thereon from the date of termination of the Hourly Plan plus costs and attorneys' fees, for each of the three causes of action; and
6) that the defendant fiduciaries failed to fulfill their obligations to act for the sole benefit of the Hourly Plan pursuant to section 404(a)(1) of ERISA in that they failed to take steps to correct their prior fiduciary breaches, for which they seek $ 12,500,000.00 together with interest from the date of termination of the Hourly Plan plus costs and attorneys' fees.
A local attorney was appointed the 4049 Trustee by the PBGC in July of 1992 to negotiate with and collect from Rome Cable the outstanding unguaranteed benefit commitments, if any, under the Hourly Plan on behalf of its participants and beneficiaries. See White Affidavit PP 16, 17. On September 11, 1992, the Section 4049 Trustee commenced an action in the Northern District of New York to collect the amounts owed by Rome Cable to the Hourly Plan as unguaranteed benefits. See Index No. 92-CV-1181(NPM).
The Hourly Plan here was maintained pursuant to the provisions of the Single Employer Pension Plan Amendments Act of 1978 (SEPPAA). SEPPAA, in this case, provides not only the procedural framework for the plan itself but also provides the procedural mechanism for the distress termination of the Hourly Plan, which is the gravamen of this motion and case.
In accomplishing a distress termination for a single employer pension plan, at the time of this plan termination, SEPPAA provides that after the requisite notices of termination are provided to the plan's participants and beneficiaries, and after the PBGC approves of the distress termination, the PBGC steps in and takes over the payments of the vested, guaranteed portion of the plan's benefits.
In this case, pursuant to the provisions of SEPPAA, the PBGC appointed itself the Section 4042 Trustee, so called because the trust is created pursuant to the provisions of section 4042 of SEPPAA, 29 U.S.C. § 1342. In appointing itself 4042 Trustee, the PBGC took over the administration of the vested, guaranteed portion of the plan. See Exhibit 14 annexed to White Affidavit. Subsequently, pursuant to its authority under 29 U.S.C. § 1367, the PBGC entered into a settlement agreement with the defendants whereby the defendants were released from all obligations and liabilities relative to the vested, guaranteed benefits. See Exhibits 14 & 16 annexed to White Affidavit.
The vested, unguaranteed benefits of the Hourly Plan amount to approximately $ 619,750. These benefits are not statutorily protected by the PBGC. Rather, it is the obligation of the Section 4049 Trustee to attempt to recoup those funds from the plan sponsor, Rome Cable. As stated, the 4049 Trustee has initiated an action against Rome Cable for that purpose. See 92-CV-1181.
The defendants have moved for summary judgment with respect to each of the causes of action alleged by the plaintiffs in their complaint, alleging various grounds for the relief sought. Each ground for summary judgment will be considered and addressed seriatim:
The defendants allege that the plaintiffs are precluded from seeking what amounts to a double recovery since the PBGC is obligated to them with respect to the vested, guaranteed portion of their benefits. By virtue of the provisions of SEPPAA, the defendants also allege, the plaintiffs are precluded from any recovery from these defendants since these defendants have been released from any and all liability as relates to the Hourly Plan and are liable now only to the PBGC and the 4049 Trustee.
With respect to these grounds, the defendants do not specify as to which causes of action they seek summary judgment. However, upon a review of the complaint, it would appear that they are seeking summary judgment with respect to the first, second and third causes of action.
In response, the plaintiffs contend that the defendant made them three promises, the breach of which result in liability. Thus, they are alleging what amounts to a breach of promise or contract. The plaintiffs' contentions may be summarized as follows:
1) that the Hourly Plan constitutes an offer by Rome Cable of a unilateral contract to pay benefits which was accepted and became binding when the plaintiffs, as employees, performed services for Rome Cable;
2) that Rome Cable promised employment benefits in writing and never notified the plaintiffs of its intent to limit its liability in that regard; and
3) that in the collective bargaining agreement, Rome Cable promised to provide pension benefits in accordance with the Hourly Plan. In support of their contention, the plaintiffs cite to a litany of cases, all but one of which predate SEPPAA
and none of which addresses the primary issue: whether the plaintiffs can recover against the defendants for benefits that are being paid and have been guaranteed by the PBGC.
