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Textile Workers Pension Fund v. Standard Dye & Finishing Co.

decided: January 9, 1984.

TEXTILE WORKERS PENSION FUND, PLAINTIFF-APPELLEE,
v.
STANDARD DYE & FINISHING CO., INC., ROCCO BARONE, BILL CARAFELLO, ADOLPH NAZARRO, SR., ADOLPH NAZARRO, JR., JOSEPH NAZARRO, DICK KNIGHT, DAVID LAVORGNA AND MORRIS WAX, DEFENDANTS, STANDARD DYE & FINISHING CO., INC., DEFENDANT-APPELLANT; SIBLEY, LINDSAY & CURR CO., A DIVISION OF ASSOCIATED DRY GOODS CORP., PLAINTIFF-APPELLEE, V. BAKERY, CONFECTIONERY & TOBACCO WORKERS INTERNATIONAL UNION OF AMERICA, AFL-CIO AND BAKERY & CONFECTIONERY UNION & INDUSTRY INTERNATIONAL PENSION FUND, DEFENDANTS-APPELLANTS



Appeals from decisions of the United States District Court for the Southern District of New York (Sprizzo, J.) (Docket No. 83-7004) and the United States District Court for the Western District of New York (Telesca, J.) (Docket No. 83-7328 & 83-7650) ruling on the constitutionality of the Multiemployer Pension Plan Amendments Act of 1980. The Decision in No. 83-7004 is affirmed. Decision in Nos. 83-7328 and 83-7650 is reversed, except as to legal fees.

Cardamone, Pierce and Pratt, Circuit Judges.

Author: Cardamone

CARDAMONE, Circuit Judge:

On these two appeals we are called upon to analyze the withdrawal liability provisions in the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA or Act), Pub. L. No. 96-364, 94 Stat. 1208 (codified in scattered sections of 29 U.S.C.). Although the two employers before us withdrew from the multiemployer plans, of which they had been members prior to the enactment of the MPPAA, the Act provides for withdrawal liability to be retroactively imposed. Thus, the common question in both appeals is whether the imposition of financial liability violates these employers' constitutional rights. This question has been the subject of extensive litigation, spawning scores of district court decisions and, as of this writing, dividing two of our sister circuits. Compare Republic Indus. v. Teamsters Joint Council, 718 F.2d 628 (4th Cir. 1983) (Act upheld) with Shelter Framing Corp. v. PBGC, 705 F.2d 1502 (9th Cir.) (Act struck down), cert. granted, 467 U.S. 1257, 104 S. Ct. 3550, 82 L. Ed. 2d 853 (1984). We hold that the retroactive application of the MPPAA withdrawal provisions is constitutional in all respects.

Although this field of law has been plowed a number of times, we work it once again in the hope that our analysis, like Ariadne's slender filament of thread, will lead us surely through its labyrinths, making its complexities more easily understood. We turn first to the facts.

I Facts

A -- Standard

Standard Dye & Finishing Co., Inc. (Standard) was engaged for many years in the processing and distribution of dye and textiles. As an employer it contributed to a pension fund (Fund) on behalf of its employees beginning in 1961 when it signed a collective bargaining agreement with the Textile Union Workers of America (Union). The Fund is a self-insured multiemployer pension trust within the meaning of the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (ERISA) as amended by the MPPAA, and is jointly administered by an equal number of employer and union trustees pursuant to 29 U.S.C. § 186(c)(5)(B)(1976).

In 1980 Standard decided to liquidate its business because it was unable to pass on increasing costs to its customers. It advised the Union of this decision in May 1980 and its board of directors and stockholders formally voted in favor of liquidation in June. The liquidation plan called for the sale of Standard's assets for $1 million. Standard was paid all but $256,500 of this sum from the sale proceeds and $522,611.62 was distributed to Standard's stockholders. All these events occurred before the enactment of MPPAA on September 26, 1980. After its enactment, Standard paid an additional liquidating dividend of $210,470.42 to its stockholders.

Employment of all production workers terminated June 20, 1980, save for a handful retained to perform tasks incident to closing down operations. The last of those employees were terminated on October 31, 1980. Standard continued to make pension fund contributions on behalf of this smaller group until their termination.

