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February 6, 2001


The opinion of the court was delivered by: Moran, Judge


Plaintiff Gerald Sprague brings this action against Central States, Southeast and Southwest Areas Pension Fund (the Fund), the Fund's trustees (trustees), and United Parcel Service (UPS), alleging violations of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. The dispute arises from an arrangement by which the Fund and its trustees (collectively "Central States") agreed not to collect approximately $100 million in pension contributions allegedly owed by UPS during the period August 1, 1997, through December 1, 1997. Plaintiff believes the arrangement was unlawful. He alleges that by entering into the deal Central States breached its ERISA fiduciary duties, 29 U.S.C. § 1104(a)(1)(D), and that both Central States and UPS engaged in a prohibited transaction, 29 U.S.C. § 1106(a)(1)(B), (D). Defendants riposte that there was no obligation to pay or collect contributions for the period in question and therefore no violation of ERISA.

There are three motions presently pending: Central States' motion for summary judgment, UPS' motion to dismiss or for summary judgment, and plaintiff's motion to amend the complaint to name the trustees as defendants in their individual capacity. For the reasons set forth below, we grant the summary judgment motions of Central States and UPS and therefore dismiss plaintiff's motion to amend as moot.


The Fund is a multi-employer pension plan existing under the auspices of a trust agreement between the trustees, various employers (including UPS), and local unions affiliated with the International Brotherhood of Teamsters (IBT) (Kubalanza aff. exh. A). UPS has been the single largest employer member of the Fund for some time. By 1997, UPS employees comprised 18 per cent of the Fund's active participants and accounted for 22 per cent of the Fund's annual contributions. UPS' contribution levels into the Fund are set by the terms of its collective bargaining agreement with IBT and regional supplements thereto. Perhaps weary of carrying a disproportionate burden, UPS sought to alter its position with the Fund when it came time to renegotiate its relationship with IBT in 1997. The collective bargaining agreement existing at that time was set to expire on July 31, 1997. In May 1997, UPS informed IBT and the trustees that it was considering withdrawing from the Fund altogether and establishing a separate pension plan for UPS employees (Murray aff. exh. A). Concerned, the trustees commissioned an actuarial study to assess the impact of UPS' withdrawal on the financial well-being of the Fund. The actuaries returned with some grim forecasts. Their report to the trustees of June 9, 1997, stated that a withdrawal by UPS would harm the actuarial health of the Fund (Kubalanza aft exh. B). This news no doubt heightened the trustees' interest in the UPS/IBT collective bargaining agreement talks.

The impasse lasted for several days. As the negotiators mulled their options and the workers walked the picket lines, the Fund's executive director, Ronald Kubalanza (Kubalanza), was developing a promising idea with trustee Ray Cash (Cash) and the actuaries. They came up with an abatement plan. The plan was a simple one: UPS would remain with the Fund and enter into a new five-year collective bargaining agreement with IBT at increased contribution rates, and in exchange UPS' contributions would be abated from August 1, 1997, through December 31, 1997. Central States refers to this abatement plan as a "back-loaded" or "structured rate" plan because it obligates UPS to pay increased contributions over the five-year life of the plan, but none for the first five months. On August 11, 1997, Kubalanza and Cash advised Carey of the abatement plan. Carey liked the idea, but decided not to make it an official IBT offer at that time.

Meanwhile, the dispute between UPS and IBT was turning into a national crisis. President Clinton dispatched Labor Secretary Alexis Herman to the scene, and at her urging the parties returned to the negotiating table on August 14, 1997. Two days passed without a deal Finally, on August 16, IBT proposed the abatement plan to UPS, and end-game was at hand. Murray immediately seized on the plan and expressed his desire to speak directly with Kubalanza. Carey informed Kubalanza of the positive development and advised him to obtain the approval of the trustees before contacting Murray. Kubalanza telephoned the trustees on August 17 and was able to get majority approval. He then called Murray to discuss the abatement idea. The two quickly agreed on the substance of the plan but Murray insisted on something in writing. On the evening of August 18, Kubalanza faxed to Murray a letter confirming the agreement and describing the final terms of the abatement plan ("Kubalanza letter"). Paraphrasing, the Kubalanza letter contained the following terms: 1) UPS shall temporarily cease making contributions from August 1 through December 31, 1997; 2) the Fund shall grant service credit to UPS employees during this period; 3) the abatement will not constitute a withdrawal from the Fund; 4) UPS shall be deemed to have contributed during this period for the purposes of computing withdrawal liability; 5) UPS shall recommence contributing on January 1, 1998; and 6) the abatement plan is dependent on UPS entering into a new five-year collective bargaining agreement with IBT (Kubalanza aff. exh. D). A copy of the Kubalanza letter was also faxed to Hall (Hall aff. exh. A). Four hours later, UPS and IBT announced to the public that they had reached an agreement and that the strike was over.

