Opposition Brief — Trustees of Teamsters Pension Trust Fund of Philadelphia v. Federal Express Corp.

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No. 96-1149

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| Supreme Court ma 1

i i L

IN THE eer

Supreme Court of the United States

CLERK

—_—

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.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

PETER A. GOLD

(Counsel of Record)

WILLIAM H. ROBERTS

AMY B. SMITH

BLANK ROME COMISKY & McCAULEY

1200 Four Penn Center Plaza

Philadelphia, PA 19103

(215) 569-5500

Attorneys for Respondents

Of Counsel:

CONNIE R. LEWIS LENSING

Federal Express Corporation

1980 Nonconnah Boulevard

Memphis, TN 38132

(901) 395-3452

SMITH-EOWAROS-OUNLAP COMPANY

COUNTER-STATEMENT OF

QUESTIONS PRESENTED

Whether the Arbitrator, the District Court for the District

of Delaware and the unanimous pane! of the Court of Appeals

for the Third Circuit, correctly applied well-established princi-

ples of law to this voluminous record in determining that the

buyer, Hall’s Acquisition Corporation and the seller, Tiger In-

ternational, Inc., did not have evasion or avoidance of with-

drawal liability as a principal purpose in the sale of Hall’s

Motor Transit Company, Inc. for purposes of 29 U.S.C. § 1392(c).

STATEMENT PURSUANT TO

SUPREME COURT RULE 29.6

Respondent before this Court is Federal Express Corpora-

tion. In 1989, Federal Express Corporation merged with Tiger

International, Inc., whose former subsidiaries included The

Flying Tiger Line, Inc. and Warren Transport Company, Inc.

The surviving entity’s name is Federal Express Corporation.

Pursuant to Rule 29.6 of the Rules of the Court, Respon-

dent, Federal Express Corporation, states that it has no non-

wholly owned subsidiaries and no parent company.

TABLE OF CONTENTS

COUNTER-STATEMENT OF QUESTIONS PRESENTED

STATEMENT PURSUANT TO SUPREME COURT

i) Fo} yee Sp he eee ne eee

pe Fk Pog yes |. ra

COUNTER-STATEMENT OF THE CASE

I. PROCEDURAL BACKGROUND ........

A. The Arbitrator’s Decision ...............

B. The District Court’s Confirmation Of The

I EE hide cdr dees easesuk neon

C. The Court Of Appeals’ Affirmance Of The District

eh ee Glee ah i'6 6 Wa 4 6 se aK OS 0%

i PACE Als DARGROUND 2.6 ccc tc ccc cece scene

REASONS FOR DENYING THE WRIT ...............

I. REVieW OF THE COURT OF APPEALS’ JUDGMENT

ORDER WOULD NOT REQUIRE THE COURT TO

RESOLVE ANY ALLEGED CONFLICT BETWEEN THE

So es A a en

A. The Arbitrator’s Alternative Holdings Rejected The

Fund's Position Under Both Legal Standards ...

B. The Fund’s Empty Speculation Concerning The

Supposed Basis For The Court of Appeals’ Judg-

ment Order Provides No Basis For Review By This

Ee Cane gees on sc ad 6 Ge ee Oks

ll. THE COURT OF APPEALS’ JUDGMENT ORDER

INVOLVED ONLY THE ROUTINE APPLICATION OF

ESTABLISHED PRINCIPLES TO A VOLUMINOUS

FACTUAL RECORD THAT HAS ALREADY BEEN

CAREFULLY REVIEWED BY THREE TRIBUNALS .

ill

Page

TABLE OF CONTENTS

(Continued )

The Arbitrator Affirmed by the District Court and

the Court of Appeals Correctly Decided This Case

Under The Standards Articulated In Both Santa Fe

And Dorn’s

The Fund’s “Partnership Approach” Or “Accrual

Theory” To Withdrawal Liability Is Mere Hyperbole

And Is Simply An Attempt By the Fund To Distort

Law

Page

TABLE OF AUTHORITIES

CASES Page(s)

Central States, Southeast and Southwest Areas Pension

Fund v. Crown Cork & Seal Co., Inc., 982 F.2d 857

(3d Cir. 1992), cert. denied, 508 U.S. 972 (1993) .... 5

Chicago Truck Drivers, Helpers and Warehouse Workers

Pension Fund v. Louis Zahn Drug Co., 890 F.2d

Ce Ee ae. |) en ee ee rn ae 17

Concrete Pipe and Products of California, Inc. v.

Construction Laborers Pension Trust For Southern

California, 508 U.S. 602 (1993) ........... 2c eee 14

Dorn’s Transportation v. Teamsters Pension Trust Fund,

(ye eb cht he Ab). See passim

Flying Tiger Line v. Teamsters Pension Trust Fund of

Philadelphia, 830 F.2d 1241 (3d Cir. 1987) ........ 2

IUE AFL-CIO Pension Fund v. Barker & Williamson,

Inc., (38 F.20 £16 (36 Clr, TG) 0 ww ccc cece ccuss 20

Pension Benefit Guaranty Corp. v. White Consolidated

Industries, 998 F.2d 1192 (3d Cir. 1993), cert. denied,

RU A en CED 0 disc bintn sb CURR Rees 17

Santa Fe Pacific Corp. v. Central States, S.E. & S.W.

