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Central States, Southeast and Southwest Areas Pension Fund v. St. Joseph Packaging

November 4, 2010

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, AND HOWARD MCDOUGALL, TRUSTEE, PLAINTIFFS,
v.
ST. JOSEPH PACKAGING, INC., A MISSOURI CORPORATION; CHADBRUCK, INC., A MISSOURI CORPORATION; AND BAGS & BOXES II, INC., A MISSOURI CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Sheila Finnegan United States Magistrate Judge

Judge William J. Hibbler

Magistrate Judge Sheila Finnegan

MEMORANDUM OPINION AND ORDER

Plaintiffs the Central States, Southeast and Southwest Areas Pension Fund (the "Pension Fund") and Howard McDougall, Trustee, (collectively, "Central States"), filed this lawsuit seeking to recover an interim withdrawal liability payment of more than $7.8 million under the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. § 1001 et seq. Currently before the Court is Central States' motion for a protective order striking certain discovery requests propounded by Defendants St. Joseph Packaging, Inc. ("St. Joseph Packaging"), Chadbruck, Inc. ("Chadbruck") and Bags & Boxes II, Inc. ("Bags & Boxes"). Central States contends that Defendants must seek the discovery--and raise the defenses to which that discovery relates--in a pending arbitration proceeding rather than before the district court. For the reasons set forth below, the motion is granted.

BACKGROUND

A. Underlying Dispute and the Arbitration Proceeding

Defendant St. Joseph Packaging was a party to a collective bargaining agreement with a local union affiliated with the International Brotherhood of Teamsters, and was required to make contributions to the Pension Fund on behalf of certain employees. On October 31, 2009, St. Joseph Packaging ceased operations and completely withdrew from the Pension Fund. At that time, Defendant Chadbruck owned at least 80% of the total combined voting power of all classes of St. Joseph Packaging stock pursuant to an asset sale. Chadbruck also owned at least 80% of Defendant Bags & Boxes stock.

Under ERISA, "employers who withdraw from pension plans must still pay their proportionate share of the 'unfunded vested benefits.'" Central States, Southeast and Southwest Areas Pension Fund v. Bomar Nat'l, Inc., 253 F.3d 1011, 1014 (7th Cir. 2001). "This withdrawal liability ensures that the financial burden of [the] employees' vested pension benefits will not be shifted to the other employers in the plan and, ultimately, to the Pension Benefit Guaranty Corporation ["PBGC"], which insures such benefits." Id. (internal quotations omitted).

Following St. Joseph Packaging's complete withdrawal, Central States determined that the company, along with Chadbruck and Bags & Boxes (collectively, "Defendants") constitute a single employer under 29 U.S.C. § 1301(b)(1), and are jointly and severally liable for a withdrawal liability payment of $7,805,334.78. Central States sent a notice and demand for full payment on January 19, 2010, declining to accept a monthly payment schedule in light of St. Joseph Packaging's liquidation and asset sale. (Doc. 33-1, Ex. A.) Under the MPPAA, once an employer receives notice of liability and demand for payment, "it must begin paying according to the schedule." Chicago Truck Drivers v. El Paso Co., 525 F.3d 591, 595 (7th Cir. 2008). An employer who disagrees with a withdrawal liability assessment may initiate arbitration proceedings, but this "does not suspend the employer's obligation to pay." Bomar Nat'l, 253 F.3d at 1015 (quoting Central States, Southeast and Southwest Areas Pension Fund v. Bell Transit Co., 22 F.3d 706, 707 (7th Cir. 1994)). Rather, the MPPAA establishes a "pay now, dispute later" scheme that "places a premium on prompt payment" pending a determination on liability. Id.; Chicago Truck Drivers, 525 F.3d at 595. The Seventh Circuit has explained that "[t]his provision serves the dual purpose of reducing the risk that an employer will not pay and of encouraging speedy adjudication by requiring immediate arbitration before the courts become involved in the merits of the dispute." Id.

Defendants failed to pay any amounts due after receiving the notice and demand for payment. They did, however, send Central States a Request for Review, contending that the maximum statutory withdrawal liability was only $3,941,229, rather than $7,805,334.78. Central States disagreed and denied the Request for Review, which led Defendants to initiate an arbitration proceeding challenging the merits of the withdrawal liability assessment. That proceeding is ongoing, and the parties expect to file their respective briefs on November 12, 2010. (Doc. 34-3.)

B. The Lawsuit in Federal Court

Central States filed this court action because Defendants have failed to make the up front interim payment that is required pending the outcome of the dispute through arbitration. Trustees of Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. Central Transport, Inc., 935 F.2d 114, 118 (7th Cir. 1991) (the MPPAA "calls on the employer to pay 'notwithstanding' contentions that may prevail in the end," putting "payment ahead of decision.") Under the statute, if the employer does not make the interim payment, then the pension fund may file a lawsuit seeking not only the payment but also interest and attorneys' fees. This puts the employer in a difficult situation. To avoid "gut[ting] the MPPAA 'pay now, dispute later' scheme, [the Seventh Circuit] has strictly limited the situation in which an employer could avoid interim liability: the employer must establish 1) that the pension fund's claim is frivolous and 2) that imposing interim liability would cause irreparable harm." Bomar Nat'l, 253 F.3d at 1019 (citing Trustees of Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. Rentar Indus., Inc., 951 F.2d 152, 155 (7th Cir. 1991), and Central Transport, 935 F.2d at 119). As the Bomar court noted, it is "a difficult standard to meet, and . . . meant to be that way." Id.

On October 4, 2010, Central States filed a motion for summary judgment in this action. The district court has ...


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