Professional Documents
Culture Documents
HOFFMAN MANAGEMENT
CORPORATION, formerly d/b/a
CHICAGO KANSAS CITY
FREIGHT LINE, INC.
and
3. On March 13, 1981, Hoffman entered into an agreement of sale and purchase
with Manley Truck Line, Inc. ("Manley") and Overland Enterprises, Inc.
providing for the sale of its operating authority, name, good will, and customer
accounts, and first the lease and then the sale of its rolling stock, and other
assets. Exhibit A is a true and accurate copy of this agreement ("Sale
Agreement") (including Appendices and Leases).
COMMENT: The parties furnished the arbitrator with copies of their abstracts
of the Sale Agreement, which they previously had filed with the District Court.
See Stipulation #22, infra.
4. At the time of the sale, the Sale Agreement complied with the provisions of
29 USC §1384(a)(1)(A)-(C).
5. Hoffman represents and warrants that the sale of CKC was a bona fide,
arm's-length sale of assets to unrelated parties.
6. At the time of the sale, Hoffman was subject to various collective bargaining
agreements, including one with the Chicago Truck Drivers Union, which
agreement required contributions to and participation in the CTDU Pension
Fund.
7. On March 13, 1981, Hoffman notified its employees of the sale to Manley
and advised that Hoffman would continue to operate until temporary ICC
approval was granted. Exhibit B is a true and accurate copy of the
communication provided to Hoffman's employees.
2
8. On March 18, 1981, Hoffman advised the Chicago Truck Drivers Union that
it had entered into a contract with Manley for the sale and that the purchaser
would assume its obligations under the collective bargaining agreement. Exhibit
C attached hereto is a true and accurate copy of the notice provided to Chicago
Truck Drivers Union.
35. On March 18, 1981, Hoffman entered into two Agreements to sell its
Kansas City terminal and the real estate owned by a related partnership for a
total of $1,950,000.00. Hoffman represents that it was sold to an unrelated party
in a bona fide, arm's-length sale. The Agreements to Sell are attached as
Exhibits W and X.
11. After March 13, 1981 and up to April 13, 1981, Hoffman continued to
operate its trucking business. Hoffman continued to have an obligation to
contribute to the Fund and did so contribute. Ownership of the assets remained
with Hoffman, as did the company's obligations for insurance, taxes, etc.
12. On April 13, 1981, Manley took over Hoffman's operations in accordance
with the terms of Exhibit A.
33. Hoffman contributed to the Plan in May, 1981 for its share of the monthly
contributions required for work performed in April, 1981. Exhibit S is the
monthly remittance report for Hoffman/CKC and Manley for April 1981;
Exhibit T are copies of the checks issued by Hoffman/CKC and Manley for
their April, 1981 contribution. ("Local 705" refers to the CTDU)
3
36. Manley signed a collective bargaining agreement with the Chicago Truck
Drivers Union on May 27, 1981, and became obligated to contribute to the
CTDU Pension Fund.
13. On July 13, 1981, the ICC granted permanent approval for Manley's
operation under Hoffman's authority. Exhibit F is a true and accurate copy of the
ICC's approval.
14. On July 20, 1981, Hoffman and Manley concluded the Sale Agreement and
calculated, and Manley paid, the final purchase price of $1,334,222.31. A copy
of the final closing statement is attached hereto as Exhibit G.
15. On November 20, 1981, Manley applied for, pursuant to 29 USC §1384(c),
an exemption from the bond requirements of 29 USC §1384(a)(1)(B). Exhibit H
is a true and accurate copy of this application.
COMMENT: Exhibit BB is a letter dated February 16, 1982, to PBGC from the
Central States, Southeast and Southwest Areas Pension Fund, opposing
Manley's application. Exhibit Z is a letter dated February 19, 1982, to PBGC
from counsel for the CTDU Pension Fund, adopting Central States' position.
16. On or about April 21, 1982, the CTDU Pension Fund notified Hoffman that
according to its information, Hoffman had completely withdrawn from said
Fund on March 31, 1981 and demanded payment of withdrawal liability in the
amount of $387,820.00. Exhibit I is a true and accurate copy of this notification.
