Petition for Writ of Certiorari — Trustees of Teamsters Pension Trust Fund of Philadelphia v. Federal Express Corp.
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Supreme Court, U.S.
FiLeéeD
961149 JAN 2 1 1997,
Neo, cnnsennane
26 22 es oe 2 a on
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IN THE
Supreme Court of the United States
OCTOBER TERM, 1996
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY; TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY AND
CHARLES J. SCHAFFER, JR., its administrator and
fiduciary, Petitioners,
FEDERAL EXPRESS CORPORATION;
THE FLYING TIGER LINES, INC-::
WARREN TRANSPORT, INC.;
TIGER INTERNATIONAL, INC.,
Respondents.
Petition for Writ of Certiorari to the
United States Court of Appeals
for the Third Circuit
PETITION FOR WRIT OF CERTIORARI
KENT CPREK
(Counsel of Record)
SAGOT, JENNINGS & SIGMOND
510 Walnut Street—16th Floor
Philadelphia, PA 19106-3683
(215) 351-0615
DAVID C. MCBRIDE
BARRY M. WILLOQUGHBY
YOUNG, CONAWAY, STARGATT
& TAYLOR
llth Floor Rodney Square North
P.O. Box 391
Wilmington, DE 19899-0391
(302) 571-6666
Attorne Ys for Pe tatione rs
i
WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001
QUESTIONS PRESENTED
|. Whether a multiemployer pension plan must show
that a donee of a business with substantial withdrawal
liability debt had wilful criminal intent to defraud a pen-
sion plan in accepting a gift in order to impose civil
liabilty on the donor by disregarding the gift as a trans-
action with a principal purpose to evade or avoid with-
drawal liability within the meaning of 29 U.S.C. § 1392
€q}.
2. Whether the “presumption of correctness” in 29
U.S.C. § 1401(a)(3)(A) accorded to a factually detailed
determination of a fraudulent conveyance and a transac-
tion to evade withdrawal liability may be overcome by the
testimony of an interested witness at trial concerning
“plausible and valid” reasons for a sale even though those
reasons have no support in contemporaneous documents
nor the testimony of disinterested witnesses and do not
explain a $15 Million sales discount nor other aspects of
the actual transaction without material impetus from
withdrawal liability.
3. Whether a multiemployer plan reasonably deter-
mined that both groups emerging from a division of a
control group “employer” remain jointly and severally
liable for unpaid pension liability which accrued in annual
pieces during the period of affiliation.
(i)
ii
LIST OF PARTIES
Parties to the proceedings below were the Petitioners,
Teamsters Pension Trust Fund of Philadelphia and Vicin-
ity, its trustees and Charles J. Schaffer, Jr., its adminis-
trator and a fiduciary charged with collection of with-
drawal liability. The Teamsters Pension Trust Fund of
Philadelphia and Vicinity is a trust under 29 U.S.C.
§ 186(c)(5) whose trustees sponsor a multiemployer plan
and an employee pension benefit plan under the Employee
Retirement Income Security Act, 29 U.S.C. §§ 1002(2),
(37) (A), 1301(a)(3).
The Respondent before this Court is Federal Express
Corporation (“FedEx”). FedEx is a corporate successor,
by merger, to Tiger International, Inc. whose subsidiaries
included The Flying Tiger Lines, Inc. and Warren Trans-
port, Inc. The status of any other parent company, sub-
sidiary or affiliate of FedEx (within the meaning of Rule
29.1 of this Court) is not currently known to Petitioners.
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED i i
LIST OF PARTIES ii
TABLE OF AUTHORITIES V
OPINIONS BELOW l
STATEMENT OF JURISDICTION 2
CONSTITUTIONAL AND STATUTORY PROVI-
SIONS INVOLVED 8
STATEMENT OF CASE 6
REASONS FOR GRANTING THE WRIT 15
.. THE THIRD CIRCUIT’S “GOOD FAITH”
STANDARD REQUIRING PROOF OF CRIM-
INAL FRAUDULENT INTENT BY A
TRANSFEREE TO IMPOSE CIVIL PENSION
LIABILITY ON A TRANSFEROR IS IN CON-
FLICT WITH OTHER CIRCUITS 17
Il. THE ISSUES PRESENTED ARE IMPOR-
TANT TO PREVENT DUMPING OF UN.-
FUNDED PENSION LIABILITY IN THE
BILLIONS ON OTHER EMPLOYERS AND
THE FEDERAL GOVERNMENT 23
CONCLUSION 26
APPENDIX
Third Circuit Order, Trustees of Teamsters Pen-
sion Trust Fund of Philadelphia and Vicinity v.
Federal Express Corp., 96 F.3d 1482 (8d Cir.
1996) (table) ; la
(iii)
iv
TABLE OF CONTENTS—Continued
Trustees of Teamsters Pension Trust Fund of
Philadelphia and Vicinity v. Federal Express Corp.,
1995 WL 7913871, 20 E.B.C. 1050 (D.Del. 1995)
Third Circuit Sur Petition for Rehearing Trustees
of Teamsters Pension Trust Fund of Philadelphia
and Vicinity v. Federal Express Corp., 96 F.8d
1432 (3d Cir. 1996) (table)
Demand Letter & Determination, Teamsters Pen-
ston Trust Fund of Philadelphia & Vicinity (Jan-
uary 20, 1988)
Suppiemental Demand Letter & Determination,
Teamsters Pension Trust Fund of Philadelphia &
Vicinity (December 2, 1988)
Review Response & Determination, Teamsters
Pension Trust Fund of Philadelphia & Vicinity
(December 2, 1988)
Flying Tiger Line - and - Teamsters Pension Trust
Fund of Philadelphia & Vicinity, 19 E.B.C. 2830
(Nagle, Arb. 1993)
24a
27a
48a
T2a
V
TABLE OF AUTHORITIES
Cases Page
American Hospital Association v. NLRB, 499 U.S.
606, 111 S.Ct. 1539, 113 L.Ed.2d 675 (1991) 20
Beacon Auto Radiator Co., Inc. v. Comm’r, 52 T.C.
LOO (19698) ............ sie aicenel 22
Bobsee Corp. v. U.S., 411 F.2d 281 (5th Cir.
1969) _..... iuiaie : 21
Botany Worsted Mills v. U.S., 278 U.S. 282, 49
S.Ct. 129, 73 L.Ed. 379 (1929) .. 17
Central States, S.E. & S.W.A. Pension Fund v.
Robinson Cartage, 55 F.3d 1318 (7th Cir. 1995) 24
Central States, S.W. & S.W.A. Pension Fund v.
Santa Fe Industries, 22 F.8d 725 (7th Cir.
1994) passim
Cheek v. U.S., 498 U.S. 192, 111 S.Ct. 604, 112
L.Ed.2d 617 (1991) 19
Coastal Oil Storage v. Comm’r, 242 F.2d 396 (4th
Cir. 1957) . ’ 21
Combs v. Classic Coal Corporation, 931 F.2d 96
(D.C. Cir. 1991) 17
Comm’r v. Tufts, 461 U.S. 300, 108 S.Ct. 1826,
75 L.Ed.2d 863 (1983) 25
Concrete Pipe and Products of California, Inc. v.
Construction Laborers Pension Trust for South-
ern California, 508 U.S. 602, 113 S.Ct. 2264, 124
L.Ed.2d 539 (19938) .. 16, 17
Cuyamaca Meats, Inc. v. San Diego & I.C. Butchers
Pension Fund, 638 F. Supp. 885 (S.D. Cal.
1986) 18
Dillier v. Comm’r, 41 T.C. 762 (1964) 22
Dorn’s Transportation v. Teamsters Pension Trust
Fund of Philadelphia and Vicinity, 787 F.2d 897
(3d Cir. 1986) 18
Douglas Guardian Warehouses v. Jones, 405 F.2d
427 (10th Cir. 1969) 20
Duncan v. First Nat’l Bank of Cartersville, Ga.,
597 F.2d 51 (5th Cir. 1979) 20
Flying Tiger Line v. Central States S.E. & S.W.A.
Pension Fund, 7 E.B.C. 2385 (D. Del. 1986) 2
vi
TABLE OF AUTHORITIES—Continued
Page
Flying Tiger Line v. Central States S.E. & S.W.A.
Pension Fund, 659 F. Supp. 18 (D. Del. 1986) 2
Flying Tiger Line v. Central States S.B. & S.W.A.
Pension Fund, 8 E.B.C. 1241, 1986 WL 14904
(D. Del. 1986) 2
Flying Tiger Line v. Central States S.E. & S.W.A.
Pension Fund, 704 F. Supp. 1277 (D. Del.
1989) 2
Flying Tiger Line v. Central States S.E. & S.W.A.
Pension Fund, 715 F. Supp. 1284 (D. Del.
1989)
Flying Tiger Line v. Teamsters Pension Trust
Fund of Philadelphia and Vicinity, 830 F.2d
1241 (3d Cir. 1987) 2, 15, 16, 22, 25
Flying Tiger Line - and - Teamsters Pension Trust
Fund of Philadelphia & Vicinity, 19 E.B.C. 2830
~
(Nagle, Arb. 1993) passim
Herculite Protective Fabrics Corp. v. Comm’r, 387
F.2d 475 (3d Cir. 1968) t7, 23
House Beautiful Homes v. Comm’r, 405 F.2d 61
(10th Cir. 1968) 21
In Re: Juvenile Shoe Corp. of America, 99 F.3d
898 (8th Cir. 1996)
25
Orvis v. Higgins, 180 F.2d 537 (2d Cir. 1950) 21, 23
PBGC v. LTV Corp., 496 U.S. 6338, 110 S.Ct. 2668,
110 L.Ed.2d 579 (1990) 24
PBGC v. White Consolidated Industries, 998 F.2d
1192 (8d Cir. 1993) 18
Price Waterhouse v. Hopkins, 409 U.S. 228, 109
S.Ct. 1775, 104 L.Ed.2d 268 (1989) 19
Scroll, Inc. v. Comm’r, 447 F.2d 612 (5th Cir.
1971) 17, 21
Shannon v. U.S., 512 U.S. 573, 114 S.Ct. 2419, 129
L.Ed.2d 459 (1994) 21
Slappey Drive Industrial Park v. U.S., 561 F.2d
572 (5th Cir. 1977) 21
Southeastern Canteen Co. v. Comm’r, 410 F.2d 615
(6th Cir. 1969) 21
vii
TABLE OF AUTHORITIES—Continued
Page
Teamsters Pension Trust Fund of Philadelphia
and Vicinity v. Brigadier Leasing, 880 F. Supp.
388 (E.D. Pa. 1995) 14
Trustees of Amalgamated Insurance Fund v.
McFarlin’s, 789 F.2d 98 (2d Cir. 1986) 25
Trustees of Teamsters Pension Trust Fund of
Philadelphia and Vicinity v. Federal Express
Corp., 96 F.3d 1432 (8d Cir. 1996) (table) |
Trustees of Teamsters Pension Trust Fund of
Philadelphia and Vicinity v. Federal Express
Corp., 1995 WL 791371, 20 E.B.C. 1050 (D. Del.
1995) ]
Teamsters Pension Trust Fund of Philadelphia &
Vicinity v. Fuqua Industries, Inc., 509 U.S. 901,
113 S.Ct. 2989, 125 L.Ed.2d 684 (1993) 16
Teamsters Pension Trust Fund of Philadelphia &
Vicinity v. Fuqua Industries, Inc., 981 F.2d 1248
(3d Cir. 1992) (table) 16
Teamsters Pension Trust Fund of Philadelphia &
Vicinity v. Fuqua Industries, Inc., 1992 WL
70418, 15 E.B.C. 2271 (E.D. Pa. 1992) 17
U.S. v. Janis, 428 U.S. 438, 96 S.Ct. 3021, 49
L.Ed.2d 1046 (1976) 17
U.S. v. Tabor Court Realty Corp., 803 F.2d 1288
(3d Cir. 1986) 19
U.S. v. Yellow Cab Co., 338 U.S. 338, 70 S.Ct. 177,
94 L.Ed. 150 (1949) 23
Vulcan Materials Co. v. U.S., 446 F.2d 690 (5th
Cir. 1971) 17, 2]
In Re: Woodfield, 978 F.2d 516 (9th Cir. 1992) 20
Statutes
Bankruptcy Code, 11 U.S.C. § 547 12
Internal Revenue Code, Title 26 U.S.C.
26 U.S.C. § 269 3,17
26 U.S.C. § 269 (a) 2]
26 U.S.C. § 404 25
26 U.S.C. §§ 1501-1504 25
viii
TABLE OF AUTHORITIES—Continued
Judicial Code, Title 28 U.S.C. Page
28 U.S.C. § 1254(1) 3
28 U.S.C. § 2101 (c) 3
National Labor Relations Act, 29 U.S.C. § 186
(c) (5) ii
Employee Retirement Income Security Act of 1974,
as amended by the Multiemployer Pension Plan
Amendments Act of 1980, 29 U.S.C. § 1001
et seq.
29 U.S.C. § 1002 (2) i
29 U.S.C. § 1002 (37) (A) i]
29 U.S.C. § 1801 (a) (3) il
29 U.S.C. § 1201 (b) 6, 8, 12
29 U.S.C. § 1801 (b) (1) (1976) 1,16
29 U.S.C. § 1862(d) (1976) 5, 25
29 U.S.C. § 1862(d) (38) (1976) 6
29 U.S.C. § 1869 18, 24
29 U.S.C. § 1381 (a) 24
29 U.S.C. § 1892 (c) passim
29 U.S.C. § 1898 (1976) 5, 6, 25
29 U.S.C. § 1401 15
29 U.S.C. § 1401 (a) (3) (A) i, 4, 16
Multiemployer Pension Plan Amendments Act of
1980, Pub. L. 96-364, § 405, 29 U.S.C.A. § 1461
note (uncodified) 2.4
Rules
Federal Rules of Appellate Procedure, Title 28
U.S.C. Appendix
Rule 35 3
Rule 40.. 3
Supreme Court Rule 29.1 1]
Third Circuit Rule 12 (6) 2
Third Circuit, Internal Operating Procedures
9.5.1 3
6.2.2(d) 18
Other
1996 Green Book 24
Pension Benefit Guaranty Corporation, Press Re-
lease 97-09 24
IN THE
Supreme Court of the United States
OCTOBER TERM, 1996
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY; TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY AND
CHARLES J. SCHAFFER, JR., its administrator and
iduciary, Petitioners,
Vv.
FEDERAL EXPRESS CORPORATION;
THE FLYING TIGER LINES, INC.;
WARREN TRANSPORT, INC.;
TIGER INTERNATIONAL, INC.,
Respondents.
Petition for Writ of Certiorari to the
United States Court of Appeals
for the Third Circuit
PETITION FOR WRIT OF CERTIORARI
OPINIONS BELOW
The judgment order of the Court of Appeals for the
Third Circuit is reported in table format at 96 F.3d 1432
(table) and is reprinted in the Appendix to this Petition,
p. la, along with the order on the petition for rehear
ing, p. 24a. The memorandum decision of the District
Court is published as Trustees of Teamsters Pension Trust
Fund of Philadelphia and Vicinity v. Federal Express
Corp., 1995 WL 791371, 20 Employee Benefits Cas.
(E.B.C.) 1050 (D. Del. 1995). It is reprinted in the
2
Appendix to this Petition, page 5a. The decision of
Arbitrator Robert E. Nagle is reported at 19 E.B.C. 2830.
It is reprinted in the Appendix to this Petition, p. 72a.
The determinations of the Fund are reprinted in the Ap-
pendix at pp. 27a, 41a, 43a. They are not reported.
This petition arises from a suit by Tiger International,
Inc. and its affiliates against Petition and other multi-
employer plans in Delaware for a declaration that it was
not an “employer” responsible for withdrawal liability.
See, Flying Tiger Line v. Central States S.E. & S.W.A.
Pension Fund, 7 E.B.C. 2385 (D. Del. 1986) (case is
not arbitrable); Flying Tiger Line v. Central States S.E.
& S.W.A. Pension Fund, 659 F. Supp. 13, 7 E.B.C. 2392
(D. Del. 1986) (on reargument, case is subject to arbitra-
tion); Flying Tiger Line v. Central States S.E. & S.W.A.
Pension Fund, 8 E.B.C. 1241, 1986 WL 14904 (D. Del.
1986) (certification of appeal); Flying Tiger Line, Inc.
v. Central States, S.E. & S.W.A. Pension Fund, 659
F. Supp. 13, 7 E.B.C. 2392 (D. Del. 1986) (denying
motion for certification of defendant class); Flying Tiger
Line v. Teamsters Pension Trust Fund of Philadelphia
and Vicinity, 830 F.2d 1241, 8 E.B.C. 2505 (3d Cir.
1987) (claims were subject to statutory arbitration under
29 U.S.C. § 1401). In Flying Tiger Line v. Central
States S.E. & S.W.A. Pension Fund, 704 F. Supp. 1277,
10 E.B.C. 1882 (D. Del. 1989), the United States Dis-
trict Court for the District of Delaware directed the arbi-
tration leading to the present petition. See further, Flying
Tiger Line, Inc. v. Central States, S.E. & S.W.A. Pension
Fund, 715 F. Supp. 1284, 11 E.B.C. 1219 (D. Del.
1989) (attorney fee issues). These decisions and order
are not involved in this Petition and have not been
reproduced.
STATEMENT OF JURISDICTION
A panel of the United States Court of Appeals for the
Third Circuit entered a judgment order under Rule
12(6) (3d Cir.), on August 20, 1996, p. la. The judg-
3
ment affirmed an order of the United States District
Court for the District of Delaware, p. 5a. A timely
combined petition for rehearing by the panel and sugges-
tion of rehearing in banc pursuant to Fed.R.App.Pro.
40, 35 and Internal Operating Procedure 9.5.1 (3d Cir.)
was filed on September 3, 1996. The petition for rehear-
ing was denied on October 21, 1996, p. 24a. The ju-
risdiction of this Court is invoked under 28 U.S.C.
§§ 1254(1), 2101(c) on a petition for a writ of certiorari
to review a final judgment of the United States Court of
Appeals for the Third Circuit.
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
26 U.S.C. § 269. Acquisitions made to evade or avoid
income tax
(a) In General—If—
(1) any person or persons acquire, or acquired on or
after October 8, 1940, directly or indirectly, control of
a corporation, or
(2) any corporation acquires, or acquired on or after
October 8, 1940, directly or indirectly, property of an-
other corporation, not controlled, directly or indirectly,
immediately before such acquisition, by such acquiring
corporation or its stockholders, the basis of which prop-
erty, in the hands of the acquiring corporation, is deter-
mined by reference to the basis in the hands of the trans-
feror corporation,
and the principal purpose for which such acquisition was
made is evasion or avoidance of federal income tax by
securing the benefit of a deduction, credit, or other
allowance which such person or corporation would not
otherwise enjoy, then the Secretary may disallow such
deduction, credit or other allowance. For purposes of
paragraphs (1) and (2), control means the ownership of
4
stock possessing at least 50 percent of the total combined
voting power of all classes of stock entitled to vote or at
least 50 percent of the total value of shares of all classes
of stock of the corporation.