On August 19, 1997, Kubalanza received the Summary of the Tentative National Master UPS Agreement for 1997-2002 ("tentative CBA") (Kubalanza aff. exh. E). The trustees convened on August 25 and 26 to discuss the document. In that meeting the trustees approved the increased contribution rates set forth in the tentative CBA (Kubalanza aff. exh. B at 1, 20). The trustees also discussed the abatement plan in depth and unanimously approved the plan as necessary for the financial security of the Fund (Kubalanza aff. exh. B at 15-20). In a subsequent letter UPS and IBT memorialized the understanding that their collective bargaining agreement was contingent upon the abatement plan ("letter of agreement") (Hall aft exh. B). The tentative CBA was subject to ratification, so the trustees also directed in their meeting that local unions representing UPS employees be informed of the terms of the tentative CBA (Kubalanza aff. exh. B at 19-20). Accordingly, the Fund distributed a newsletter dated August 1997, which described the basic nature of the tentative CBA and explained the reasons for the five-month abatement plan ("newsletter"). Attached to the newsletter was a bulletin ("bulletin") which contained specific figures regarding the increased UPS contribution levels and other features of the tentative CBA (Kubalanza aff. exh. F).

In early 1998, UPS employees ratified the National Master UPS Agreement for the Period August 1, 1997, through July 31, 2002 ("CBA") (Baxa aff. exh. A). As with predecessor agreements, the CBA was accompanied by various regional supplements, including the Teamsters Central Regional UPS Supplemental Agreement ("Central supplement") (Baxa aft exh. B). Article 34 of the CBA states the amount by which UPS' contributions would be increased over the previous agreement The Central supplement, like the previous regional supplement, is more detailed and specifies in Article 14 the weekly pension contribution levels required of UPS for each year of the five-year life of the agreement. Neither the CBA nor the Central supplement expressly provide that contributions would be abated for the first five months of the agreement. Pursuant to the understanding between and among UPS, IBT and Central States, however, as reflected in the Kubalanza letter and the letter of agreement, no contributions were paid or collected for the period August 1 through December 31, 1997.

Plaintiff claims that contributions should have been paid and collected. His complaint boils down to three general claims. First, and chiefly, plaintiff alleges that the CBA, Central supplement, and other contract documents required weekly pension contributions from UPS at all times after August 1, 1997, and that Central States' failure to collect contributions amounted to a breach of its fiduciary duties under Section 404(a)(1)(D) of ERISA, 29 U.S.C. § 1104(a)(1)(D). Plaintiff also asserts, second, that Central States breached its fiduciary duties by granting service credits and retirement benefits during the period in question and, third, that Central States' failure to collect, and UPS' concomitant failure to pay, constituted a per se prohibited transaction in violation of Section 406(a)(1)(3) and (D) of ERISA, 29 U.S.C. § 1106(a)(1)(B), (D).*fn2 We disagree. A complete reading of the evidence in the record indicates that there was no obligation to contribute into the Fund for the period August 1, 1997, through December 31, 1997. Therefore, we agree with Central States and UPS.


I. Summary Judgment Standard

Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). In considering a motion for summary judgment a court must "construe all facts in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party." Skorup v. Modern Door Corp., 153 F.3d 512, 514 (7th Cir. 1998); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). A genuine issue of material fact exists if there is sufficient evidence for a reasonable factfinder to decide the issue in favor of the non-moving party on ...

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