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ISB LIQUID. v. DIST. NO. 15 MACHINISTS' PENSION

January 3, 2001

TSR LIQUIDATING COMPANY AND KIDDE INDUSTRIES, INC., PETITIONERS-PLAINTIFFS,
v.
DISTRICT NO. 15 MACHINISTS' PENSION FUND, BY ITS BOARD OF TRUSTEES, I. MICHAEL BRACCO, RICHARD HUBERT, JOHN SCARFI, JEROME FREEDMAN, WILLIAM HENRY AND ALAN STERN, RESPONDENTS-DEFENDANTS.



The opinion of the court was delivered by: Dearie, District Judge

MEMORANDUM & ORDER

ISB Liquidating Company*fn1 and Kidde Industries, Inc.*fn2 (the "Employers") bring this action to vacate an arbitration award upholding the withdrawal liability assessed by the District No. 15 Machinists' Pension Fund (the "Fund") under the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. § 1381 et seq.

For the reasons set forth below, the Court denies the Employers' motions to vacate the arbitration award and for summary judgment. The Fund's cross-motion to confirm the arbitration award is granted. The Fund's application for costs and attorney's fees is denied.

Background

The following material facts are undisputed. The Fund is a multiemployer pension plan within the meaning of Section 2 of ERISA, 29 U.S.C. § 1002, and the provisions of the MPPAA. Until February of 1991, the Employers contributed monthly to the Fund on behalf of their covered employees pursuant to successive collective bargaining agreements between the Employers and the Fund. On February 8, 1991, the Employers withdrew from the Fund within the meaning of the MPPAA. The Fund assessed withdrawal liability against the Employers in the amount of $2,023,901 using the direct attribution method. The Employers filed for arbitration of the Fund's assessment on March 24, 1992 with the American Arbitration Association. Arbitrator Maurice C. Benewitz (the "Arbitrator") rendered an Opinion and Award, dated January 22, 1996, finding that the Fund's assessment of $2,023,901 in withdrawal liability against the Employers was correct as a matter of fact and law. This action followed.

The Fund's Method for Calculating Withdrawal Liability

Under the MPPAA, "[w]hen an employer withdraws from a multiemployer plan, the plan sponsor . . . shall (1) determine the amount of the employer's withdrawal liability, (2) notify the employer of the amount of the withdrawal liability, and (3) collect the amount of the withdrawal liability from the employer." 29 U.S.C. § 1382. To determine the amount of liability, the plan sponsor must use one of four methods provided for by statute or any alternative method approved by the Pension Benefit Guaranty Corporation ("PBGC"). 29 U.S.C. § 1391. The presumptive method applies unless a fund elects one of the other methods provided for by statute or an approved alternative method. Id.

Employers withdrawing from the Fund after September 25, 1980, were assessed withdrawal liability under a hybrid method. Under the hybrid method, an employer was assessed liability equal to the higher of the assessment using (a) the presumptive method and (b) a variant of the direct attribution method. The direct attribution method, like the presumptive method, is one of the four statutorily permitted methods for determining withdrawal liability. The PBGC approved the Fund's adoption of this alternative hybrid method.

In 1984, certain employers initiated a class action against the Fund, Cummings-Landau Laundry Machinery Co. v. District No. 15 Machinists Pension Fund, 84-CV-5530 (S.D.N.Y.Keenan, J.) ("Cummings-Landau"), seeking to invalidate the amendment to the Fund's trust agreement adopting the hybrid method. Plaintiffs contended that the Fund's use of its approved "higher of two" hybrid method violated the MPPAA in that a single method, as contemplated by the statute, was not applied uniformly to compute the liability of each withdrawing employer. The class was defined as

consisting of all employers (a) who made contributions to [the Fund], (b) who thereafter withdrew from [the Fund] or will during the pendency of this action withdraw from [the Fund], and (c) whose withdrawal liability was computed by [the Fund] using the method chosen by its Trustees, which computation resulted in the imposition of a withdrawal liability in an amount in excess of that computed using the method prescribed in Section 4211(b) of ERISA, 29 U.S.C. § 1391 (b) [the presumptive method].

