The opinion of the court was delivered by: MILTON I. SHADUR
Central States, Southeast and Southwest Areas Pension Fund and its Trustee (collectively "Fund," treated as a singular noun
) seeks to modify and vacate an arbitration award (the "Award") in favor of Sherwin-Williams Company ("Sherwin-Williams") on Fund's claim against Sherwin-Williams for complete withdrawal liability under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1368, as amended by the Multiemployer Pension Plan Amendments Act ("MPPAA"), 29 U.S.C. §§ 1381-1461.
For its part, in a lawsuit filed immediately after Fund's,
Sherwin-Williams seeks enforcement of the Award, plus a modification that would grant it the recovery of its attorney's fees and expenses associated with the arbitration. In addition, Sherwin-Williams asks to recover its attorney's fees and expenses associated with these actions.
Both Sherwin-Williams and Fund now move for summary judgment under Fed. R. Civ. P. ("Rule") 56. For the reasons stated in this memorandum opinion and order:
1. Sherwin-Williams' motion for enforcement of the Award is granted, while its motions to modify the Award and for recovery of its attorney's fees and expenses are denied.
2. Fund's motion is denied.
This Court's authority "to enforce, vacate, or modify the arbitrator's award" under MPPAA derives from Section 1401(b)(2). Findings of fact made by the arbitrator are presumed correct, rebuttable only by a clear preponderance of the evidence (Section 1401(c)).
But an arbitrator's conclusions of law are subject to de novo review ( Central States Fund v. Bell Transit Co., 22 F.3d 706, 710 (7th Cir. 1994)), and summary judgment is in order "when no genuine issues of material fact exist and when the moving party is entitled to judgment as a matter of law" (id.).
Sherwin-Williams is a large employer with a number of subsidiaries and branches. Fund is a multiemployer plan as defined in Section 1002(37).
In January, 1987 a Sherwin-Williams subsidiary purchased 100% of the outstanding stock of Lyons Group, Inc. from the then owners: Lyons Group, Inc. Employee Stock Ownership Plan and Trust and a number of individual shareholders. Lyons Group, Inc. was then the holding company for Lyons Transportation Lines, Inc. ("Lyons"), a less-than-truckload motor carrier. In turn Lyons was obligated to contribute to Fund on behalf of certain eligible employees.
Lyons quickly became a losing proposition for Sherwin-Williams. Having re-evaluated its entry into the less-than-truckload carrier sector, about May 31, 1990 Sherwin-Williams sold the Lyons stock to J.R.C. Acquisition Corp. ("J.R.C.") for a $ 1.6 million down payment plus an installment obligation of $ 6.25 million payable over a six-year period, secured by mortgages on Lyons' real property.
Lyons continued to make contributions to Fund until October 12, 1990. Then on October 19, 1990 both J.R.C. and Lyons filed for Chapter 11 bankruptcy. On November 30, 1990 Fund assessed Lyons' withdrawal liability at $ 1,764,339.15 due to what Fund's letter labeled Lyons' "permanent cessation of contributions to Fund, Southeast and Southwest Areas." Fund viewed the Lyons stock sale to J.R.C. as the proximate cause of Lyons' collapse and consequently sought to hold Sherwin-Williams accountable as a member of the commonly controlled group that had included Lyons.
On March 1, 1991 Sherwin-Williams submitted a Request for Review to Fund to contest the assessment of such liability. Sherwin-Williams first asserted that neither it nor Lyons was a member of any controlled group of trades or businesses at the time that Lyons stopped contributing to Fund, because Sherwin-Williams had already sold Lyons in a bona fide transaction. Alternatively Sherwin-Williams argued that it could not be held liable for a complete withdrawal in any event because Dupli-Color, another Sherwin-Williams entity that it had acquired in 1985, continued to contribute to Fund even after the Lyons bankruptcy. Finally, if Sherwin-Williams were to be found liable for a partial withdrawal, the company argued that such liability could not be calculated until the end of 1993 under the three-year provision of Sections 1385(b) and 1386.
It was not until it received a January 22, 1992 letter that Sherwin-Williams learned that Fund had denied its request. As required by Section 1399(c)(2), Sherwin-Williams paid a total of $ 1,988,989.62 to Fund pursuant to its assessment from March 1991 through January 1993. Then Sherwin-Williams exercised its option under Section 1401(a) to request arbitration of that assessment following the denial of its Request for Review.