Areas Pension Fund, 22 F.3d 725 (7th Cir.),

cert. denied, 115 S. Ct. 483 (1994) ............ passim

Teamsters Pension Trust Fund of Philadelphia and

Vicinity v. Central Michigan Trucking Line,

698 F.Supp. 698 (W.D. Mich. 1987), aff'd, 857 F.2d

Sige. 2h ae) ee ere erg on 20

Teamsters Pension Trust Fund v. Headley’s Express and

Storage Company, 1993 WL 189933 (E.D. Pa. June 3,

SNE 3 bk bb oka eee ie ee ee eRe es 20

Trustees of Amalgamated Insurance Fund v. McFarlin’s

inc... 760 F.a0 Oe (AGC. PBSO) 6 ike ik ciessesue ws 21

TABLE OF AUTHORITIES—( Continued)

STATUTES AND RULES Page(s)

11 U.S.C. § 507 21

29 U.S.C. §§ 1001 et seq : 2

29 ULS.C. § 1381 3

29 U.S.C. §§ 1381-146] 2,19

29 ULS.C. § 1392(c) ... passim

Supreme Court Rule 29.6 ul

No. 96-1149

IN THE

Supreme Court of the United States

OCTOBER TrRM, 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

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

COUNTER-STATEMENT OF THE CASE

Respondents, Federal Express Corporation, The [lying

Tiger Line, Inc., Warren Transport Company, Inc. and Tiger

International, Inc. (collectively hereinafter referred to as “Fed

eral Express”)' respectfully request that this Court deny the

Petition for Writ of Certiorari seeking review of the Judgment

Order of the Court of Appeals for the Third Circuit (“Judgment

Order’).

In its Judgment Order, the Court of Appeals for the Third

Circuit affirmed the District Court for the District of Dela-

ware’s Memorandum Opinion and Order which confirmed and

enforced a statutory Arbitration Award, which was accompa-

nied by an 83-page decision by the Arbitrator. This Arbitration

Award held that Federal Express was not liable to Petitioners,

Teamsters Pension Trust Fund of Philadelphia and Vicinity,

et al. (the “Fund”) for withdrawal liability under the Multiem-

ployer Pension Plan Amendments Act of 1980, 29 U.S.C. §§

1381-1461 (“MPPAA” or “the Act”) arising out of Federal Ex-

press’ acquisition of Tiger International, Inc. (2a, 72a).-

I. PROCEDURAL BACKGROUND

In March, 1986, Hall’s Motor Transit Company, Inc.

(“Hall's”), a former wholly-owned subsidiary of Tiger Interna-

tional Inc. (“Tiger”), filed for bankruptcy in the Middle District

of Pennsylvania, and within a period thereafter, ceased con-

tributing to certain multiemployer pension funds. Judicial pro-

ceedings followed under MPPAA in which both parties sought

declaratory and injunctive relief.’ Tiger initiated arbitration

pursuant to Section 4221 of the Employee Retirement Income

Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. §§ 1001,

et seq. to review the withdrawal liability assessment the Fund

In 1989, after the events giving rise to this case, Tiger International, inc

and its subsidiaries, The Flying Tiger Line, Inc. and Warren Transport Com

pany, Inc., merged with Federal Express and the entity’s name was changed

to Federal Express Corporation

References to the Appendix accompanying the Fund's Petition for a

Writ of Certiorari are abbreviated herein as “___a.”. References to the Peti

tion for Writ of Certiorari are abbreviated herein as “Pet ". References to

the Joint Appendix in the Court of Appeals below are abbreviated herein as

“JA

The Court of Appeals for the Third Circuit held that the issues in this

case were subject to statutory arbitration. Flying Tiger Line v. Teamsters

Pension Trust Fund of Philadelphia, 830 F.2d 1241 (3d Cir. 1987)

claimed against Tiger and two of its subsidiaries, The Flying

Tiger Line, Inc. (“Flying Tiger”) and Warren Transport Com-

pany, Inc. (“Warren”).

By stipulation, the parties selected a highly experienced

and expert Arbitrator, the former Executive Director (from

1979 to 1982) of the United States Pension Benefit Guaranty

Corporation (“PBGC”), Robert E. Nagle, Esquire.’ The core

issue before the Arbitrator was the Fund’s contention that

Tiger’s sale of Hall’s had as “a principal purpose” the evasion

or avoidance of withdrawal liability, a withdrawing employer's

proportional share of a multiemployer pension plan’s unfunded

vested benefits. See 29 U.S.C. §1381.

A. The Arbitrator’s Decision.

After extensive discovery proceedings, 5 days of hearings,

consideration of 19 depositions consisting of over 3,000 pages,

hearing transcripts, over 365 exhibits, and extensive briefs

filed by the parties, the Arbitrator, on December 22, i993,

issued an 83-page Opinion and Award (the “Award”). Arbitra-

tor Nagle considered and rejected the Fund’s arguments that

Federal Express was liable for withdrawal liability under the

standards the Fund argues are articulated in both Dorn’s Trans-

portation v. Teamsters Pension Trust Fund, 787 F.2d 897 (3d

Cir. 1986) and Santa Fe Pacific Corp. v. Central States, S.E. &

S.W. Areas Pension Fund, 22 F.3d 725 (7th Cir.), cert. denied,

L1I5S. Ct. 482 (1994). (107a-108a, 113a-135a).

Arbitrator Nagle held that Tiger’s sale of Hall’s was not a

transaction which had as a principal purpose to “evade or

avoid” withdrawal liability, and therefore, that Tiger was not

‘Despite the parties’ mutual selection of Arbitrator Nagle and his qualifi

cations, the Fund continues to attack the credibility of Arbitrator Nagle,

simply because the Fund disliked his decision. (Pet. at i7). An example of

the Fund's unwarranted attack on the Arbitrator’s credibility and character

is found in its Reply Brief in the Court of Appeals below, wherein the Fund

stated that Arbitrator Nagle exhibited “odd behavior” and that “One line of

Byzantine thought attributes the award to a desire of the Arbitrator to

continue his governmental mission at PBGC by forcing an appeal to limit the

scope of Dorn’s.” Fund's Reply Brief at 5

responsible for Hall’s withdrawal liability. (142a). Specifically,

Arbitrator Nagle held “. . . l conclude that Bodford as purchaser

did not have as a purpose to evade or avoid withdrawal liabil-

ity nor to enable the seller to do so. .. .”, and also held that the

seller, Tiger’s reasons for selling Hall’s were “plausible and

valid.” (113a, 12la). Additionally, Arbitrator Nagle held that

Tiger was not responsible for Hall’s withdrawal liability under

the Fund’s then so-called “Accrual Theory”: “I conclude that

the accrual theory is invalid and provides no basis for the

Fund's assertion of withdrawal liability against Tiger.” (142a.)