17. Review of the assessment and collection of the alleged withdrawal liability
was deferred pending determination of Manley's request for an exemption from
the §1384(a)(1)(B) requirement.
COMMENT: Exhibit AA is a letter dated June 24, 1982, to counsel for the
CTDU Pension Fund from Manley's counsel, confirming agreement to defer
action on the Fund's demand for withdrawal liability from Hoffman, pending
PBGC action on Manley's application.
4
the bond requirement of §1384(a)(1)(B). Exhibit J is a true and accurate copy of
the PBGC's decision.
32. Manley's last contribution to the Fund was received on or about January 23,
1987 and represented partial payment of its October 1986 contribution.
19. On or before February 25, 1987, Manley closed its Chicago area trucking
operation. Manley filed for bankruptcy under Chapter 11 of the Bankruptcy
Code on February 25, 1987. Manley's Chicago operations have not re-opened.
On April 9, 1987, the Fund advised Manley of the Fund's position that Manley
had completely withdrawn on February 25, 1987. The Fund calculated Manley's
withdrawal liability to be $299,390.00. Exhibit K is a true copy of this
notification.
20. On April 17, 1987, the CTDU Pension Fund advised Hoffman that it
intended to hold Hoffman liable for its withdrawal liability as a result of
Manley's alleged complete withdrawal. Exhibit L is a true and accurate copy of
this notice.
22. On September 22, 1987, CTDU Pension Fund filed suit against Hoffman in
the United States District Court for the Northern District of Illinois, Case No.
87-C-8204.
23. On November 2, 1987, Hoffman, by its counsel, sent a letter to the Trustees
of the Pension Fund. A copy of the letter is attached as Exhibit N.
24. On December 14, 1987, Hoffman, by its counsel, sent a letter to the
Trustees of the Pension Fund. A copy of the letter is attached as Exhibit O.
5
25. On or about December 3, 1987, CTDU Pension Fund filed its motion to
compel interim withdrawal liability payments. On or about January 10, 1988,
Hoffman filed its motion for summary judgment.
26. On February 11, 1988, Hoffman, by its counsel, sent a letter to counsel for
the Pension Fund. A copy of the letter is attached as Exhibit P.
27. On or about February 29, 1988, the CTDU Pension Fund advised Hoffman
that the original determination of its withdrawal liability date as being on or
before March 31, 1981 was withdrawn and the Fund issued a revised
assessment based upon a withdrawal during the 1981-1982 plan year which
began April 1, 1981. The assessment was for $380,822.00. This was the first
occasion on which the Fund took the position that Hoffman's withdrawal had
occurred after March 31, 1981. Exhibit Q is a true and accurate copy of the
February 29, 1988 letter.
28. On or about August 5, 1988, the United States District Court entered its
order granting the CTDU Pension Fund's motion to compel interim payments
and ordering the parties to arbitrate the issues in this matter. A true and accurate
copy of the Court's opinion is attached hereto as Exhibit R.
29. Hoffman filed a notice of demand for arbitration. The arbitrator has
jurisdiction of all disputes, claims and defenses of and between the parties.
COMMENT: Hoffman filed its Demand for Arbitration with the Kansas City
office of the American Arbitration Association ("AAA") on April 26, 1988.
Subsequently, the case was transferred to AAA's Chicago office.
30. On or about October 11, 1988, Hoffman deposited the sum of $102,949.93
in account no. 36-10209 in the name of Chicago Truck Drivers Union Pension
Fund/Hoffman Management Corporation at the Mid-City National Bank, 809
West Madison, Chicago, Illinois. This sum represented $80,664.00 for past due
quarterly withdrawal payments for September 15, 1987, October 1, 1987
January 1, 1988, April 1, 1988, July 1, 1988, and October 1, 1988. Said sum
also included $3,681.93 in interest on said payments (through August 31, 1988).
In addition, said deposit included $13,444.00 in liquidated damages and
$5,160.00 in attorney's fees, claimed by CTDU Pension Fund but not expressly
addressed in the court's decision. It was agreed by the parties that the deposit of
said sum representing liquidated damages and attorney's fees is not to be
construed as an admission that said amounts are due and owing.
