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SOVA OUTERWEAR CORP. v. TRUSTEES OF THE AMALGAMATE

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK


January 11, 1984

SOVA OUTERWEAR CORP., Plaintiff, against THE TRUSTEES OF THE AMALGAMATED COTTON GARMENT AND ALLIED INDUSTRIES FUND, Defendant.

The opinion of the court was delivered by: DUFFY

MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, D.J.:

 Plaintiff Sova Outerwear Corporation ("Sova") moves for summary judgment against the defendant Trustees of the Amalgamated Cotton Garment and Allied Industries Fund ("the Fund") declaring the Multiemployer Pension Plan Amendment Act of 1980, 29 U.S.C. § 1381 et. seq. ("MPPA") unconstitutional. Defendant has cross moved for summary judgement on its counterclaim for the amount of Sova's withdrawal liability stemming from its withdrawal from the Fund. For the reasons that follow plaintiff's motion for summary judgement is denied and defendant's motion is granted.

 Plaintiff argues that MPPAA is unconstitutional because it is not rationally related to the objectives Congress sought to remedy. The Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et. seq. ("ERISA") as originally enacted in 1974 permitted an employer to withdraw from multiemployer pension plan without incurring any liability for underfunded benefits unless the entire plan terminated with insufficient assets within five year's of the employer's withdrawal.

 This withdrawal method, however, according to a PBGC report, operated to encourage withdrawals with the employer hoping that the plan would survive for at least five more years. The employer thus would be absolved from liability fnr underfunded benefits. The snowballing effect -- with employers expediently attempting to withdraw from financially-troubled plans and the concomitant increasing likelihood of a plan default -- was a principal ERISA defect Congress sought to remedy by the MPPAA. See H.R. No. 96-889, Part I, 96th Cong., 2d Sess., 54-55, reprinted in [1980] U.S. Code Cong. & Ad. News 2918, 2922-23.

 The MPPAA amended ERISA to impose immediate liability upon the employes at the time of its withdrawal from a multiemployer pension plan. An employer thus is required to make a payment for its proportionate share of the unfunded vested benefit liability. See 29 U.S.C. § 1381. The plan trustees reciprocally are required to calculate and collect this liability. Id. § 1382.If disputes arise between an employer and the trustees over an assessment, they must initially be resolved through arbitration. Id. § 1401.

 In the instant case, the Fund's trustees calculated Sova's liability under the Act and notified plaintiff of a schedule of payments to be followed. Rather than arbitrate the amount assessed, plaintiff brought this action to declare the MPPAA unconstitutioonal.

 Sova argues that MPPAA as applied to it and on its face violates the due process clause because it abrogates the existing contract with the union (the collective bargaining agreement) with the union, which provided that Sova was not liable for more than its actual contributions; because it operates retroactively in taking plaintiff's property, and because the method of calculating benefits is a "taking" and deprives Sova of its property without due process of law. In addition, Sova asserts that MPPAA's provision for trial without a jury violates the Seventh Amendment. The complaint also alleges various breaches of fiduciary duty by defendant trustees which are not before me on the instant motions.

 In response, defendant argues that MPPAA is constitutional and it asserts a counterclaim against Sova for the full amount of the underfund vested liability it has calculated as due.

 Every court that has passed on the question had held that MPPAA is constitutional as prospectively applied -- which is clearly the case here. See, e.g., Trustees of the Retirement Fund v. Lazar-Wisotsky, Inc., 550 F. Supp. 35, 36 (S.D.N.Y. 1982); Textile Workers Pension Fund v. Standard Dye & Finishing Co., 549 F. Supp. 404 (S.D.N.Y. 1982); Peick v. Pension Benefit Guaranty Corp., 539 F. Supp. 1025 (N.D. Ill. 1982). See also Shelter Framing Corp. v. Carpenters Pension Trust, 705 F.2d 1502 (9th Cir. 1983); Republic Industries, Inc. v. Teamsters Council 83 Pension Fund, 3 E.B.C. 2545 (E.D. Va. 1982), aff'd, 718 F.2d 628, 4 E.B.C. 2057 (4th Cir. 1983); Pacific Iron & Metal Co. v. Western Conference of Teamsters Pension Fund, 553 F. Supp. 523 (W.D. Wash. 1982); Cornett Dodge, Inc. v. Speckmann, 553 F. Supp 518 (E.D. Mo. 1982); R.A. Gray and Co. v. Oregon Washington Carpenters Pension Trust Fund, 549 F. Supp. 531 (C.D. Or. 1982); S&M Paving Co. v. Construction Laborers Pension Trust, 539 F. Supp. 867 (C.D. Cal. 1982). These opinions have carefully considered the constitutional questions raised by MPPAA -- especially Judge Getzendanner's exhaustive opinion in Peick -- and have rejected the challenges raised here. Because I agree with these courts' analyses plaintiff's motion for summary judgement on the grounds that MPPAA is unconstitutional is denied. To the extent that the underfunded liability may have been created in whole or in part by defendant Trustees' alleged misconduct, Sova may assert such an action against the Trustees. There is nothing, however, irrational about a statutory framework that separates the breach of fiduciary duty and withdrawal liability claims. Sova, thus is liable for the amount of its statutory withdrawal.

 Furthermore, because Sova has not objected to the amount of the assessment, or requested arbitration within the prescribed period, see 29 U.S.C. § 1399(2)(A) (within 90 days of trustees' demand), the amount of liability becomes fixed. Compare id. with 29 U.S.C. § 1401(a)(1) (arbitration may be initiated by employer within 120 days of its notice to trustees of a dispute). Moreover, in the event of a default on a payment, the trustees are entitled to "required immediate payment of the outstanding amount of an employer's withdrawal liability, plus accrued interest. . . ." 29 U.S.C. § 1399(c)(5). Default is the failure to amke payment or to cure the failure to make payment within 60 days of notification to the employer of such failure. Id. § 1399(c)(5)(A).

 The Fund notified Sova of its failure to make the July 1, 1983 payment on July 6, 1983. Sova did not make subsequent payment and has not requested arbitration. Accordingly, Sova is liable for the full $65,249.48 plus interest, and defendant's motion for summary judgement in its counterclaim is granted. Plaintiff's motion for summary judgment is denied. Defendant is directed to settle judgment on five (5) days notice within ten (10) days of this order.

 SO ORDERED.

19840111

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