(Stipulation and Order for Class Action Certification in Cummings-Landau, Record, Fund Ex. 2 at p. 2).*fn3 The Employers were not members of the class.

During the pendency of Cummings-Landan, the PBGC issued proposed regulations which, if approved, would invalidate the use of hybrid methods, including that used by the Fund. Under the proposed regulations, until a plan that had been using a hybrid method was amended to adopt a valid method, its method would be deemed to be the presumptive method. See Allocating Unfunded Vested Benefits, 50 Fed.Reg. 36603, 36610 (1985) (to be codified at 29 C.F.R. § 2642) (proposed September 9, 1985).*fn4 Thereafter, on December 9, 1985, before the regulations were approved, the trustees of the Fund voted to adopt the presumptive method for calculating withdrawal liability for all employers withdrawing on or after January 1, 1986. (Record, Joint Ex. E). The final PBGC regulations, published October 26, 1987, and effective November 25, 1987, did prohibit plans from assessing liability under hybrid methods and deemed the method of such plans to be the presumptive method pending the adoption by plan amendment of a different valid method. 29 C.F.R. § 2642.14 (1988).*fn5

On January 15, 1986, Fund counsel proposed to settle the Cummings-Landau case, offering to reduce the assessed withdrawal liability of members of the class by 85% of the difference between their liability calculated under the Fund's hybrid method and their liability had it been calculated using the presumptive method. Fund counsel further proposed "commencing January 1, 1986, . . . to compute the withdrawal liability of all withdrawing employers under the presumptive method." (Record, Empl.Ex. 3). The Cummings-Landau parties entered into a Stipulation of Settlement on January 22, 1986 (the "Stipulation"). The Stipulation provided the following:

In full and complete settlement of the claims asserted in this class action and subject to the terms and conditions of this Stipulation, the withdrawal liability to defendant of each class member, as computed and assessed by defendant in accordance with the method adopted and applied by defendant's Trustees to calculate the liability of employers withdrawing from defendant between September 27, 1980 and December 31, 1985, shall be reduced an amount equal to eighty five percent (85%) of the difference between the liability so computed and the liability as computed under the "presumptive method" prescribed in Section 4211(b) of ERISA, 29 U.S.C. § 1391 (b). As to all employers withdrawing from defendant on or after January 1, 1986, the defendant shall compute and assess withdrawal liability under said "presumptive method."

(emphasis added) (Record, Empl.Ex. 11 at ¶ 3). The Stipulation was approved by court order dated December 29, 1986.

The Fund assessed withdrawal liability against all employers withdrawing between January 1, 1986 and February 28, 1989 using the presumptive method. Beginning in March of 1989, pursuant to an amendment to the plan,*fn6 the Fund began assessing the liability of withdrawing employers using the direct attribution method set forth in MPPAA Section 4211(c)(4), 29 U.S.C. § 1391 (c)(4). This method was used to calculate the withdrawal liability of $2,023,901 against the Employers for their withdrawal on February 8, 1991.

The Fund's Calculation — The "Last Employer" Assumption

In calculating the Employers' withdrawal liability using the direct attribution method, the Fund attributed all of the service credits of two employees to the withdrawing Employers, their "last employer," although some of the plan service credits were earned by those employees while employed elsewhere. According to the Employers, as a result of the incorporation of this "last employer" assumption in the direct attribution calculation, the Employers' withdrawal liability was improperly increased by about $25,000.

The Arbitration

Before the Arbitrator, the Employers' challenged the Fund's assessment of withdrawal liability on the grounds that the Fund's use of the direct attribution method violated the court-ordered Cummings-Landau Stipulation, which according to the Employers, bound the Fund to use in perpetuity the presumptive method for calculations on or after January 1, 1986. In April of 1995, during the course of the arbitration, the record was reopened at the Employers' request to allow a challenge to the Fund's use of the "last employer" assumption in the calculation made under the already challenged direct attribution method.