In order to qualify for a distress termination under SEPPAA, the employer must satisfactorily demonstrate that if it is required to continue to fund the pension plan, it will collapse, thereby causing not only the termination of the pension plan but also the termination of the business and loss of employment to the participants. SEPPAA § 4041(c)(2)(B)(iii), codified as 29 U.S.C. § 1341(c)(2)(B)(iii). Thus, the scheme for a distress termination wherein the PBGC steps in as guarantor is intended to ensure the benefits of the pension plan to the participants and beneficiaries and possibly to salvage the employer's business, thereby safeguarding the employment of the participants. See Aldridge v. Lily-Tulip, Inc., 953 F.2d 587, 591 (11th Cir. 1992); H.Rep. No. 99-300, 99th Cong., 1st Sess. 278 (1985), reprinted in 1986 U.S.C.C.A.N. 929, 941 (1986).
The defendants, in urging summary judgment on these causes of action, do not cite the court to any authority squarely on point with the issue here presented. However, as the defendants suggest, it would appear that the principles of the law of trusts must be applied. The PBGC as Trustee, has the ability to bind the trust beneficiaries (the plaintiffs here) thereby releasing the obligations of the original debtor (Rome Cable) as an accord and satisfaction. III Scott on Trusts § 142 (4th ed.); Restatement (Second) of Trusts § 192 (1987); Hun v. Van Dyck, 26 Hun 567 (1882), aff'd without opinion, 92 N.Y. 660 (1983). Having entered into a statutorily permitted settlement agreement with Rome Cable and now being the Hourly Plan administrator and 4042 Trustee, the PBGC stands in the shoes of the defendants.
Just like with any other trust beneficiary, if the plaintiffs here feel that the settlement agreement executed between the PBGC and Rome Cable was imprudent or in some way compromised or diminished their rights, their recourse is to sue the PBGC as the Hourly Plan trustee. IV Scott on Trusts § 279A (4th ed.); Restatement (Second) of Trusts §§ 280-82 (1987); Bowen v. United States Postal Serv., 459 U.S. 212, 243, 103 S. Ct. 588, 605-606, 74 L. Ed. 2d 402, (1983); Teamsters Local 391 v. Terry, 494 U.S. 558, 567, 110 S. Ct. 1339, 1346, 108 L. Ed. 2d 519, (1990).
The plaintiffs further argue that the PBGC is acting as a guarantor and not a trustee, in which case the law of guaranty would apply. As such, they contend that they are not seeking a double recovery as the defendants would have the court believe, but are merely seeking to protect and ensure their rights as against the defendants within the period of the statute of limitations should the PBGC fail in its statutory obligation to pay them their vested, guaranteed benefits. Were this the case, however, the plaintiffs, it would seem, would be seeking merely declaratory relief; that is not the case and would not be appropriate even if that were the only relief the plaintiffs sought.
The SEPPAA scheme is intended to limit employer liability to the PBGC, which is in turn liable to the terminated plan's participants and beneficiaries to the full extent of the unfunded guaranteed benefit deficiency. In so doing, the employer, who is then no longer liable to the plan participants and beneficiaries, may work out an agreement with the PBGC for payment of the funds out of which the benefits are payable, thereby utilizing its limited assets so as to enure its continued operation and thus continued employment of plan participants. Thus, the goals of the statutory scheme would be satisfied. See Nachman Corp. v. PBGC, 446 U.S. 359, 380, 100 S. Ct. 1723, 1736, 64 L. Ed. 2d 354, (1980). It would be counterproductive indeed to find that the employer would, following a distress termination, be liable not only to the PBGC but also remain liable to the plan participants and beneficiaries.