B. The District Court’s Confirmation

Of The Arbitrator’s Award.

The parties subsequently filed motions and actions in the

United States District Court for the District of Delaware, which

were consolidated. After extensive briefing by the parties, and

upon consideration of the entire record before Arbitrator Nagle,

the District Court granted Tiger’s Motion to Confirm and En-

force the Award and denied the Fund’s Motion to Vacate the

Award. (22a). The District Court held that the Arbitrator made

no error in his numerous and explicit factual and legal findings

and determined that Federal Express was not liable for any

withdrawal liability under the Dorn’s and Santa Fe standards.

(13a-17a). Additionally, the District Court also rejected the

Fund’s convoluted “Accrual Theory” of withdrawal liability

and held that “the accrual theory is invalid under ERISA

MPPAA”. (18a-21a).

C. The Court Of Appeals’ Affirmance Of

The District Court.

After briefing and oral argument before a three-judge panel

(Nygaard, Lewis, and McKee, JJ.) held on August 7, 1996, the

Court of Appeals affirmed without opinion the District Court’s

affirmance of the Arbitrator’s Award in a Judgment Order

entered on August 20, 1996. (2a). The Fund’s Petition for Re-

hearing by the Panel and Suggestion for Rehearing Jn Banc

was denied on October 21, 1996. (26a).

Il. FACTUAL BACKGROUND

The Fund distorts and misstates the facts. Contrary to the

Fund’s contentions that Tiger was motivated to sell Hall's in

order to avoid withdrawal liability, that the transaction was a

“sham”, and that the sale was a “gift” to the buyer Bodford

(Pet. at 7-10), the Arbitrator, the District Court, and the Court

of Appeals found exactly the opposite.

The Arbitrator’s findings of fact are entitled to deference

and are “rebuttable only by a clear preponderance of the evi-

dence” — in other words, a finding of clear error. See 29 U.S.C.

§1401(c); Central States, Southeast and Southwest Areas Pen-

sion Fund v. Crown Cork & Seal Co., Inc., 982 F.2d 857 (3d

Cir. 1992), cert. denied, 508 U.S. 972 (1993). (10a). Petitioner

simply seeks to reargue in this Court its thrice-rejected factual

contentions in this case and have this Court repeat the same

fact-intensive record review three different tribunals have al-

ready conducted.

Petitioner’s one-sided, inaccurate account of the facts is

placed in its proper context by 4 consideration of the facts that

the Arbitrator, the District Court and the Court of Appeals

found compelling. During late 1979 through 1981, Tiger ac-

quired three trucking companies. One of these was Hall’s. By

the end of 1981, Hall’s had begun to experience net operating

losses, which continued each year until its eventual sale by

Tiger. (JA 1000-1010, 1132).

Hall’s financial situation was only part of the financial

nightmare facing Tiger and its major subsidiaries. By the end

of 1982, Tiger and several of its subsidiaries were experiencing

cash shortages. (JA 1156, 1163, 1165, 1226). On February 14,

1983, Flying Tiger, North American and several other Tiger

subsidiaries declared a moratorium on payments of principal

and interest in its debt, and invited lenders to renegotiate new

terms and payment schedules. (JA 1286-1341, 7001-7004). Hall’s

debt restructuring was among the first to be accomplished. In

December, 1983, Flying Tiger, Tiger’s principal subsidiary, re-

structured all its debt in an Override Agreement.

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The Override Agreement contained onerous financial con-

ditions. Even after restructuring its debt in April, 1983, Hall's

continued to experience operating losses. (JA 4026-4076). Be-

ginning in March, 1984, Wayne Hoffman, Tiger’s Board Chair-

man and Chief Executive Officer, asked James Cronin, then a

Vice President of Tiger, President of TigerAir, and Assistant to

Tiger's Chairman, to evaluate the Hall’s situation. Cronin was

named President of Hall’s in May, 1984. (JA 5173-5174, 7521).

Hoffman was optimistic that the Hall’s financial situation

could be turned around if it had the right leadership and could

cut costs. (JA 5045, 5172-5173). Although Cronin made initial

progress, he predicted a cash shortfall during the first quarter

of 1985 of approximately $5 million. (JA 5068). Hall’s then

CFO, Alvin Bodford (“Bodford”), complained from the start

that he—not Cronin—should have been named President of

Hall’s. Bodford offered approximately $15 million for one hun-

dred percent (100%) ownership of Hall’s, which would have

covered the approximately $10 million of intercompany debt

and would have provided $4 to $5 million in cash to Tiger. (JA

4152-4154). The only condition was that an employee stock

ownership plan (“ESOP”) be in place at the time of sale. Cronin

testified that Bodford’s offer was inadequate because, with an

ESOP in place, Hall’s was worth more. Cronin recognized that

if Tiger could successfully establish an ESOP, Hall’s would be

instantly profitable. (JA 5093).

Hall’s atypical labor costs were a significant cause of its

unprofitability. Cronin explored the possibility of securing wage

concessions in return for an ESOP with an ESOP consultant

and the Teamsters officials. Cronin concluded that as long as

Tiger owned Hall's it would be difficult to obtain such conces-

sions. (JA 5133, 5137, 5342, 5347).

