The Report notes that "allowing all 'involuntarily' withdrawing employers to escape liability, in whole or in part, shifts the consequences of underfunding solely onto other employers and participants. Remaining employers would be forced to carry added funding burdens themselves, a fact that could create serious economic hardships and eventually force more employer withdrawals." (Report, pp. 10-11). Additionally, the Report states that withdrawal liability serves to protect "the financial integrity of multiemployer plans." Consistent with this purpose, Congress chose in 1980 to base the general withdrawal liability rules on events that normally result in a loss of the plan's contribution base and potentially harm the plan's integrity, rather than to make rules that were based on fault or subjective factors." (Report, pp. 18-19). The PBGC recommended that the Congress make no statutory modifications to accommodate union mandated withdrawals. (Report, p. 25). Consistent with the Report, Congress has not amended the MPPAA to exempt union mandated withdrawals from withdrawal liability.
Thus, we conclude that Congress did not intend to exempt from the MPPAA employers, such as Midwest, that withdraw from a pension plan because their employees decertify their union. Furthermore, based on the MPPAA's express purpose and the legislative history, we find that Congress' decision to impose liability on employers for voluntarily and involuntarily withdrawals is rational and not arbitrary.
b. The MPPAA As Applied To Midwest Is Constitutional Even Though Its Withdrawal Was Involuntary
Midwest also contends that imposition of withdrawal liability violates its due process rights because it had no control over the union decertification which caused Midwest's withdrawal. Although Arbitrator Pritzker specifically held that Midwest's withdrawal from Central States was involuntary, (Arb. Op. pp., 14, 19), he did not discuss the chain of events leading up to decertification. Moreover he expressly "left to the Court the issue not before me of whether [Midwest's] conduct in this case falls within the employer's conduct described by Justice O'Connor in Connolly, [475 U.S. at 229] when she wrote: "'. . . the imposition of retroactive liability on employers for the benefit of employees may be arbitrary and irrational in the absence of any connection between the employer's conduct and some detriment to the employee.'" (Arb. Op., p. 14). Thus, we now turn to the facts and circumstances leading to the decertification of the Teamsters.
Although the underlying facts are uncontested, the parties dispute whether, as a matter of law, Midwest had sufficient control over the events culminating in the decertification to withstand Midwest's constitutional challenge. Midwest did not, and could not, directly participate in the decertification decision. Nevertheless, as a matter of law, we find that Midwest exercised sufficient influence and control over the chain of events that culminated in the decertification.
In late 1990, Midwest chose to leave its employer association and negotiate a contract on its own with the Teamsters. Although the negotiations continued, Midwest's employees went on strike. Midwest's offers and tactics during the ensuing negotiations likely led to, or perhaps prolonged, the strike. Moreover, Midwest hired the replacement workers that, through no action of Midwest, chose to decertify the Teamsters. Midwest also refused to displace the permanent replacement workers for the striking employees, a significant issue for the Teamsters. (Arb. Op., p. 4).
Furthermore, regardless of the reason Midwest withdrew from Central States, Midwest's failure to pay its fair share of unfunded vested benefits would force the employers remaining in the plan to shoulder an extra burden. This result is contrary to the express purpose of the MPPAA. 29 U.S.C. §§ 1001(c), 1001a(c).
We agree with Midwest that its withdrawal from Central States was involuntary in that the decertification caused Midwest's contribution obligation to cease. Nonetheless, because, as a matter of law, Midwest had sufficient influence or control over the events leading up to the decertification, the imposition of withdrawal liability passes constitutional muster. As such, the imposition of withdrawal liability on Midwest is not arbitrary or irrational.
4. Midwest's Status As A Pre-ERISA And Pre-MPPAA Employer Does Not Negate The Constitutionality Of Its Withdrawal Liability
Midwest claims that its withdrawal liability is unconstitutional because "Midwest joined Central States before it could possibly have anticipated withdrawal liability." (Def. Mem. in Support of SJ, p. 22). Midwest relies on Justice O'Connor's Concrete Pipe concurrence in which she wrote:
the Court's opinion should not be read to imply that employers may be subjected to retroactive withdrawal liability simply because 'pension plans have long been subject to federal regulation. Surely the employer that joined a multiemployer plan before ERISA had been promulgated--before Congress had made employers liable for unfunded benefits-- might have a strong constitutional challenge to retroactive withdrawal liability.
508 U.S. at 649 (O'Connor, J., concurring) (emphasis added). Relying on this rationale, Midwest asserts that ERISA "radically changed the legal relationship among Central States and its contributing employers such as Midwest." (Def. Mem. in Support of SJ, p. 23). Because it allegedly had no control over the statutory rules that changed its obligations to Central States, Midwest argues that it "had no meaningful opportunity in 1974 to avoid the obligations of ERISA and, short of economic suicide, no opportunity to avoid the additional obligations imposed by the MPPAA in 1980." (Id). As discussed below, the case law undermines Midwest's contentions.
