payment to which

the plan is entitled. Accordingly, a cause of action would

arise each time an employer fails to make a scheduled

installment payment and the trustees would also have six

years from each such date to collect the amount due.

Under that rationale, although not decided, the trustees

would also have six years from the date the accelerated

payment was due (following a notice of default) in which

to file an action for the accelerated debt and thus to

collect all future payments as well as all installments fall-

ing due within the 6-year period prior to filing the com-

plaint. The NCCMP and Central States endorsed this

approach, respectively, in Kahle and Navco, supra, and

continue to believe that the reasoning of the District of

Columbia and Third Circuits reflects a correct reading

of the statute.

The NCCMP and Central States are concerned that if

either the Ninth Circuit’s or the Seventh Circuit’s ap-

proach is adopted, the statutory scheme for collecting

withdrawal liability will be substantially undermined and

the effectiveness of MPPAA reduced. We therefore urge

rejection of both courts’ approaches, which are predicated

on a single and incorrect claim-accrual date and fail to

take into account the practical realities in which multi-

employer plans operate.

SUMMARY OF ARGUMENTS

1. The date of withdrawal is of no significance with

respect to determining when a cause of action to collect

withdrawal liability arises. The “act or omission” by

which a multiemployer plan is harmed for purposes of

applying the 6-year limitations period to collections is not

the “act of withdrawal,” as an employer can meet the

statutory criteria for withdrawal but incur no liability as

a result of MPPAA’s de minimis rule or a statutory

exemption. For this reason, a cause of action to collect

withdrawal liability cannot occur before the trustees have

7

determined that an employer’s withdrawal has resulted in

liability, and the employer fails to pay it. This is struc-

turally reflected in the fact that Section 1383(e) defines

the date of a complete withdrawal only for purposes of

Part | of the statute, whereas MPPAA’s civil enforcement

provision is located in Part 6.

Second, the Ninth Circuit’s “date of withdrawal” ap-

proach fails to take into account the practical realities in

which multiemployer plans operate, and thereby injects

uncertainty into a determination that should be reasonably

clear to trustees and employers alike, as they weigh their

rights and obligations under MPPAA. As the District of

Columbia Circuit recognized, the date of withdrawal

would be “unwieldy” as an accrual date because it is

often very difficult and time-consuming for trustees to

determine whether there has been a permanent cessation

of the obligation to contribute or of covered operations—

not only in the construction industry but in other industries

as well. Moreover, by the time the date of withdrawal is

ascertained (whether during the pre-assessment phase or,

if disputed by an employer, in arbitration), the trustees’

claim may well be barred. Although courts could extend

the general 6-year limitations period by applying the dis-

covery prong of Section 1451(f)(2), the discovery rule

was not intended to govern routine collection actions and

could increase—not reduce—litigation issues, as the par-

ties dispute who knew or should have known what and

when. Inevitably, such a practice would lead to incon-

sistent results so that the 6-year limitations period which

Congress adopted for collection actions under Title IV of

ERISA would cease to reflect the legislative balance

between enforcement and repose.

2. In ruling that the 6-year limitations period begins

to run on the date of withdrawal, the Ninth Circuit dis-

regarded two specific provisions of MPPAA and under-

estimated the time a plan actually needs to determine

whether a withdrawal has occurred and then to prepare

a payment schedule. The difficulty of determining whether

¢

an employer has withdrawn or is entitled to a statutory

exemption is compounded by the requirement that trades

or businesses under common control must be treated as a

single employer under highly complex and technical rules

which depend for their efficacy on the employers’ provid-

ing requisite information. Knowing of these difficulties,

Congress did not require plans to assess or collect with-

drawal liability as of the date of withdrawal. Rather,

Section 1399(b)(1) requires plan sponsors to notify em-

ployers of their withdrawal “as soon as practicable” after

that date, while Section 1399(c)(2) requires payment

no later than 60 days after the notice and demand. If

trustees issue a premature notice and demand without

having made a sufficient inquiry, they risk an injunction

against the assessment, as well as sanctions. However, if

they undertake the type of careful analysis Congress in-

tended when it gave the trustees’ determinations a pre-

sumption of correctness (a presumption upheld by this

Court), they risk a substantial foreshortening of their

enforcement rights. That payment schedules commonly

exceed six years is evidenced by the fact that MPPAA

itself forgives only those installments due after the first

20 years.

Moreover, employers could manipulate the limitations

period to deprive plans of most of the liability owed. For

example, an employer could comply with the payment

schedule only until the 6-year period has expired and then

stop or could cure any outstanding delinquencies arising

within the limitations period so as to preclude accelera-

tion of the debt before the trustees’ “single” claim expires.

These and other problematic results which are generated

by a single accrual date (and therefore by both the Ninth

and Seventh Circuits’ rulings) demonstrate why the install-

ment contract approach taken by the District of Columbia

and Third Circuits should be upheld as being more con-

sistent with MPPAA’s purpose and design.

