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Inc. v. Trustee of 1199 Seiu Health Care Employees Pension Fund

United States District Court, Second Circuit

August 8, 2013

666 DRUG, INC., formerly known as MELROSE PHARMACY, a New York corporation, Plaintiff,


PAUL A. ENGELMAYER, District Judge.

Plaintiff 666 Drug, Inc., formerly known as Melrose Pharmacy ("Melrose"), seeks here to vacate an arbitration award. The award affirmed an assessment of withdrawal liability made upon Melrose under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, amended by the Multiemployer Pension Plan Amendment Act of 1980 ("MPPAA"), 29 U.S.C. §§ 1381-1461, by the Trustee of 1199 SEIU Health Care Employees Pension Fund (the "Fund"), the defendant here. The effect of the award was to find Melrose liable to pay $846, 613 to the Fund in withdrawal liability.

Until January 1999, Melrose was party to a collective bargaining agreement with 1199SEIU United Healthcare Workers East (the "Union") and a contributing employer to the Fund, pursuant to a collective bargaining agreement ("CBA"). The CBA expired in January 1999 and was never renegotiated. Nevertheless, Melrose continued making contributions to the Fund at the expired rates until November 2010. At that time, the Union disclaimed interest in representing Melrose employees, and the Fund thereafter assessed withdrawal liability upon Melrose. Melrose filed this action to challenge the Arbitrator's confirmation of the Fund's determination of withdrawal liability. For the reasons stated above, Melrose's motion to vacate the Arbitrator's award is denied.

I. Background

A. Procedural History

On October 5, 2011, the Fund assessed withdrawal liability on Melrose in the amount of $846, 613. Withdrawal liability is the amount a participating employer in a multiemployer pension plan must pay upon complete or partial withdrawal from the plan. "The purpose of this withdrawal liability, which is enforceable in a suit by the pension plan, is to relieve the funding burden on remaining employers and to eliminate the incentive to pull out of a plan which would result if liability were imposed only on a mass withdrawal by all employers.'" Lopresti v. Pace Press, Inc., 868 F.Supp.2d 188, 200 (S.D.N.Y. 2012) (quoting HOP Energy, L.L.C. v. Local 553 Pension Fund, 678 F.3d 158, 161 n.2 (2d Cir. 2012)). "An employer's withdrawal liability is equal to the employer's proportionate share of the plan's unfunded vested employee benefits. The unfunded vested benefits are calculated as the difference between the present value of vested benefits and the current value of the pension plan's assets." Park S. Hotel Corp. v. N.Y. Hotel Trades Council, 851 F.2d 578, 580 (2d Cir. 1988). "Under the MPPAA, the employer pays its withdrawal liability in annual installments, which are calculated based on the employer's historical contribution amounts." Trustees of Local 138 Pension Trust Fund v. F.W. Honerkamp Co. Inc., 692 F.3d 127, 130 (2d Cir. 2012) (citing 29 U.S.C. §§ 1391(c), 1399(c)).

On November 14, 2011, as contemplated by the MPPAA, see 29 U.S.C. § 1399(b)(2)(A), Melrose requested review of the Fund's determination. On January 9, 2012, the Fund sent Melrose a letter confirming its assessment.

On February 17, 2012, Melrose filed the Complaint in this case. It sought a declaratory judgment that (1) Melrose was not liable for the withdrawal liability, and (2) the Fund's assessment of withdrawal liability was not arbitrable. Dkt. 1. On February 28, 2012, Melrose initiated arbitration proceedings, challenging the Fund's assessment of withdrawal liability. Simultaneously, Melrose filed a proposed order to show cause in this case seeking a stay of the arbitration and a stay of its obligation to pay withdrawal liability. Dkt. 2-8.