In March 1981 Standard notified the Fund that it planned to liquidate and distribute the balance of its remaining assets of approximately $267,000. In June the Fund calculated Standard's withdrawal liability to be $817,398, payable in 69 equal quarterly installments of $18,544 with a final payment of $12,053. Standard did not contest the actuary's calculation of the debt. When the Fund did not receive the first payment due in August, it advised the company that unless it received the initial installment by October 1981 it would exercise its right under MPPAA to accelerate the debt and declare the full amount of the liability due and payable. When Standard still failed to make the required payment, the Fund commenced this action in the United States District Court for the Southern District of New York against Standard and eight of its stockholders who received liquidating dividends. The defendants moved for summary judgment, contending that the retroactive application of the withdrawal liability provision of the MPPAA unconstitutionally violated their rights to due process. On October 21, 1982 Judge Sprizzo denied that motion and upheld the constitutionality of the statute, ruling that the retroactive provision constituted a "rational means to a legitimate end." Textile Workers Pension Fund v. Standard Dye & Finishing Co., 549 F. Supp. 404, 410 (S.D.N.Y. 1982). Defendants filed a petition seeking permission to file an interlocutory appeal which the district court granted and we granted defendants leave to appeal under 28 U.S.C. § 1292(b).

B -- Sibley

Sibley, Lindsay & Curr Co. (Sibley), a division of the Associated Dry Goods Corporation, operates department stores in Rochester and elsewhere in the western part of New York State. For many years prior to 1980 Sibley operated a bakery at its Main Street store in Rochester. In 1955 the Bakery, Confectionery and Tobacco Workers International Union (Bakery Union) and various employers agreed to establish a pension fund. One year later Sibley negotiated and entered into a formal collective bargaining agreement with the Bakery Union, which required it to make contributions to the pension fund.

The 1980 actuarial valuation report for the pension fund indicated that it was seriously overextended, listing assets of over $609 million and liabilities of over $1.4 billion resulting in an unfunded past service liability of $871 million. The total liability showed an increase of over $108 million from 1979.

On May 31, 1980 Sibley closed the bakery in its Main Street Rochester store and terminated the employment of 43 bakery workers. Earlier that month Sibley and the Bakery Union had executed an agreement with respect to the closing. Under its terms Sibley provided vacation and severance benefits to its terminated employees. The pension fund was not a party to the agreement, and the agreement did not purport to fix Sibley's withdrawal liability under ERISA.

In May 1981 the pension fund notified Sibley that its withdrawal liability amounted to $315,927 and Sibley began making monthly payments of $6,245 in July. The payments were made under protest to avoid the default provisions of the MPPAA. Sibley then filed this action in the United States District Court for the Western District of New York in June 1982 challenging the constitutionality of the retroactive imposition of withdrawal liability under the MPPAA. In August 1982, Judge Telesca denied the pension fund's and Union's motions to dismiss. Subsequently, Sibley's initial motion for a preliminary injunction and for a declaratory judgment was converted into a motion for summary judgment. On March 15, 1983 Judge Telesca granted Sibley's motion for summary judgment and ruled that the retroactive application of the MPPAA withdrawal liability provisions violated Sibley's right to due process of law. See Sibley, Lindsay & Curr Co. v. Bakery, Confectionery and Tobacco Workers Int'l Union, et al., 566 F. Supp 32 (W.D.N.Y. 1983). From this judgment, the Union and pension fund appeal.

II Background and Legislative History

In order to understand the problem that Congress sought to remedy by imposing retroactive liability on employers withdrawing from multiemployer pension plans, it is necessary to review the reasons for the existence of these plans and the legislative history of the Act.

Multiemployer plans were originally developed in industries where job changes were frequent and there was little continuity in the employer-employee relationship. For example, in some industries employees are often hired for a specific project, and their employment terminates with the project's completion. In other industries conditions of fierce competition, frequent business failures or recurring layoffs prevent the establishment of a stable employer-employee relationship. In these kinds of industries workers cannot obtain meaningful pension rights from a single employer. Thus, collectively bargained for multi-employer pooled funds or plans came into being to provide pension protection for workers in highly volatile industries. See P. Berger and S. Hester, Special Problems of Multiemployer Plans 1, in Pension and Profit Sharing Plans (D. Rothman, ed. 1978).

