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PENSION BEN. GUARANTY CORP. v. ANTHONY CO.

April 27, 1982

PENSION BENEFIT GUARANTY CORPORATION, PLAINTIFF,
v.
ANTHONY COMPANY, ET AL., DEFENDANTS.



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.

Facts

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 30%-of-net-worth calculation).

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" situations:*fn3

    (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
  brother-sister group.

At least from October 1976 Kaplan and Anthony unquestionably formed a "parent-subsidiary group of trades or businesses under common control," so that by its terms Section 1301 requires them to be treated as a "single employer" for ERISA Subchapter III purposes.*fn4

Kaplan however disputes the applicability of the Section 1301 definition, pointing instead to a portion of Section 1362 itself:

  (d) For purposes of this section the following
    rules apply in the case of certain corporate
    reorganizations:
    (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
    applies.
    (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
    applies.

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 ...


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