9

a default and accelerate the debt within six years of the

first missed installment payment. While employers may

prepay the debt, Congress envisioned that most employers

would amortize a withdrawal liability assessment by mak-

ing level payments over time, as evidenced by MPPAA’s

many references to the trustees’ payment “schedule.” The

Seventh Circuit’s view that the entire debt automatically

accelerates when the first payment is missed or that the

trustees must accelerate and file suit to collect the acceler-

ated debt within six years of the first missed payment is

inconsistent with the text of MPPAA and fails to appreci-

ate existing constraints on acceleration during the pend-

ency of review and arbitration. Additionally, the Seventh

Circuit has misperceived the discretionary nature of

MPPAA’s default and acceleration provision. Numerous

reasons exist why trustees might choose not to accelerate;

most importantly, to prevent bankruptcy and to encourage

re-entry into the plan.

MPPAA was designed to ensure that withdrawn em-

ployers pay their fair share of the plan’s liability for

unfunded vested benefits (“UVBs”). -By misconstruing

Section 1451(f)(1) of the statute, the Ninth and Seventh

Circuits have impermissibly foreshortened the trustees’

ability to collect withdrawal liability and thereby impeded

that goal. The accrual dates selected by those courts

should therefore be rejected in favor of the more flexible

approach of the District of Columbia and Third Circuits,

which have ruled that the limitations period does not

begin to run until a plan’s demand for payment is unmet.

ARGUMENTS

I. THE DATE OF WITHDRAWAL IS OF NO SIGNIFI-

CANCE WITH RESPECT TO DETERMINING

WHEN A CAUSE OF ACTION TO COLLECT WITH-

DRAWAL LIABILITY ARISES.

Of the five circuits which have considered Section 1451

(f)(1), the Ninth Circuit alone has ruled that the 6-year

10

to recover unpaid withdrawal liability as of the date of

withdrawal. This approach is inconsistent with the text of

MPPAA, rulings of this Court and other courts, and the

purpose of a limitations period.

In Board of Trustees of the Constr. Laborers Pension

Trust v. Thibodo, 34 F.3d 914 (9th Cir. 1994), cert.

denied, 115 S. Ct. 1361 (1995), which the Ferbar panel

felt bound to follow, the court ruled that for actions to

recover withdrawal liability arising from a complete with-

drawal from a construction industry plan, the 6-year limi-

tations period begins to run when the conditions for with-

drawal under Section 1383(b) are met; i.e., the employer’s

obligation to contribute to the plan has ceased and the

employer has resumed previously covered work within a

5-year period without also resuming the obligation to con-

tribute. The dispositive dates in Thibodo lead to the

conclusion that the date of withdrawal could not have

been intended to be the date on which the trustees’ claim

for unpaid withdrawal liability accrues.

The Collective Bargaining Agreement (“CBA”) ex-

pired on June 15, 1983; and in early 1984, the trustees

sent the company a notice and demand for payment of

withdrawal liability. The employer disputed the assess-

ment, claiming that it had not withdrawn because it had

not hired any laborers to perform work in the jurisdiction

of the plan following the contract’s expiration. The trus-

tees withdrew the assessment, warning the company that

it would owe withdrawal liability if it resumed hiring

laborers without resuming the obligation to contribute.

In the Spring of 1985, almost two years after its CBA

expired, the company did resume hiring laborers and the

plan reinstated the assessment. A collection action was

filed on June 29, 1989, six years and five days after ex-

piration of the CBA. However, the district court stayed

Relying

1383(e), which defines the date of a complete ]

for Part 1 of Title IV (e.g., 29 U.S.C. §$§ 1381-1405, as

11

distinct from 29 U.S.C. § 1451(f), which is in Part 6),°

the arbitrator found that the company had withdrawn on

June 15, 1983, as that was the “date of the cessation of

the obligation to contribute.” Following the arbitrator's

decision, the trustees moved to enforce the arbitration

award; however, the employer now asserted that the action,

which had been filed prior to arbitration, was barred by

the 6-year limitations period triggered by the June 15,

1983, withdrawal, as subsequently determined by the

arbitrator. The district court agreed with the employer

and dismissed the action."

The court of appeals, troubled by this result, reversed,

finding that the company did not completely withdraw

until the Spring of 1985, because it was only then that

the statutory conditions for a withdrawal in the construc-

tion industry were met. The court reasoned that it would

* That Congress did not intend the definition of “date of with-

drawal,” as set forth in Section 1383(e), to be synonymous with

the “act or omission” giving rise to a cause of action under Section

1451, is structurally confirmed by the fact that the definition is

expressly limited to Part 1 of MPPAA, which does not include the

statute’s civil enforcement provision.

* The district court’s approach turns MPPAA's dispute resolu-

tion scheme on its head, If an arbitrator disagrees with the trust-

ees’ determination of the date of withdrawal, the principal con-

sequence for the plan under Section 1401(d) of the statute is that

the payment schedule may have to be recalculated; for example, if

the date determined by the arbitrator falls in a different plan year

from the one initially determined by the trustees. In addition,

adjustments for overpayments or underpayments may be required.

If the employer fails to make payments in accordance with the

arbitrator’s final decision, Section 1401(d) treats the employer as

being delinquent within the meaning of Title I of the statute. In

Trustees of the Amalgamated Ins. Fund v. Sheldon Hail Clothing,

Inc., 862 F.2d 1020 (3d Cir. 1988), cert. denied, 490 U.S. 1082

(1989), the Third Circuit ruled that trustees have six years to

enforce an arbitration award (and hence to collect all interim pay-

ments that came due pending arbitration and became final). The

only basis for dismissal under this scheme would be if the court

stayed proceedings pending arbitration, the arbitrator ruled that

the employer did not withdraw, and the court agreed under the

appropriate standard of review.