29 U.S.C. § 1392(c). Obligation to Contribute; Special
Rules
(c) If a principal purpose of any transaction is to evade
or avoid withdrawal liability under this part, this part
shall be applied (and liability shall be determined and
collected) without regard to such transaction.
29 U.S.C. § 1401(a)(3)(A). Arbitration proceedings;
matters subject to arbitration, procedures applicable, etc.
(3)(A) For purposes of any proceeding under this sec-
tion, any determination made by a plan sponsor under
sections 1381 through 1399 of this title and section 1405
of this title is presumed correct unless the party contesting
the determination shows by a preponderance of evidence
that the determination was unreasonable or clearly errone-
ous.
29 U.S.C. § 1301(b)(1)(1976). Definition.
(b)(1) An individual who owns the entire interest in an
unincorporated trade or business is treated as his own
employer, and a partnership is treated as the employer of
each partner who is an employee within the meaning of
section 401(c)(1) of Title 26. For purposes of this sub-
chapter, under regulations prescribed by the corporation,
all employees of trades or businesses (whether or not in-
corporated) which are under common control shall be
treated as employed by a single employer and all such
trades and businesses as a single employer. The regula-
tions prescribed under the preceding sentence shall be
consistent and coextensive with regulations prescribed for
similar purposes by the Secretary of the Treasury under
section 414(c) of Title 26.
Section 405, Pub. L. 96-364.
“(a) Except as otherwise provided in the amendments
made by [the Muiti-employer Pension Plan Amendments
Act, P.L. 96-364] and in subsection (b), if the way in
which any such amendment will apply to a particular
circumstance is to be set forth in regulations, any reason-
able action during the period before such regulations take
effect shall be treated as complying with such regulations
for such period.
“(b) Section (a) shall not apply to any action which
violates any instruction issued, or temporary rule pre-
scribed, by the agency having jurisdiction but only if such
instruction or rule was published, or furnished to the
party taking the action, before such action was taken.”
29 U.S.C. § 1398 (1976) (obsolete). Withdrawal not
to occur merely because of change in business form or
suspension of contributions during labor dispute.
Notwithstanding any other provision of this part, an em-
ployer shall not be considered to have withdrawn from a
plan solely because—
(1) an employer ceases to exist by reason of—
(A) a change in corporate structure described in section
1362(d) of this title, or
(B) a change to an unincorporated form of business
enterprise, if the change causes no interruption in em-
ployer contributions nor obligations to contribute under
the plan, or
For purposes of this part, a successor or parent corpora-
tion or other entity resulting from any such change shall
be considered the original employer.
6
29 U.S.C. § 1362(d) (1976) (obsolete). Liability of em-
ployer
(d) Corporate reorganizations
For purposes of this section the following rules apply in
the case of certain corporate reorganizations:
(1) If an employer ceases to exist by reason of a reorga-
nization which involves a mere change in identity, form,
or place of organization, however effected, a successor
corporation resulting from such reorganization shall be
treated as the employer to whom this section applies.
(2) If an employer ceases to exist by reason of a liquida-
tion into a parent corporation, the parent corporation shall
be treated as the employer to whom this section applies.
(3) If an employer ceases to exist by reason of a merger,
consolidation, or division, the successor corporation or
corporations shall be treated as the employer to whom
this section applies.
STATEMENT OF CASE
This case concerns a decision of the United States
Court of Appeals for the Third Circuit which overturned
a determination of the Trustees of the Teamsters Pension
Trust Fund of Philadelphia & Vicinity (“Philadelphia
Fund” or “Fund”) that Federal Express Corporation
f/k/a Tiger International Corporation (“FedEx” or
“Tiger”) was liable to the Fund for withdrawal liability
pursuant to 29 U.S.C. §§ 1392(c), 1398, 1301(b) fol-
lowing the shutdown of Tiger’s former subsidiary, Hall’s
Motor Transit Company (“Hall’s”).
Hall’s was solvent and profitable when Tiger Inter-
national Corp. acquired 100% of the stock of Hall’s
Motor Transit for $45,198,000 in January 1980. Hall’s
remained a wholly-owned subsidiary of Tiger International,
Inc. until January 1985 when Tiger “sold” the stock of
Hall’s to Hall’s Acquisition Corporation, a corporation
7
formed by Hall’s chief financial officer, Alvin Bodford,
for $1,000. The entire unamortized withdrawal liability
due to the Fund admittedly accrued during this period of
common control.
Later in 1980, Tiger acquired two other trucking com-
panies, Warren Transport, a profitable truckload carrier,
and Dohrn Transfer, a very troubled Midwestern “less-
than-truckload” carrier. Tiger merged Dohrn’s into Hall’s
in April, 1981 and added another $15 million in with-
drawal liability and additional $12 million in bank debt
to Hall’s balance sheet. Tiger abandoned Hall’s traditional
business and merged Dohrn into Hall’s in a grand shot
at “one-stop” shopping on combined air, rail and trans-
portation services in conjunction with other Tiger affil-
iates. With the new Dohrn’s debt imposed by Tiger and
loss of traditional business, Hall’s went into a downward
spiral from which it never recovered.
Tiger and its creditors were well aware of Tiger’s
responsibility for unpaid pension debt of Hall’s or other
subsidiaries. The potential liability was tracked by Arthur
Andersen, Tiger’s auditors, based on fund confirmations
from 1981 forward and was noted in annual financial
statements. In 1983, Tiger and its affiliates defaulted on
various debt and Flying Tiger, Tiger’s principal operating
company, and Tiger executed the “Override Agreement”
to cure defaults on approximately $588 million of debts in
December 1983. The Override Agreement had a unique
default clause that was triggered by the assessment of
withdrawal liability (or other pension debt) against Tiger
or Flying Tiger in an amount over $5 million.
In December 1983, Tiger also executed a promissory
note (the “Tiger Note”) for $132 million which was
pledged to lenders for advances previously made to Tiger
by North American Car Corporation (“NAC”) or “North
American”), another Tiger subsidiary, as part of NAC’s
restructuring agreements. The Tiger Note was due in
8
1991, but would be accelerated upon a default under
the main NAC restructuring agreement or the Override
Agreement. Tiger also restructured Hall’s inherited
Dohrn’s debt with Prudential Capital and Exchange Na-
tional Bank in 1983 through a new agreement involving
Heller Financial—with a default clause in the absence
of continuing Tiger ownership.
The refinancing did not stop the red ink at Hall’s.
Arthur Andersen gave qualified opinions for Hall’s from
1982 forward based on Hall’s working capital deficits,
declining net equity, a proprietary failure model showing
an 86% likelihood of near-term failure for Hall’s and
other factors. By early March, 1984, Alvin Bodford, the
chief financial officer of Hall’s, was telling Tiger that
Hall’s was going nowhere and that something had to be
done or Hall’s would be out of business. In March, 1984,
Wayne Hoffman, the chief executive officer of Tiger,
dispatched James Cronin, his special assistant “to deter-
mine what was going on at Hall’s to make a recommenda-
tion as to what should be done.”
By May 10, 1984, Robert J. Harter, Tiger’s in-house
counsel and a bankruptcy lawyer, prepared a set of
materials for a Tiger Finance Committee meeting, explain-
ing the problems at Hall’s in light of the liability of a
parent corporation for withdrawal liability under 29 U.S.C.
$ 1301(b).
Hall's Motor Transit Company
1. Potential Net Worth Default. If operating results
do not improve, Hall’s will violate the net worth
covenant in its major loan agreement. Unless a
waiver is obtained, this default could lead Hall’s
lenders to foreclose on the equipment and accounts
receivable which secure this debt.
2. MEPA Liability. Tiger’s exposure results from
Hall’s $35,000,000 multiemployer pension plan
liability.
9
(emphasis supplied). On May 16, 1984, six days after
the Finance Committee meeting, Hoffman announced
Cronin’s appointment as president of Hall’s. Despite
Cronin’s appointment, Hall’s financial performance con-
tinued to decline.
By October 1984, John Lafferty of Arthur Andersen
requested a meeting with Mr. Cronin because the “outlook
for [Hall’s] continuing operations [was] very uncertain”
and “survival [was] . . . the number one issue.” Mr.
Lafferty “documented” a meeting with Cronin on October
6, 1984 in a contemporaneous memo:
Yesterday I met with Jim Cronin, President and
Chief Executive Officer to discuss with him the cur-
rent operating situation at Hall’s and his outlook for
the future. . . . I spent approximately one hour
with Cronin and he very candidly acknowledged that
the outlook for continued operations is very uncertain
and that he and Tiger management are considering
various alternatives at the present time.
* * *k *
As a result of the above two meetings, several things
are noteworthy and I have listed them below simply
to document them—....
4) Cronin mentioned the multi-employer pension lia-
bility (approximately $35 million) several times in
several contexts. It’s clear that he and Tiger have
focused on this as a real obstacle to doing something
with Hall’s.
5) Cronin discussed the recent tender offer by Time-
DC for Transcon and suggested that it might also
he motivated by the multi-emplover pension liability.
This offer was written up in the last issue of Trans-
port Tonics on page 1.
Although Cronin’s memory conveniently lapsed, Mr.
Lafferty’s “documentation” is corroborated by a press
release from William (“Bill”) Legg of Alex Brown &
10
Sons, whom Cronin had previously consulted, on October
5, 1984, about the structuring of the TIME-DC offer to
avoid withdrawal liability.
On November 2, 1984, the collateral agent for certain
bank lenders to Tiger’s North American Car Corporation
subsidiary advised Tiger that a net worth default had
occurred as of September 30, 1984. This claim of default
was not a surprise as it was was part of an ongoing
problem with recalcitrant North American lenders and a
settlement was reached to avoid default through a major
public offering of depository convertible preferred stock
in February 1995.
Tiger (and Alvin Bodford, Hall’s CFO and the eventual
“buyer” of the company) Knew that Hall’s would be out
of cash and collapse by mid-January 1985 so as to trigger
withdrawal liability and the related default clause in the
Override Agreement. Tiger immediately engaged Alex
Brown & Sons to sell Hall’s “now and cheap.” Tiger’s
drive to close, despite better offers, was explained in a
memorandum dated December 29, 1984 by Martin Imm
of Prudential.
Recent problems at Tiger International (Hall’s 100%
owner) have led to its decision to precipitously sell
75% of its interest in Hall’s to its management for
a nominal amount.
Tiger plans to file a registration statement for some
debt it is proposing to issue in the near future. By
selling its control this weekend, prior to filing the
registration statement, Tiger will avoid disclosing
the large potential liability Tiger might face under
Hall’s multi-employer union contract if Hall’s should
ae
(emphasis supplied). The disclosure related to the fact
that an assessment of withdrawal liability of $5 Million
or more was an event of default under Tiger’s Override
Agreement covering some $588 Million in debt.
1]
On December 5, 1996, Whit Lee proposed an acquisi-
tion of Hall’s for the $15-20 Million price (60% of
book equity) sought by Cronin and Alex Brown on an
orderly basis and subject to due diligence.
Alex Brown’s internal notes show a December 6 call
to Lee:
12/6 Questions for Whit:
—Close by year end?
—Is $2.5 [the cash portion of the offer] real avail-
able?
—How real is ability to finance deal and make viable?
(Meppa concern)
—Steps to closing
Lee cut his price to $1,000 in response for reasons docu-
mented by a contemporaneous memorandum of Donald
Goffman from Exchange Bank of a December 19, 1984
meeting of Cronin, Bodford, Hall’s lenders and Lee:
He [Lee] went on to explain that he saw a need for
$5 million in cash for Hall’s to get them through the
first three period (January-March). Given that com-
ment I asked Mr. Lee what we could expect from
him as a capital infusion as its new owner to which
he replied, “None!”
Needless to say, this surprised all attendants, espe-
ciallly Mr. Cronin. It was his understanding that the
new owner would contribute somewhere between $5
million to $10 million. Therefore, it was Mr. Lee’s
plan all along for Tiger to finance the buyout of itself
while the current lenders pumped in another $5 mil-
lion to keep Hall’s going. Wherein, Mr. Lee would
then be around if and when Hall’s became profitable.
It was Mr. Lee’s contention that upon consummation
of the transaction, his risk would be the assumption
of a $38 million unsecured and unfunded liability
arising from the company’s pension plan.
(emphasis supplied). Whit Lee’s December 19, 1984
proposal was literally an offer to Tiger to take Hall’s with-
drawal liability off Tiger’s hands for $1,000. Tiger was
willing to accept immediately.
Lee overplayed his hand with boasts of his use of
bankruptcy proceedings to reject labor contracts at IML
Freight and alienated Hall’s lenders who had to join the
deal. The lenders had no loan agreement nor security
with Terminal Rental, Inc. (“TRI”), Hall’s real estate
holding company and subsidiary. The real estate assets
of TRI, as a trade or business under common control,
would thus fall to pension creditors under 29 U.S.C.
$ 1301(b) in the event that Hall’s shutdown and trig-
gered liability. The lenders wanted additional security
in the real estate of Hall's and its Terminal Rental sub-
sidiary in order to be “S[enio]lr to MEPA [withdrawal
liability claims]” in a Hall’s bankruptcy. They feared that
Lee would put Hall’s in bankruptcy to avoid labor con-
tracts (as he had done with IML Freight) and that the
bankruptcy would invalidate the new security as a pref-
erence under 11 U.S.C. § 547.
Hoffman explained that Tiger gave the company away
to Bodford in desperation for the $1,000 and terms pro-
posed by Lee, even though he was not a ‘credible buyer,”
because Tiger had run out of “reasonable alternatives”
to meet the December 31 disclosure deadline. Bodford
understood “. .. that Tiger expected Hall’s to assume the
[withdrawal] liability but, in essence, knew they couldn’t
get away from the liability.” Bodford jumped in to take
the Company for nothing as he had nothing to lose and
did not want it to be given away to an outsider. Bodford
confirmed this in a 1985 letter to Tiger noting that the
sale was not a bona fide arms-length transaction.
While the lenders’ internal notes indicated that * Bod-
ford not to be CEO,” Hall’s lenders waived a default by
reason of a lack of Tiger ownership and consented to the
13
sale when Tiger and Bodford gave the lenders new se-
curity. The Hall’s lenders got real estate collateral worth
$36 million for a $5 million line of credit (a net advance
of $2.5 million over existing lines) with no future com-
mitment for additional credit to Hall’s or Terminal Rental.
The loans were explicitly done on an “asset-based financ-
ing” protocol rather than on the basis of projected earn-
ings of Hall’s.
The Tiger Board of Directors approved the sale of 75%
of Hall’s for $1,000 in a telephone conference on New
Year’s Eve, December 31, 1984 at 9:00 a.m. Neither
Cronin, Hoffman nor any contemporaneous Tiger docu-
ments provide any rationale for the Bodford giveaway to
the Board. Bodford found the “whole process . . . very
amusing.”
On January 7, 1995, Tiger “sold” 75% of the equity
of Hall’s for one thousand dollars. Tiger paid $1 Million
in closing costs, agreed to continue its guarantees and
bonds related to Hall’s insurance coverage needs for one
year after the sale and reduced its claim against Hall’s by
$1.3 Million. Tiger got a subordinated security interest
for its $10.5 million inter-company debt against a future
Hall’s oankruptcy. By the end of 1985, Tiger had com-
pletely written off the note as worthless. Tiger also re-
tained a nominal 25% equity share in Hall’s but imme-
diately wrote it off in full on December 31, 1984 to show
a complete loss of its investment in Hall’s as a discontinued
operation. Bodford’s quid pro quo was an explicit agree-
ment not “to take any action which might result in any
liability of [Tiger] under MPPAA.” Hall’s (not Bodford)
also agreed to indemnify Tiger for any MPPAA liability
Tiger might incur.
Hall’s had no reasonable chance of survival after the
Bodford giveaway. Its financial condition prevented it
from obtaining insurance or worker compensation cover-
age which was necessary to operate. Tiger agreed to
14
supply this coverage only for one year—the bankruptcy
preference period for an insider under 11 U.S.C. § 547.
At the time of the sale, Arthur Andersen noted that the
wall-to-wall security interest given to Tiger and the lenders
deprived Hall’s of any source of cash to fund anticipated
losses. Hall’s got a temporary reprieve from an agree-
ment with employees for a 15% wage reduction in ex-
change for an employee stock ownership plan (“ESOP”)
which ultimately was to hold 40% of the stock of Hall’s.
By the fall of 1985, however, Hali’s losses had mounted
to $9 million and Hall’s encountered a “severe liquidity
crisis.
With Hall’s going down the tubes, Bodford scheduled
a meeting to redeem all outstanding shares in Hall’s, other
than Tiger’s shares in early December 1985, so as to leave
Tiger once again Hall’s 100% shareholder with exposure
to withdrawal liability. Harter and other responsible Tiger
officials were profoundly “embarrassed” that they had
made such a planning error in the disposition of Hall’s.
Tiger agreed to sacrifice its remaining debt interest and
all of its remaining equity in Hall’s for nothing in order
to avoid the “gun to [Tiger’s] head” of MPPAA liability.
Bodford then canceled the meeting to redeem the stock.’
Hall’s was pushed into bankruptcy within a month after
Tiger and the lenders withdrew support when their new
security was no longer subject to attack as a preference
in bankruptcy. Hall’s filed for reorganization in bank-
ruptcy in March 1986 and shut down operations outside
Pennsylvania so as to trigger a duty to pay withdrawal
liability to the Central States Southeast & Southwest Areas
Pension Fund and other plans at the time. Even though
1 After the bankruptcy, Bodford had the $15 Million Hall’s net
operating loss (NOL) carry forward and acquired Epes Transport
where he is now president, Teamsters Pension Trust Fund of
Philadelphia and Vicinity v. Brigadier Leasing, 889 F.Supp. 388
(E.D. Pa. 1995). Like withdrawal liability, use of the multimillion
dollar NOL carry forwards of Hall’s in an acquisition requires 80%
common control.
15
no withdrawal from the Philadelphia Fund had occurred,
Tiger (a Delaware corporation based in Los Angeles)
sued the Philadelphia Fund and other multiemployer plans
in Delaware for a declaration that it was not an “em-
ployer” responsible for withdrawal liability on July 3,
1986 and litigated whether the issues would be tried in
court or arbitration. In Flying Tiger Line v. Teamsters
Pension Trust Fund of Philadelphia and Vicinity, 830
F.2d 1241 (3d Cir. 1987), the Third Circuit found that
Tiger’s claims were subject to statutory arbitration under
29 U.S.C. § 1401.
Hall’s subsequently shut down in Pennsylvania in 1987
and withdrew from the Philadelphia Fund. On January
20, 1988, the Fund assessed Tiger for allocable unfunded
vested benefits of $2,100,228 to be paid in 23 quarterly
installments of $109,085 and a final payment of $82,904,
p. 27a, and issued a detailed factual determination to
support its assessment, pp. 43a-7la. Arbitration and
judicial review under 29 U.S.C. § 1401 followed.
REASONS FOR GRANTING THE WRIT
Should UPS (the Petitioner’s major and largest single
contributor) really be required to pay the pension debt
of FedEx?