It is well settled that "whether or to what extent a particular piece of legislation dashes a parties' economic 'expectations' generally poses no constitutional impediment since all economic legislation--whether labeled prospective or retroactive--inherently disrupts someone's financial expectations." Templeton Coal Co., Inc. v. Shalala, 882 F. Supp. 799, 814 (S.D. Ind. 1995), Davon, Inc. v. Shalala, 75 F.3d 1114, 1123 (7th Cir.), cert. denied, Templeton Coal Co., Inc. v. Shalala, 519 U.S. 808, 136 L. Ed. 2d 14, 117 S. Ct. 50 (1996). Midwest joined Central States in 1958, 16 years before Congress enacted ERISA and 22 years before the MPPAA. Although Midwest may not have anticipated the prospect of withdrawal liability in 1958, "pension plans . . . were the objects of legislative concern long before the passage of ERISA in 1974." Connolly, 475 U.S. at 226-227. Accord R.A. Gray & Co., 467 U.S. at 732. Indeed, multiemployer plans have been subject to federal control since 1947. Board of Trustees of the Western Conference of Teamsters Pension Trust Fund v. J.N. Ceazan, 559 F. Supp. 1210, 1214 (N.D. Cal. 1983).
Moreover, Midwest voluntarily chose to continue participating in Central States after ERISA altered the pension plan landscape. In 1974, ERISA required a withdrawing employer to pay a contingent liability up to 30% of its net worth. Concrete Pipe, 508 U.S. at 646; see 29 U.S.C. §§ 1362(b), 1364 (1976 ed.). Moreover, "in 1974 . . . it was clear that if the PBGC exercised its discretion to pay benefits upon termination of a multiemployer pension plan, employers who had contributed to the plan during the preceding five years were liable for their proportionate share of the plan's contributions during that period." Connolly, 475 U.S. at 227. Because Midwest remained in Central States after ERISA was enacted, Midwest could have "no reasonable expectation that the legislative ceiling would never be lifted" or "that it would not be faced with liability for promised benefits." See Concrete Pipe, 508 U.S. at 646; Connolly, 475 U.S. at 227. Furthermore, Midwest presents no evidence to show which portion of its total withdrawal liability, if any, is attributable to its pre-ERISA participation in Central States. (Arb. Op., pp. 14-15).
Additionally, once Congress learned that ERISA failed sufficiently to guarantee that employees would receive the pension benefits promised to them by employers, Congress enacted the MPPAA. At that time "prudent employers . . . had more than sufficient notice not only that pension plans were currently regulated, but also that withdrawal itself might trigger additional financial obligations." Connolly, 475 U.S. at 227. Thus, Midwest chose to do business in a regulated field and "'cannot object if the legislative scheme is buttressed by subsequent amendments to achieve the legislative end.'" Connolly, 475 U.S. at 227 (citation omitted).
Although Midwest exercised no control over Congress, it exercised complete control over its decision to continue participating in Central States and the collective bargaining agreements which required contributions to a multiemployer plan. Significantly, Arbitrator Pritzker acknowledged that even though it may have been "economic suicide," Midwest could have withdrawn from bargaining and from the plan. (Arb. Op., pp. 17-18). Notwithstanding ERISA and the MPPAA, Midwest determined that remaining a party to the collective bargaining agreements and, thus, a contributor to Central States, best served Midwest's interests. (Arb. Op., p. 17). Additionally, "several times after the passage of ERISA and [the] MPPAA [Midwest] ratified all decisions of the joint union-management trustees." (Arb. Op., p. 13). Thus, like a Faustian pact, Midwest voluntarily chose to accept the additional economic burdens imposed by ERISA, and later the MPPAA. Therefore, Midwest cannot now complain that it is not accountable for its choices.
Midwest also argues that the "sum total of Midwest's responsibility to Central States was to pay the collectively bargained rate for covered employees on time and in full," and that "at no time did Midwest ever agree to ensure that the benefits of Central States would be fully funded." (Def. Mem. in Support of SJ, p. 6). This argument presumes that the Due Process Clause prohibits Congress from imposing obligations beyond those voluntarily assumed by contract. Midwest's assumption is erroneous. See Davon, Inc., 75 F.3d at 1125.
"In rejecting a due process challenge to the retroactive withdrawal liability provision of the MPPAA, the Supreme Court in R.A. Gray & Co. stated that 'legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations' and that 'this is true even though the effect of the legislation is to impose a new duty or liability based on past acts.'" Id. Accordingly, Midwest's contractual obligations under the Trust Agreements and collective bargaining agreements "in no way define the outer limit of Congresses' power to legislate consistently with the Due Process Clause." Id.