12

be improper for the limitations period to begin to run

against the trustees before they acquired a cause of action;

i.e., before they even had the right to assess or receive

withdrawal liability payments. Significantly, the court

stated: “It is anomalous to conclude that the limitations

period of § 1451(f) was running against the Trustees

before they huJ a right to sue.” 34 F.3d at 917.

However, to avoid this anomalous result, while still

adopting a “date of withdrawal” approach, the court

simply selected as the date of withdrawal for limitations

the earliest date on which the trustees would

have had a legal basis upon which to calculate, assess,

and collect withdrawal liability generated by a complete

withdrawal under Section 1383(b), rather than the date

on which the employer’s obligation to contribute perma-

nently ceased, in effect, extending the statutory definition

for purposes of applying the 6-year limitations period to

collections. (The court was apparently not persuaded

that Congress could have used the term “date of with-

drawal” instead of “act or omission” in MPPAA’s civil

enforcement provision, but did not do so. )

Distinguishing between these dates of withdrawal, the

court noted that the date of withdrawal, defined in Section

1383(e), is “useful” (indeed, necessary) for calculating

the amount of an employer’s withdrawal liability under

Section 1391(b), as the employer’s share of a plan’s lia-

bility for UVBs is predicated on the UVBs existing on

the last day of the plan year preceding the year of with-

drawal. However, the court found that this definition was

not “useful” for purposes of applying the 6-year limitations

period to collections because “selection of such a date

may involve a considerable amount of relation back,”

which—the court correctly understood—could severely

curtail the trustees’ enforcement rights and cause substan-

tial loss to the plan. 34 F.3d at 917. Nevertheless, the

court expressly rejected the clear, straightforward, easy-to-

apply approach previously suggested by the District of

Columbia Circuit; i.e., that the limitations period does not

begin to run until a demand for payment goes unmet. The

_ ———

13

court rejected this approach on the grounds that this would

place the limitations period in the control of the plaintiff

and could result in lawsuits being filed years after with-

drawal. In this regard, the court failed to consider, or

was not convinced, that ERISA’s fiduciary duty consider-

ations, independent from limitations constraints, require

trustees to act with reasonable speed in assessing and

collecting withdrawal liability, particularly since plans are

not entitled to additional interest for a belated notice and

demand. Therefore, although the court ruled in favor of

the plan in the particular case before it, it did so for the

wrong reasons and opened the door to confusion and

harmful precedent.

Without any further analysis of text or policy, and

without giving any consideration to the concerns that led

the Thibodo panel to modify the statutory definition of the

date of withdrawal for purposes of applying Section

1451(f) to collections, the Ferbar panel concluded that

Thibodo was dispositive for all complete withdrawals; i.e.,

those defined both in Sections 1383(a) and 1383(b).

Indeed, the Ferbar panel's failure to consider the concerns

sought to be addressed by the Thibodo panel suggests that

the court would also apply the “date of withdrawal” ap-

proach to actions to collect liability generated by partial

withdrawals under Section 1385, infra, although significant

“relation back” problems could also exist here that could

curtail or eliminate a fund’s enforcement rights or could

require another “special” rule.

Underlying the Ninth Circuit's approach is the apparent

belief that the “act or omission” by which a multiemployer

plan is harmed is the employer’s “act of withdrawal.”

However, although plans may be harmed when any em-

ployer withdraws, as the plan’s contribution base is thereby

necessarily diminished, the specific type of harm giving

rise to a cause of action to collect withdrawal liability

payments cannot occur before the trustees have deter-

mined that an employer’s withdrawal has actually resulted

in liability and the employer fails to pay it. Indeed, the

fact that MPPAA contains various statutory exemptions

14

itself indicates that the date of withdrawal can have no

significance for a judicial proceeding to collect withdrawal

liability. For example, an employer can meet the statutory

criteria for a withdrawal but incur no liability as a result

of MPPAA’s de minimis rule (Section 1389). Or, an

employer can withdraw but incur no liability as the result

of the sale of assets exemption (Section 1384) or some

other mitigating provision of the statute. Or, an employer

can withdraw and escape liability for a complete with-

drawal because it is part of a controlled group consisting

of one or more employers still making contributions to the

fund; such an employer may also escape liability for a

partial withdrawal as the specific conditions for a partial

withdrawal may not have been met. (29 U.S.C. §§ 1301

(b)(1) and 1385.) Thus, as recognized by this Court in

Milwaukee Brewery Workers’ Pension Plan v. Jos. Schlitz

Brewing Co., 513 U.S. 414, 115 S. Ct. 981, 988 (1995),

“the withdrawing employer owes nothing until its plan

demands payment. . . .” Conversely, as withdrawal lia-

bility payments have been statutorily designed to make

the plan whole for the loss of future contributions neces-

sary to fund vested retirement benefits, the plan is not

“adversely affected” within the meaning of Section 1451(a)

until an employer “omits” to comply with the trustees’

demand for payment—whether in accordance with the

installment payment schedule required under Sections

1399(b)(1) and (c)(1)(A), (2), and (3), or for the

entire amount due—following a notice of default and

acceleration under Section 1399(c) (5).