The Third Circuit held that the Fund cannot recover
from FedEx without unequivocal proof that Bodford had
criminal intent to defraud the Fund in taking a gift of
Hall’s for $1,000 and that FedEx had no “plausible and
valid” reason to dispose of Halls other than evasion of
withdrawal liability. In Central States, SW. & S.W.A.
Pension Fund v. Santa Fe Industries, 22 F.3d 725, 726-
727 (7th Cir. 1994), the Seventh Circuit explicitly re-
jected this restrictive approach as inconsistent with the
plain language of the statute which invalidates any trans-
action with “a principal transaction to evade or avoid
withdrawal liability” even though other motives may be
present.
16
The purpose of withdrawal liability is “. . . to protect
other employers in the multiemployer pian from having
to pay for those [pension] benefits which are properly
the responsibility of other employers,” Santa Fe, 29 F.3d
at 726-727. For this and tax reasons, see p. 25 and n.5,
infra, the liability extends to a contributing business and
trades or businesses under 80% common control, 29
U.S.C. § 1301(b)(1); Flying Tiger Line v. Teamsters
Pension Trust Fund of Philadelphia and Vicinity, 830
F.2d 1241, 1244 (3d Cir. 1987). 29 U.S.C. § 1392(c)
correspondingly provides that “[i]f the principal purpose
of any transaction is to evade or avoid withdrawal liability
under this part, this part shall be applied (and liability
shall be determined and collected) without regard to such
transaction.”
The Fund issued a detailed determination explaining
that the gift of Hall’s to Bodford was a fraudulent con-
veyance under common law standards, pp. 49a-58a, which
should be disregarded under 29 U.S.C. § 1392(c) so
that Tiger and its subsidiaries would remain under com-
mon control with Hall’s and be liable for the withdrawal
liability incurred during common control. All of the con-
temporaneous documents and disinterested witnesses con-
firmed these conclusions at trial and showed that the gift
to Bodford was driven by a need to avoid an imminent
assessment of withdrawal liability.
The uncontested evidence of fraud should have ended
the matter as the Fund’s determination was presumptively
correct under 29 U.S.C. § 1401(a)(3)(A) and Tiger
failed to carry its burden of proof to show that with-
drawal liability was not an important factor in the gift
to Bodford, Concrete Pipe and Products of California,
Inc. v. Construction Laborers Pension Trust for Southern
California, 508 U.S. 602, 113 S.Ct. 2264, 124 L.Ed.2d
539 (1993); Teamsters Pension Trust Fund of Philadel-
phia & Vicinity v. Fuqua Industries, Inc., 509 U.S. 901,
113 S.Ct. 2989, 125 L.Ed.2d 684 (1993) reversing 981
IN gt i i SS cr
17
F.2d 1248 (3d Cir. 1992) (table) and 1992 WL 70418,
15 E.B.C. 2271 (E.D. Pa. 1992) (reversing evade or
avoid decision allocating burden of proof on evade or
avoid claim under 29 U.S.C. § 1392(c) to Fund for fur-
ther proceedings under Concrete Pipe).- The Arbitrator
was however a former PBGC official with his own views
of the statute which Congress should have written who—
as in his prior rulings—merely gave lip service to the
presumption while “. . . not in fact afford[ing] the trus-
ees’ determination the benefit of the presumption,” Combs
v. Classic Coal Corporation, 931 F.2d 96, 100 (D.C.
Cir. 1991) (reversing Nagle on this basis). The Third
Circuit effectively reversed Concrete Pipe and Fuqua with
its unqualified endorsement of the arbitrator’s impossible
standard as a correct statement of the law in a per curiam
decision to deflect further review in this Court.
I. THE THIRD CIRCUITS “GOOD FAITH” STAND-
ARD REQUIRING PROOF OF CRIMINAL FRAUD-
ULENT INTENT BY A TRANSFEREE TO IMPOSE
CIVIL PENSION LIABILITY ON A TRANSFEROR
IS IN CONFLICT WITH OTHER CIRCUITS
If the gift of Halls to Bodford for $1,000 in this case
is not an example of “a transaction with a principal pur-
pose to evade or avoid” pension liability which is disre-
garded under 29 U.S.C. § 1392(c), there is no such case
and the statute is meaningless. The Third Circuit none-
theless rejected the Fund’s determination based on its
conclusion that 29 U.S.C. § 1392(c) is merely a “good
* The rule of Concrete Pipe is consistent with the rule applied
to tax cases under the parallel language of 26 U.S.C. § 269. See,
Herculite Protective Fabrics Corp. v. Comm’r, 387 F.2d 475, 476
(3d Cir. 1968); Scroll, Inc. v. Comm’r, 447 F.2d 612, 616 (5th Cir.
1971); Vulcan Materials Co. v. U.S., 446 F.2d 690, 698-699 (5th
Cir. 1971). It has been the rule on tax cases for decades. Botany
Worsted Milis v. U.S., 278 U.S. 282, 289-290, 49 S.Ct. 129, 73
L.Ed. 379 (1929); U.S. v. Janis, 428 U.S. 4383, 440, 96 S.Ct. 3021,
49 L.Ed.2d 1046 (1976).
18
faith” requirement, Dorn’s Transportation v. Teamsters
Pension Trust Fund of Philadelphia and Vicinity, 787
F.2d 897, 902 (3d Cir. 1986) which is not implicated
‘“. . when the seller enters a transaction to escape lia-
bility, but the buyer has no intention of taking subsequent
actions that will reduce the payments owing to the plan.”
Dorn’s, 787 F.2d at 902. The Third Circuit has now gone
further to conclude that there is no “error of law,” Internal!
Operating Procedure 6.2.2(d) (3d Cir.), in the arbitra-
tor’s conclusion that a mere “good faith expectation,”
p. 112a, by the donee Bodford that he could continue the
business of Hall’s against all odds is sufficient to prevent
imposition of liability on FedEx—notwithstanding the arbi-
trator’s concession that this interpretation is at odds with
the plain language of the statute, p. 107a, n.6. PBGC v.
White Consolidated Industries, 998 F.2d 1192 (3d Cir.
1993) similarly concluded that the parallel evasion lan-
guage of 29 U.S.C. § 1369 on single-employer pension
plan liability likewise requires proof that the “buyer” of a
business had no reasonable chance of success in order to
impose liability on the “seller.”
In the view of the arbitrator and Third Circuit, Section
1392(c) is limited to “essentially fraudulent maneuvers
lacking in economic substance,” p. 107a, n.6. See also,
Cuyamaca Meats, Inc. v. San Diego & 1.C. Butchers Pen-
sion Fund, 638 F.Supp. 885, 890 (S.D.Cal. 1986) aff'd
827 F.2d 491 (9th Cir. 1987) (same phrase). The trans-
action will have sufficient “economic substance” to avoid
attack as long as the employer articulates “plausible and
valid” reasons for a sale after the fact, p. 12la, even
though those reasons do not explain the form, price and
timing of the actual transaction absent evasion of with-
drawal liability.
The simple proposition that a creditor must show the
fraudulent intent of a donee to recover from the donor
is unprecedented and illogical. The gift to Bodford and
his active participation in the fraud with knowledge of
Tiger’s purpose would negate “good faith’ ’and allow
19
recovery from a transferee in the ordinary law of fraud,
U.S. v. Tabor Court Realty Corp., 803 F.2d 1288, 1299
(3d Cir. 1986) quoting The Uniform Fraudulent Con-
veyance Act in Pennsylvania, 5 U.Pitt.L.Rev. 161, 186
(1939) (“good faith” defense by recipient for fraudulent
conveyance requires proof that the transfer was made for
value and “without knowledge” of the fraudulent purpose
of the transferor). The “good faith expectation” standard
of the Third Circuit goes further to track the standard of
Cheek v. U.S., 498 U.S. 192, 202, 111 S.Ct. 604, 611,
112 L.Ed.2d 617 (1991) on “good faith” as a defense to
negate willfulness in criminal evasion of income tax based
on “a good-faith misunderstanding and belief submission,
whether or not the claimed belief or misunderstanding is
objectively reasonable” in a civil case.
The Third Circuit’s allowance for a post hoc articula-
tion of. “plausible and valid” reasons for any sale as a
defense transforms the statutory language to require proof
that evasion of withdrawal liability was the only economic
reason for a transaction. With the burden of persuasion
on intent clearly placed on Tiger by statute, this contra-
dicts the conclusion of Price Waterhouse v. Hopkins, 409
U.S. 228, 252, 109 S.Ct. 1775, 1791, 104 L.Ed.2d 268
(1989) that “. . . the employer may not, .. , prevail .. .
by offering a legitimate and sufficient reason for its deci-
sion if that reason did not motivate it at the time of the
decision.”
The Seventh Circuit decision in Santa Fe emphatically
rejected the restrictive approach of the Third Circuit:
The statutory criterion is not whether the transaction
is a sham, having no purpose other than to defeat
the goals of the Multi-employer Pension Plan Amend-
ments Act by leaving the other employers in the
multiemployer pension plan holding the bag. It is
whether the avoidance of withdrawal liability by the
seller (not necessarily by the purchaser as well) is
20
one of the principal purposes of the transaction.”
Santa Fe, 22 F.3d at 729-730.*
The imposition of withdrawal liability in a sale of
business situation requires only that a principal pur-
pose of the sale be to escape withdrawal liability.
It needn’t be the only purpose; it need only have
been one of the factors that weighed heavily in the
seller’s thinking .. ., . . . we would be doing violence
to the language and purpose of the statute if we read
“a principal” as “the principal.” Santa Fe, 22 F.3d at
727. See also American Hospital Association v.
NLRB, 499 U.S. 606, 111 S.Ct. 1539, 113 L.Ed. 2d
675 (1991) (plain meaning of “a” means one of
several).
46
The arbitrator’s . Opinion, . . ., is devoted to
irrelevant questions, such as whether Santa Fe had
reasons independent of withdrawal liability to divest
itself of SFTT and whether it knew that the purchaser
of SFTT was likely to flop. The issue is not whether
Santa Fe had compelling reasons independent of
withdrawal liability to divest itself of SFTT; that is
a given. The issue is the form the divestiture took—
the sale of stock rather than of assets. Santa Fe, 22
F.3d at 729 (emphasis in original).
Under the Santa Fe test, Tiger’s willingness to accept
$1,000 for Hall’s as long as Bodford or Lee accepted the
withdrawal liability after rejecting prior offers from Bod-
ford and Lee for $10 to $15 Million (subject to due dili-
gence and without assumption of withdrawal liability) is
sufficient to establish that withdrawal liability was ‘“a”
principal purpose of the transaction.
3 The common law of fraud may look to the identity of the buyer
as an insider or the knowledge of the donee or “buyer” as eviden-
tiary “badges of fraud” but does not make them necessary elements
of a claim against the “seller.” See, e.g. Jn re: Woodfield, 978 F.2d
516, 518 (9th Cir. 1992); Douglas Guardian Warehouses v. Jones,
405 F.2d 427, 429 (10th Cir. 1969); Duncan v. First Nat’l Bank
of Cartersville, Ga., 597 F.2d 51, 56 (5th Cir. 1979) (close relation-
ship between transferor and transferee).
21
The Santa Fe approach is supported by “the general
rule that adoption of wording of a statute from another
legislative jurisdiction carries with it the previous judicial
interpretations of the wording.” Shannon v. U.S., 512
U.S. 573, 114 S.Ct. 2419, 2425, 129 L.Ed.2d 549 (1994)
quoting Carolene Products Company vy. U.S., 323 US.
18, 26, 65 S.Ct. 1, 5, 89 L.Ed. 15 (1944). The parallel
language of 26 U.S.C. § 269(a) on civil liability for
evasion of income taxes has consistently applied the Santa
Fe standard. See, Slappey Drive Industrial Park v. U-.S.,
561 F.2d 572, 586 (Sth Cir. 1977) (decision maker for
company failed to relate vague contentions, many palpably
trivial, to the actual decision and transaction); Scroll,
Inc. v. Comm’r, 447 F.2d 612, 616-617 (Sth Cir. 1971)
(taxpayer with burden of proof in 26 U.S.C. § 269 case
must show that the non-evasive reasons required the form
chosen and not just that they could have justified it as
“afterthoughts” or “window dressing”); Vulcan Materials
Co. v. U.S., 446 F.2d 690, 699 (Sth Cir. 1971) (proof
that the actual reason for the merger was alleged concern
about the steel industry was required); Bobsee Corp. v.
U.S., 411 F.2d 231, 239 (5th Cir. 1969) (uncontradicted
reasons did not explain the existence of seven separate
corporations); Southeastern Canteen Co. v. Comm’r, 410
F.2d 615, 623 (6th Cir. 1969) (transaction invalidated
where no reason shown for particular form of transaction
other than evasion of taxes); House Beautiful Homes v.
Comm’r, 405 F.2d 61, 67 (10th Cir. 1968) (principal
purpose need not be sole motivation; showing of general
non-tax purpose to minimize risk is insufficient defense) ;
Herculite Protective Fabrics v. Comm’r, 387 F.2d 475,
475-476 (3d Cir. 1968) (bargain price shows evasion;
taxpayer failed to overcome presumption and show a non-
evasive purpose under 26 U.S.C. § 269); Coastal Oil
Storage v. Comm’r, 242 F.2d 396, 397 (4th Cir. 1957)
(stated reasons insufficient where separate bookkeeping
would have met all stated goals); Orvis v. Higgins, 180
F.2d 537, 539 (2d Cir. 1950) (no reason other than
22
evasion shown to explain life estate trusts); Beacon Auto
Radiator Co., Inc. v. Comm’r, 52 T.C. 155, 162 (1969)
(no connection between transfer and stated reason);
Dillier v. Comm’r, 41 T.C. 762, 785-788 (1964) aff'd
357 F.2d 647 (9th Cir. 1966) (no stated reasons ex-
plained why one corporation was not adequate; partner-
ship form was used for most profitable investment).
Neither the Third Circuit nor arbitrator advanced any
rationale for a different rule for the same language in
29 U.S.C. § 1392(c).
The factual similarity between Tiger and Santa Fe is
uncanny with claimed differences smacking of semantics
rather than substance. Although “actors in our free enter-
prise system are not primarily guided by their eleemo-
synary impulses,” Flying Tiger, 830 F.2d at 1254, n. 21,
Tiger, like Santa Fe, attributed its desire to take $1,000
and a complete loss of investment on its books to con-
cern that the higher yield for an orderly sale or “
piecemeal liquidation could not be known for sure in
advance .. .,” Santa Fe, 22 F.3d at 729. Wayne Hoff-
man, Tiger’s chairman, ultimately could explain the gift
to Bodford only as a direction from even higher authori-
ties who ordained a “godsend” to free Hall’s from Tiger.
Tiger sought to avoid the “gun to its head” of MEPPA
liability while Santa Fe was only “. . . sort of hit with the
two by four about MPAA.” Santa Fe, 22 F.3d at 728.
Tiger and Cronin focused on withdrawal liability “.
as a real obstacle to doing something with Hall’s,” while
withdrawal liability was only “. . . a major stumbling
block in implementing the liquidation . . .” of its SFTT
subsidiary to Santa Fe, Santa Fe, 22 F.3d at 728. As in
Santa Fe, Tiger had a subsidiary “whose prospects for a
turnaround were not good.” Santa Fe, 22 F.3d at 728,
and initially sought a “large, financially strong purchaser”
but then turned to “ ‘desperation moves,’ Santa Fe, 22
F.3d at 729, by selling to Bodford for $1,000 even though
he was not a “credible buyer” because Tiger had run out
23
of “reasonable alternatives” to sell Hall’s before it
collapsed.
The arbitrator’s claims, pp. 128a-135a, that he was
“not able to attribute . . . smoking gun significance” to
the Lafferty memo, p. 130a, and could not find an evasive
purpose in the uncontested lender memoranda, repeated
references to “MPPA” throughout negotiations and the
testimony of every disinterested witness that withdrawal
liability drove the sale of Hall’s are not findings of fact
to which a court should defer. See, Orvis v. Higgins,
180 F.2d at 539 citing U.S. v. Yellow Cab Co., 338 USS.
338, 70 S.Ct. 177, 94 L.Ed. 150 (1949) (court reviews
documentary evidence and uncontested matters for appli-
cation of law in tax evasion case without deference to trial
court). As in Santa Fe, they are simply “an inference
from the testimony (and other evidence) not the testimony
itself’ and furnish no basis to ignore uncontested and
“[{iJnternal documents that cannot be explained away
[which] make clear that . . . management was both
aware of the company’s potential withdrawal liability .. .
and aware that a sale of the company might avoid it.”
Santa Fe, 22 F.3d at 728, 729.
Il. THE ISSUES PRESENTED ARE IMPORTANT
TO PREVENT DUMPING OF UNFUNDED PEN-
SION LIABILITY IN THE BILLIONS ON OTHER
EMPLOYERS AND THE FEDERAL GOVERNMENT
With evisceration of the prohibitions on evasion of pen-
sion liability by the Third Circuit, any Delaware corpora-
tion with the money to write “sale” papers and file suit
can follow Tiger’s declaratory judgment route (from its
base in Los Angeles) into Delaware to obtain judicial
immunity against future actions by PBGC or pension
plans. This places the public at risk on more than $80
Billion of unfunded pension liability insured by PBGC,
PBGC Release 97-09 (Pension Underfunding and Top
50 List) (estimated $64 Billion in unfunded pension
24
liabilities for single employer plans); 1996 Green Book,
§ 15 (Pension Benefit Guaranty Corporation) (multi-
employer plan exposure of $20 Billion in 1993). The
multiemployer plan exposure and the $20 Billion in pen-
sion debt of companies with bond ratings below invest-
ment grade, PBGC Release 97-09, is most directly affected.
The Third Circuit is separately home to a dispropor
tionate share of plans with significant unfunded liabilitics
which pose a real risk to the public fisc. The $180,561,694
in unfunded liabilities for the Teamsters Pension Trust
Fund of Philadelphia & Vicinity is open game as the
decision below makes it impossible to pursue prior con-
trol group members in the Third Circuit. The Third
Circuit also covers many of the most underfunded single-
employer pension plans in the country including LTV
Corporation ($1.444 Billion), see PBGC v. LTV Corp.,
496 U.S. 633, 110 S.Ct. 2668, 110 L.Ed. 2d 579 (1990)
(restoring $2.1 Billion in pension debt for LTV Steel);
Westinghouse Electric Co. ($2.843 Billion); Bethlehem
Steel ($2.222 Billion); Inland Steel ($612 Million);
Armco, Inc. ($587 Million); Unisys ($505 Million); US
Air ($458 Million); Natural Steel ($458 Million); Crown
Cork & Seal, Inc. ($396 Million) and Mack Trucks ($332
Million. With no teeth in the “evade or avoid” prohibi-
tions of 29 U.S.C. $$ 1369, 1392(c), the business incen-
tive to shed pension debt, in whole or in part, through
sales of failing businesses to weak buyers for nominal
sums and closing costs will be virtually irresistible.
The Third Circuit precluded any claim against prior
control group members in rejecting the Fund’s partner-
ship approach to control group changes which should
have been enforced under § 405 of MPPAA, P.L. 96-364,
29 US.C.A. § 1461 note (uncodified). To paraphrase
Central States, S.E. & S.W.A. Pension Fund v. Robinson
Cartage, 55 F.3d 1318, 1323 (7th Cir. 1995), “[t]he
simple use of the present tense in [29 U.S.C. § 1381(a)]
25
is not enough to indicate which time period should be
used . . . [to] yield a logical fesult” in identifying the
“employer” who is responsible for withdrawal liability.