Although Bodford had never been told an “ESOP was not

possible while Tiger owned Hall's,” Bodford acknowledged

that it would “be more difficult to get the Teamsters’ blessing

for an ESOP while Tiger owned Hall’s.” (JA 4481). Cronin met

with John Lafferty, the Arthur Andersen engagement partner

on the Hall’s account on October 5, 1984. Lafferty’s memoran-

dum memorializing Cronin’s efforts with respect to the ESOP

pointed out that the Company had to make some important

strategic decisions, also noting other options Tiger Manage-

ment was considering, including outright sale, a joint-venture,

a restructuring, and a capital infusion by Tiger. (JA 6151).

By letter agreement dated November 1, 1984, Tiger en-

gaged Alex. Brown & Sons, Inc. (“Alex. Brown”), an invest-

ment banking firm with trucking industry experience, to devise

a plan to maximize Hall’s value. Alex. Brown’s engagement

was not limited to selling Hall’s, but also reflected Tiger’s

willingness to consider other arrangements, including merger,

acquisition or investment. (JA 4130, 5072-5073, 6150).

On December 5, 1984, North American and its parent,

Tiger Leasing Group Inc. filed a voluntary Chapter 11 Bank-

ruptcy Petition. As a result of this bankruptcy filing, funds

could no longer be up streamed from North American. Funds

could also not be up streamed from Flying Tiger. Tiger now

could not provide the necessary financial breathing room to

Hall’s to implement an ESOP—at that point considered essen-

tial to Hall’s turnaround. (JA 5122, 5178). North_American’s

bankruptcy and the attendant publicity also heightened the

jegatives of Hall’s association with Tiger.

As part of the settlement with the North American lenders

holding Tiger's collateral, Tiger agreed to a public offering, in

early 1985. As the Arbitrator correctly found, these develop-

ments made it important for Tiger to sell Hall’s:

The consequences of the North American Bankruptcy

left Tiger particularly desirous of finding a purchaser

for Hall’s by the end of 1984. The major consider-

ations appear to have been (1) the constraints that

now existed upon the further use of Flying Tiger as a

source of cash, and (2) the forthcoming public stock

offering and the S-1 registration statement that would

be filed in connection with that offering. (86a).

On November 13, 1984, Alex. Brown mailed a selling mem-

orandum to potential purchasers. At a December 12, 1984,

meeting with Cronin and other Tiger representatives, Whit Lee

(“Lee”), an interested prospective purchaser, proposed a pur-

chase of all of Hall’s stock for a $10 to $15 million note, which

included the $10 million pre-existing debt owed by Hall's to

Tiger. At the meeting, Lee and an associate, LeGrand Price

(“Price”), learned that Tiger was anxious to close before the

end of the year. Price's notes of the meeting contain references

such as “want deal cut before S-1” and “want to close not letter

of intent”. (JA 2490-2495). Learning this, Lee changed his pro-

posal, offered to pay $1,000 in cash for one hundred percent

(100%) of Hall’s stock, offered to leave in place Hall’s debt to

Tiger up to $10.5 million, and offered to secure that debt, the

deal to be subject to existing lenders’ consent or to refinancing

of the debt of any consenting lender. (JA 2496-2498).

Although Tiger had believed it desirable to resolve the

Hall's situation by year-end, with North American’s bankruptcy

filing on December 5, 1984, the elimination of North American

and Flying Tiger as cash sources, and the growing burden of

keeping Hall's financially afloat, solving Hall’s problems imme-

diately became imperative. The ESOP and a $5 million cash

infusion by a third party now also assumed urgent importance.

On December 19, 1984, Lee and Cronin met with Hall’s lenders.

Bodford was also present. The lenders, whose consent was

necessary to consummate the transaction, made it clear they

would approve no transaction in which any significant amount

of money went to Tiger rather than going to Hall’s or being

paid back to the lenders. (JA 5086).

During the December 19, 1984 meeting, Bodford abruptly

announced he would meet Lee’s offer. (JA 4421-4426). The

lenders then met separately with Bodford, and preferred Bod-

ford to Lee. As the Arbitrator found, Bodford and his existing

management group were the known commodity. Lender Walter

E. Heller Co.'s (“Heller”) representatives were alarmed by Lee’s

threat to use bankruptcy filings to force renegotiation of union

contracts. The Arbitrator summarized the deal that evolved:

The proposed transaction that finally emerged from

these meetings provided for Bodford and other se-

nior members of Hall’s management to form a corpo-

ration, Hall’s Acquisition Corporation (“HAC”), that

would purchase 75% of Hall’s stock from Tiger. HAC

would pay Tiger $1,000.00 in cash and Tiger would

receive a secured note for $10.5 million of the exist-

ing intercompany debt, such security to be subordi-

nated to that of the lenders. Tiger would retain a 25%

interest in Hall’s and would have the right to name

one director to the Hall’s board. Tiger would pay the

costs of closing the transaction (including Alex.

Brown's fees) amounting to some $1 million, and

would continue for up to one year its existing guaran-

tees of certain of Hall’s self-insured workers’ com-

pensation obligations. Tiger retained the right to can-

cel the sale if $5 million in new financing promised by

Heller were not forthcoming by January 31, 1985. The

purchaser would agree to cause Hall’s to continue

contributing to the various pension plans, and at sub-

stantially the same levels, as Hall’s had contributed in

the past.

With respect to the lenders, Heller would agree to

lend up to an additional $5 million in return for a first

lien on all unencumbered real estate and rolling stock,

and would receive warrants which could be exer-

cised to obtain a 12-1/2% interest in Hall’s. (90a).

Lender Heller imposed important conditions and insisted

on establishment of the ESOP. In recommending that Tiger

sell Hall’s to Bodford, Cronin gave no consideration whatso-

ever to Hall’s potential withdrawal liability. (JA 5194-5195).

In addition, Alex. Brown’s recommendation to Hoffman and

the Tiger Board to sell Hall’s to Bodford summarized the con-

siderations. They did not so much as mention withdrawal

liability or MPPAA. (JA 3000-3003).