On April 4, 2012, the Honorable Barbara S. Jones, to whom this case was previously assigned, ordered that the parties arbitrate their dispute as to withdrawal liability. She also directed Melrose to continue to make withdrawal liability payments while the arbitration was pending, as required by the MPPAA. Dkt. 22, available at 666 Drug, Inc. v. Tr. of 1199 SEIU Health Care Emps. Pension Fund, No. 12 Civ. 1251 (BSJ), 2012 WL 1142464 (S.D.N.Y. Apr. 4, 2012) (the "OTSC Op.").

On July 26, 2012, the Arbitrator received evidence and heard argument. On September 10, 2012, he issued a decision in favor of the Fund. See Dkt. 28, Ex. A (the "Arbitrator's Award, " or "Award"). The Award found that Melrose had completely withdrawn from the Fund in 2010. The Award affirmed the Fund's assessment of withdrawal liability in the amount of $846, 613. Id. at 19. The Award also directed Melrose to continue paying the withdrawal liability on the schedule set by the Fund-that is, in 80 quarterly installments of $17, 029. Id.

On October 15, 2012, Melrose filed the instant motion seeking to vacate the arbitration award, Dkt. 27, and its brief in support, Dkt. 29 ("Pl. Br."). On December 4, 2012, the Fund filed a brief in opposition. Dkt. 31 ("Def. Br."). On December 14, 2012, Melrose filed its reply. Dkt. 35 ("Pl. Reply Br."). On May 29, 2013, this case was reassigned to this Court. Dkt. 36.

B. Facts

The facts, as set out by the arbitrator in his decision, are largely undisputed. And the Court, on a challenge to an arbitral decision, must accept the arbitrator's factual findings unless it finds clear error by a preponderance of the evidence. See discussion infra Part II. No such showing has been made here. The Court therefore adopts the facts recited in the arbitral award, which form the basis for the following summary.

Before 1999, Melrose was a member pharmacy in the Empire State Pharmaceutical Society (the "Society"). As part of the Society, Melrose, for many years, had been a party to a collective bargaining agreement ("CBA") with 1199SEIU United Healthcare Workers East (the "Union"). Award 5-6. James Detura became Melrose's owner in 1989 and was its owner during all times relevant here.

The Fund is a multiemployer pension benefit plan associated with the Union. While Melrose was party to the CBA with the Union, it also contributed to its related Funds. In the 1950s, Melrose began contribution to the Health Fund, and in 1970, began contributing to the Pension Fund in its present form (the defendant here). Award 5.

On January 31, 1999, the CBA expired. The Society had, by then, dissolved. Thereafter, a number of individual stores, including Melrose, agreed to be represented by Jerome Sager, Esq., formerly Executive Director and General Counsel of the Society, for the purpose of negotiating a new CBA with the Union. But, despite Sager's attempts, no negotiations took place, and no successor CBA was either negotiated or entered into.

Notwithstanding the expiration of the CBA, from February 1999 forward, Melrose paid monthly contributions to the Union for its employees and submitted payroll reports for them. Melrose paid at the rate set by the expired CBA. Award 7, 9. Detura testified that he did so on Sager's advice that Melrose was required to do so. Detura testified: "Through conversation with Mr. Sager and-and eventually written letters, Mr. Sager advised me that I am obligated to make the contributions to both the benefit fund and the pension fund based on the rates of the old, expired contract." Id. at 7 (quoting Detura Dep. 36-37).

In 2003, the Fund notified Detura that Melrose should pay contributions at a higher rate. Sager, however, advised Detura that Melrose was not required to do so. In a letter to Detura dated July 21, 2003, Sager explained:

I have been unsuccessful to this point [in negotiating a new CBA] and have decided not to pursue it further with them. The reason being that all the stores in my bargaining group are saving money every day by not having to give increases and not having to pay higher pension and welfare contributions. While you are still obligated to continue making payments to the funds, they are at the rate in existence at the last contract. When and if they contact me, I will of course meet with them to try and reach an agreement. Until that time, things remain as is.

Award 8 (emphasis in original) (quoting Melrose Ex. 3). On the basis of this advice, Melrose continued to pay contributions to the Fund, but not at the increased rate sought by the Fund, which sent Melrose balance-due statements premised on a higher ...

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