The Ninth Circuit’s “date of withdrawal” approach not

only fails to take into account the statute as a whole; it

also fails to take into account the realities in which multi-

employer plans operate and thereby injects uncertainty

into a determination that should be clear and simple both

for trustees and employers to weigh their rights and

obligations under MPPAA.

In rejecting the installment contract approach suggested

by the District of Columbia Circuit in Sandoz (which was _

15

subsequently expressly endorsed by the Third Circuit in

Kahle), the Thibodo panel stated:

In deciding that the limitations period does not begin

to run until a demand for payment goes unmet, the

District of Columbia Circuit was influenced by the

difficulty of determining when an employer had “per-

manently” ceased to have an obligation to contribute

or “permanently” ceased all covered operations,

within the meaning of § 1383(a) [citation omitted].

Whatever the difficulties might be under that sub-

section, we conclude that the construction industry

provisions of § 1383(b) do not lead to debilitating

uncertainty whether an employer has completely

withdrawn.

34 F.3d at 917. Contrary to the panel’s belief, trustees

may not be readily aware that an employer has perma-

nently withdrawn even in the construction industry. A

small multiemployer plan in the construction industry, pro-

viding benefits to participants in a limited geographical

area covered by CBAs with one or a few local unions,

might be expected to be able to track—with relative

expediency—whether a former contributing employer has

resumed covered operations within five years after the last

CBA expired. However, given the migratory nature of

construction work (and the relatively complex reciprocal

contribution arrangements between funds that also exist),

monitoring employers even in a small plan can prove

difficult. For larger construction industry funds having

employers and participants in more than one state, this

task could raise insuperable problems if the trustees must

determine that a withdrawal has occurred within a fixed

period of time rather than “as soon as practicable”—par-

ticularly since ERISA imposes a fiduciary duty on fund

trustees to keep administrative costs to a reasonable level

so that employer contributions can be invested for the

primary purpose of providing benefits. 29 U.S.C. § 1104

(a)(1)(A) (i) and (ii).

Moreover, large multiemployer plans other than those

in the construction industry would find it time-consuming,

16

difficult, and very costly to constantly monitor each em-

ployer contributing to the plan. For a plan the size of

amicus Central States, which has over 9,000 accounts in

42 states and Canada, such constant monitoring could

amount to a practical impossibility. In this regard, partial

withdrawals, as defined in Section 1385 of MPPAA,

present particularly great problems. Section 1385(a) (2)

states that a partial withdrawal occurs when there is a

“partial cessation of the employer’s contribution obliga-

tion.” Under Section 1385(b)(2)(A), this “partial cessa-

tion” occurs either (i) where an employer permanently

ceases to have an obligation to contribute under one or

more but fewer than all of its CBAs but continues to per-

form work in the jurisdiction of the contract for which

contributions were previously required or transfers the

work to another location; or (ii) where an employer per-

manently ceases to have an obligation to contribute with

respect to work performed at one or more but fewer than

all of its facilities but continues to perform similar work at

the facility. Determining whether an employer is continu-

ing to perform work in a particular jurisdiction or at a

particular facility can be extremely difficult and time-con-

suming, as information pertinent to these inquiries is in the

hands of the employer, not the pension plan. Even more

difficult is a situation where one member of a controlled

group of employers, infra, may be shifting work between

itself and another controlled group member.

Moreover, as the District of Columbia Circuit recog-

nized in Sandoz, the date of withdrawal is likely to be an

“unwieldy” accrual date for purposes of applying the

6-year limitations period, not only in the construction

industry, and not only because of the difficulty of ascer-

taining whether and when previously covered work has

resumed. Indeed, as great, and perhaps even greater un-

certainty may exist with regard to the specific date on

which the “obligation to contribute” permanently ceased,

as the permanent cessation of the obligation to contribute

depends not only on the expiration date set forth in a

CBA, but on postexpiration events under applicable labor-

17

management relations law. 29 U.S.C. § 1392. Indeed, it

is only in the simplest case that the date of withdrawal

coincides with the nominal expiration date of the CBA.

Rather, many other facts often require consideration; for

example, whether and for what reason the CBA may have

renewed (e.g., automatically, by its own terms, or because

of a defective termination notice, or as a result of conduct

inconsistent with repudiation); if the contract did termi-

nate, whether bargaining continued and whether and when

a permanent impasse was reached; or whether a labor

dispute existed and how and when the dispute was re-

solved—information that is not normally within the pur-

view of the trustees and is ordinarily pinned down either

during the pre-assessment investigative process or (if an

employer disputes either that it has withdrawn or the date

of withdrawal) during administrative review and/or arbi-

tration. The uncertainty surrounding the date on which

the obligation to contribute permanently ceases (coupled

with the fact that, absent some special rule, “relation back”

requirements could eliminate the trustees’ ability to collect

any withdrawal liability even after prevailing in arbitra-

tion), clearly makes the date of withdrawal an inappro-

priate date for commencing the running of MPPAA’s

6-year limitations period. This is illustrated in Giroux

Bros. Transp. v. New England Teamsters & Trucking

Indus. Pension Fund, 73 F.3d 1 (1st Cir. 1996).

In Giroux, an employer in the trucking industry made

pension contributions to a multiemployer fund pursuant

to periodic “supplements” which bound the company to

an industry-wide CBA. The last contract was executed in

1981 or 1982. However, the company continued to make

contributions without interruption until early 1994, and

never notified the fund that it no longer had a contract.