In a telephone meeting on December 31, 1984, the Tiger

Board of Directors approved the sale. Six Directors were

present, including former President of the United States, Ger-

ald Ford. The Board’s resolution recorded its reasons for ap-

proving the sale. There was neither consideration of, nor any

mention of, withdrawal liability. (JA 2614).

Tiger's sale of Hall's to Bodford closed on January 7, 1985.

Three weeks later Heller funded its $5 million commitment.

Seventy-five percent of Hall's stock went to HAC, Bodford’s

acquisition company. Hoffman regarded as fair the sale of 75%

of Hall’s shares for (i) $1,000; (ii) the $5 million capital infusion

by Heller; (iii) the granting of a $10.5 million secured note; and

(iv) the retention of twenty-five percent (25%) of Hall’s shares.

(JA 5212).

Immediately after the closing, Hall’s began negotiations

with the Teamsters to establish an ESOP. (JA 5212). The ESOP

was announced May 6, 1985. Total savings to the Company

generated by the ESOP, estimated at approximately $77 to $80

million, contributed to a fourth-quarter operating profit. The

difficulties that arose thereafter were unanticipated.

Hall’s began to lose key management personnel. As Heller

later complained to Bodford, “/had/ Heller known that sub-

stantially all of the management team that was to have

participated in the management buyout of Hall’s would leave

the Company in 1985, it is highly unlikely that Heller would

have financed the buyout transaction.” (JA 7473, 7523-7529).

Given Heller's $5 million, creation of the ESOP and the final

disassociation from Tiger, there was no reason to suppose this

development could have been foreseen when Hall's was sold

to Bodford in December, 1984. In mid-November, 1985, Bod-

ford asked Tiger to give up both its 25% interest in Hall’s, and

its lien on Hall’s assets which secured the $10.5 million obliga-

tion from Hall's to Tiger. Given his efforts, and risks, he felt

that he alone should be the owner. (JA 3425-3426). He also

believed he would be unable to secure essential additional

financing as long as Tiger held a security interest in Hall’s

assets. Tiger subsequently entered into an agreement to relin-

quish its twenty-five (25%) share. (JA 3442-3453). Hall’s was

unable to obtain additional funding. The company filed a Chap-

ter 11 Bankruptcy Petition on March 10, 1986. By the end of

1987, Hall's had ceased making contributions to various Team-

ster multiemployer pension plans.

REASONS FOR DENYING THE WRIT

I. REVIEW OF THE COURT OF APPEALS’ JUDGMENT

ORDER WOULD NOT REQUIRE THE COURT TO

RESOLVE ANY ALLEGED CONFLICT BETWEEN

THE CIRCUIT COURTS.

The Fund incorrectly suggests that this case presents the

Court with the ability to resolve an alleged “conflict” between

the circuit courts, arguing that the Court of Appeals for the

Third Circuit’s decision in Dorn’s Transportation v. Team-

sters Pension Trust Fund, 787 F.2d 897 (3d Cir. 1986), “con-

flicts” with a decision of the Court of Appeals for the Seventh

Circuit, in Santa Fe Pacific Corp. v. Central States, S.E. &

S.W. Areas Pension Fund, 22 F.3d 725 (7th Cir.), cert. denied,

1158S. Ct. 483 (1994). (Pet. at 17, 19). It is noteworthy, howev-

er, that in the Court of Appeals the Fund posited Dorn’s evade

or avoid interpretation as dictum and not as a conflict with the

Seventh Circuit’s decision in Santa Fe or any other circuit

court.°

The Fund’s position with respect to the alleged “conflict”

rests only on the decisions of two circuit courts — the Third

and Seventh Circuits — and their interpretation of the “evade

or avoid” provision contained in 29 U.S.C. § 1392(c). (Pet. at

15-23). Therefore, the issue — if there is an issue — is not a

frequently occurring one. Any alleged “conflict” is also too

premature to require the Court’s attention.

A. The Arbitrator’s Alternative Holdings

Rejected The Fund’s Position Under Both

Legal Standards.

Putting to one side the question of whether there is any

conflict at all and the relative lack of importance of the statu-

tory construction issue involved, the short answer to the Fund

Thus, Federal Express asserts that a strong argument can be advanced

that the Fund has waived any contention that this case presents a two-circuit

conflict, and the issue involved in the alleged “conflict” is arguably not

properly before this Court.

is that this case does not even present the issue. Arbitrator

Nagle anticipated that the Fund would seek subsequent judi-

cial review, and applied not only the Dorn’s standard, but also

the Santa Fe standard. The Arbitrator alternatively evaluated

the evidence under the legal standard the Fund asserts was

adopted by the Seventh Circuit in Santa Fe in which the

seller's purposes for the sale alone are examined to determine

whether a principal purpose of a transaction was to evade or

avoid withdrawal liability. (113a).

After concluding that the buyer had no purpose to evade

or avoid withdrawal liability (113a), let alone a principal pur-

pose, the Arbitrator expressly considered separately “the evi-

dence bearing on Tiger’s purpose in selling Hall’s”:

Notwithstanding the foregoing conclusion, I recog-

nize that the Fund has based its case mainly on the

proposition that despite the language of the Dorn’s

decision, it is the seller's purpose alone that is con-

trolling in the present circumstances. Accordingly,

in view of the prospect of further review of this

matter based on that position, I believe it appropri-

ate to consider the evidence bearing on Tiger’s pur-

pose in selling Hall’s. (113a) (emphasis added).

Applying this standard the Arbitrator concluded that the seller

had no purpose to evade or avoid withdrawal liability, and

thus found in favor of Federal Express. (116a-135a). Moreover,

the District Court agreed with the Arbitrator, distinguished the

facts of this case from those of Santa Fe, and found in favor of

Federal Express under Dorn’s and the Santa Fe analysis as

well. (16a-18a).