Enacted in 1974, ERISA represented a comprehensive attempt by Congress to regulate the funding, management, operation, benefit provisions, and insurance of private employer pension plans. One of Congress' central purposes in enacting ERISA was to prevent the great personal tragedy suffered by employees whose vested pension benefits were lost when plans were terminated. Nachman Corp. v. PBGC, 446 U.S. 359, 374, 100 S. Ct. 1723, 64 L. Ed. 2d 354 (1980). ERISA, therefore, set forth standards for pension plans regarding reporting and disclosure of information, participating and vesting rights, adequate funding, fiduciary responsibilities for trustees and enforcement procedures. In addition, ERISA created the Pension Benefit Guaranty Corporation (Guaranty Corporation) to provide insurance coverage for pension plan benefits in the event that a plan was terminated. In short, ERISA represented an attempt to protect and secure the pension rights and expectations of millions of employees and their dependents. See 29 U.S.C. § 1001 (1976).

Under ERISA, the Guaranty Corporation immediately insured the receipt of all "nonforfeitable benefits" that had been earned by employees in single employer plans. Multiemployer plan benefits were treated differently. They were not insured absolutely upon ERISA's enactment, but were guaranteed at the discretion of the Guaranty Corporation until January 1, 1978, when full guarantee was to become mandatory. Id. § 1381(c)(1). During the interim period, the Guaranty Corporation had discretion whether it would pay a terminating plan's participants the difference between the value of their guaranteed benefits and the value of the plan's assets on the date of termination. Id. § 1381(c)(2) (1974). If an employer wanted to withdraw it could do so without incurring liability, unless the plan terminated within five years of the employer's withdrawal without assets sufficient to provide employee benefits at the level guaranteed by the Guaranty Corporation. If a plan terminated, each employer who had contributed to the plan during the five year period preceding its termination incurred liability to the Guaranty Corporation for its proportionate share of the total expended, up to 30 percent of each employer's net worth. Id. §§ 1362, 1364.

As the January 1, 1978 date for mandatory guaranteed coverage drew closer, Congress became concerned about certain problems attendant to the changeover, particularly the potential costs of extending mandatory coverage to multiemployer plans. To have more time to consider the problem, it postponed the guarantee's effective date. See Pub. L. No. 95-214, 91 Stat. 1501 (1977). Pursuant to Pub. L. No. 95-214, the Guaranty Corporation prepared a comprehensive report analyzing the problems surrounding multiemployer pension plans. It noted that employer withdrawals posed a serious threat to the overall stability of such plans by burdening those employers that remained. As explained to the Ways and Means Committee:

A key problem of ongoing multiemployer plans, especially in declining industries, is the problem of employer withdrawal. Employer withdrawals reduce a plan's contribution base. This pushes the contribution rate for remaining employers to higher and higher levels in order to fund past service liabilities, including liabilities generated by employers no longer participating in the plan, so-called inherited liabilities. The rising costs may encourage -- or force -- further withdrawals, thereby increasing the inherited liabilities to be funded by an ever-decreasing contribution base. This vicious downward spiral may continue until it is no longer reasonable or possible for the pension plan to continue.

Pension Plan Termination Insurance Issues: Hearing Before the Subcommittee on Oversight of the Committee on Ways and Means House of Representatives, 95th Cong., 2d Sess. 22 (1978) (Termination Hearings).

After considering these recommendations, Congress introduced legislation in the Spring of 1979 which ultimately became the MPPAA. To provide additional time to consider this legislation, the effective date for mandatory multiemployer plan termination insurance was delayed. See Pub. L. No. 96-24, 93 Stat. 70 (1979) and Pub. L. No. 96-239, 94 Stat. 341 (1980). The question of employer withdrawals from multiemployer plans was continually cited as a major problem. In reporting favorably ...


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