When Giroux finally stopped making contributions, the

fund issued a standard delinquency notice; the employer

responded that it had not had a contract for many years.

The fund verified that there was no contract after 1981

or 1982, and assessed withdrawal liability based on a

September 1981 withdrawal. The employer sought a judi-

18

cial declaration that the assessment was barred by the

6-year limitations period as well as an injunction prohibit-

ing the fund from collecting interim payments. Affirming

the ruling of the district court in favor of the fund, the

Court of Appeals for the First Circuit held that the 6-year

statute of limitations applies only to litigation and not to

the trustees’ notice and demand for payment under Section

1399(b)(1), which requires only that the trustees make

a demand “as soon as practicable.” In this regard, the

court emphasized that an employer wishing to challenge

the timeliness of the demand must do so in arbitration.

Noting Congress’s clear intent that employers should “pay

now, dispute later” to protect multiemployer pension

plans, the court also refused to enjoin interim payments

of withdrawal liability, as the employer was unable to

show irreparable harm.

Short-form contracts, such as Giroux’s, are common

not only in the trucking industry; they are also frequently

found in the construction industry and often make it diffi-

cult to determine the date of withdrawal. For example,

employers may sign only a letter of assent agreeing to be

bound by a master labor agreement. Such letters of assent

may not contain an expiration date and are intended to

survive successor master agreements until such time as an

express, written notice of termination is given. While such

practice may give rise to collection or labor disputes, and

while uncertainty over the duration of the contractual

obligation may sometimes result in unfair labor practice

charges, the absence of a signed letter of assent, memo-

randum agreement, or similar short-form contract binding

an employer to the then-current master agreement does not

ordinarily give rise to an inference that the employer has

permanently ceased to have an obligation to contribute

where it is industry practice to have this form of CBA, as

the First Circuit correctly noted with respect to the truck-

ing industry. However, under the “date of withdrawal”

approach adopted by the Ninth Circuit, a fund’s belated

discovery that the absence of one or more updated short-

form agreements was intended to signify the end of the

19

contractual obligation (and thus the employer’s with-

drawal) would, in many cases, result in the fund’s inability

to collect any withdrawal liability. This would be par-

ticularly offensive where the employer’s own deceptive

conduct in making contributions induced a reasonable be-

lief that the employer had not withdrawn.

While a court—even in the Ninth Circuit—might be

persuaded to apply the discovery rule of Section 1451

(f)(2) where an employer misleads a plan into believing

that it had not withdrawn,* thereby extending the limita-

tions period for basically equitable reasons, the solution

offered by the District of Columbia and the Third Circuits

would make a case-by-case analysis (with potentially in-

consistent results) unnecessary and should be adopted by

this Court. Moreover, as the Sandoz court clearly recog-

nized, the discovery rule was not intended to govern

routine collection actions, as application of the rule would

increase—not reduce—litigation issues, as the employer

and trustees dispute who knew, or should have known,

what and when. However, unless the approach of the

District of Columbia and Third Circuits is adopted, so

that the 6-year limitations period begins to run in a con-

sistent manner from the date on which a payment de-

manded by the plan is due, but not paid, the general rule

may well be swallowed by the discovery rule with the re-

sult that the 6-year general rule could cease to reflect the

balance Congress chose between enforcement and repose.

For all of the above reasons, the Ninth Circuit’s decision

should be reversed.

* The general 6-year limitations period can be extended in appro-

priate circumstances by § 1451(f)(2), which provides that an action

__ may be brought “3 years after the earliest date on which the plain-

tiff acquired or should have acquired actual knowledge of the

existence of such cause of action” or 6 years in the event of fraud

or concealment. |

20

Il. THE “DATE OF WITHDRAWAL” APPROACH

CONFLICTS SPECIFICALLY WITH SECTION

1399(b)(1) OF MPPAA, WHICH REQUIRES TRUST-

EES TO ISSUE A NOTICE AND DEMAND “AS

SOON AS PRACTICABLE” AFTER A _ WITH-

DRAWAL, AND WITH SECTION 1399(c)(2), WHICH

REQUIRES PAYMENT NO LATER THAN 60 DAYS

AFTER THE NOTICE AND DEMAND.

In ruling that the statute of limitations commences as

of the date of withdrawal, the Ninth Circuit appears to

have disregarded two very specific provisions of MPPAA

and underestimated the tims a multiemployer plan actually

needs to determine whether a withdrawal has in fact

occurred and to prepare a payment schedule.

As noted earlier, Sections 1383 and 1385 of MPPAA

describe the criteria for complete and partial withdrawals,

while other provisions of MPPAA describe events which

will not necessarily be deemed to be a withdrawal; ¢.g.,

a sale of assets, if certain statutory requirements are met

(Section 1384); the substitution of one CBA for another

(Section 1385(b)(2)(B)); a change in business form, if

there is no interruption in contributions (Section 1398(1));

or a labor dispute (Section 1398(2)). In addition, plans

may disregard transactions that are designed primarily to

evade or avoid withdrawal liability (Section 1392(c)).