In this instance, there is further support for this conclusion found in the terms of the Hourly Plan itself. Section 8.03 of the Hourly Plan provides that "a Participant or Beneficiary with a nonforfeitable [(vested)] right under this Plan shall not have any recourse toward satisfaction of such nonforfeitable right from other than Plan assets or the Pension Benefit Guaranty Corporation." Section 104(a), and (b) of ERISA (codified as 29 U.S.C. §§ 1024(a), (b)), see also 29 C.F.R. §§ 2520. 102-2(a), 2520. 104a-3 (a) & 2520. 104b-2(b), requires that an employer file a summary plan description [hereinafter referred to as the "SPD"] with the Department of Labor. The summary plan description is just as its name indicates, a summary of the pension plan. In this case, it is undisputed that Rome Cable, while having prepared an SPD, failed to file it with the Department of Labor. Notwithstanding, all plan participants were provided with a copy of the plan.
There are two provisions in the SPD which give notice of the limitation of liability. The first is encaptioned "CERTAIN INSURED BENEFITS" and reads as follows:
"Benefits under this plan are insured by the Pension Benefit Guaranty Corporation (PBGC) if the plan terminates. Generally, the PBGC guarantees most Vested Normal Age Retirement Benefits, Early Retirement Benefits, and certain disability and survivor's pensions. However, PBGC does not guarantee all types of benefits under covered Plans, and the amount of benefit protection is subject to certain limitations."
Exhibit B at 11 annexed to Hoveman Affidavit (emphasis added). Compare Arnold v. Arrow Transp. Co., 926 F.2d 782, 786 (9th Cir. 1990) (language virtually identical to that emphasized found to be an enforceable disclaimer). The second is encaptioned "PLAN CONTINUANCE," and reads as follows:
"The Company expects and intends to continue the Pension Plan indefinitely, but reserves the right to change or terminate it subject to collective bargaining. If the Plan should be ended, you would become fully vested in all benefits credited to you up to the date to the extent then funded. And, the assets of the Plan would be distributed in the order of priority set forth in the Plan text or as provided by law."
Exhibit B at 12 annexed to Hoveman Affidavit (emphasis added). Compare Arnold v. Arrow Transp. Co., 926 F.2d at 786 (similar language to that emphasized found to be enforceable).
In addition, there is a provision in the SPD which directs plan participants and beneficiaries to the Hourly Plan itself. That provision, which is encaptioned "WHAT YOU HAVE A RIGHT TO EXPECT," reads as follows:
"ERISA provided that all Plan participants shall be entitled to: examine, without charge, at the Plan Administrator's office, and at other specified locations such as your Personnel Department, all Plan documents, copies of all documents filed by the Plan with the U.S. Department of Labor such as detailed annual reports and plan descriptions [and] obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator."
Exhibit B at 13 annexed to Hoveman Affidavit.
Contrary to the position taken by the plaintiffs, these provisions, when considered together, are not ambiguous nor do they create confusion.
Thus, given the purposes of the distress termination procedure as articulated in the applicable statutes, and in light of the law of trusts, the plaintiffs are precluded from suing the plan sponsor, Rome Cable, as their debtor. The defendants' motion for summary judgment as it relates to the first, second and third causes of action is hereby granted and those three causes of action are hereby dismissed.
The defendants contend that the plaintiffs' third cause of action, which sounds in section 301 of the Labor-Management Relations Act, is barred due to the plaintiffs' failure to comply with the terms of the collective bargaining agreement.
Article 21 of the collective bargaining agreement between the Union and Rome Cable provides that "all matters of dispute that may arise between the Union and the Company under the terms of this Agreement shall be handled" through grievance "submitted within five working days of the alleged violation of contract" and arbitration. Exhibit 11 at 2 annexed to White Affidavit. It is undisputed that a grievance was never filed in this instance.
The plaintiffs argue that this dispute is not subject to grievance and arbitration because it relates to the Hourly Plan, which they term "separate and collateral" to the collective bargaining agreement. Dissecting this argument, then, it would appear the plaintiffs are not alleging that there has been a breach of the collective bargaining agreement but rather are alleging that there has been a breach of a "separate and collateral" agreement.