29 U.S.C. § 1398, 1362(d) (1976) do however treat
both groups emerging from a “division” of the control
group “employer”’—-such as the sale of Hall’s—as the
“original employer.” *
The Fund thus concluded that Tiger, as well as Hall’s,
remained jointly and severally liable for the unamortized
balance of withdrawal liability which accrued during their
affiliation based on analogous rules for annualized income
tax liability® and partnership dissolution concepts. See,
26 C.F.R. §§ 1.1502-6(b), 1.1502-77(b) (1980) (termi-
nation of common control does not relieve an affiliate of
joint and several liability for income tax which arose
during affiliation); Crane & Bromberg, The Law of Part-
nership, pp. 444, 447 (1968) (departure of a partner
“dissolves” the partnership [in MPPAA and tax: causes
the control group “employer” to “cease to exist”] but
the departing partner remains liable for debt incurred
before the dissolution until it is paid in full). The
Third Circuit’s rejection of this view conflicts with the
conclusion of Trustees of Amalgamated Insurance Fund v.
McFarlin’s, 789 F.2d 98, 103 (2d Cir. 1986) that “with-
drawal liability represents an employer’s accelerated con-
* The statute has been amended but its 1976 version is applicable
to this matter, Flying Tiger. 886 F.2d at 1253-1254 & n.20.
* Control group liability for unfunded pension debt balances the
favorable tax treatment of contributions under 26 U.S.C. 8 404
which is available to any member of a controlled group of corpora-
tions under 26 U.S.C. §§ 1501-1504 to assure that the debt under-
lying the deduction actually is paid. C.F., Comm’r vy. Tufts, 461
U.S. 300, 103 S.Ct. 1826, 1830 n.4, 1833-4, 75 L.Ed.2d 863 (1983)
(imputed income on forgiveness of loan justifying prior interest
deduction is logical even if the overall] transaction is “ruinous” as
a result); In Re: Juvenile Shoe Corp. of America, 99 F.3d 898,
901 (8th Cir. 1996) (reversion tax of 26 U.S.C. § 4980 iS a reason-
able counterbalance to correct lost income tax).
26
tribution of funds needed to finance employees’ pension
rights . . . which have not been fully funded . . .” and
does not simply spring out of nowhere at the pinpoint of
withdrawal. The disagreement on this point affects the
national economy on the bankruptcy priority issues of
McFarlin’s and assures the dumping of billions of dollars
in pension liability.
CONCLUSION
The Court should issue a writ of certiorari to the United
States Court of Appeals for the Third Circuit.
Respectfully submitted,
KENT CPREK
(Counsel of Record)
SAGOT, JENNINGS & SIGMOND
510 Walnut Street—16th Floor
Philadelphia, PA 19106-3683
(215) 351-0615
DAVID C. MCBRIDE
BARRY M. WILLOUGHBY
YOUNG, CONAWAY, STARGATT
& TAYLOR
11th Floor Rodney Square North
P.O. Box 391
Wilmington, DE 19899-0391
(802) 571-6666
Attorneys for Petitioners
APPENDICES
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-7050
PHE FLYING TIGER Line, INC., a Delaware corporation;
TIGER INTERNATIONAL, INC., a Delaware corporation;
WARREN TRANSPORT, INC., an lowa corporation;
V.
CENTRAL STATES, SOUTHWEST AND SOUTHRAST ARRAS
PENSION FUND, a multiemployer pension plan; TEam-
STERS PENSION TRUST FUND OF PHILADELPHIA AND
VICINITY, a multiemployer pension fund; WESTERN
PENNSYLVANIA TEAMSTERS AND EMPLOYERS PENSION
FUND, a multiemployer pension plan; TRAMSTERS
LocaL 641 PENSION FUND, a multiemployer pension
plan; TRUCKING EMPLOYEES OF NorTH JERSEY WEI
FARE FUND, a multiemployer pension plan; CENTRAI
PENNSYLVANIA TEAMSTERS PENSION FUND, a multi
employer pension plan, each sued individually and as
a member of a class of similarly situated multiemployer
pension plans who assert withdrawal liability, against
Hall’s Motor Transit Company, Under the Multi-
employer Pension Plan Amendments Act of 1980
(D.C. No. 86-cv-00304)
TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA AND
VICINITY; THE TRUSTEES OF TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND _ VICINITY:
CHARLES J. SCHAFFER, Jr., its administrator and fidu-
clary
V.
2a
FEDERAL EXPRESS CORPORATION:
THE FLYING TIGER LINES, INC.:
WARREN TRANSPORT, INC.:
TIGER INTERNATIONAL
(D.C. No. 94-cv-00017 )
FEDERAL EXPRESS CORPORATION;
THE FLYING TIGER LINE, INC.;
WARREN TRANSPORT, INC.;
TIGER INTERNATIONAL
Ve
TEAMSTERS PENSON TRUST FUND OF PHILADELPHIA AND
VICINITY; THE TRUSTEES OF TEAMSTERS PENSION
TRUST FFUND OF PHILADELPHIA AND _ VICINITY;
CHARLES J. SCHAFFER, JR.
(D.C. No. 94-cv-00033 )
FEDERAL EXPRESS CORPORATION;
THE FLYING TIGER LINES, INC.;
WARREN TRANSPORT, INC.;
TIGER INTERNATIONAL
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY; TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA; CHARLES J. SCHAFFER,
JR., its administrator
(D.C. No. 94-cv-00112)
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY; TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY; CHARLES
J. SCHAFFER, JR., its administrator and fiduciary
Vv.
3a
FEDERAL EXPRESS CORPORATION;
THE FLYING TIGER LINES, INC.:
WARREN TRANSPORT, INC.:
TIGER INTERNATIONAI
(D.C. No. 94-cv-00130)
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY; TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY; CHARLES
J. SCHAFFER, JR., its administrator and fiduciary,
Appellants
Appeal from the United States District Court
for the District of Delaware
(D.C. Civil No. 86-00304 )
District Judge: Honorable Sue L. Robinson
ARGUED August 7, 1996
BEFORE: NYGAARD, LEWIS and MCKEE. Cir-
cuit Judges.
JUDGMENT ORDER
After consideration of all contentions raised by the
appellants, it is
ADJUDGED AND ORDERED that the judgment of
the district court entered on December 27, 1995. be and
is hereby AFFIRMED, essentially for the reasons set
forth in the district court’s opinion.
4a
Costs taxed against the appellants.
By THE COURT:
s/ [Illegible]
Circuit Judge
Attest:
/s/ [Illegible]
Chief Deputy Clerk
Dated: August 20, 1996
Sa
APPENDIX B
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
Civil Action Nos. 86-304; 94-017; 94-033:
94-112; and 94-130-SLR
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY. TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY, and
CHARLES J. SCHAFFER, JR., its administrator and
fiduciary, Plaintiffs,
V.
FEDERAL EXPRESS CORPORATION, THE FLYING TIGER
LINES, INC., WARREN TRANSPORT, INC., and TIGER
INTERNATIONAL, INC.
° we Defendants,
and
FEDERAL EXPRESS CORPORATION, THE FLYING TIGER
LINE, INC... WARREN TRANSPORT, INC., and TIGER
INTERNATIONAL, INC.. a
INC Plaintiffs,
¥.
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY, TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY, and
CHARLES J. SCHAFFER, JR.. its administrator.
Defendants.
Dated: December 27, 1995
Wilmington, Delaware
6a
MEMORANDUM OPINION
ROBINSON, District Judge
I. INTRODUCTION
This litigation is the latest chapter in a case that has
lingered for nearly ten years. The dispute arose from the
bankruptcy of Hall’s Motor Transit Company, Inc.
(“Hall’s”) in March 1986, and the company’s resulting
withdrawal from the Teamsters Pension Trust Fund of
Philadelphia and Vicinity (“the Philadelphia Fund”).
Between 1980 and 1985, Hall’s was a fully owned sub-
sidiary of Tiger International, Inc. (“Tiger”). In January
1985, Tiger sold 75% of Hall’s shares to a management
buyout group, Hall’s Acquisition Corporation (“HAC”),
and later transferred its remaining 25% interest as well.
After Hall’s declared bankruptcy in 1986, the trustees
of several pension plans to which Hall’s had been con-
tributing assessed withdrawal liability against Tiger. In
response, Tiger filed suit seeking a declaration that it was
not responsible for Hall’s withdrawal liability. Tiger
eventually settled with all of the funds except the Phil-
adelphia Fund, and the remaining dispute was ordered
into arbitration by the Third Circuit. Flying Tiger Line
v. Teamsters Pension Trust Fund of Philadelphia &
Vicinity, 830 F.2d 1241 (3d Cir. 1987).
The Philadelphia Fund now brings this suit pursuant to
29 U.S.C. § 1401(b)(2) to vacate the arbitrator’s deci-
sion finding no withdrawal liability on the part of Tiger.
Tiger has moved to enforce the arbitrator’s award. Be-
cause the court finds no clear error in the arbitrator’s
conclusions of fact and no error of law, Tiger’s motion
to enforce the award will be granted, and the Philadelphia
Fund’s motion to vacate will be denied.
7a
Il. BACKGROUND
The facts as set out in the Arbitrator’s Findings, Opin-
ion and Award (D.I. 254 at 6131 et seq.) are as fol-
lows: *
Tiger was a transportation services holding company
whose subsidiaries included Flying Tiger Lines, Inc.
(“Flying Tiger”), a cargo airline; North American Car
Corpoartion (“North American”), a rail car leasing com-
pany; Tiger Air, Inc. (“Tiger Air”), which sold and
leased aircraft and provided aviation services: and sev-
eral other companies in the fields of computer and equip-
ment leasing, aircraft charter and leasing, and mortgage
insurance. Between 1979 and 1981, Tiger acquired three
trucking companies, including Hall’s. (D.I. 254 at
6140-41)
During the first year of Tiger’s ownership, Hall’s re-
ported net gains and was a substantial cash source for
Tiger. Beginning in 1981, however, Hall’s began to feel
the effects of the recession, deregulation, and other changes
in the trucking industry. (D.I. 254 at 6142) At the same
time, Tiger and its other subsidiaries were also facing a
fiscal crises. In February 1983, Flying Tiger, North
American, anud other Tiger subsidiaries declared a mora-
torium on debt payments and invited their lenders to re-
structure their outstanding loans. (D.I. 254 at 6143)
The resulting agreements led to the gradual disman-
tling of Tiger Air and North American, and strict limita-
tions on the amounts and purposes of cash advances from
the subsidiaries to Tiger. These conditions limited Tiger’s
overall cash flow and prevented Tiger from channeling
funds from a healthy subsidiary to a troubled one, such
as Hall’s. (D.I. 254 at 6144-46) The restructuring also
produced the “Override Agreement,” which set out the
events that would cause immediate default on Flying
Tiger’s loans. One of the events that would trigger de-
1 Although the parties disagree on the inferences to be drawn
from the facts, the basic sequence of events is undisputed.
8a
fault was “Aggregate Plan Liability” in excess of $5 mil-
lion. Aggregate liability was to be determined by adding
a) unpaid liability resulting from the terminaton of any
single employer pension plan by Tiger or any of its sub-
sidaries; b) withdrawal liability assessed by the trustees
of any multiemployer pension plan against a Tiger-
affiliated company; and c) unpaid delinquent pension
contributions owed by any Tiger-affiliated company.
(Override Agreement, D.I. 262 at 68-384, Supplemental
Joint Appendix )
Meanwhile, the financial situation at Hall’s worsened.
The company had reported operating losses for three
years in a row and its net worth was steadily declining.
Hall’s auditors gave qualified opinions in 1982 and 1983,
based substantially on the poor financial health of its
parent company, Tiger. (D.I. 254 at 6146) James
Cronin, who had participated in management and plan-
ning at other Tiger subsidiaries, was asked to evaluate
Hall’s in early 1984. By mid-year he was appointed
Hall’s president. Cronin believed that Hall’s could be
turned around, but only if the company could negotiate
wage concessions in exchange for an Employee Stock
Option Plan (“ESOP”).
By the end of 1984, it was clear that Hall’s would need
an infusion of capital to survive. The company was al-
ready carrying approximately $12 million in debt, secured
by liens on its rolling stock, and the existing lenders ap-
peared unwilling to lend any more. (D.I. 254 at 6143)
Tiger’s own poor financial condition and the restrictions
imposed upon it by the restructuring agreements limited
its ability to contribute the needed capital. Labor costs
were soaring, but Hall’s had not yet been able to secure
a wage cut in return for the implementation of an ESOP.
Cronin and others in the organization believed that
Tiger’s ownership of Hall’s played a significant role in
the union’s refusal to accept wage concessions. Cronin
also discovered that Hall’s competitors were using Tiger’s
well-publicized financial troubles to lure away customers
9a
concerned about having their goods abandoned or tied up
in bankruptcy proceedings. (D.I. 254 at 6149)
In November 1984, Cronin engaged Alex, Brown &
Sons to find a purchaser for Hall’s. (D.I. 254 at 6150)
Several prospective buyers responded to the selling memo-
randum, and on December 12, 1984. Tiger representa-
tives met with one of the respondents, Whit Lee. Lee
offered $10 to $15 million for Hall’s stock, and proposed
that Hall’s $12 million intercompany debt to Tiger be
forgiven, After learning that Tiger wished to close the
transaction before December 31, 1984, Lee revised his
proposal. He offered only $1,000 in cash, but would
leave $10.5 million of the intercompany debt in place.
Alvin Bodford, Hall’s chief financial Officer, then pro-
posed a management buyout of the company on the same
terms that Lee had offered. Hall’s lenders preferred Bod-
ford to Lee as a purchaser, so Tiger discontinued nego-
tiations with the latter. (D.I. 254 at 6150-55)
According to the terms of the resulting agreement,
which Tiger’s board approved on December 31, 1984,
Tiger sold 75% of Hall’s shares to HAC, which Bodford
had formed for the purpose of the sale. Tiger retained
the remaining 25% of Hall’s stock and reserved the right
to name a director to Hall’s board.” Tiger also paid the
closing costs, which amounted to approximately $1 mil-
lion. In return, HAC paid $1,000 in cash and gave
Tiger a note for $10.5 million, secured by Hall’s real
estate but junior to the secured rights of Hall’s outside
lenders. The agreement required HAC to continue con-
tributions to the pension plans at the pre-sale level. Hall’s
lenders also participated in the agreement, promising $5
million in new capital in exchange for first liens on all
unencumbered real estate and rolling stock. (D.I. 254 at
6156-57)
* Tiger never exercised this right.
10a
Under HAC’s ownership, Hall’s downward spiral accel-
erated. Within a few months of the sale, a substantial
part of the management team and the turnaround specialist
hired at the lenders’ urging had departed, citing “differ-
ences in management philosophies.” (D.I. 254 at 6161)
Hall’s operating revenues dropped from $190 million to
$160 million, and its market share declined 25% over
the course of 1985. (D.I. 254 at 6161)
In November 1985, Bodford approached Tiger and
demanded that Tiger relinquish both its remaining 25%
interest in Hall’s and its $10.5 million note. Tiger initially
refused. Bodford then threatened to redeem HAC’s 75%
stake in Hall’s. He pointed out that by doing so he would
force Tiger to resume full ownership of Hall’s, and full
liability for pension fund withdrawal if Hall’s should fail.
(D.I. 254 at 6162) Realizing that Hall’s demise was at
that point likely, Tiger acceded to Bodford’s demands.
(D.1I. 254 at 6162)
Hall’s filed for bankruptcy under Chapter 11 on March
10, 1986. By the end of 1987, it had ceased all con-
tributions to the pension funds to which it had assumed
obligations. (D.I. 254 at 6163)
lI. DISCUSSION
A. Standard of Review
In reviewing the findings of fact of an arbitrator in
the context at bar, “there shall be a presumption, rebut-
table only by a clear preponderance of the evidence, that
the findings of fact made by the arbitrator were correct.”
29 U.S.C. § 1401(c). The “clear preponderance” lan-
guage of the statute has been used interchangeably with
“clear error.” See, e.g., Santa Fe Pacific Corp. v. Central
States, Southeast & Southwest Areas Pension Fund, 22
F.3d 725 (7th Cir.), cert. denied, 115 S. Ct. 483 (1994).
“A finding is clearly erroneous if the reveiwing court, after
lla
duly acknowledging the superior proximity of the factfinder
to the witnesses is firmly convinced that the finding is er-
roneous.” Santa Fe, 22 F.3d at 727, citing Concrete Pipe
& Products, Inc. v. Construction Laborers Pension Trust,
113 S. Ct. 2264, 2279-80 (1993). The arbitrator’s legal
conc.usions are reviewed de novo. Crown Cork & Seal
Co. v. Central States Southeast & Southwest Areas Pen-
sion Fund, 982 F.2d 857, 860 (3d Cir. 1992), cert.
denied, 113 S. Ct. 2961 (1993).
B. Evade or Avoid Liability
The arbitrator found that Tiger is not liable for the
unfunded vested pension obligations of Hall’s because
evading such liability was not a principal purpose of
the sale of Hall’s. The Philadelphia Fund raises three
challenges to the arbitrator’s conclusions on this issue.
First, the Fund contends that the arbitrator erred as a
matter of law by not applying the correct presumptions
to the determination of the plan sponsor. Second, the
arbitrator erred as a matter of law by focusing on whether
Tiger had any other plausible reasons for selling Hall’s,
rather than on whether avoiding withdrawal liability was a
principal purpose of the transaction. Finally, the Fund
argues that the arbitrator’s factual conclusions are clearly
erroneous.
1. The Statutory Scheme
Under the Multiemployer Pension Plan Amendments
Act of 1980 (“MPPAA”). which amended the Employee
Retirement Income Security Act (“ERISA”), participating
employers contribute to a common fund for employee
pensions. Each employer contributes in amounts deter-
mined through the collective bargaining process. The
pension plan is administered by trustees, half of whom
are selected by the employers and half selected by the
union. To protect the othe: employers as well as the
pensions themselves, the MPPAA imposes liability for
° n
_ 12a
unfunded benefits on an employer who withdraws from a
plan. The statute defines withdrawal as occurring “when
an employer (1) permanently ceases to have an obliga-
tion to contribute under the plan, or (2) permanently
ceases all covered operations under the plan.” 29 U.S.C.
§ 1381. The MPPAA provides several exceptions to the
imposition of liability upon withdrawal from a plan, in-
cluding § 1398, which provides that liability shall not
be imposed in the case of a mere change in corporate
structure which does not interrupt the employer’s
contributions.
The MPPAA also sets out a crucial exception to the
exceptions, providing that “[i]f a principal purpose of any
transaction is to evade or avoid liability under this part,
this part shall be applied (and liability shall be determined
and collected) without regard to such transaction.” 29
U.S.C. § 1392(c). Therefore, if the sale of Hall’s was
undertaken principally to avoid MPPAA liability, with-
drawal liability would properly be assessed against Tiger
as if it had never sold Hall’s to the Podford management
group.