As discussed in connection with the specifics of the truck-

ing and construction industries, supra, it is often difficult

for a plan to determine the permanent cessation of the

obligation to contribute or the permanent cessation of

covered operations. It is frequently even more difficult

and time-consuming for plans to determine the existence

of a bona fide statutory exemption, as well as the con-

verse, that what appeared to be a bona fide transaction

was really a transaction to evade or avoid withdrawal

liability, because much of the most relevant information

is ordinarily not within the trustees’ possession. Moreover,

these difficulties are compounded by the statutory defini-

tion of “employer.”

For all purposes of withdrawal liability, Section 1301

(b)(1) of ERISA treats as a “single employer” all trades

21

and businesses under common control as prescribed in

regulations applicable to Section 414(b) of the Internal

Revenue Code. The existence of a controlled group is of

critical importance in determining whether a withdrawal

has occurred and, if so, whether it is a complete or partial

withdrawal. However, as many contributing employers

are relatively small close corporations, sole proprietorships,

or partnerships, and not publicly-traded companies, this

information is particularly difficult for trustees to obtain.

Many plans—at the pre-assessment stage—send employers

questionnaires (sometimes captioned a “statement of busi-

ness affairs”) requesting very specific information con-

cerning the ownership interests of the company and its

principals to ascertain the commonality of such interests

in Telated enterprises. All too frequently, these question-

naires are not answered completely or correctly, or are

not answered at all, both because the controlled group

rules are highly technical and complex and because some

employers are unwilling or unable to provide the informa-

tion that is most relevant. Indeed, many employers are

not aware that a variety of the activities in which the

company or its owners engage are viewed as “trades or

businesses” under applicable law.

Given ERISA’s prudence concerns, trustees will be

loath to expend fund assets issuing a notice and demand

and engaging in administrative review and often costly

arbitration prior to investigating a potential withdrawal

liability claim with due diligence, as they will wish to be

at least reasonably certain that the employer has been

correctly identified and that no statutory exemptions exist.°

* Even after a plan acquires information leading it to conduct

further investigation, the determination of whether and when a

withdrawal occurred can involve complex and difficult fact-finding.

An employer who files for bankruptcy liquidation seemingly pre-

sents the prototypical example of an “easy” determination of with-

drawal. Frequently, however the employer will be using employees,

for example, truck drivers, to marshal assets for liquidation. Thus,

although the employer may seem to have ceased reporting any

obligation to the plan following the bankruptcy, bargaining unit

22

Moreover, if a notice and demand is made prematurely, as

the result of an insufficient inquiry, courts may enjoin the

assessment and impose sanctions against the plan; ¢.g.,

attorney fees.”

Finally, even when a plan is able to secure all of the

information described above, the process of preparing a

notice and demand takes a significant amount of time, as

the statutory formulae for calculating withdrawal liability

and preparing a payment schedule are very complex and

may also depend on information that is not immediately

available from the plan’s own records, the plan’s actuary,

or from other sources.”

~ Knowing of these difficulties, which can be more or less

significant in different industries, Congress did not direct

trustees to notify employers of their withdrawal and make

a demand for payment either immediately following the

event or within some fixed time. Rather, Section 1399

(b)(1) requires plan sponsors to issue a notice of liability

and demand for payment “as soon as practicable after an

employer’s complete or partial withdrawal”; correspond-

ingly, Section 1399(c)(2) requires employers to begin

making the payments demanded, in accordance with the

trustees’ payment schedule, no later than 60 days after

the date of the demand, notwithstanding administrative

challenges to the assessment; e.g., a request for review,

appeal of the trustees’ determination, and arbitration.

work is still being performed. Accordingly, a complete withdrawal

has not occurred.

© T.1.M.E.-DC, Inc. v. 1.A.M. Nat'l Pension Fund, 597 F. Supp.

256 (D.D.C. 1984) (plan enjoined from enforcing notice) ; T./.M.E£.-

DC, Ine. v. L.AM. Nat'l Pension Fund, 616 F. Supp. 400 (D.D.C.

1985) (attorney fees awarded against the plan).

11 Commonly, actuarial valuations containing the applicable UVBs

are not available for at least six months after the end of a plan

year. Thus, for example, the UVBs needed to compute the with-

drawal liability for an employer that withdrew in January 1997

may not be available until June 1998 or later. Plan audits, which

may also affect the calculation, may also not occur until months

after the end of a plan year.

;

23 3

As this Court recognized in Schlitz, supra, the interval

between the date on which an employer effects a statutory

withdrawal and the date on which a plan sponsor issues a

notice and demand for payment can be quite substantial

(without, for that reason, being objectionable). Under

1399(c)(1)(A), and that payment schedules exceeding

six years’ duration are exceedingly common and, in fact,

may be cut off only after the end of 20 years. Nor can it

be squared with Schlitz, supra, in which this Court stated

that “the statute . . . might make the withdrawing em-

ployer pay (or begin payment) on the date the employer

actually withdraws. But it does not do so.” 115 S. Ct.

at 987. .

Finally, although the Ninth Circuit in Thibodo rejected

the District of Columbia Circuit's installment contract

approach because it was loath to allow the trustees to

“control” the statute of limitations, under the Ninth Cir-

12 See Concrete Pipe & Prods. v. Construction Laborers Pension

602 (1998) (MPPAA’s statutory presumptions

24

run on the trustees’ single claim, they could collect

future installments nor accelerate and collect the

ing debt. A similar result could be achieved by “

intermittent delinquencies so as to preclude acceleration

during the 6-year period available for collection. Although

to a somewhat lesser extent, the Seventh Circuit’s Navco

approach could lead to a similar foreshortening of the

trustees’ statutory enforcement rights, and for that reason

should also be rejected, as we will now show.