The Arbitrator found that he was precluded from considering the issue of whether the Cummings-Landau Stipulation required the use of the presumptive method because in an unrelated action, captioned Sigmund Cohn Corp. and District No. 15 Machinists Pension Fund, 14 EBC 1031 (Sands, Arb. 1991), in which the same Cummings-Landau issue was raised, another arbitrator declined to address it on the grounds that it was outside his statutory authority to decide and would be more properly addressed to a court in proceedings to enforce, vacate or modify the arbitration award. Moreover, the Arbitrator "fe[lt] doubly bound to observe [the Sigmund Cohn arbitrator's] findings [that construction of the Cummings-Landau Stipulation was outside his authority] . . . because a district court confirmed the Sigmund Cohn award."*fn7 (Opinion and Award of Arbitrator, Pet'r Mem. of Law, Ex. A at p. 27). The Arbitrator also found "that in any case, the outcome would not be clear if he did consider it proper to construct Cummings-Landau and apply it to th[e] disagreement." (Id. at p. 25). Accordingly, the Arbitrator dismissed the challenge to the Fund's use of the direct attribution method.

The Arbitrator also dismissed the Employers' challenge to the Fund's use of the "last employer" assumption on two grounds. First, the Arbitrator held that because the Employers' asserted at the first arbitration hearing that their challenge was to the use of the direct attribution method, and not to the amount calculated, the calculation itself could not be challenged in the arbitration proceeding. Second, the Arbitrator held that the challenge would nonetheless fail on the grounds that the "last employer" assumption was an appropriate use of statistical methodology under MPPAA Section 4213(a), 29 U.S.C. § 1393 (a), for determining attributable benefits under the direct attribution method set forth in MPPAA Section 4211, 29 U.S.C. § 1391.

Discussion

Arbitrability of the Employers' Cummings-Landau Defense

As noted above, citing the arbitration decision in Sigmund Cohn Corp. and District No. 15 Machinists Pension Fund and this Court's confirmation in Sigmund Cohn Corp. v. District No. 15 Machinists Pension Fund, 804 F. Supp. 490 (E.D.N Y 1992), Arbitrator Benewitz found that he was precluded from interpreting the Cummings-Landau Stipulation and applying it to this case. In Sigmund Cohn Corp., Arbitrator Sands stated:

I have not considered and do not determine Cohn's arguments that the Cummings-Landau court order prevented any departure from the presumptive method and that the principles of equitable estoppel bar the Fund from assessing maximum withdrawal liability to which it is statutorily entitled to do. As I read MPPAA, nothing in my statutory mandate authorizes me as arbitrator to decide issues that do not arise under ERISA Sections 4201 — 4219 and 4225. These arguments fall outside that mandate, and they are more properly addressed to a court in proceedings to enforce, vacate or modify . . .

(Pet'r Mem. of Law, Ex. C at p. 14-15). Because this Court agreed with Arbitrator Sands' decision that as of the time of Sigmund Cohn's withdrawal the Fund had not effectively adopted the attributable method, and therefore was required to use the statutory presumptive method, this Court also did not address the Cummings-Landau arguments. See Sigmund Cohn Corp., 804 F. Supp. at 490.

Under MPPAA Section 4221(a)(1), 29 U.S.C. § 1401 (a)(1), "[a]ny dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under sections 1381 through 1399 [MPPAA Sections 4201 through 4219] . . . shall be resolved through arbitration." The Employers argue that because the dispute over the meaning of the Cummings-Landau Stipulation concerns the Fund's use of the direct attribution method instead of the presumptive method in calculating withdrawal liability, methods appearing in MPPAA Section 4211, 29 U.S.C. § 1391, the question falls squarely within the jurisdiction of the Arbitrator. Because the Arbitrator did not decide the issue, ...


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