2. Deference to the Plan Sponsor’s Conclusions
ERISA requires arbitrators to accord deference to the
factual determinations and accounting assumptions of the
plan sponsor. 29 U.S.C. § 1401(a)(3). This section
States that an arbitrator shall presume correct any deter-
mination made by a plan sponsor “unless the party con-
testing the determination shows by a preponderance of
evidence that the determination was unreasonable or
clearly erroneous.” As interpreted by the Supreme Court
in Concrete Pipe, this section “plac[es] the burden of
persuasion as to historical fact on the employer.” Con-
crete Pipe, 113 S. Ct. at 2282. The employer has the
burden of disproving the plan sponsor’s conclusions by a
preponderance of evidence . Id. at 2283.
13a
The Philadelphia Fund contends that the arbitrator
erred as a matter of law in deciding that evading with-
drawal liability was not a primary purpose of the sale
of Hall’s. It is a question of law, the Fund maintains,
because the arbitrator failed to apply the presumption
of correctness required by 29 U.S.C. § 1401(a)(3). To
support this claim, however, the Fund simply argues its
version of the facts. The essence of this argument is that
the arbitrator must have applied the wrong standard be-
cause he reached the “wrong” conclusion. This court
finds that the arbitrator did correctly articulate the pre-
sumption and burden of proof, and there is no indication
that he did not fully understand and apply them in this
case. Therefore, the court concludes that the arbitrator
did not err as a matter of law by failing to apply, or by
incorrectly applying, the presumption of correctness re-
quired by § 1401 (a) (3).
3. The Statutory Standard
The Philadelphia Fund contends that the arbitrator
erred as a matter of law by incorrectly interpreting § 1392
(c). This section provides that where a primary purpose
of a transaction is evasion or avoidance of withdrawal
liability, that transaction shall be disregarded when as-
sessing such liability. According to the Philadelphia
Fund, the arbitrator considered only whether Tiger had
any legitimate reasons to sell Hall’s. This analysis was
erroneous, the Fund maintains, because the statute re-
quires only that evasion be a primary purpose for the
transaction, not the primary purpose.
In deciding this issue, the arbitrator correctly relied on
Dorn’s Transportation, Inc. v. Teamsters Pension Trust
Fund of Philadelphia & Vicinity, 787 F.2d 897 (3d Cir.
1986).* The facts of Dorn’s are similar to the present
8 The arbitrator also noted that this provision has not been
widely applied, and has usually been construed narrowly. See, e.g.,
Cuyamaca Meats, Inc. v. San Diego & Imperial Counties Butchers’
14a
case. In Dorn’s, a trucking business was sold to a com-
pany that had identical collective bargaining agreements
with the union pension plan. The buyer company con-
tinued contributions until it went bankrupt. The pension
fund attempted to assess withdrawal liability against the
seller, claiming that the sale was made for the purpose
of avoiding liability. The court held that the seller was
not liable under § 1392, because “when the seller enters
a transaction to escape liability, but the buyer has no
intention of taking subsequent actions that will reduce
the payments owing to the Plan, it does not appear that a
‘principal purpose of the transaction’ as a whole is to
escape liability.” Dorn’s, 787 F.2d at 902.
The court in Dorn’s was able to decide the issue of
evade or avoid liability as a matter of law because there
was no evidence that the buyer even knew oi the seller’s
potential withdrawal] liability. Therefore, in the absence
of a material fact issue, the court could decide the issue
without sending the case to arbitration. Id. at 902-03.*
In this case, in contrast, there were disputed issues of
material fact, and there is evidence to support either
inference on the issue of the buyer’s intent. The arbitrator
found as a factual matter that HAC did not have any
intent to aid Tiger in avoiding withdrawal liability. He
concluded that the evidence, rather than supporting the
inference of collusion, indicated a confrontational rela-
tionship between Bodford and Tiger’s management. Alter-
natively, recognizing that the Philadelphia Fund main-
& Food Employers’ Pension Trust Fund, 827 F.2d 491 (9th Cir.
1987), cert. denied, 485 U.S. 1008 (1988) (an employer’s attempt
to minimize the amount of withdrawal liability did not constitute
an attempt to evade or avoid under § 1392(c)).
The Philadelphia Fund argues that Dorn’s is inapplicable to
this case because the Third Circuit subsequently limited the hold-
ing to the facts of that case. The Third Circuit did limit Dorn’s
to its particular factua! circumstances, but only on the issue of
when an ERISA dispute may avoid arbitration. Flying Tiger Line
v. Teamsters Pension Trust Fund, 830 F.2d 1241 (3d Cir. 1987).
15a
tained that Dorn’s did not apply, the arbitrator made a
Specific factual finding that evading withdrawal liability
was not a primary purpose of the transaction for either
party. The issue of evade or avoid liability, therefore,
was decided as an issue of fact by the arbitrator and
Should be reviewed by this court for clear error.
4. The Arbitrator’s Factual Findings
The Philadelphia Fund argues that the overwhelming
weight of the evidence points to an intent to evade with-
drawal liability. Specifically, the Fund argues that such
intent is reflected by the low purchase price, the large
amount of liability that Tiger was facing, the likelihood
that Hall’s would fail, Tiger’s willingness to give Bodford
its remaining 25% stake in Hall’s, and what the Fund
argues was a collusive relationship between Bodford and
Tiger’s management. In addition, the Fund focuses on
several “smoking guns,” which it contends establish both
awareness of the potential MPPAA liability and an intent
to avoid liability through the sale of Hall’s. (See D.I.
254 at 6171-73)
To support its factual arguments, the Philadelphia
Fund relies heavily on Santa Fe Pacific Corp. v. Central
States, Southeast & Southwest Areas Pension Fund, 22
F.3d 725 (7th Cir. 1994). In Santa Fe, as in this case,
there were two possible means of disposing of a troubled
trucking subsidiary. One was an asset Sale; the other, a
sale of stock. In both Santa Fe and this case, the evidence
established that an asset sale would have been more
profitable to the parent company but for the potential
withdrawal liability. In Santa Fe, the arbitrator made
® An asset sale does not fal! under the change in corporate struc-
ture exception of § 1398. It is governed instead by 29 U.S.C.
§ 1384, which requires the seller to post a bond or escrow for all
current withdrawal liability plus one year’s contributions. More
significantly, the section imposes secondary withdrawal liability
on the seller if the buyer withdraws from the plan within five
years of the sale.
l6a
no findings on other possible reasons for the sale struc-
ture chosen, and apparently ignored or discounted docu-
ments which left no room for doubt that the company
was aware of the withdrawal liability issue and had even
considered “ ‘desperation moves,’ including ‘selling [the
subsidiary] to someone in trouble.’” Jd. at 729. The
appellate court found the “arbitrator’s treatment of these
issues [to be] entirely inadequate” and concluded, con-
trary to the arbitrator, that a principal purpose for the
sale was to avoid withdrawal liability. Jd.°
In contrast, the arbitrator in this case made explicit
findings on each one of the Fund’s contentions. He con-
cluded that although the asset sale might have turned out
to have netted more for Tiger, there were other plausible
reasons for structuring the transaction as a sale of stock,
most importantly the belief that Hall’s could eventually
be turned around as a going concern under new manage-
ment. This conclusion was bolstered by the fact that
Tiger retained a 25% interest in Hall’s. “[A]s long as
Hall’s was losing money,” the arbitrator reasoned, “Tiger,
as 100% owner, had no prospect either of collecting on
its [$12 million intercompany] debt or receiving profits.
If, however, . . . Hall’s had more favorable prospects for
returning to profitability under other ownership, then the
potential return to Tiger from the sale obviously far
exceeded Bodford’s $1,000.” (D.I. 254 at 6205) The
arbitrator also found specific support for this conclusion
in the apparently widespread belief that a non-Tiger con-
trolled Hall’s had a better chance of negotiating wage
concessions in exchange for an ESOP, and thus returning
Hall’s to profitability.
6 The Fund also urges this court to adopt the Sania Fe court’s
legal ruling that a finding of evade or avoid liability depends en-
tirely on the seller’s motives. Significantly, this ruling is not con-
trolling law in this circuit. Rather, this court must accept the
interpretation set out in Dorn’s, that escaping withdrawal liability
can only be a primary purpose of the transaction as a whole where
both buyer and seller have that intent.
17a
As for the “smoking guns,” the arbitrator found that
although Tiger, HAC, Whit Lee, and others involved in
the deal all seemed to be aware of MPPAA liability, there
was nothing to connect that awareness to an evasive
intent. He could find “nothing sinister about a business
manager being aware that certain actions—such as down-
sizing portions of the operation—might trigger withdrawal
liability, or that potential purchasers might have some
reluctance about acquiring a company which is subject
to such a contingent liability.” (D.I. 254 at 6203 )
The court agrees with this conclusion, and again finds
this case distinguishable from Santa Fe. None of the
documents pointed to by the Fund makes an explicit
Statement of the type found in Santa Fe that the potential
liability might lead to “selling to someone in trouble.”
The Fund also focused on the timing of the sale as
evidence that Tiger’s true reason for selling was avoid-
ance of MPPAA liability. It points out that Tiger was
planning a public offering of preferred stock in early
1985, and that by selling Hall’s before the end of the
year, the subsidiary’s potential withdrawal liability, and
‘ts triggering effect under the Override Agreement, did
not have to appear in the registration statement. In so
arguing, the Fund appears to equate avoidance of report-
ing potential withdrawal liability with avoidance of the
liability itself. Only the latter is Sanctioned by § 1392.
Furthermore, the arbitrator addressed the Fund’s con-
tentions and concluded that the sale was timed so as to
enable Tiger to report that it had disposed of an un-
profitable subsidiary. The arbitrator noted that even
after the sale, Tiger’s registration statement included
Hall’s potential withdrawal liability as if it were still
Tiger’s. The registration statement also contained no
mention of the other default-triggering events covered in
the Override Agreement. The arbitrator concluded that
he was “unable to read this evidence as establishing that
Tiger was attempting to avoid a further disclosure—the
relationship between the Override Agreement and with-
18a
drawal liability—that all of the other evidence indicates
that Tiger was very unlikely to have considered providing
in any event.” (D.I. 254 at 6197-6202) The Fund has
not met its burden of showing that this conclusion is
erroneous.
With respect to Tiger’s transfer of its retained 25%
interest to Bodford a year after the sale, the arbitrator
noted that Bodford specifically threatened Tiger with the
redemption of his 75% interest, which would make Tiger
the sole owner of a company whose fortunes had taken
a dramatic turn for the worse.” He concluded that “[t]he
fact that Tiger so acted ‘because of [MPPAAI]’ . . . does
not, as the Fund suggests, demonstrate that Tiger had
acted for the same reason a year earlier when it made
the original transfer to HAC.” (D.I. 254 at 6209) The
court agrees with this assessment. Bodford’s letter threat-
ening to redeem his interest in Hall’s does not support a
finding that the initial sale was made for the purpose of
evading liability. (Exhibit 326, Joint Appendix at 3425-
26) In addition, the acrimonious tone of the correspond-
ence belies any inference of collusion.
The court, therefore, is not convinced that the arbitrator
erred in his finding that the sale of Hall’s was not under-
taken to evade or avoid MPPAA liability.
C. Accrual Liability
The Philadelphia Fund has set forth an alternative
theory of recovery, that of accrual liability. According to
this theory, even after a subsidiary is sold, the parent
company (or any member of the controlled group as
defined by 29 U.S.C. § 1301(b)) remains liable for the
“debt” to the pension fund accrued up to the year of the
sale, until such debt is fully amortized. The arbitrator,
relying on a number of cases in which the theory had been
7 MPPAA imposes liability, by reference to the Internal Revenue
Code, on owners of at least ©" 4 of the corporation’s stock. 29
U.S.C. § 1801; I.R.C. § 1563,
19a
rejected in similar contexts, refused to impose withdrawal
liability on Tiger based on the accrual theory. (D.I. 254
at 6210-17) Because the accrual theory is an issue of
law, the court will review the arbitrator’s decision de
novo.
ERISA provides that “all employees of trades or busi-
nesses . . . which are under common control shall be
treated as employed by a single employer and all such
trades and businesses as a single employer.” 29 U.S.C.
§ 1301(b). Section 1398 provides that in the case of a
change in corporate structure, “a successor or parent
corporation or any other entity resulting from any such
change shali be considered the Original employer.” The
Philadelphia Fund contends that when a controlled group
splits up, as in the sale of a subsidiary, all of the original
members of the group remain “original employers,” and
each, therefore, retains a contingent liability for the with-
drawal of any of the other members. The original mem-
bers are responsible for the amount of the withdrawal
liability that was “accrued” up to the time the group
split up.
As noted by the arbitrator, several courts have analyzed
and rejected the accrual liability theory. Teamsters Pen-
sion Trust Fund of Philadelphia & Vicinity v. Central
Michigan Trucking, Inc., 857 F.2d 1107, 1109-10 (6th
Cir. 1988); Godchaux v. Conveying Techniques, Inc.,
846 F.2d 306 (Sth Cir. 1988); Teamsters Pension Trust
Fund of Philadelphia & Vicinity v. Headley’s Express &
Storage Co., 1993 WL 18933 (E.D. Pa. June 3, 1993).
These cases reveal two flaws in the accrual liability theory.
The first concerns the Fund’s definition of the employer;
the second involves the Fund’s determination of when
withdrawal liability arises.
The Fund bases its interpretation of who is liable for
the withdrawal of a former member of a controlled group
in part on analogy to certain provisions of the Internal
Revenue Code and corresponding regulations concerning
20a
controlled groups. 26 U.S.C. §414(c); 26 C.F.R.
§§ 1.1502-6(b), 1.1502-77(b). However, as the Sixth
Circuit noted in Central Michigan Trucking, 857 F.2d
at 1111 (6th Cir. 1988), the cited Internal Revenue Code
provisions are not among those explicitly incorporated
into the ERISA/MPPAA statute. “Absent such an ex-
press provision, tax precepts governing successorship are
not dispositive of the meaning of MPPAA’s successorship
provision.” Jd. The Fund’s theory also does not fit the
plain meaning of § 1398:
Terming the spun-off company as the “original em-
ployer” clearly shows that under MPPAA the new
employment entity will be deemed the original em-
ployer, consequently only that employer and any
control group to which it belongs at the time of with-
drawal will be responsible for withdrawal liability.
Id. at 1109. The Sixth Circuit noted further that neither
the statutory scheme of MPPAA nor the legislative his-
tory supports the Fund’s definition of “original employer.”
Rather, when a subsidiary is sold, the control group as a
single employer ceases to exist. The spun-off company,
and any new control group of which it becomes a part,
becomes the “original employer” and is solely responsible
for any withdrawal by the spun-off company. /d. at 1109-
10.
The accrual theory is also flawed in its interpretation
of when liability for withdrawal arises. The Fund argues
that liability accrues over time, before actual withdrawal,
whenever the plan to which an employer contributes de-
velops unfunded vested liabilities. The section of MPPAA
that defines withdrawal liability, however, does not sup-
port this reading: “If an employer withdrawals from a
multiemployer plan in a complete withdrawal or a partial
withdrawal, then the employer is liable to the plan in the
amount determined under this part to be the withdrawal
liability.” 29 U.S.C. § 1381(a). See Godchaux, 846 F.2d
at 310. In addition, a plan’s unfunded vested liability can
2la
vary greatly from year to year, depending on factors such
as how well the plan is managed or changes in benefits.
Id. at 311. It is not something that accrues steadily, nor
is it a fixed amount that can be amortized over time.
The court, therefore, adopts the analysis of the Fifth
and Sixth Circuits, and concludes that the accrual liability
theory is invalid under ERISA/MPPAA.
IV. CONCLUSION
For the reasons stated above, the court concludes that
the arbitrator did not err in his legal or factual determi-
nations. The motion to enforce the arbitrator’s award,
therefore, will be granted, and the motion to vacate will
be denied. An order consistent with this memorandum
Opinion will issue.
22a
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
Civil Action Nos. 86-304; 94-017; 94-033;
94-112; and 94-130-SLR
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY, —TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY, and
CHARLES J. SCHAFFER, JR., its administrator and fidu-
Clary, Plaintiffs,
v.
FEDERAL EXPRESS CORPORATION, THE FLYING TIGER
LINES, INC., WARREN TRANSPORT, INC., and TIGER
N °
INTERNATIONAL, INC., Defendants,
and
FEDERAL EXPRESS CORPORATION, THE FLYING TIGER
LINE, INC., WARREN TRANSPORT, INC., and TIGER
ERNATIONAL, INC., —
INTERNATI . Plaintiffs,
V.
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY, TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY, and
CHARLES J. SCHAFFER, JR., its administrator and fidu-
clary, Defendants.
ORDER
At Wilmington this 27th day of December, 1995, con-
sistent with the memorandum opinion issued this same
date;
23a
IT IS ORDERED that the motions by Flying Tiger
Line et al. to enforce the arbitrator’s award (D.I. 229,
232) are granted, and the motions by the Teamsters Pen-
sion Trust Fund to vacate or modify the arbitrator’s award
and order, and to stay proceedings pending review (D.I.
225, 226, 234) are denied. The motion by Federal Ex-
press Corp. et al. for leave to file a surreply brief (D.I.
266) is granted.
/s/ Sue L. Robinson
SUE L. ROBINSON
United States District Judge
24a
APPENDIX C
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-7050
THE FLYING TIGER LINE, INC., a Delaware corporation;
TIGER INTERNATIONAL, INC., a Delaware corporation;
WARREN TRANSPORT, INC., an [owa corporation;
VS.
CENTRAL STATES, SOUTHWEST AND SOUTHEAST AREAS
PENSION FUND, a multiemployer pension plan; TEAM-
STERS PENSION TRUST FUND OF PHILADELPHIA AND
VICINITY, a multiemployer pension fund; WESTERN
PENNSYLVANIA TEAMSTERS AND EMPLOYERS PENSION
FUND, a multiemployer pension plan; TEAMSTERS
LocaL 641 PENSION FUND, a multiemployer pension
plan; TRUCKING EMPLOYEES OF NORTH JERSEY WEL-
FARE FUND, a multiemployer pension plan; CENTRAL
PENNSYLVANIA TEAMSTERS PENSION FUND, a multi-
employer pension plan, each sued individually and as
a member of a class of similarly situated multiemployer
pension plans who assert withdrawal liability, against
Hall’s Motor Transit Company, Under the Miulti-
employer Pension Plan Amendments Act of 1980
(D.C. No. 86-cv-00304)
TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA AND
VICINITY; THE TRUSTEES OF TEAMSTERS PENSION
25a
TRUST FUND oF PHILADELPHIA AND VICINITY;
CHARLES J. SCHAFFER, JR., its administrator and fidu-
ciary
VS.
FEDERAL EXPRESS CORPORATION; THE FLYING TIGER
LINES, INC.; WARREN TRANSPORT, INC.: TIGER IN-
TERNATIONAL
D.C. No. 94-cv-00017)
FEDERAL EXPRESS CORPORATION; THE FLYING TIGER
LINE, INC.; WARREN TRANSPORT, INC.: TIGER IN-
TERNATIONAL
VS.