Since the Arbitrator and the District Court expressly con-

sidered and analyzed both of the allegedly “distinct” standards,

and on both standards found for Federal Express and against

the Fund, no “conflict” between those two circuits (if there

were one) is even remotely presented by this case. Thus, this

case is not an appropriate one in which to resolve the alleged

“conflict ”.

B. The Fund’s Empty Speculation Concerning The

Supposed Basis For The Court Of Appeals’

Judgment Order Provides No Basis For Review

By This Court.

The Fund attempts to wring from the one-line Judgment

Order of affirmance some insight into the Court of Appeals’

reasoning in this case and, in particular, the Court of Appeals’

interpretation of the “evade or avoid” provision of 29 U.S.C.

§ 1392(c). This, of course, is unhelpful hyperbole and exagger-

ation. The Third Circuit affirmed the District Court in a Judg-

ment Order which did not detail the Court’s reasoning. It sim-

ply provided that it affirmed the District Court’s decision for

“essentially the same reasons set forth in the District Court’s

Opinion”. (2a-3a). In its essence, the District Court’s Opinion

confirmed the Arbitration Award on both grounds. (13a-18a).

There is no basis for speculating that the Court of Appeals

analyzed this case only under its previous decision in Dorn’s.

Any “conflict” between Santa Fe and Dorn’s is entirely

academic in this case. The Arbitrator and the District Court

rejected the Fund’s factual contentions under the reasoning

contained in both. (16a, 113a). The Court of Appeals affirmed

in a Judgment Order. (3a-4a).

The Petition should be denied.

Il. THE COURT OF APPEALS’ JUDGMENT ORDER

INVOLVED ONLY THE ROUTINE APPLICATION

OF ESTABLISHED PRINCIPLES TO A VOLUMINOUS

FACTUAL RECORD THAT HAS ALREADY BEEN

CAREFULLY REVIEWED BY THREE TRIBUNALS.

The Fund suggests that the issue involved is “important to

prevent dumping of unfunded pension liability . . . on other

employers and the federal government.” (Pet. at 23). This case

presents the Court with no such important public policy issue.

Further review in this case would only entail the application of

established legal principles to an extensive factual record.

The Fund enjoyed a full and fair opportunity to present its

case and its theories to three tribunals below. The parties

conducted extensive discovery by way of deposition and docu-

ment production prior to the Arbitration. The Arbitration took

place in three cities over a period of five days. The parties

mutually selected a highly-regarded and experienced Arbitra-

tor, who made explicit factual findings and credibility determi-

nations, including those of both parties’ expert witnesses. The

Arbitrator’s Decision consisted of 83 pages of facts and analy-

ses. The facts and inferences contained in this case have been

thoroughly reviewed and analyzed by the Arbitrator, the Dis-

trict Court and the Court of Appeals. The appellate record in

this fact-intensive case alone consisted of eight volumes of

materials totaling 4,916 pages of exhibits, testimony and other

materials. It is respectfully submitted that reassessment by

this Court is neither appropriate nor necessary.

The Fund argues that the Arbitrator’s factual findings on the issue of

evasion or avoidance of withdrawal liability should not be afforded any

deference and mischaracterizes the Arbitrator’s findings as “inferences”

The Fund also cites an inapplicable tax case in support of its argument. (Pet

at 23.) The Fund’s argument is baseless, a clear misstatement of the law, and

conflicts with the case the Fund relies so heavily on, Santa Fe Pacific Corp

vu. Central States, S.E. & S.W. Areas Pension Fund, 22 F.3d 725 (7th Cir.),

cert. denied, 1155S. Ct. 483 (1994). The District Court properly found that the

Arbitrator made explicit factual findings of the motives of the parties. (16a).

Some of the Arbitrator’s findings are inferences. These too are reviewed

under a clearly erroneous standard of review. Sania Fe, 22 F.3d at 726-728

(Arbitrator’s factual findings and any factual inferences on issue of whether

company’s purpose was to evade or avoid withdrawal liability to be re

viewed only for clear error. )

In addition, the Arbitrator correctly applied the presumption of correct

ness which is afforded the Fund's determinations, as provided in 29 U.S.(

$1401(a)(3)(A) and as articulated in Concrete Pipe and Products of Califor

nia, Inc. v. Construction Laborers Pension Trust For Southern California,

508 U.S. 602 (1993). The District Court in this case properly held that the

Arbitrator correctly applied this presumption and rejected the Fund's re

argument of its version of the facts: “This court finds that the arbitrator did

correctly articulate the presumption and burden of proof, and there is no

indication that he did not fully understand and apply them in this case.”

12a-l3a)

A. The Arbitrator Affirmed By the District Court

and the Court of Appeals Correctly Decided This

Case Under The Standards Articulated In Both

Santa Fe And Dorn’s.

The Fund seriously mischaracterizes the Third Circuit's

holding in Dorn’s to require proof that a party had “wilful

criminal intent” to be found liable under 29 U.S.C.

§ 1392(c). (Pet. at i, 17). The Court held no such thing in

Dorn’s. It held that both parties to a transaction must act

collusively in some manner, or the transaction has to be a

“sham”, in order to satisfy the Act’s “evade or avoid” as “a

principal purpose” of any transaction standard. Dorn’s, 787

F.2d at 902. There is no requirement of any finding of “wilful

criminal intent” in the statute. Contrary to the Fund's asser-

tions, Dorn’s clearly does not suggest otherwise.

The Arbitrator in this case correctly applied the Dorn’s

standard and held — not that evasion or avoidance of with-

drawal liability was not “a principal purpose” — but that the

buyer in this case did not have “any purpose” of evading or

avoiding withdrawal liability:

It thus appears that the Court viewed Section 4212(c)

[of MPPAA] as applying, at least in transfer of busi-

ness transactions, only to efforts to escape withdrawal

liability through collusion or sham arrangement. [Foot-

note omitted].