Ill. MPPAA DOES NOT CONTEMPLATE AUTOMATIC

ACCELERATION AND TRUSTEES SHOULD NOT

BE REQUIRED TO ACCELERATE WITHIN SIX

YEARS OF THE FIRST MISSED INSTALLMENT.

In Navco, the Seventh Circuit ruled that the trustees’

single claim for withdrawal liability accrues on the date

the first installment payment is missed because the entire

amount is presumptively due on that date. Although the

opinion is not entirely clear on this point, it can be read

to mean that the debt automatically accelerates at this

time. However, even if acceleration is not automatic,

trustees have only six years from the date of the first

missed payment to declare a It, accelerate the debt,

and file a lawsuit to collect entire amount due.- In

contrast to the District of Columbia and Third Circuits,

the Seventh Circuit's presumptive acceleration approach

misperceives the essential features of the payment struc-

ture Congress selected. Additionally, the court failed to

appreciate existing restraints on trustees’ enforcement

rights as well as the discretionary nature of MPPAA’s

default and acceleration provision. :

As this Court recognized in Schlitz, supra, Congress

envisioned that employers would amortize the debt in

level payments (roughly related to the amount of their

former contributions) over time, indeed, for up to 20

years. While employers may repay the assessment and

thereby avoid or reduce interest, many (if not most)

employers cannot afford to do so. Not surprisingly, Sec-

tion 1399, “Notice, collection, etc., of withdrawal liabil-

25

ity,” is replete with references to the trustees’ payment

schedule, with which employers must comply no later than

60 days after the date of the notice and demand, whether

or not review is requested. Likewise, Section 1401, “Reso-

lution of disputes,” anticipates payment in accordance with

the trustees’ schedule, both pending and after arbitration.

With regard to the trustees’ enforcement rights, however, a

critical distinction exists, depending on whether or not the

employer has sought review and initiated arbitration.

If the employer fails to request a review or fails to

initiate arbitration, it waives the right to contest the assess-

ment, and the amount demanded by the trustees is due

and owing as set forth in the trustees’ payment schedule.

Consequently, if these payments are not made, the trustees

may file suit to collect the delinquent installments in

accordance with Section 1401(b)(1). In addition, the

trustees may declare the employer in default and accelerate

the debt under Section 1399(c)(5)(A).

For purposes of Section 1399(c)(5)(A), the term “de-

fault” means the failure to make a payment when due if

that failure is not cured within 60 days of the date on

which the employer received written notification of the

failure. Significantly, MPPAA’s default provision is not

self-executing. Rather, to put the employer in default, the

trustees must first notify the employer of its failure to

have made a required payment and then permit the

employer 60 days in which to effect a cure.

If the employer has requested review and initiated arbi-

tration, the trustees—under an operative PBGC regula-

tion—have no discretion whether or not to declare a

26

C.F.R. § 4219.31(c)(1) (1996) provides that a default

cannot occur earlier than 61 days after the employer's

time to contest the assessment has expired. If an em-

ployer fails to make one or more “interim payments”

prior to the arbitrator’s decision, which is the last possible

event in the nonjudicial dispute-resolution scheme, the

trustees may assess interest on that payment (or on any

other missed installments) and file suit to collect the

amounts due. However, they are not permitted to acceler-

ate and collect the entire debt at this time. (It may be

noted that, depending on particular facts and circum-

stances, many trustees may make a business judgment

not to pursue an action to collect interim payments in

federal court during the pendency of arbitration, as they

do not wish to undertake the costs of proceeding in two

forums at the same time in the absence of a statutory

requirement to do so.)

Moreover, even when the trustees’ payment schedule

has become final, whether in the absence of arbitration

or after the arbitrator has issued an award, the trustees

have complete discretion to continue to pursue only the

installments set forth in the schedule. Significantly, Sec-

tion 1399(c)(5) states only that “in the event of a default,

a plan sponsor may require immediate payment of the

outstanding amount of an employer’s withdrawal liabil-

ity... .” (Emphasis added.) The discretionary nature of

MPPAA’s default provision is further confirmed by PBGC

regulation 29 C.F.R. § 4219.31(b)(2) (1996), which

states that upon default, the trustees are free to accelerate

(if they so desire) only a portion of the withdrawal lia-

bility. Under the Seventh Circuit’s ruling, however, the

trustees would have no discretion whether or not to declare

a default, particularly if the decision is meant to suggest

that the debt automatically accelerates when the first

Retail & Wholesale Employees Teamsters Union Local No. 115

Pension Plan v. Yahn & McDonnell, Inc., 787 F.2d 128 (3d Cir.

1986), aff'd by an equally divided Court, 481 U.S. 735 (1987). One

court has recently invalidated the regulation. Central States v.

Century Motor Freight, 1995 WL 699655 (W.D. Ill. Nov. 22, 1995).

27

installment payment is missed. Moreover, even if accelera-

tion is not automatic and trustees have up to six years

from the date of the first missed installment to declare a

default and sue to collect the accelerated debt, the loss of

discretion not to accelerate raises serious problems for

multiemployer plans.