Congress' decision to require employers, like Midwest, to fund the pension benefits they offered to their employees is neither irrational nor inequitable. Midwest obtained economic benefits from participating in Central States. The pension benefits undoubtedly attracted experienced employees who chose to work for Midwest rather than for another employer not participating in Central States. Moreover, experienced Midwest employees may have chosen to remain working for Midwest based on the offered pension benefits. Therefore, compelling Midwest to bear responsibility for meeting its employees' legitimate expectations to receive a pension at retirement is constitutional. "At the time of its withdrawal, [Midwest] had fully received its benefits from offering the pension, but its employees had not received full payment for their services." Thompson Bldg. Materials, Inc., 749 F.2d at 1402. Midwest's employees rely and depend upon the existence of a solvent pension plan at their retirement. Thus, extending Midwest's responsibility beyond its contractual promises to ensure that the goals of ERISA and the MPPAA are satisfied is rational and not arbitrary. Accordingly, the imposition of withdrawal liability for the time period before passage of the ERISA and the MPPAA is not so harsh or oppressive as to violate Midwest's Fifth Amendment rights.
5. Midwest Exerted Sufficient Control Over The Factors Affecting Its Withdrawal Liability
Midwest claims that "there has been a retroactive imposition of liability on [it] for the asserted benefit of employees without any connection between Midwest's conduct and any harm to the employees and beneficiaries of the Plan." (Def. Mem. in Support of S.J., p. 22). Again Midwest relies on Justice O'Connor's Connolly concurrence in which she wrote: "our recent cases leave open the possibility that the imposition of retroactive liability on employers for the benefit of employees may be arbitrary and irrational in the absence of any connection between the employer's conduct and some detriment to the employee." Connolly, 475 U.S. at 228-229 (O'Connor, J., concurring). Central States argues that Midwest sufficiently exercised control over the factors affecting its withdrawal liability to remove Midwest from the concerns expressed by Justice O'Connor. We agree with Central States.
Arbitrator Pritzker found that "through its authorized Employer Association bargaining agent, Midwest had some level of control over the level of contributions." (Arb Op., p. 17) (emphasis added). He also held that, "through the employer trustees, Midwest had some level of control over the benefits and other factors that impacted on unfunded benefit liabilities and therefore Midwest's withdrawal liability in that the Employer Trustees as prudent men and women did not have to agree to any benefit improvement or other factors which would have increased Employer Withdrawal Liability." (Id.) (emphasis added).
Midwest properly points out that it had no control over the decisions rendered by the Central States Trustees because the they must act for the exclusive benefit of the employee beneficiaries rather than as agents of the employers or the union. NLRB v. Amax Coal Co., 453 U.S. 322, 331-332, 69 L. Ed. 2d 672, 101 S. Ct. 2789 (1981). Nonetheless, Midwest repeatedly signed Trust Agreements in which Midwest agreed to be bound by the decisions of the Trustees. (Arb. Op., pp. 3, 17). Rather than disputing this fact, Midwest merely offers the unsupported conclusion that the agreements were "models of contracts of adhesion" (Def. Mem. in Opp. to Pls. Motion for SJ, p. 10).
Additionally, Midwest presented no actuarial evidence to the arbitrator challenging the benefits decisions or any other decisions rendered by the Trustees. The arbitrator's factual conclusions are entitled to deference. We find that Midwest has not presented evidence that the arbitrator's factual conclusions were clearly erroneous. See 29 U.S.C. § 1401(c). Therefore, we concur with the Arbitrator Pritzker's finding that the Trustees' actions did not "unduly" add to Midwest's withdrawal liability. (Arb. Op., pp 17-18). Accordingly, we find, as a matter of law, that Midwest failed to meet its burden to show which portion of the withdrawal liability, if any, resulted from the Trustees' decisions.
Moreover, Midwest exercised sufficient control over the level of contributions, the collective bargaining process, and other factors affecting Central States' unfunded vested benefit liabilities to satisfy the lenient rational basis test. Midwest voluntarily chose to appoint an employer association to handle its collective bargaining and knew that the contracts negotiated on its behalf were binding. Significantly, Midwest admits that the collective bargaining agreements as negotiated by the union and employer associations, set the levels of contributions paid by employers. (Def. Reply in Support of SJ, p. 19). Additionally, if Midwest was displeased with the terms of the collective bargaining agreements negotiated by its employer association, Midwest could have withdrawn from the association, as it did in late 1990, and negotiate on its own behalf. Thus, as a matter of law, we find that Midwest exercised little, but sufficient meaningful control over the contribution levels it was required to pay, a factor affecting Central States' unfunded vested benefits.