The point is important here because whatever pur-

pose Tiger might have had in selling Hall’s — and

those purposes are considered at length below — the

Bodford-led HAC clearly did not have any purpose

of evading or avoiding withdrawal liability in pur-

chasing the company, nor does the Fund seriously so

contend. (10'/a-108a) (emphasis added).

There was no basis for finding “sham”, “collusion” or

“self-cdealing”. The Arbitrator specifically found no “sham trans-

action”, no “collusion” and no “self-dealing”. A fortiori there

was no basis on which the Arbitrator could have found that “a

principal purpose” of the transaction was to evade or avoid

withdrawal liability.

The Court of Appeals and the District Court affirmed the

Arbitrator’s holding that Federal Express was not liable under

Santa Fe Pacific Corp. v. Central States, S.E. & S.W. Areas

Pension Fund, 22 F.3d 725 (7th Cir. 1994), cert. denied, 1155

Ct. 483 (1994). In Santa Fe, the Seventh Circuit held:

The statutory criterion is ... whether the avoidance

of withdrawal liability by the seller (not necessarily

by the purchaser as well) is one of the principal

purposes of the transaction.

Santa Fe, 22 F.3d at 729-30. The Fund argues that to impose

withdrawal liability, the Seventh Circuit’s Santa Fe formula-

tion requires a finding that a principal purpose of a transaction

for the seller was to evade or avoid withdrawal liability. (Pet.

at 19-20). In this case, the District Court properly distinguished

the facts of Santa Fe and found it unsupportive of the Fund's

position. (16a). The Court of Appeals affirmed the District

Court’s holding that the Arbitrator made no clear error in his

findings on this issue. (17a).

After carefully examining the record evidence on Tiger’s

purpose in selling seventy-five percent (75%) of its stock in

Hall’s, Arbitrator Nagle decisively rejected the Fund’s position

as without substantial credible record support. (114a-135a).

The District Court found that Arbitrator Nagle buttressed this

conclusion with thorough and detailed findings of fact, which

embrace the entire factual record relating to the origin and

evolution of the deal and the motives of each of the partici

pants.‘ (16a).

Moreover, the Arbitrator specifically concluded that Tiger's

reasons for selling Hall’s were “plausible and valid” stating:

... recognition of [a] the need to obtain wage conces-

sions in return for an ESOP as a key ingredient for

returning Hall’s to profitability and the perceived dif

ficulty of securing Teamsters agreement; [b] to such

concessions as long as Hall's was owned by Tiger; [c]

the belief that competitors were taking business from

These explicit factual findings included the following

1. It was becoming very difficult for Tiger to provide the money to

Hall’s which it needed to continue to operate. (120a, 122a)

2. An essential key to turning Hall’s around was to secure wage

concessions from union employees in return for establishing an

employee stock ownership plan (“ESOP”). (116a)

3. It would have been difficult to obtain union agreement to an

ESOP with Tiger owning Hall's. (118a)

1. Bodford, the principal shareholder of the entity which acquired

Hall’s, agreed. (116a)

5. The delay occasioned by attempting to negotiate an ESOP while

owned by Tiger may have put the Company in a position which

would have discouraged any potentia! purchaser. (118a-119a)

6. Hall’s had a greater chance of becoming profitable outside of

Tiger's ownership. (119a)

Tiger had a reasonable expectation of lender unwillingness to

provide additional monies for Hall's. (121a).

8. “It seems undeniable that Tiger sought to dispose of Hall's, at

least in substantial part, because Hall’s had for several years,

been losing money, and Tiger was becoming increasdingly hard

pressed to provide the funds it would need. As the Third Circuit

has recently observed, ‘Disposing of an unprofitable operation is

a legitimate business purpose. See Pension Benefit Guaranty

Corp. v. White Consolidated Industries, 998 F.2d 1192, 1202 (3d

Cir. 1993), quoting Chicago Truck Drivers, Helpers & Warehouse

Workers Pension Fund v. Louis Zahn Drug, Co., 890 F.2d 1405

(7th Cir. 1989) (transaction designed to relieve [a party] of a part

of its business that was producing significant losses is a bona fide

sale).” (footnote omitted). (114a)

Hall’s by exploiting the negative image created by

Tiger widely-publicized financial difficulties; and [d]

the fact that Hall’s was losing money and would need

further cash infusions which Tiger was hard-pressed

to provide and banks were reluctant to lend, thus

represent the basic reasons advanced by Tiger for

deciding to sell Hall’s. J find these to be entirely

plausible and valid reasons. (121a) (emphasis added).

In this context, Santa Fe actually undermines the Fund's

position. The Santa Fe Court specifically recognized that if it

is better to sell stock to preserve a company as a going con-

cern rather than to sell the assets (and thereby trigger with-

drawal liability under some circumstances), then it is reason-

able to infer that withdrawal liability is only a minor factor in

the decision to sell, if a factor at all. Santa Fe, 22 F.3d at 729.°

After summarizing and analyzing the testimony of both

Tiger’s expert witness, Dr. Linneman, and the Fund’s expert

witness, Mr. Hempstead, the Arbitrator specifically concluded

that “[i]n view of these considerations, and my conclusion that

at that time there were realistic prospects for the Company’s

continued viability, J do not find that the sale of Hall’s as a

going concern, rather than its liquidation, reflected an eva-

sive purpose.” (132a) (emphasis added).

The Arbitrator and the District Court’s analyses, affirmed

by the Third Circuit, were correct under the standards articu-

lated in both Dorn’s and Santa Fe.

It is true that applying this formulation the Seventh Circuit set aside the

arbitrator and the district court’s conclusions in Sante Fe that there was no

evasion or avoidance of withdrawal liability. It did so, however, only on a

truly remarkable factual record of evasive intent which, as the District Court

and the Arbitrator both held, was glaringly different from the record in the

case at bar. (16a, 1l4a-135a)

B. The Fund’s “Partnership Approach” Or “Accrual

Theory” To Withdrawal Liability Is Mere

Hyperbole And Is Simply An Attempt By the Fund

To Distort Law.