Of particular concern to the NCCMP is the belief im-

plicit in the Ninth and Seventh Circuits’ decisions that

trustees have a fiduciary duty to accelerate an employer’s

withdrawal liability debt. On the one hand, such a fidu-

A number of reasons exist why trustees might determine

that it would not be in the plan’s best interest to accelerate

and demand payment of the entire debt, at least until such

time as the prospect of receiving installment payments

becomes substantially unlikely. First, an employer having

financial difficulties may attempt to comply with the

trustees’ payment schedule, but may make its payments

late and also at sporadic intervals. In such circumstances,

acceleration of the withdrawal liability debt and a demand

for full payment would likely prompt the employer to seek

protection under the Bankruptcy Code. Depending on the

size of withdrawal liability debt and the nature and size

of the debts of other creditors, the plan could

recover little or nothing on its withdrawal liability claim.

Therefore, the trustees might determine that it would be

possible in anticipation that bankruptcy can be avoided

or, at least, postponed until such time as a substantial

number of installments have already been collected. Alter-

28

natively, although an employer’s financial situation and

payment practices might ultimately prompt trustees to

determine that it would be best to accelerate the debt,

even at the risk of bankruptcy, the desirability of exercis-

ing this option might not become apparent within six years

of the first missed installment. Moreover, in this inter-

vening time, the trustees could become aware of the exist-

ence of a solvent member of a controlled group which

would reduce the risk of nonpayment in bankruptcy.”

These plan-protective options would be severely restricted

under Navco.

Additionally, Section 1399(c)‘5)(B) allows plans to

adopt rules permitting the trustees to accelerate a with-

drawal liability debt where events other than nonpayment

indicate a substantial likelihood that an employer will be

unable to pay its withdrawal liability. Events such as the

employer’s insolvency, dissolution, or loss of a license to

do business could trigger a default under this section;

however, these events, too, might not occur within six

years of the first missed installment payment. However,

by then it would be too late for the plan to act.

14 The single accrual date selected by both the Ninth and Seventh

Circuits not only eviscerates a fund’s ability to protect itself from

a default, should one occur due to missed installment payments oc-

curring more than six years after the date of withdrawal or the

first missed payment, it also forces a fund to expend substantial

resources conducting investigations that are unnecessary at the

time the employer is assessed. For example, if a fund assesses the

known members of a controlled group, and at least one member of

the group begins to pay in a timely manner and has also been

reasonably determined t be financially capable of satisfying the en-

tire debt, the fund would ordinarily forego searching for additional

controlled group members, which can be quite costly. However,

given the statute of limitations constraints imposed by the above

courts, funds in those circuits may feel compelled to undertake this

costly and difficult search for unknown members of the group at

ment contract approach would prevent a potential waste of fund

assets.

29

Further, a rigid, single 6-year limitations period could

deprive trustees of flexibility in dealing with withdrawn

employers who may be considering re-entering the plan

for a variety of reasons under MPPAA’s re-entry and

abatement rules. Acceleration of the debt could chill the

employer’s business efforts as well as negotiations between

the bargaining parties. Indeed, acceleration could remove

an important incentive for re-entry. Additionally, negoti-

ations for a new CBA could take a substantial amount

of time; in the event negotiations failed, it could well be

too late for the trustees to accelerate.

Finally, as noted earlier in connection with the Ninth

Circuit’s “date of withdrawal” approach, an employer

could manipulate an inflexible limitations period by curing

intermittent delinquencies, or by making payments on

schedule until the limitations period expires, and then

stop, leaving a plan without the ability to collect the

balance of the debt.

In sum, there is no basis for the notion that MPPAA

contemplates automatic acceleration or that trustees have

a fiduciary duty vo accelerate the debt within six years

of the first missed installment payment. As the District

of Columbia Circuit indicated in Sandoz and the Third

Circuit indicated in Kahle, a foreshortening of the trustees’

collection rights would be_inimical to the policies animat-

ing MPPAA, particularly as other incentives exist to

encourage plans to act with reasonable diligence.

The fundamental purpose of MPPAA was to establish

a mechanism by which employers withdrawing from multi-

employer plans continue to pay their fair share of the

plan’s liability for UVBs. To effectuate this goal, the

District of Columbia and Third Circuits have suggested

an installment contract approach that is consistent with

the text of MPPAA, easy to apply, and fairest to plans

without prejudicing employers. For the reasons stated

above, the NCCMP and Central States urge this Court to

adopt the approach of these courts and to rule: that trus-

tees have six years from the date of any missed installment

payment to collect that payment; that trustees have discre-

tion to accelerate the debt at any point along the payment

schedule; and that if the trustees do elect to accelerate, the

20 ‘i

CONCLUSION ;

Respectfully submitted,

GERALD M. FEDER *

DIANA L.S. PETES

JAMES P. CONDON Feper & Associ. ~S, P.C.

JOHN J. PRANCZYK, JR. 1350 Connecticut Avenue, N.W.

CENTRAL STATES, SOUTHEAST AND Suite 600

SOUTHWEST AREAS PENSION FUND Washington, D.C. 20036-1712

9377 West Higgins Road

Rosemont, IL 60018-4938

(847) 518-9800

Attorneys for the Central States

Pension Fund

July 16, 1997

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