TEAMSTERS PENSON TRUST FUND OF PHILADELPHIA AND
VICINITY; THE TRUSTEES @F TEAMSTERS PENSION
TRUST FUND oF PHILADELPHIA AND VICINITY;
CHARLES J. SCHAFFER, JR.
(D.C. No. 94-cv-00033 )
FEDERAL ExpREss CORPORATION; THE FLYING TIGER
LINES, INC.; WARREN TRANSPORT, INC.: TIGER IN-
TERNATIONAL
VS.
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY; TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA; CHARLES J. SCHAFFER,
JR., its administrator
(D.C. No. 94-cv-00112)
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY; TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY; CHARLES
J. SCHAFFER, JR., its administrator and fiduciary
VS.
26a
FEDERAL EXPRESS CORPORATION; THE FLYING TIGER
LINES, INC.; WARREN TRANSPORT, INC.; TIGER IN-
TERNATIONAL
(D.C. No. 94-cv-00130)
THE TRUSTEES OF TEAMSTERS PENSION TRUST FUND OF
PHILADELPHIA AND VICINITY; —TEAMSTERS PENSION
TRUST FUND OF PHILADELPHIA AND VICINITY; CHARLES
J. SCHAFFER, JR., its Administrator and fiduciary,
Appellants
SUR PETITION FOR REHEARING
PRESENT: SLOVITER, Chief Judge, BECKER,
STAPLETON, MANSMANN, GREENBERG,
SCIRICA, COWEN, NYGAARD, ALITO, ROTH,
_EWIS, and McKEE, Circuit Judges.
The petition for rehearing filed by the appellants in
the above-entitled case having been submitted to the judges
who participated in the decision of this court and to all
other available circuit judges in regular active service,
and no judge who concurred in the decision having asked
for rehearing, and a majority of the circuit judges in
regular active service not having voted for rehearing by
the court in banc, the petition for rehearing is denied.
BY THE CouRT,
s/ Timothy K. Lewis
TIMOTHY K. LEwIs
Circuit Judge
Date: Oct. 21, 1996
27a
APPENDIX D
[Logo]
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
of Philadelphia and Vicinity
Fourth and Cherry Streets
Philadelphia, Pennsylvania 19106
Walnut 3-6300
January 20, 1988
Flying Tiger Line, Inc.
7401 World Way West
Los Angeles, CA 90009
RE: Withdrawal Liability
Contributing Business: Hall’s
Motor Transit Company
Gentlemen:
We have determined that the employer(s) including
Hall’s Motor Transit Company effected a complete with-
drawal from the Teamsters Pension Trust Fund of Phila-
delphia and Vicinity (the Fund) during the 1987 Plan
Year by permanently ceasing covered operations. As
required under the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA), as amended by
the Multiemployer Pension Plan Amendments Act of
1980 (the Act), we hereby make demand for payment
of withdrawal liability.
The Board of Trustees resolved to apply the “presump-
tive” allocation method described in Section 4211(b)
of the Act. Based on the formula set forth in this Section,
we have computed total withdrawal liability due the Fund
to be in the amount of $2,100,228.40. Under Section
4219(c)(1)(C) (i), the employer(s) owe annual pay-
ments of $424,027.08, with the first payment due as of
January 1, 1988. Attached is a schedule which summar-
28a
izes the determination of the withdrawal liability and the
annual payment amount.
The annual payments must be paid in equal quarterly
installments. (See Section 4219(c)(3).) Thus, liability
payments are due on the first day of each calendar quarter
throughout the amortization period until the liability is
satisfied in full. The employer(s) is required to make a
total of 23 quarterly installments to the Fund, each in
the amount of $109,084.90, and a final partial quarterly
installment equal to $82,903.81.
In lieu of installment payments, an employer may pre-
pay the outstanding amount of withdrawal liability, plus
accrued interest, in whole or in part at any time without
penalty. An employer(s) is required to begin payment of
the quarterly installments described above no later than
sixty (60) days after the date of this demand, notwith-
Standing any request or appeal, which you have the right
to make, as described below. Accordingly, the first pay-
ment is due to the Fund 60 days after the date of this
letter, in the amount of $109,085.90, which includes one
back payment.
If an employer fails to make a payment when due,
interest on the payment shall accrue from the due date
until the date on which the payment is made. In addi-
tion, in the event of default in payments, the Fund is
entitled to require immediate payment of the total out-
Standing amount of withdrawl liability plus interest ac-
crued on the total outstanding liability from the due date
of the first payment which is not timely made. Interest
on the overdue liability payments will be charged at the
prevailing market rates for comparable obligations or at
higher rates in the event of litigation.
We have determined that you were under common
control with Hall’s Motor Transit Company in the period
from September 26, 1980 to at least the date of a claimed
“corporate reorganization” by division under Section 4218
ee
29a
of the Act. Section 4218 of the Act provides that the
successor in a corporate reorganization will be treated as
the original employer. The successor in a division is
defined by reference to Section 4062(d) of ERISA (as in
effect in 1980) to encompass all corporations or employers
resulting from the division. As part of a successor to the
employer resulting from a claimed “division” of the former
group of trades or businesses under common control, you
remain an “employer” liable for unamortized withdrawal
liability incurred during the period of common control.
The entire amount of unamortized withdrawal liability
in this instance was incurred under the statute and “pre-
sumptive method” in the period September 26, 1980 to
1984. Your liability and payment schedule accordingly
follow the schedule set forth above. This moots the issue
of a potential continuation of common control past Janu-
ary, 1985. Based on available information, the Fund would
otherwise determine that common control continued to
the date of withdrawal by reason of either actual or con-
structive ownership of Hall’s Sectior 4212(c) of the Act.
This determination is addressed and applicable to you
and your affiliates under common control in the period
September 26, 1980 to December 31, 1984, including:
Warren Transport, Inc.
Tiger Leasing Group
Tiger Air, Inc.
Tiger International, Inc.
This demand is not applicable to Hall’s and other debtor
entities to the extent prohibited by the Bankruptcy Code.
You have the right to request a review of the deter-
mination described in this letter. In this regard, within
90 days after receipt of this letter, you may, in writing:
(1) Ask the undersigned to review any specific mat-
ter relating to the determination of liability and
the schedule of payments.
30a
(2) Identify any inaccuracy in-the determination of
the amount of unfunded vested benefits allocable
to an employer.
(3) Furnish any additional relevant information to
the undersigned.
After review of such matters submitted in a timely man-
ner, the Board of Trustees will notify you of its decision,
the basis for the decision and the reason for any change
in the determination of withdrawal liability or the payment
scheduled. Failure to request a review in writing within
90 days, as set forth above, shall make the determination
herein final.
Very truly yours,
/s/ Charles J. Schaffer, Jr
CHARLES J. SCHAFFER, JR.
Administrator
CJS:djh
Enclosures
cc: Douglas Broadwater, Esq.
James Pack, Esq.
Kent Cprek, Es.
Hall’s Motor Transit Co., Inc.
Other Listed Affiliates
Employers Name
Firm Number
3la
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
Address
City/State
ZIP
Withdrawal Date
Halls Motor Transit
18-3774, 18-3775, 81-3776, 81-3777,
1987 Withdrawal
WITHDRAWAL LIABILITY CALCULATION SUMMARY
Part I
Part II
Part ITI
Part IV
Part V
Part VI
Part VII
Part VIII
Part IX
Part X
Part XI
Part XII
Part XIII
Part XIV
Part XV
Total Unfunded Vested Liability
De Minimis (If Applicable)
Net Withdrawal Liability
Prepared By ——_—___) A.B.
$1,103,310.54
$271,969.23
$1,786.27
$303,541.16
$10,772.69
$86,561.04
$9,145.20
$157,079.87
$11,146.03
$317,727.84
$11,197.70
($112,817.69)
$12,631.21
($92,730.98)
$8,908.27
$2,100,228.40
$0.00
$2,100,228.40
Date 10/14/87
32a
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
PartI Share of Unfunded Vested Liability
. Total Contributions Required for
Five Years Ended 12/31/79 $619,776.37
. Total Contributions for All Participating
Employers for Five Years Ended
12/31/79 $99,865,122.10
. Unfunded Vested Benefit Liability of Fund
1. As of 12/31/79 $273,509,641.00
2. Unamoritized Amounts as of 12/31/86
(Item C.1. less 35 pct.) $177,781,266.65
. Employer’s Share of Unfunded Vested
Liability (A Divided by B X L.C. 2) $1,103,310.54
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
PartII Share of Change in Unfunded
Vested Liability for 1980
A. Total Contributions Required
for Five Years Ended 12/31/80 $815,214.47
. Total Contributions for All Participating
Employers for Five Years Ended
12/31/80 $118,492,735.88
. Change (+ or —) in Unfunded Vested
Benefit Liability
1. 12/31/79 to 12/31/80 $56,472,016.00
2. Unamortized as of 12/31/86
(Item C. 1 Less 30 Pct.) $39,530,411.20
. Employer’s Share of Unfunded ;
Vested Liability-1980 $271,969.23
33a
Part III Share of Reallocated Unfunded
Vested Benefit Liability for 1980
. Total Amounts of “De Mininis” Offsets
Allowed to Employers Who Withdrew in
1980, and Other Amounts Determined
by Trustees in 1980 to Be Uncollectable
1. As of 12/31/80 $370,903.45
2. Unamortized Amt as of 12/31/86
(Item III.A. Less 30 Pct) $259,632.42
. Employer’s Share of Reallocated
Unfunded Vested Benefit Liability—1980 $1,786.27
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
PartIV Share of Change in Unfunded
Vested Liability for 1981
. Total Contributions Required for
Five Years Ended 12/31/81 $1,000,648.19
. Total Contributions for All Participating
Employers for Five Years Ended
12/31/81 $128,460,433.53
. Change (+ or —) in Unfunded Vested
Benefit Liability
1. 12/31/80 to 12/31/81 $51,953,986.00
2. Unamortized Amounts as of 12 31/86
(Item C.1. Less 25 Pct.) $38,965,489.50
. Employer’s Share of Unfunded
Vested Liability—1981 $303,541.16
D
34a
Part V Share of Reallocated Unfunded
Vested Benefit Liability for 1981
Total Amounts of “De Mininis” Offsets
Allowed to Employers Who Withdrew in
1981, and Other Amounts Determined
by Trustees in 1981 to Be Uncollectable
1. Asof 12/31/81 $1,843,849.54
2. Unamortized Amt as of 12/31/86
(Item V.A. Less 25 Pct.) $1,382,887.16
. Employer’s Share of Reallocated
Unfunded Vested Benefit Liability—1981 $10,772.69
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
Part VI Share of Change in Unfunded
Vested Liability for 1982
Total Contributions Required for
Five Years Ended 12/31/82 $1,160,518.72
. Total Contributions for All Participating
Employers for Five Years Ended
12/31/82 $135,567,265.92
. Change (+ or —) in Unfunded Vested
Benefit Liability
1. 12/31/81 to 12/31/82 $12,640,339.00
2. Unamortized as of 12/31/86
— (Item C.1. Less 20 Pct.) $10,112,271.20
Employer’s Share of Unfunded
Vested Liability—1982 $86,561.04
ae ee bbaisb
Ty mae at chars DiaeT eanlogen Neebad
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PO MBSER SALEM BRR E IN ARIE NE tS. LL EN Eg
TC eer eae
B. Employer’s Share of Reallocated
A. Total Contributions Required for
B. Total Contributions for All Participating
C. Change (+ or —) in Unfunded Vested
35a
Part VII Share of Reallocated Unfunded
Vested Benefit Liability for 1982
A. Total Amounts of “De Mininis” Offsets
Allowed to Employers Who Withdrew in
1982, and Other Amounts Determined
by Trustees in 1982 to Be Uncollectable
l. As of 12/31/82 $1,385,455.52
2. Unamortized Amt as of 12/31/86
(Item VII.1.Less 20 Pct.) $1,068,364.42
Unfunded Vested Benefit Liability—1982 $9,145.20
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
Part VIII Share of Change in Unfunded
Vested Liability for 1988
Five Years Ended 12/31/83 $1,318,980.36
Employers for Five Years Ended
12/31/83 $145,393,034.90
Benefit Liability
1. 12/31/82 to 12/31/83 $20,370,354.00
2. Unamortized as of 12/31/86
(Item C.1 Less 15 Pct.) $17,314,800.90
. Employer’s Share of Unfunded
Vested Liability—1983 $157,079.87
36a
Part IX Share of Reallocated Unfunded
Vested Benefit Liability for 1983
. Total Amounts of ‘“‘De Mininis” Offsets
Allowed to Employers Who Withdrew in
1983, and Other Amounts Determined
by Trustees in 1983 to Be Uncollectable
1. Asof 12/31/83 $1,445,433.52
2. Unamortized Amt as of 12/31/86
(Item IX.A. Less 15 Pct.) $1,228,618.49
. Employer’s Share of Reallocated
Unfunded Vested Benefit Liability—1983 $11,146.03
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
Part X Share of Change in Unfunded
Vested Liabilitv for 1984
. Total Contributions Required for
Five Years Ended 12/31/84 $1,416,485.37
. Total Contributions for All Participating
Employers for Five Years Ended
12/31/84 $154,581,799.58
. Change (+ or —) in Unfunded Vested
Benefit Liability
1. 12/31/83 to 12/31/84 $38,527,877.00
2. Unamortized as of 12/31/86
(Item C.1 Less 10 Pct.) $34,675,089.30
. Employer’s Share of Unfunded
Vested Liability—1984 $317,727.84
37a
Part XI Share of Reallocated Unfunded
Vested Benefit Liability for 1984
A. Total Amounts of “De Mininis” Offsets
Allowed to Employers Who Withdrew in
1984, and Other Amounts Determined
by Trustees in 1984 to Be Uncollectable
1. As of 12/31/84 $1,357,839.98
2. Unamortized Amt as of 12/31/86
(Item X.A. Less 10 Pct.) $1,222,055.98
. Employer’s Share of Reallocated
Unfunded Vested Benefit Liability—1984 $11,197.70
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
Part XII Share of Change in Unfunded
Vested Liability for 1985
Total Contributions Required for
Five Years Ended 12/31/85 $1,458,643.20
Total Contributions for All Participating
Employers for Five Years Ended
12/31/85 $161,336,529.68
. Change (+ or —) in Unfunded Vested
Benefit Liability
1. 12/31/84 to 12/31/85 ($13,135,213.00)
2. Unamortized as of 12/31/86
(Item C.1 Less 5 Pct.) ($12,478,452.35)
Employer’s Share of Unfunded
Vested Liability—1985 ($112,817.69)
38a
Part XIII Share of Reallocated Unfunded
Vested Benefit Liability for 1985
. Total Amounts of “De Mininis’’ Offsets
Allowed to Employers Who Withdrew in
1985, and Other Amounts Determined
by Trustees in 1985 to Be Uncollectable
1. Asof 12/31/85 $1,470,634.97
2. Unamortized Amt as of 12/31/86
(Item X.A. Less 5 Pct.) $1,397,103.22
. Employer’s Share of Reallocated
Unfunded Vested Benefit Liability—1985 $12,631.21
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
Part XIV Share of Change in Unfunded
Vested Liability for 1986
. Total Contributions Required for
Five Years Ended 12/31/86 $1,186,143.92
. Total Contributions for All Participating
Employers for Five Years Ended
12/31/86 $171,202,708.27
. Change (+ or —) in Unfunded Vested
Benefit Liability
1. 12/31/85 to 12/31/86 ($13,384,956.00)
2. Unamortized as of 12/31/86
(Item C.1 Less 0 Pct.) ($13,384,956.00)
. Employer’s Share of Unfunded
Vested Liability—1986 ($92,730.98)
i dateeag inl Sian inant
39a
Part XV_ Share of Reallocated Unfunded
Vested Benefit Liability for 1986
A. Total Amounts of “De Mininis” Offsets
Allowed to Employers Who Withdrew in
1986, and Other Amounts Determined
by Trustees in 1986 to Be Uncollectable
1. As of 12/31/86
2. Unamortized Amt as of 12/31/86
(Item X.A. Less 0 Pet.)
B. Employer’s Share of Reallocated
Unfunded Vested Benefit Liability—1986
A. Plan Year Ending 1980 ———_-)
B. Plan Year Ending 1981 )
C. Plan YearEnding 1982 )
D. Total During 3 Highest =
E. Average=
1 Highest Average Annual # of Days
Worked Over Three Consectuive Years. —
2 Highest Contribution Rate to Date PF
Withdrawal, )
3 Amount of Each Annual Payment. =
4 Number of Annual Payment (If) 20 then 20) =
5 Amount of Final Installment. :
6 Amount of Each Quarterly Payments:
7 Number of Full Quarterly Payments =
8 Amount of Fina] Quarterly Installments
$1,285,835.79
$1,285,835.79
$8,908.27
31009
29233
26888
87130
29043.33
29043
$14.60
$424,027.80
5
$399,314.52
$109,085.90
23
$82,903.81
40a
Withdrawal Liability (ML) ) $2,100,228.40
Annual Payment (AP) = $424,027.80
I) Number of Full Year Payments. = 4,9530441164
4.312127
N= 5
V-N= 0.680583
II) Amount of Last Partial Annual Payments (PA)
PA= (WL- (AP+A-))/V-N= $399,314.52
III) Determine the Amount of Each Full
Quarterly Payments. = AP/3.8871= $109,085.90
IV) Determine Number of Full Quarterly
Payments in Last Year (NQ) = 3
V) Amount of Last Partial Quarterly Payment
PQ=:
If NQ=0 Then PQ=PA 0
If NQ=1 Then PQ=PA-—Q) /.9809 0
If NQ=2 Then PQ= (PA -— (1.9809 +Q) ) /9623) 0
If NQ=3 Then PQ= (PA— (2.9482 + Q) /9439) 82903.80536
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4la
[Logo]
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
Fourth and Cherry Streets
Philadelphia, Pennsylvania 19106
Walnut 3-6300
December 2, 1988
James A. Cronin, III
Tiger International Corporation
The Flying Tiger Line, Inc.
7401 World Way West
Los Angeles, CA. 90009
Re: Withdrawal Liability
Contributing Business: Hall's Motor
Dear Mr. Cronin:
By letter dated January 20, 1988, the trustees of the
Teamsters Pension Trust Fund of Philadelphia and Vicip-
ity (“Fund”) demanded payment of withdrawal liability
from the employer, including the Contributing Business,
Tiger International Corporation, the Flying Tiger Line,
Inc, and various affiliates. Your counsel has since claimed
that the notice is invalid because it does not state a claim
under ERISA § 4212(c) in his interpretation. The Fund
and its trustees disagree both with the interpretation and
the need to set forth a specific theory as well as the
Statutory requirements of demand, an amount and a Pay-
ment schedule but leave those matters to the Court.
As a protective measure, however, the Fund and its
trustees now explicitly demand payment of liability on
alternative grounds under 29 U.S.C. §§ 1301(b), 1392(c)
or 1398, as detailed in the Fund’s briefs, in the event
that your position about the original demand is sustained
in litigation. We enclose a copy of the January 20, 1988
42a
letter to provide notice of the amount, payment schedule
and identified trades or businesses under common control
to whom this protective demand is addressed. If the prior
demand is found inadequate, actual payment must begin
no later than 60 days from the date of this letter. Under
ERISA § 4219(c), your initial payment should be
$ 545,424.50 covering four payments back to January 1,
1988 and one installment accruing on January 1, 1989.