Midwest further relies on Arbitrator Pritzker's determination that Central States is a "hybrid" Taft-Hartley plan in the manner used by Justice O'Connor in her Connolly concurrence. (Arb. Op., p. 16). According to Justice O'Connor:
Taft-Hartley plans are the product of joint negotiation between employers and a union and are administered by trustees nominated in equal numbers by employers and the union. . . . most Taft-Hartley plans 'possess the characteristics of both fixed contributions and fixed benefits'. . . . Under these hybrid Taft-Hartley plans it is the plans' trustees not the employers and the union, who are 'usually responsible for determining the types of benefits to be provided . . . and the level of benefits, although in some cases these are set in the collective bargaining agreement.'
Connolly, 475 U.S. at 233 (O'Connor, J., concurring) (citations omitted). Based on her analysis of hybrid plans, Justice O'Connor opined that:
. . . whatever promises a collectively bargained plan makes with respect to benefits may not always be rationally traceable to the employer's conduct and that it may sometimes be quite fictitious to speak of some plans as 'promising' benefits at a specified level, since to do so ignores express and bargained for conditions on those promises. Where the plan's fixed contribution aspects were agreed to by employees through their exclusive bargaining representatives, and where employers had no control over the level of benefits promised, employer responsibility for the benefits specified by the plan is very much attenuated, and employee expectations that these benefits will in all events be paid, in the face of plain language to the contrary, are not easily traceable to the employer's conduct.
Connolly, 475 U.S. at 235 (O'Connor, J., concurring) (emphasis added).
Although Midwest is a hybrid Taft-Hartley plan as contemplated by Justice O'Connor, Midwest's circumstances fall outside Justice O'Connor's constitutional concerns. Justice O'Connor was concerned with employers who had "no control over the level of benefits promised." Id. Because Midwest exercised some control over the factors affecting its withdrawal liability, application of the MPPAA is rational and not arbitrary.
Again relying on Justice O'Connor's Connolly concurrence, Midwest contends that its withdrawal caused no harm to active or retired participants because the assets held by Central States have grown while its unfunded vested benefits level has decreased from 1980 to 1991. In 1991, the assets of Central States totaled $ 11.801 billion and its unfunded vested benefits totaled $ 1.764 billion.
Although Central States successfully decreased its unfunded vested benefits level by the time Midwest withdrew, a significant amount, $ 1.764 billion, remains. The MPPAA assures that each withdrawing employer pays its proportionate share of the unfunded vested benefits at the time of its withdrawal so that present and future retirees will receive their promised pension benefits. The statute, however, does not exempt an employer from paying its fair share of the unfunded vested benefits because the pension plan is enjoying a period of financial strength. To do so would be contrary to the express purpose of the MPPAA. See 29 U.S.C. §§ 1001, 1001(a), 1381.
Midwest also states that there is no record evidence demonstrating that any retirees have not received their pension benefits. Even though Midwest's withdrawal caused no immediate harm to current retirees, the imposition of withdrawal liability ensures that the withdrawal does not harm future retirees or future benefits. By paying its withdrawal liability Midwest helps to guarantee, as the MPPAA intended, that Central States' assets are sufficient to meet the present value of the benefits that Central States must pay to Midwest's employees in the future. Moreover, Midwest offers no evidence to establish that its past contributions plus its allocable share of Central States' earnings exceed the present value of all benefits accrued by Midwest's employees, ie. Midwest's withdrawal liability. See Connolly, 475 U.S. at 236 (O'Connor, J., concurring). Accordingly, we find that Justice O'Connor's concerns are not applicable to Midwest.
In sum, Midwest has failed to demonstrate that the MPPAA, as applied, is arbitrary or irrational. Other than Justice O'Connor's concurring opinions in Connolly and Concrete Pipe, there is no authority supporting Midwest' arguments. Thus, we find that the imposition of withdrawal liability does not violate Midwest's Fifth Amendment right to substantive due process.
For the foregoing reasons, we find that the imposition of withdrawal liability under the MPPAA as applied to Midwest violates no substantive constraint of the Fifth Amendment. Because Midwest raised no actuarial challenge to the amount of liability imposed by Central States, Midwest must pay the entire outstanding withdrawal liability, plus any accrued interest, less any interim payments made pursuant to the parties' September 24, 1996 stipulation.
Central States' motion for summary judgment is granted. Midwest's motion for summary judgment is denied.
Central States is hereby ordered to submit an affidavit and schedule of the amount due as of the date of this ruling by April 17, 1998 so that a judgment may be entered. Any response by Midwest must be filed by April 24, 1998.
All other pending motions are denied as moot.
It is so ordered.
Wayne R. Andersen
United States District Judge
Dated: March 30, 1998
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