Contrary to the contention of the plaintiffs, however, the Hourly Plan is not a separate, collateral agreement between the Union and Rome Cable. See Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 105 S. Ct. 1904, 85 L. Ed. 2d 206 (1985); Bressette v. Internat'l Talc Co., 527 F.2d 211, 216 (2d Cir. 1975). Cf. NLRB v. Vanguard Tours, Inc., No. 92-4024 (2d Cir. 1992) ("When a contract 'annexes' as an essential part the terms of another instrument, the other instrument is deemed part of the contract."); Cornell Univ. v. UAW Local 2300, 942 F.2d 138 (2d Cir. 1991) (letter was separate and collateral to the collective bargaining agreement). It is an integral part of the collective bargaining agreement and, as such, any disputes relating to it are subject to the grievance and arbitration requirements of article 21 of the agreement. Thus, inasmuch as the Hourly Plan is an integral part of the collective bargaining agreement, and inasmuch as the parties have not engaged in the requisite grievance and arbitration process, the time for which has now more than elapsed, the plaintiffs are barred from bringing this cause of action. See Republic Steel Corp. v. Maddox, 379 U.S. 650, 652-53, 85 S. Ct. 614, 616, 13 L. Ed. 2d 580, (1965). Even were the plaintiffs not precluded by the statute of limitations, the appropriate action would be against the Union for breach of its obligation of fair and reasonable representation, in which case, they could include a hybrid suit against the defendants under section 301 of the Labor-Management Relations Act. See DelCostello v. Internat'l Brotherhood of Teamsters, 462 U.S. 151, 164-65, 103 S. Ct. 2281, 2290-91, 76 L. Ed. 2d 476, (1983); United Parcel Serv., Inc. v. Mitchell, 451 U.S. 56, 66-67, 101 S. Ct. 1559, 1566, 67 L. Ed. 2d 732, (1981); Miller v. U.S. Postal Serv., 792 F. Supp. 4, 6 (N.D.N.Y. 1992); see also Meehan v. U.S. Postal Serv., 792 F. Supp. 18, 21 (E.D.N.Y. 1992).
The plaintiffs further argue that the grievance and arbitration requirement is inapplicable to those plaintiffs who were not subject to the collective bargaining agreement because they were already receiving Hourly Plan benefits as retirees. This argument is equally unpersuasive since retirees can elect to sue on their own or to be represented by the Union, but if they chose the latter, then they are bound by the limitations that bind the Union. See UAW v. ACME Precision Prod., Inc., 515 F. Supp. 537 (E.D. Mich. 1981); Textile Workers Local 129 v. Columbia Mills, 471 F. Supp. 527 (N.D.N.Y. 1978). Here, those retiree plaintiffs have joined with the Union and are thus bound by the terms of the collective bargaining agreement.
Thus, for all of these reasons, the defendants' motion for summary judgment with respect to the third cause of action is hereby granted and that cause of action is hereby dismissed on this basis as well as those previously discussed in I, supra.
The defendants contend that the fourth, fifth, sixth and seventh causes of action, all of which allege a breach of the defendants' fiduciary duties as set out in the provisions of ERISA, must be dismissed as being time-barred.
Prior to December 31, 1987, section 413 of ERISA, 29 U.S.C. § 1113 provided for a three year statute of limitations for a breach of duty knowledge of which was either actual or constructive. Constructive knowledge was based upon "a report from which the plaintiff could reasonably be expected to have obtained knowledge of such breach or violation was filed with the Secretary [of Labor] . . ." 29 U.S.C. § 1113(a)(2)(B). Effective December 31, 1987, this section was amended to eliminate the constructive knowledge provision of the statute. In so doing, Congress specifically provided that the elimination of the constructive knowledge provision was to apply only to those reports which were required to be filed after the effective date; thus, the statutory revision was to be given prospective, and not retroactive, application. See Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 203, § 9342, 101 State. 1330, 1330-71 (1987).
