The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Pension Benefit Guaranty Corporation ("PBGC") sues Anthony
Company ("Anthony") and its parent company M.S. Kaplan Company
("Kaplan") under Section 4062 of the Employee Retirement
Security Act of 1974 ("ERISA"), 29 U.S.C. § 1362,*fn1 to
recover the vested but unfunded benefits*fn2 under Anthony's
pension plan (the "Plan") as of the time of its termination.
Kaplan has moved that it be dismissed from the Complaint, and
PBGC has cross-filed a motion for partial summary judgment. For
the reasons stated in this memorandum opinion and order
Kaplan's motion is denied and PBGC's is not ruled upon.
Anthony adopted the Plan May 1, 1955 to cover its union
employees pursuant to its collective bargaining agreement with
the UAW. On February 21, 1978 Anthony filed a petition under
Chapter XI of the Bankruptcy Act. Then, finding itself unable
to develop a viable plan of reorganization, Anthony sold its
principal assets to a purchaser unwilling to adopt the Plan.
Anthony terminated the Plan December 29, 1978 and ultimately
shifted its Chapter XI petition into a straight bankruptcy
proceeding June 20, 1979.
At the time of the Plan's termination there was a large
disparity (PBGC claims some $1.4 million) between the current
value of the Plan assets and the employees' vested benefits.
Under ERISA PBGC is obligated to make good that deficiency.
Section 1362 gives PBGC the right in turn to recover from the
"employer" the lesser of (1) the deficiency itself and (2) 30%
of the employer's net worth.
PBGC filed this action in part to collect what it could from
Anthony, and that aspect of its claim is not now in dispute.
What is at issue is whether Kaplan is also embraced within the
term "employer" (both for liability purposes and for the
Kaplan has been Anthony's majority shareholder since April
1957. As the result of minor stock purchases over the
intervening years, by September 1976 Kaplan owned 5,550 of
Anthony's 10,000 outstanding shares. At that point Anthony
itself contracted to purchase the 4,450 shares owned by
shareholders other than Kaplan. That transaction was
consummated October 21, 1976, leaving Anthony a wholly-owned
Kaplan subsidiary through the date of Plan termination.
Kaplan as "Employer" for Section 1362 Purposes
PBGC seeks recovery under Section 1362(b), which "applies to
any employer who maintained a single employer plan at the time
it was terminated. . . ." Section 1362 is part of ERISA's
Subchapter III, whose definitional section includes the
following provision (Section 1301(b)(1)):
For purposes of this subchapter, under
regulations prescribed by the corporation, all
employees of trades or businesses (whether or not
incorporated) which are under common control
shall be treated as employed by a single employer
and all such trades and businesses as a single
employer. The regulations prescribed under the
preceding sentence shall be consistent and
coextensive with regulations prescribed for
similar purposes by the Secretary of the Treasury
under Section 414(c) of Title 26.
Temporary income tax regulations were promulgated by the
Secretary of the Treasury November 5, 1975 and adopted by PBGC
March 24, 1976. 29 C.F.R. § 2612 (the Regulations).
Those Regulations define three "common control"
(1) "Parent-subsidiary groups" involve
relationships essentially equivalent to those
required for filing consolidated returns under
the Code: The parent must own a "controlling
interest," defined (for a subsidiary having only
one class of stock) as ownership of at least 80%
of the outstanding stock.
(2) "Brother-sister groups" depend on
"effective control," defined to cover
closely-held situations in which the same five
(or fewer) shareholders own at least 50% of the
stock in each member of the group.
(3) "Combined groups" involve at least three
entities, each of which is a member of either a
parent-subsidiary group or a brother-sister
group, and at least one of which is both a parent
in a parent-subsidiary group and a member of a
Kaplan however disputes the applicability of the Section
1301 definition, pointing instead to a portion of Section 1362
(d) For purposes of this section the following
rules apply in the case of certain corporate
(1) If an employer ceases to exist by reason of
a reorganization which involves a mere change
in identity, form, or place of organization,
however effected, a successor corporation
resulting from such reorganization shall be
treated as the employer to whom this section
(2) If an employer ceases to exist by reason of
a liquidation into a parent corporation, the
parent corporation shall be treated as the
employer to whom this section applies.
(3) If an employer ceases to exist by reason of
a merger, consolidation, or division, the
successor corporation or corporations shall be
treated as the employer to whom this section
Because Anthony has always remained a separate corporate
entity (it has not "ceased to exist"), none of the subsections
of Section 1362(d) is literally applicable. Kaplan urges that
such inapplicability (with particular emphasis on Section
1362(d)(2)) means that Kaplan is not part of the "employer"
for any purposes under Section 1362. That argument is untenable
for the reasons next discussed.*fn5
By the unambiguous language of Section 1301(b)(1), its
treatment of a "common control" group as a "single employer"
applies for the "purposes of this subchapter [III]" — and thus
to Section 1362. Under the Regulations Kaplan and Anthony are
thus a "single ...