Future installments would be due on the first day of each
subsequent calendar quarter until the schedule is com-
pleted.
To the extent that a new demand is required, you
have the right to seek review as detailed in the January 20
letter.
Sincerely,
/s/ Charles J. Schaffer, Jr.
CHARLES J. SCHAFFER, Jr.
Administrator
For the Trustees
CJS:jp
cc: Peter Gold, Esq.
Kent Cprek, Esq.
William Bowser, Esq.
Barry Willoughby, Esq.
ae es ea ee ee eee eo een
43a
[Logo]
TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY
Fourth and Cherry Streets
Philadelphia, Pennsylvania 19106
Walnut 3-6300
December 2, 1988
Peter Gold, Esquire
Blank, Rome, Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
Re: Withdrawat Liability
Contributing Business: Hall’s Motor
Dear Mr. Gold:
This letter concerns your letters of April 18, 1988 and
May 23, 1988 about an assessment of withdrawal liability
issued by this Fund to the employer including Halls Motor
Transit Company (“Halls”), Tiger International Corpora-
tion, the Flying Tiger Line, Inc., Warren Transport, Inc.
(jointly, “Tiger” and with Halls and any other trades or
businesses under common control. “Employer”). You
wrote for Tiger International Corporation, The Flying
Tiger Line, Inc. and Warren Transport, Inc. Rudolph
Barbee wrote on April 19, 1988 to adopt your claims for
Tiger Air, Inc. and Tiger Leasing Group, Inc. We ask
that you forward a copy of this letter to him. The Trustees
of the Fund have reviewed the letters, sought additional
information, consulted with legal and actuarial counsel
and affirmed the initial assessment.
In September, 1988, the Fund sent a request for in-
formation under ERISA Section 4219(a) concerning your
letters and documentation of your claims. On October 7,
1988, you responded that direct requests about docu-
mentation and research concerning the claim divestiture
44a
of Halls were premature, overly broad, unduly burden-
some and oppressive. Due to the failure to document
claims, the Fund and its trustees have proceeded on the
assumption that the information would be adverse to the
interest of the Employer. The Fund has examined re-
ceived available information from other sources as noted
below.
Summary
The central objection is that Tiger was not under com-
mon control with Halls as of the date of its withdrawal
from the Fund in 1987. Your objection is unfounded,
based on the information available to the Trustees, for
several reasons. The Fund assessed liability on three
alternative bases: the “accrual” or year-by-year principle
(ERISA §§ 4001(b), 4218), continued ownership
(ERISA § 4001(b)) or an evasive transaction (ERISA
§ 4212(c)). Using the year-by-year control group prin-
ciple adopted by the Fund under ERISA §§ 4001(b),
1398, Tiger is responsible for the share of unfunded
vested liabilities of the Fund assessed to employers in
the plan years from September 26, 1980 to, at least,
1984, even if Tiger divested itself of Halls before the
date of withdrawal from the Fund. The total net lia-
bility in this case is based on the unamortized portion
of these tiers. Due to the failure to produce documenta-
tion, we have further assumed that Tiger had or acquired
either actual or constructive ownership of stock providing
control of Halls as of the date of its withdrawal and thus
affirm the alternative ground of assessment on this basis.
The Fund’s January 20, 1988 demand letter also relied
on ERISA § 4212(c) as the other alternative ground of
assessment. The transaction between Halls and Tiger
makes no economic sense absent consideration and at-
tempted avoidance of withdrawal liability. The structure
of the transaction as well as direct testimony confirms
that a principal purpose of the transaction was to evade
or avoid withdrawal liability. In this circumstance, ERISA
§ 4212(c) provides that withdrawal liability shall be as-
45a
sessed and collected without regard to the evasive trans-
action.
Your objections about data and actuarial assumptions
(Items 6, 7, 9, 10, 11 and 16) are standard and do not
have application to the specific circumstances of the Fund.
The suggestions on benefits and fiduciary duty (Items 5
and 8) are irrelevant to withdrawal liability and, in some
cases, illegal. The Trustees have, in all events, conducted
the affairs of the Fund in a prudent fashion consistent
with law and the conduct of a similar organization of
comparable size. The remaining objections about con-
tractual and trust limitations on employer obligations,
withdrawal liability exceptions and quarterly payment
amounts (Items 2, 4, 12, 13, 14, 15 and 17) are contrary
to legal precedent and in at least one case, frivolous.
Discussion
April 18 Letter
Your letter of April 18 characterizes itself as a “Re-
quest for Review.” It states only the following in terms
of objection to the assessment om behalf of Tiger.
As you know, Tiger’s Action also asserts that certain
provisions of MPPAA are unconstitutional on their
face and as applied (Counts II and III of the
Amended Complaint, respectively). This Request
for Review includes only those determinations which
are subject in the first instance to plan determination,
review and arbitration as set out in ERISA Sections
4219 and 4221.
The language of the letter does not ask for “review of
any specific matter,” “identify any inaccuracy” or “furnish
additional relevant information” under MPPAA. Any
claims reflected in the letter are denied.
The Fund is unable to address constitutional objections
without further detail. The only constitutional challenge
46a
sustained in any court to our knowledge is a challenge
to the “presumption” in favor of the Fund under ERISA
§ 4221(a)(3)(B). The Fund has reviewed this decision
and believes that its actuarial assumptions are correct
with or without the presumptions. The “as applied” chal-
lenge, is denied by reason of the failure to furnish sup-
porting documentation.
We are able, from past experience, to explain our
evaluation of constitutional claims in a general sense.
MPPAA was under active consideration in Congress in
1978, with serious consideration in 1979. The statute
was substantially complete and extant in the business
world by 1980. On policy grounds, there may be reason-
able argument that Congress should have continued some
form of five-year reachback matching former ERISA
§ 4064 rather than allocating all existing liability to em-
ployers as of 1980. As a legal matter, however, Congress
chose the 1980 effective date and that decision has been
upheld by the Supreme Court against constitutional
challenges.
Congress designated the plan as a defined benefit
plan—not the collective bargaining representatives. Halls
and Tiger received information on the Fund and its bene-
fits through summary plan descriptions and other docu-
ments distributed to employers by the Fund. They en-
tered collective bargaining and chose contribution rates
with knowledge of the resulting benefits. Congress deter-
mined that circumstances surrounding a _ contribution
agreement like that made by Halls create benefit expecta-
tions in participants which should be satisfied by the
employer.
The benefit obligation incurred towards these partici-
pants is funded like a mortgage. Congress allowed for
deductibility of contributions for any member of a control
group and counterbalanced it with withdrawal liability.
The cessation of contractual contributions leaves an un-
paid debt, regardless of the reason for withdrawal. Con-
47a
gress simply mandated continuing amortization payments,
with continued deductibility. The public generally pays
roughly one-third to one-half of the liability through a tax
subsidy. This is an entirely rational and balanced ap-
proach to the interests of participants, continuing con-
tributing employers and withdrawn employers.
Halls seems to be a reasonably classic example of the
Fund’s situation with the number of “its” retirees likely
exceeding active employees remaining at the time of shut-
down. The unfunded “attributables” liability will likely
approximate or exceed the assessment.
We have reviewed the data and confirmed the mathe-
matical accuracy of the withdrawal liability calculation.
The Plan’s contribution records are fully automated on a
cash basis. They have been Statistically audited over all
for all years since 1975 and are converted to an accrual
basis for financial reporting and withdrawal liability pur-
poses. You should already have the certified statements
of the Fund’s enrolled actuary for relevant years con-
cerning the Fund’s actuarial] assumptions, the value of its
assets and the amount of unfunded vested liabilities.
May 23 Letter
Your letter of May 23, 1988 is more detailed. We
have indented and repeated your objection and followed
it with our response at the regular page margin on each
point.
1. The Fund’s Theory of Liability
The Fund’s basis for asserting withdrawal liability
against Tiger is set out in its Demand (attached as
Exhibit “A” to the Opening Brief in Support of Plain-
tiffs Motion for Partial Summary Judgment in Civil
Action No. 86-304 commenced in the District Court
in Delaware). That Motion and Brief set out, in
48a
substantial part, the basis for challenging the Fund’s
“accrual” theory of withdrawal liability asserted
against Tiger.
In the “Brief of Teamsters Pension Trust Fund of Phila-
delphia and Vicinity on Flying Tiger Motion for Sum-
mary Judgment” (“Fund Brief”) the Fund states:
The Philadelphia Fund issued its assessment to
Flying Tiger after cessation of operations by Halls
in the Philadelphia Fund in 1987. The assessment
notes three alternative grounds of liability: Liability
as part of a ‘deemed original employer’ under 29
U.S.C. § 1398, liability as part of a continuing con-
trol group under 29 U.S.C. § 1301(b) and, finally,
liability by reasons of a transaction to ‘evade or
avoid’ withdrawal liability under 29 U.S.C.
§ 1392(c).
Tiger challenges and requests review of these
claims only to the extent that they have been as-
serted against Tiger in a proper demand for with-
drawal liability made pursuant to 29 U.S.C. § 1399
(b)(1) and only to the extent that each is subject
to a controlling determination that it is subject to
MPPAA’s plan review, arbitration and appeals pro-
cedures. (Footnotes omitted).
The basis of the Fund’s claim has been set forth in the
brief you reference, which is incorporated by reference
for the sake of brevity. The Fund expressly confirms that
the demand letter was issued on three independent
grounds: the year-by-year method under ERISA §§ 4001
(b), 4218, an “evade or avoid” transaction under ERISA
§ 4212(c) and possible continued ownership under ERISA
§ 4001(b). Each ground separately supports the entire
assessment in this case.
49a
2. Tiger Was Not Bound to a Collective Bargaining
Agreement
Subsequent to 1985, neither Tiger nor any of its
controlled group members was a party to a collective
bargaining agreement which contained an obligation
to contribute to the Fund. Thus, Tiger is not respon-
sible for the withdrawal liability triggered by Halls
subsequent withdrawal from the Fund.
Withdrawal liability is a Statutory liability imposed on
all trades or businesses under common control for pur-
poses of ERISA § 4001(b). The courts have rejected
Claims that pension liability is either limited by contract
or an unconstitutional impairment of a contract. In
PBGC v. Quimet Corp., 630 F.2d 4 (1st Cir. 1980), the
Court imposed liability on trades or businesses under
common control which were not party to a pension plan
or the collective bargaining agreement under which it
was maintained. In the legislative history of MPPAA,
Rep. Thompson, speaking as Committee chair, approved
the Quimet decision and indicated that “. . . withdrawal
liability should be applied in a manner with the controlled
group concept,” 126 Cong. Rec. 23038 (August 25,
1980). The courts have followed Quimet and this prin-
ciple as do the Trustees of the Fund in the exercise of
their duties of prudence and collection under ERISA
§§ 4202, 404.
3. Tiger Was Not an “Employer” on the Date of Halls
Withdrawal
Neither Tiger nor any of its controlled group
members were related to Halls within the meaning
of 29 U.S.C. § 1301(b), on the date of Halls alleged
withdrawal from the Fund. Nor did Tiger engage
in any transaction within the meaning of ERISA
Section 4212(c). Therefore, Tiger is not responsible
for Halls withdrawal liability.
i
50a
The date of withdrawal is not the relevant “period” of
time under the “presumptive” method in ERISA § 4211
and 26 C.F.R. § 1.414(c)-1. See answer to Paragraph 2
and above. If it were, Tiger is nonetheless responsible
for the full withdrawal liability under ERISA §§ 4001
(b), 4212(c).
The demand letter from the Fund asserted liability
under ERISA § 4001(b) based on the probability that
Tiger had record ownership of at least 25% of Halls
stock on the date of withdrawal and retained or had an
option on any other “outstanding” stock of Halls for con-
trol group purposes. Tiger has not produced documenta-
tion of its ownership, the “sale” or other related matters
(payment, default, etc.) needed to establish the record
ownership of Halls and convert record ownership to
“ownership” under the control group regulations. The
Fund accordingly assumes that the information would be
adverse to your claims and affirms the assessment on this
basis.
Tiger also has not produced evidence of substantial
and legitimate business reasons (independent of and over-
shadowing withdrawal liability) for the claimed sale of
Halls. We accordingly affirm the assessment under ERISA
§ 4212(c).
ERISA § 4212(c) provides:
If a principal purpose of any transaction is to evade
or avoid [withdrawal] liability . . ., [MPPAA] shall
be applied (and [withdrawal] liability shall be deter-
mined and collected) without regard to such trans-
action.
The language of ERISA § 4212(c) is almost identical
to § 269 of the Internal Revenue Code which deals with
evasion or avoidance of income tax liability. It differs
only in its greater scope. The evasive purpose under
ERISA need only be “a” principal purpose of the trans-
action rather than “the” purpose as required under the
Sla
tax code. ERISA covers transactions which seek either
to “avoid” liability as well as “evasion” while the tax code
prohibits only evasion.
The Third Circuit had the following observation about
Tiger’s claimed sale of Halls stock:
the district court here concluded that “(t]he present
factual submissions and allegations before the Court
indicate that there is a genuine factual dispute sur-
rounding the [bona fides of the] 1985 transaction.” 2
“1 On the record before us, we cannot fault the district
court’s assessment. The record evidence includes, for in-
stance, an affidavit by Thomas C. Nyhan, one of Central
States’ attorneys in the Halls bankruptcy proceeding. Nyhan
states that, at a meeting of Halls creditors on May 14, 1986,
Alvin Bodford, the sole shareholder of HAC, “stated that a
principal purpose of the transfer of 75% of the common stock
of Halls Motor Transit Co. to Halls Acquisition Corp. was to
evade or avoid withdrawal liability.” J.A. at 292. In addi-
tion, we take judicial notice of the fact that actors in our
free enterprise system are not primarily guided by their
eleemosynary impulses: when a large corporation relin-
quishes for no consideration at all its remaining 25% interest
in another corporation, a unique event has occurred. On the
whole, it is easy to understand why a detailed factual inquiry
is needed to ascertain whether Tiger’s “sale” of Halls to
HAC was made to evade or avoid MPPAA withdrawal
liability.
Flying Tiger v. Central States, 830 F.2d 1241, 1254 n. 21
(3d Cir. 1987). The gift may be explained only as an
effort to avoid any possible application of the control
group stock exclusion rules which would transform Tiger’s
25% interest into 100% of outstanding stock for control
group purposes.
Counsel advises that the following types of factors have
teen found to evidence as “evasive purpose” under the
tax code.
52a
1. Top management awareness of the tax impact.
The concern here, of course is knowledge of withdrawal
liability.
7
2. A disproportionate purchase price reflecting con-
sideration of the liability. In the ERISA context, this
would suggest evidence of a transfer “price” that implicitly
reflects a discount for the effect of withdrawal liability.
3. The simple magnitude of the tax treatment in dollar
terms, Or in proportion to other financial aspects of the
transaction. We understand that denial of any consider-
ation Of major dollar item can result in a negative infer-
ence on intent.
4. A lack of need for a particular transaction structure
to achieve stated goals. In other words, if two means
would serve the stated purpose, choice of a vehicle with
an evasive impact can be suspect.
5. A lack of indicia of an arm’s-length transaction
This type of proof tends to adopt insolvency standards.
Elimination of a guaranty is a functional equivalent of
many divestiture transactions involving withdrawal lia-
bility. Our counsel has found the bankruptcy case law
on guaranties to be helpful precedent.
6. Lack of “follow-up” to achieve stated goals. The
courts look to see whether actual behavior after the trans-
action was consistent with and corroborates stated
purposes.
All of these factors support Tiger’s liability in this case.
Management Awareness. The management of both
Tiger and Halls clearly were aware of withdrawal lia-
bility. The buyer was an insider (Halls management)
with actual knowledge of withdrawal liability. With-
drawal liability was reflected on financial statements.
The subject is discussed at length in the sales document,
including an express provision requiring Halls to hold
Tiger harmless from any withdrawal liability. Alvin Bod-
53a
ford, chief executive of Halls, averred that a principal
Purpose of the sale was to evade or avoid withdrawal
liability. Tiger’s own Form 10-K immediately following
the sale included a statement that management of Tiger
believed it would not be responsible for any withdrawal
liability connected to Halls. Form 10-K is directed to
investors and the statement apparently was material in
terms of indicating that Tiger had avoided potential
liability.
Disproportionate Purchase Price. Halls had a book
value for shareholder equity of $14 to $16 Million at the
time of the sale. Tiger also had advanced $11 Million
or more in intracompany advances at the time of the sale
according to its claims. Tiger nonetheless claims to_have
sold 75% of the stock to Halls’ Acquisition Corporation
for $1,000. The intracompany debt was reduced to $10.5
Million in exchange for a secured (as opposed to un-
“secured ) position for the claims.
If withdrawal liability is taken into account, there was
negative shareholder equity at the time of the sale and
the recovery on intracompany debt as an unsecured claims
in a liquidation would be substantially less than face.
The actual sales price is consistent with book value,
after adjustment for withdrawal liability. The sales price
and terms do not make economic sense without con-
sideration of withdrawal liability,
Magnitude of Withdrawal Liability. The withdrawal
liability associated with Halls was estimated at $40 Mil-
lion in Halls financial Statements as of December 29, 1984.
Halls long-term bank debt at December 29, 1984 totaled
$19,320,000 and aggregate liabilities (other than to Tiger
or for withdrawal liability) were $50,742,000. The book
value of all assets was $77,847,000. Estimated with-
drawal liability was equal to 80% of all other debt com-
bined and just over one-half of all assets. It was a major
financial factor.
S4a
Need for a Sale. Tiger has claimed that it wanted to
give Halls management and employees an incentive to
turn the company around, that Halls management was
very optimistic in that respect and that Tiger’s good
faith is shown by the fact that it continued to assist Halls
after the sale. These reasons and conduct do not demon-
strate the need for a sale.
The management and employees of Halls could have
been compensated in any number of ways for success in
a turnaround without a “sale.” The optimism of Hails
management is equally irrelevant as they literally paid
nothing for the company. They would gain substantially
from a turnaround but would lose nothing from the bank-
ruptcy. Halls likely was not otherwise saleable. Halls
management got, at best and however unlikely, a valuable
company in a turnaround and, at worst, executive com-
pensation for an additional number of years. The only
other alternatives likely were continued ownership by
Tiger or liquidation, both of which would leave Tiger
open to withdrawal liability claims under its analysis. The
“sale” was the only means to achieve Tiger’s withdrawal
liability aims and the choice indicates an evasive purpose.
The financial support given to Halls by Flying Tiger
is likewise unimpressive. Such support is common in
efforts to stall a bankruptcy for at least one year in order
to avoid the anti-preference provisions of the Bankruptcy
Code.
Follow-up. Tiger has not disposed of its other subsid-
iaries in financial trouble to our knowledge. It retained
North American Rail Car despite a much more expensive
bankruptcy and drain on its assets. The alleged “follow-
up” in terms of subordinating claims in order to allow
Halls to obtain financing appears to be related to bank-
ruptcy considerations rather than an interest in the future
of Halls. Once the year necessary to avoid the Bankruptcy
Code preference provisions had passed, support was with-
drawn and Halls collapsed.