In this case, as the defendants set out in their moving and reply papers, there were a litany of events that provided or should have provided the plaintiffs with knowledge of the alleged breach. Those events can be summarized as follows:
1) Rome Cable obtained minimum funding waivers for the years 1983-1987;
2) disclosure during collective bargaining negotiations in February and March of 1987 of the Hourly Plan's distressed financial condition, with correspondence to each employee to that effect;
3) the Union president was informed of the results of an investigation conducted by a law firm hired expressly to investigate the proposal to terminate the Hourly Plan;
4) in May of 1987, the Union hired a financial consultant to review the Hourly Plan, which was done and encompassed a review not only of the Hourly Plan but of the corporate books as well;
5) the National Labor Relations Board, which investigated Rome Cable at the Union's request, determined that the Union knew of the funding waivers prior to the collective bargaining negotiations in March and April of 1987;
6) the Union hired attorneys who were involved in the distress termination process in May through August of 1987;
7) on December 2, 1986, the Internal Revenue Service notified the President of Rome Cable that the IRS had issued minimum funding waivers for both the Salaried Plan and the Hourly Plan, copies of which were forwarded to the Department of Labor on March 6, 1987 and to the attorney for the plaintiff union on May 21, 1987;
8) on July 13, 1987, the Retirement Plan Committee notified by mail every participant of its intent to terminate the plan pursuant to ERISA;
9) thereafter, a union representative filed a complaint including therewith a copy of the IRS letter advising of the minimum funding waivers, with the Department of Labor to the effect that the fiduciaries had breached their responsibilities to the Hourly Plan in maintaining the Salary Plan to the detriment of the Hourly Plan with the result being a distress termination of the latter;
10) the issue of comparative underfunding of the two plans was discussed during the 1987 collective bargaining negotiations; and
11) Rome Cable specifically mentioned the IRS letter in its final pension proposal sent to employees and the union on April 1, 1987.
See Memorandum of Law at 22-25; White Affidavit; Exhibit 3, 4 & 5 at 2 annexed to White Affidavit; Defendants' Reply Memorandum of Law at 25-28.
Despite the plaintiffs' contention that the breach by the defendants cannot be so easily determined, it is clear that they knew or should have known of any alleged breach at least at the time that the Hourly Plan was terminated, in September of 1987. Inasmuch as this lawsuit was not commenced until July 3, 1991, these four causes of action are time barred.
For these reasons, then, the defendants' motion for summary judgment as it relates to the fourth, fifth, sixth and seventh causes of action is hereby granted and those causes of action are hereby dismissed.
The plaintiffs, in their complaint, generally ground jurisdiction for their case on various provisions:
1) under sections 502 and 4070 of ERISA, 29 U.S.C. §§ 1132 and 1370 respectively;
2) under 29 U.S.C. § 1331(a) in that the action arises under the laws of the United States, specifically under ERISA (and SEPPAA) and under the Labor-Management Relations Act of 1947;
3) under section 301 of the Labor-Management Relations Act, 29 U.S.C. § 185 (a); and
4) under 28 U.S.C. § 1337, amount in controversy.
Without specifically indicating the applicability of this argument to any particular cause of action, the defendants contend that there is no jurisdiction for the lawsuit under section 4070 of ERISA. They contend that the plaintiffs have not made out any of the underlying allegations necessary to invoke 4070 jurisdiction and therefore there can be no liability on the part of any of the defendants for any conduct in violation of any of the enumerated provisions of section 4070.
Section 4070 of ERISA reads as follows:
"Any person who is with respect to a single-employer plan a fiduciary, contributing sponsor, member of a contributing sponsor's controlled group, participant, or beneficiary, and is adversely affected by an act or practice of any party (other than the corporation) in violation of any provision of section 1341 [termination of single-employer plans], 1342 [institution of termination proceedings by corporation], 1362 [liability for termination of single-employer plans under a distress termination or a termination by corporation], 1363 [liability of substantial employer for withdrawal from single-employer plans under multiple controlled groups], 1364 [liability on termination of single-employer plans under multiple controlled groups] or 1369 [treatment of transactions to evade liability; corporation reorganization] of this title, or who is an employee organization representing such a participant or beneficiary so adversely affected for purposes of collective bargaining with respect to such plan, may bring an action--
(1) to enjoin such act or practice, or