The Fund advances a novel so-called “Partnership Ap-

proach” or “Accrual Theory” to withdrawal liability. The Arbi-

trator and the District Court correctly rejected this unsupported

theory when it bore the earlier moniker of the “Accrual Theory”.

(2la, 14la). Resuscitated as the “Partnership Approach’, it

was again rejected by the Court of Appeals.

The theory has been rejected by every court that has

considered it. Contrary to the Fund's position, the Arbitrator

and the Courts’ rejection of this theory hardly opens the flood-

gates to the “dumping” of pension liability. Nor does it present

any other important public policy issue.”

As the District Court properly determined, the “Partner-

ship/Accrual” theory proceeds on a flawed definition of the

“employer” and_then requires a further flawed analysis of when

withdrawal liability arises. (19a-20a). The Fund’s claim — that

Tiger, a former controlled group member, is both the “succes-

sor” employer and the “original” employer responsible for

‘The Fund contends that the Third Circuit's decision will “. .. eviscerat[e]

the prohibitions on evasion of pension liability”, and “. . . places the public at

risk on more than $80 Billion of unfunded pension liability. . . .” (Pet. at 23)

That contention is totally unfounded and misguided. Congress has adopted a

method for determining a company’s liability for unfunded pension be.iefits.

29 U.S.C. §§ 1381-1461. The Third Circuit’s decision in this case does not

impact on that method, especially in light of the Arbitrator’s dual analysis

under the standards the Fund asserts are articulated in Santa Fe and Dorn’s,

supra. In enacting ERISA, Congress created a detailed structure to safe

guard pensions. Federal Express painstakingly adhered to this structure and

its procedural safeguards. The Fund now seeks to have this court rewrite

ERISA in the guise of reviewing this decision simply because it wants to

relitigate the results of three independent tribunals. Contrary to the Fund's

contention, there is no threat to the public — Federal Express, the Fund, th

Arbitrator, the District Court, and the Court of Appeals, by each requiring

strict adherence to ERISA, made sure of that

withdrawal liability — fundamentally misconstrues MPPAA,

misapplies pertinent judicial and administrative interpretations,

and cannot be squared with the plain terms of the Act. Not

only is there no conflict among the circuits on this illogical

theory, there is no legal support whatsoever for the Fund’s

“Accrual! Theory”. It has been thoroughly discredited."”

Arbitrator Nagle, a recognized expert in federal pension

law, squarely rejected the Fund’s “convoluted arguments”,

which selectively borrow inapplicable tax rules and partner-

ship law to support the discredited “Accrual Theory”.'' The

To uphold liability under MPPAA on the basis of the so-called “Accrual

Theory” would, as one court stated in a case directly on point, require

“engaging in legal gynmastics in order to guarantee pension plans at all

costs.” Teamsters Pension Trust Fund of Philadelphia and Vicinity v

Central Michigan Trucking Line, 698 F.Supp. 698, 702 (W.D. Mich. 1987),

aff'd, 857 F.2d 1107 (6th Cir. 1988). Such a result clearly was not intended by

Congress. The “Accrual Theory” contradicts applicable law, which recog

nizes that only entities that are in the controlled group on the date of

withdrawal may be responsible for withdrawal liability. /d.

In rejecting the Fund’s arguments on this issue, the Arbitrator held

This attempt [by the Fund] to fasten liability on former con

trolled group members is contrary to the so-called snapshot

approach to withdrawal liability, under which liability ex-

tends only to the contributing entity and those who are mem

bers of its controlled group as of the date of withdrawal. This

is the approach that has been adopted by the courts, includ

ing the Third Circuit in JUE AFL-CIO Pension Fund v. Barker

& Williamson, Inc., 788 F.2d 118 (3d Cir. 1986), as well as by

the Pension Benefit Guaranty Corporation. Moreover, the

Fund's Accrual Theory has been specifically rejected by the

courts that have considered it, as lacking any support in the

Statute or its legislative history. Teamsters Pension Trust 1

Central Michigan Trucking, Inc., 698 F. Supp. 698 (W.D

Mich. 1987), affd, 857 F.2d 1107 (6th Cir. 1988); Teamsters

Pension Trust Fund v. Headley’s Express and Storage Com

pany, 1993 WL 189933 (E.D. Pa. June 3, 1993)

The Fund’s convoluted arguments for its Accrual Theory

which to a significant degree are based on analogies to tax rules

and other areas of law — have been discussed at length by the

District Court and by the Sixth Circuit in their Central Michi

gan Trucking decisions, and I see nothing to be gained by

repeating those analyses, with which I fully agree. (137a-138a

Fund incorrectly asserts that the Third Circuit’s rejection of

the “Partnership Approach” or “Accrual Theory” conflicts with

the Second Circuit’s decision in Trustees of Amalgamated

Insurance Fund v. McFarlin’s, Inc., 789 F.2d 98 (2d Cir. 1986).

(Pet. at 25). McFarlin’s is distinguishable. McFarlin’s did not

involve the determination of whether a successor or original

employer could be held liable for withdrawal liability at all. It

involved the question of whether an employee benefit plan’s

bankruptcy claim for withdrawal liability could properly be

considered a priority claim under Section 507 of the Bank-

ruptcy Code. See 11 U.S.C. § 507. In determining whether the

claim could be classified as a priority claim under the Bank-

ruptcy Code, the Court’s analysis focused on the period of

time in which the employees covered by the plan worked.

McFarlin’s, 789 F.2d at 103. The analysis is wholly inapplica-

ble to the issue in this case, whether a company is liable for

withdrawal liability under MPPAA.

This discredited approach to withdrawal liability involves

no issue warranting review by this Court.

CONCLUSION

The Petition for Writ of Certiorari should be denied.

Respectfully submitted,