To facilitate a meaningful review of the Award, this opinion sets out the Decision in some detail. To begin with, the arbitrator construed the disputed facts in favor of Fund. Because in his view Sherwin-Williams' other claims depended in large part on disputed facts (Decision at 4), the single issue before the arbitrator was whether the combination of (1) the stock sale, (2) Lyons' later cessation of operations and (3) Lyons' failure to contribute to Fund after filing bankruptcy gave rise to a complete withdrawal for which Sherwin-Williams would be liable (Decision at 5).
But even on the assumption that Sherwin-Williams was legally responsible for Lyons' deficiencies under one or both of the theories presented by Fund, the arbitrator held that the sale of Lyons' stock should then be disregarded so that the pre-sale Sherwin-Williams controlled group (including Lyons) remained intact.
That would render Sherwin-Williams still financially responsible for whatever withdrawal liability was created by Lyons' failure to contribute to the fund (Decision at 6-7). Arbitrator Katz noted that this is exactly what occurred in another arbitration in New York that had dealt with the same sequence of events involving Sherwin-Williams and Lyons but that had addressed the relationship between Sherwin-Williams and a different pension fund (id.).
But distinguishing the New York arbitration (in which the failure of Lyons to contribute to the fund there had been held to trigger a complete withdrawal), the arbitrator pointed out that Lyons was only one of several entities in the Sherwin-Williams controlled group that had been contributing to Fund. By contrast Dupli-Color, another of the Sherwin-Williams controlled group subsidiaries, continued to contribute to Fund throughout, even after the Lyons bankruptcy. Thus Lyons' cessation of contributions would leave Sherwin-Williams responsible only for a partial withdrawal because at least one other entity in the group continued making payments (Decision at 7). There could be no complete withdrawal, even assuming that Sherwin-Williams remained responsible for Lyons after the stock sale.
Fund sought to avoid that analysis and to establish a complete withdrawal by advancing a bifurcated approach. On the one hand, Fund argued that the instant preceding the stock sale should be the controlling moment for ascertaining the identity of the "employer" in order to decide whether Sherwin-Williams was still responsible for Lyons' later failure to contribute to the fund. On the other hand, Fund contended that the stock sale should be taken into account for the purpose of splitting up the Sherwin-Williams controlled group into (1) a new Sherwin-Williams controlled group (without Lyons) and (2) a new J.R.C/Lyons entity. That then would cause Lyons' cessation of contributions to result in a complete withdrawal, because Lyons would have been the sole contributor to Fund in the new "stand-alone" entity (Decision at 8).
Arbitrator Katz rejected Fund's approach, viewing its argument as both illogical and unsupported by authority (id.):
Because at least one other entity in the Sherwin-Williams controlled group was making contributions to Fund both when the stock sale occurred and afterwards,
the arbitrator found that Sherwin-Williams could have been liable only for a partial withdrawal if no sale had occurred and if Lyons had then failed (id.). In no event, the arbitrator reasoned, should this case be treated differently simply because there was a non-qualifying stock sale.
As first enacted in 1974, ERISA created the Pension Benefit Guarantee Corporation ("PBGC") to administer and enforce a pension plan termination insurance program under which employers were required to pay insurance premiums ( Concrete Pipe & Prods. of California, Inc. v. Construction Laborers Pension Trust for S. Cal., 124 L. Ed. 2d 539, 113 S. Ct. 2264, 2272 (1993)). But under those original terms, the guaranty of basic benefits by multiemployer plans in the event of termination was not mandated to take effect until 1978 (id.). As the date for mandatory coverage approached, Congress recognized that employers might withdraw from weak plans to escape liability (id.). Fearing that the insurance system as originally conceived might be jeopardized by such an exodus, Congress postponed the mandatory guaranty date and requested that PBGC analyze the potential threat to multiemployer plans and suggest solutions (id.).
In 1980 Congress enacted MPPAA in response to the advice that it had received from the PBGC (id.). Its purpose was to hold employers accountable for their vested pension fund liabilities upon their withdrawal from multi-employer plans ( Bell Transit, 22 F.3d at 707). As the Secretary of Labor testified before Congress (Multiemployer Pension Plan Amendments Act of 1980: Hearings on H.R. 3904 Before Subcomm. on Labor-Management Relations of the House Comm. on Education & Labor, 96th Cong., 1st Sess. 362 (1979)):
An employer that leaves the multiemployer pension plan would be required to pay its fair share of the plan's vested liabilities. The objective of this element is to discourage withdrawals and to provide a financial cushion for the plan which is not now provided by the present system because of ...