55a
Arm's-Length Transaction. This issue tends to focus
on bankruptcy-type concerns. We have found it helpful
to discuss it in terms of the common law of fraudulent
conveyances and bankruptcy preferences.
The facts tend to show simple bankruptcy planning
and a fraudulent conveyance or bankruptcy preference.
The scope of the “evade or avoid” prohibition should,
at a minimum, encompass thé@S€ types of transactions. The
elements of common law fraudulent conveyance, whether
under the federal Bankruptcy Code or state law, generally
can be shown either through actual intent or intent in-
ferred from a transfer involving an insolvent or under-
financed debtor.
Alvin Bodford, CEO of Halls, has stated that a princi-
pal purpose of the “sale” was to “evade or avoid” with-
drawal liability. The detail devoted to withdrawal liability
in the sales documents and express announcement in
Tiger’s next 10-K that management believed Tiger had
no responsibility for Halls withdrawal liability corroborate
Bodford. This shows the necessary actual intent.
The other strain of fraudulent conveyance law con-
cerns transfers made for less than reasonably equivalent
value while a debtor was insolvent or which left the
debtor with unreasonably small capital or unable to meet
debts as they matured after the transaction. There is a
fraudulent conveyance under this second standard as well
as in this case.
Tiger’s actions with respect to Halls make economic
sense only in the perspective of bankruptcy rules on
preferential transfers. Under 11 U.S.C. § 547(b), a
transaction with an insider (a term including controlling
shareholders like Tiger) can be set aside under the follow-
ing circumstances:
1. A transfer was made on account of an antece-
dent debt owed before the transaction.
2. Halls was insolvent at the time of the transfer
56a
3. The transfer allowed Tiger to receive more than
it would in a liquidation of Halls under Chap-
ter 7 of the Bankruptcy code.
4. The transfer was made within one year before
the bankruptcy petition.
The one-year limitation is not relevant to withdrawal
liability in light of ERISA’s six-year period of limitation.
The facts are consistent with an effort to avoid the prefer-
ence rules by keeping Halls out of bankruptcy for one
year after the sale.
A Transfer. The creation of a security interest in the
assets of Halls is a transfer as is elimination of liability
by a guarantor on obligations of a debtor. The divesti-
ture of Halls by Tiger had both aspects.
Antecedent Debt. The stock of Halls was sold for
$1,000. The security interest created in favor of Flying
Tiger was expressly made in contemplation of alleged
loans made to Halls by Tiger and its other affiliates from
the past. The elimination of the withdrawal liability
“guaranty” likewise eliminated “antecedent debt” on
withdrawal liability in a bankruptcy sense. The various
decisions denying priority to withdrawal liability rely on
the premise that withdrawal liability reflects antecedent
debt incurred before the actual date of withdrawal.
Liquidation Preference. In a Chapter 7 bankruptcy as
of the date of the sale, Tiger would have shared ratably
with withdrawal liability claims on any unsecured assets
with respect to intracompany loans (assuming they actu-
ally were loans rather than capital contributions). Tiger’s
equity in Halls would have been worthless.
Using Halls 1984 financials as a source,’ Halls assets
and liabilities would have produced the following distri-
bution at a liquidation immediately before the sale.
1 Liabilities to Tiger and affiliates are based on pre-sale amounts
per n.5 to the Hatis 1984 financial statement. Withdrawal liability
is estimated at $40 Million in n.10 of the statements.
57a
Liability Available Percentage
Liability Amount Assets Recovery
Secured Liability
— Banks $19,320,000 $19,320,000 100%
— Tiger 0
Unsecured Liability
— Tiger $11,860,000 69.85%
- Withdrawal
Liability (W/L) $40,000,000 69.35%
— Other $32,529,000 $58,527,000 69.385 %
$84,389,000 = = — oe
Equity 0 0%
$77,847,000
A portion of the unsecured liability would actually have
priority under 11 U.S.C. § 507 and further reduce dis-
tribution on Tiger’s claims. Tiger’s expected recovery
would only be 69.35% of its loans, or $8,224,910 as
equity was negative. An even less attractive possibility
(under Quimet) would make Tiger pay the full $40
Million of withdrawal liability outside the bankruptcy
which, netted against full recovery of the loans and $14
Million in book equity, still produces an absolute loss of
$14,140,000.
The effect of the “sale” and creation of a security
interest in favor of Tiger was to enhance Tiger’s bank-
tuptcy position under Tiger’s analysis of withdrawal lia-
bility. The grant of security gave Tiger preference over
other unsecured creditors of Halls. including priority
claimants such as employees, fringe benefit funds (up to
the $2,000 per employee limit) and tax claims.
Using the same base from the Halls 1984 financials,
the “post sale” allocation changed the distribution to move
Tiger from unsecured to secured Status, and improve its
position:
58a
Liability Available Percentage
Liability Amount Assets Recovery
Secured Liability
—
~ Bank $19,320,000 100%
Tiger $10,500,000 100%
$29,820,000 $29,820,000
Unsecured Liability
- Tiger 0 66.22%
— W/L $40,000,000 66.22 %
— (Other $32,529,000
$72,529,000 $48,027,000 0%
Equity 0
$77,847,000
Tiger’s expected recovery now would be the full face
amount of the note, $10.5 Million with, in Tiger’s view,
no withdrawal liability.
Tiger needed to keep Halls alive for at least one year
after the sale in order to validate its security interest
against a preference attack under 11 U.S.C. § 547. This
accounts for Tiger’s efforts to assist Halls in obtaining
additional financing in 1985. Once the year had passed,
Halls was allowed to collapse.
The new financing obtained by Halls at the time of the
sale and afterwards was apparently based entirely on the
liquidation value of its assets rather than any expectation
that Halls would fund the debt out of future earnings.
The lenders did their work well as Halls assets were
promptly liquidated in full payment of all claims of the
secured lenders with a more than sufficient cushion.
4. Interest on Timely Quarterly Payments.
The Demand adds interest in calculating the
amount of each quarterly payment, rather than di-
viding the annual payment by four. This increases
the amount of each quarterly payment. This addi-
tion of interest to timely quarterly payments is not
59a
authorized under ERISA Section 4219(c)(3). The
Statutory provision which governs the payment of
interest for late payments confirms that interest is
not to be added to timely payments.
ERISA § 4219(c)(1)(A)(i) provides that “. . . an em-
ployer shall pay [withdrawal liability] over the period of
years necessary to amortize the amount in J/evel annual
payments . . . , caiculated as if the first payment were
made on the first day of the plan year following the plan
year in which the withdrawal occurs and as if each sub-
sequent payment were made on the first of each subse-
quent plan year.” ERISA § 4219(c)(1)(A) (ii) provides
that the amortization period will be calculated using the
assumptions used for most recent actuarial funding evalua-
tion for the plan period using standard actuarial meth-
odology.
Each annual payment has been broken into quarterly
installments in accordance with the funding assumptions
required by ERISA § 4219(c)(1)(A) (ii). The law re-
fers to amortization of the annual payment and does not
specify the manner of calculating the quarterly install-
ients other than to say that they shall be done in ac-
cordance with plan funding assumptions. A claim that
the quarterly installments must be simply one-fourth of the
annual payment ignores the requirement that the payment
schedule be amortized under the plan’s funding assump-
tions as if each payment were made on the first day of
the plan year. Deferred payment of one-fourth of an an-
nual payment due on the first day of each year would not
amortize the liability in accordance with the Statutory
rule. If lower quarterly installments were commanded
by statute, the payment schedule would simply be ex-
tended and actually create additional liability on the part
of the employer.
60a
5. Increase in Benefits While the Fund Had Significant
Unfunded Vested Benefit Was Improper
An analysis of the Fund’s demand, worksheets and
other papers indicated that the Fund increased ben-
efits at times when it had significant unfunded vested
benefits. These increases occurred without notice to
contributing employers, without their assent, and 1s
contrary to principals of sound Fund administration
and other principals of law and equity.
See answer to Paragraph 8. As a matter of business, and
hence fiduciary, reality, it is difficult or impossible to
retain the loyalty of employees and remaining employers
and obtain increased contributions without periodic bene-
fit increases. The “presumptive” method is structured to
allow such increases and does not apply all new money
to fund prior debt of withdrawn employers.
6. Interest Rate and Other Assumptions Are Unrea-
sonable.
The interest assumption used by the Fund in de-
termining withdrwal iiability is not reasonable for
this purpose. The assumptions used by the Fund
are, in the aggregate, unreasonable.
The law requires that actuarial assumptions be “in the ag-
gregate, reasonable” and “offer the actuary’s best esti-
mate of the anticipated experience under the plan... .,
ERISA § 4213(a)(1). The Fund has a large enough
group of participants to form a valid separate statistical
population. The Fund has based its actuarial assumptions
and methods used in determining withdrawal liability on
the actual long-term experience of the group. These as-
sumptions together produce a better estimate of the actual
anticipated experience of the Fund in terms of invest-
ment, mortality and other factors than reliance on gen-
eral characteristics of the entire population. The Fund
periodically reviews its actual experience and actuarial
~~
6la
assumptions and methods to assure that they remain rea-
sonable. The Fund has sent or shortly will forward a
standard information package detailing the basis of the
calculation of liability to you. The general information
includes the certified statements of the Fund actuary con-
cerning statutory compliance.
We are unable to respond to any particular concerns
without further specification. The Fund has estimated dif-
ferences in liabiilties under varying methods and assump-
tions and found that the results “in the aggregate” gen-
erally equal or exceed liability determined under the
Fund’s assumptions.
7. Reallocated Unfunded Vested Benefits.
A percentage of Halls withdrawal liability resulted
from reallocated unfunded vested benefits of with-
drawn employers. To meaningfully ascertain and ver-
ify this percentage and these amounts and to deter-
mine whether previous compromise settlements have
been properly attributed, the following information
is requested:
(a) For each employer who is or was con-
tributing to the Fund with respect to which
any reallocated vested benefits were included
in the determination of withdrawal liability
made against Tiger in accordance with the
ERISA Section 4211(b) (4), the identity of the
employer and date of the withdrawal;
(b) Amount of withdrawal liability originally
determined for such employers without respect
to the operation of Section 4209, 4219 ‘c)(1)
(b) and 4225 of ERISA;
(c) The date on which the Fund notified such
employer of the amount of withdrawal liability,
and the amount of withdrawal liability;
62a
(d) The date and amount of each payment re-
ceived by the Fund on or before December 31,
1987, with respect to the withdrawal liability
of such employer;
(e) The amount of reallocated unfunded vested
benefits included in the determination of the
withdrawal liability of Tiger;
(f) The reason any amount included in “(e)”
above was determined to be uncollectible, unas-
sessable, or not assessed by the Fund; and
(g) The date on which the Fund determined
that such amount was to be included in real-
located unfunded vested benefits.
This is a request for information rather than review.
It is not information required to be produced under
ERISA § 4221(e). The Fund will consider production
in connection with arbitration with adequate protection
of the confidentiality and privacy concerns of the Fund
and other employers, including various settlement agree-
ments prohibiting disclosure.
The effect of reallocation of unfunded vested benefits
on the determination of the Employer’s withdrawal lia-
bility is minimal. No change will make the liability, in
the aggregate, unreasonable. Reallocation has, to the date
of concern, been limited essentially to incontestable “write-
offs” such as de minimis claims and elimination of claims
required by the Deficit Reduction Act. The Fund practice
to date produces lower reallocation figures than PBGC
standar:'s reflected in its mass withdrawal liability reg-
ulatioz.s.
8. The Benefits Should Have Been Reduced.
The Fund should have reduced benefits given the
significant amount of unfunded vested liability so as
to be on a financially sound basis consistent with the
Trustees’ fiduciary obligations.
63a
ERISA generaly contemplates the existence of unfunded
liability and allows it to be amortized over periods up
to 40 years. Reduction of most Fund benefits is generally
illegal under ERISA §§ 204(g), 4244A, as the Fund js
not in reorganization or insolvent. Due top overrriding
illegality, it is unlikely that the IRS would approve an
amendment under ERISA § 302(c)(8) seeking to reduce
or eliminate benefits specifically protected in Title IV of
ERISA. The Fund raised its normal retirement age in
recent years as allowed by law and taken other steps,
including withdrawal liability collection, allowed by law
to assure that it will fulfill its purpose to provide retire-
ment income over the long term. The Trustees of the
Plan believe they have properly addressed their fiduciary
responsibilities in dealing with such events as the enact-
ment of ERISA and deregulation of the trucking industry
with their multiple effects on the Fund’s income and
liabilities.
9. Missing Data for Dates of Birth.
It has been reported that there is a significant
missing date of birth date. We have obtained a re-
port indicating that dates of birth were missing for
thousands of active members and terminated vested
members. Our actuaries advise that these are ab-
normally high missing data levels. We understand
that it was assumed that active members were age
29 and higher and that terminated vested members
were currently age 49. To ascertain the reasonable-
ness of these assumptions, we request the following
information:
With respect to all the active members without a
validated date of birth according to Schedule “RE” of
the report setting forth unfunded vested liabilities as
of December 31, 1987, provide information in one
of the following forms:
64a
(a) Listing showing the years of vesting serv-
ice as of December 31, 1987 for each such
active member, or
(b) Tabulation of the number of members
classified by years of vesting service as of De-
cember, 1987, or
(c) Tabulation as described above, but classi-
fied by quinquennial of vesting service (i.e., 0-4
years, 5-9 years, etc.) rather than individual
years.
See answers to Paragraphs 5 and 7. Your sources are in-
accurate. The missing data is not significant. The single
most important item of liability in this Fund is for re-
tirees. There are no missing birthdates in this category.
Any missing data on other participants is assumed to be
consistent with the general Fund population. The aver-
age funding entry age for active participants with dates
of birth has been consistently close to 29. The average
att2zined age for vested terminations with dates of birth
between 49 and 51 has varied during the last seven
years. An age 49 assumption produces lower liability
than a higher age. Exclusion of participants with missing
birth dates is less accurate but has no material impact on
liability:
10. The Fund’s Investment Return.
Our information indicates that the Fund’s invest-
ment return fluctuated widely between plan years
1977 and 1987. Please provide any information you
have on the Fund’s investment return for the last ten
(10) plan years. Further, please provide for each of
the plan years a schedule of the benefits and ex-
penses paid by the Fund and to whom they were
paid.
See answers to Paragraphs 5 and 7. Your information is
wrong. The basic information you seek is included in the
65a
Fund's general data package and other public information.
The investment markets fluctuated wildly in the years
1977 to 1987. The Fund’s investment policy is more con-
Servative than the market due to a large number of re-
tirees and has not exhibited the same variation. With-
drawal liability is determined using the fair market value
of assets.
ll. Mortality Rates. Other Assumptions and Metho-
dologies.
Information in our possession indicates that there
is significant missing data relating to the mortality of
persons eligible to receive, or who are currently re-
ceiving, benefits. In calculating the alleged with-
drawal liability, we believe that the Fund actuaries
may not .iave purged from Fund records deceased
participants whether on active or retirement status.
Kindly advise whether in calculating the withdrawal
liability asserted whether decreased participants were
purged from the Fund’s records. Also advise whether
the list of participants was checked against social
security date and when such check occurred. Fur-
ther, in a reasonable detailed fashion, please advise
us Of all assumptions which were employed with re-
spect to mortality.
We question all the assumptions and methodologies
used by the Fund including past service attribution
and crediting methods, initial employment dates, re-
tirement age, etc.
See answer to Paragraph 6. The assumption and basic
data are in the general Fund package. Fast service and
initial employment dates for new employers are based on
census data questionnaires prepared by the employer on
entry into the plan. Service data for other participants is
based on Fund contribution records. The mortality as-
sumption errs, if at all, in overstating deaths.
The Fund has used the services of an organization to
match Social Security records to determine whether any
66a
persons receiving retirement benefits are deceased for a
number of years. A report in 1983 indicated that no per-
son then receiving a retirement benefit from the Fund was
deceased. This service also has been used to delete re-
tired and terminated vested employees who have died from
Fund records.
12. The Fund is a Defined Contribution, Not a De-
fined Benefit Plan, and It Is Not Subject to
MPPAA.
The Fund’s assessment of withdrawal liabilities is
premised on the view that it is a defined benefit plan
and is subject to MPPAA. It is Tiger’s position that
absent proof to the contrary, the Fund is not a de-
fined benefit plan, is not subject to MPPAA, and
should not assess withdrawal liability.
The courts and PBGC consistently have said otherwise.
As a matter of fiduciary prudence, the Fund has followed
judicial authority.
13. Employer Liability is Limited Under the Declara-
tion of Trust.
The Fund’s Declaration of Trust provides that an
employer’s liability is limited to making contributions
to the Fund as required by the applicable collective
bargaining agreement and applicable law. There is
no requirement to make withdrawal liability payments
nor are the Trustees authorized to demand such pay-
ments without specific authorization under the Dec-
laration of Trust.
See answer to Paragrapn 2.
14. MPPAA Is Preempted by, and Conflicts with, the
National Labor Relations Act, as Amended
An employer’s obligation to contribute to a multi-
employer pension plan is derived from collective bar-
gaining and is memorialized in a collective bargain-
67a
ing agreement. The National Labor Relations Act,
as amended, 29 U.S.C. § 151 et. seg. (“NLRA”),
provides that the collective bargaining process and
agreements on mandatory and permissive subjects of
bargaining are committed exclusively to the parties.
The NLRA specifically provides that the parties are
free not to agree on any subject. 29 U.S.C. § 158(d).
Payments to a pension plan is a mandatory subject
of bargaining. By requiring an employer to make
withdrawal liability to a pension plan MPPAA inter-
feres with what the NLRA mandates should be a
process left exclusively to the parties. Thus, MPPAA
is contrary to, and inconsistent with, the NLRA.
Therefore, it is invalid and unenforceable.
This is a frivolous claim. Congress can repeal its own
work. Under all rules of statutory construction, a later
Statute overrides an earlier one. As a result, the NLRA
is repealed to the extent of any conflict.
15. Trucking Industry Exemption.
Tiger’s position is that absent conclusive proof and
a final determination to the contrary, the Fund is
subject to the Trucking Industry Exemption from
withdrawal liability set out in ERISA Section
4203(d), 29 U.S.C. § 1383(d). Further, to the ex-
tent the Fund has previously determined that this
Exemption is not applicable, Tiger Challenges the
basis for, and methodology employed, in that deter-
mination as well as that determination.
The Fund has examined its records and determined other-
wise. Based solely on activities of contributing businesses,
the Fund has not found 85% or more of its accounts
to involve long or short haul trucking, household goods
moving or public warehousing based on contract codes.
key words or ICC Class I and II carrier data. Approxi-
mately 30% of contributions come from accounts which
Clearly would not be in covered industries under any ap-
proach. Tiger, as a control group employer, is also not
68a
primarily engaged in long or short-haul trucking, house-
hold goods moving or public warehousing and thus would
not be eligible for relief under the special rule. in any
event.
16. Additional Information Requested.
In addition t
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