6
31. Hoffman does not object to the actuarial calculations or the actuarial
assumptions used by the Fund.
34. The contribution histories of Hoffman/CKC and Manley are set forth in
Exhibits U & V respectively. The "total" entry at the bottom of each column
represents the total money paid; the figure below the total, e.g. "4.20", is the
daily contribution rate for that plan year; the figure at the very bottom of each
column represents the employer's contribution base units (total paid/ daily rate).
REMARKS ON EVIDENCE
On January 19, 1989, the arbitrator met with the counsel for the parties,
in AAA's Chicago office, at which time the parties presented the arbitrator with
exhibits marked A-X. Per the conference on January 19 and the arbitrator's
confirmation letter of January 22, 1989, the parties made minor modifications to
the stipulation and adduced exhibits Y, Z, AA and BB. The final stipulation,
adopted as the basic facts of the case. Additional basic facts and the ultimate
facts are included in the following opinion, without express designation as such.
THRESHOLD ISSUE
District Court for the Northern District of Illinois, No. 87-C-8204. In a 17-page
Memorandum Opinion and Order dated August 5, 1988 (Ex R or "Slip Op"), the
7
Court ordered Hoffman to make interim withdrawal liability payments and
referred the case to arbitration. Because the Fund seeks to raise issues addressed
In its brief received April 24, 1989 ("Fund Brief"), the Fund asserts that
Hoffman waived its right to arbitrate, because it did not make a timely request to
No later than 90 days after the employer receives the notice described in
paragraph (1), the employer --
(i) may ask the plan sponsor to review any specific matter relating to the
determination of the employer's liability and the schedule of payments,
(ii) may identify any inaccuracy in the determination of the amount of
the unfunded vested benefits allocable to the employer, and
(iii) may furnish any additional relevant information to the plan sponsor.
Crucial to the Fund's position is its argument that Hoffman's letter of November
2, 1987 (Ex N) did not constitute a request for review within the meaning of the
statute.
In Hoffman's brief, also received April 24, 1989 ("Co Brief"), the
Company counters that the issue was decided by the District Court in its
8
Manley's Chapter 11 filing in February, 1987 did constitute a withdrawal, then it
occurred more than five plan years after the company's sale of assets to Manley.
In a letter dated December 11, 1987, Hoffman renewed its previous request for
information and review. Hoffman further advised the Fund of its intention to
request arbitration on or before February 28, 1988, with regard to the fifth plan
year issue and any other disputed matters. See 29 U.S.C. Section 1401(a)(1).
***
The Fund filed suit on September 22, 1987, well before the period for
initiating arbitration had run. In a letter dated November 2, 1987, Hoffman
requested review of the Fund's determination that Manley had withdrawal
during the fifth plan year. Hoffman renewed his request in a letter dated
December 11, 1987. In addition, Hoffman contested its liability in this court by
filing its answer and summary judgment motion, raising its defenses therein.
Thus, Hoffman has actively pursued its defenses in this court.
Court already has concluded that Hoffman's letter of November 2, 1987 was a
request to review within the meaning of the statute, one of the very issues the
Fund now seeks to arbitrate. I, in turn, conclude that, absent factors, such as the
that would persuade the District Court to reverse itself, I must follow the District
Court's ruling.
Hoffman characterizes the Court's ruling as "the law of the case" but,
Appeal and Error, §744, at 188, which is not our situation. Federal Rule of Civil
Procedure 54(b) makes clear that the Court's decision is not final, so that res
judicata and collateral estoppel also are inapplicable. The statutory framework
9
determine the effect of an arbitrator's findings of fact in a subsequent district
court action, the statute says nothing about conclusions of law, and the courts
are divided over their impact. See Fraser Shipyards, Inc and IAM National
Pension Fund, 7 EBC 2562, 2582-2584 (Arb, 1986); confirmed and enforced 9
EBC 2484 (D DC, 1988). Moreover, our situation is just the reverse of that
addressed in the statute, because here, the Court's opinion preceded arbitration.
Nevertheless, just as parties are not permitted to turn arbitration into spring
training for "the big show", they should not be entitled to test their theories
the statute makes courts the final arbiters of issues of law in withdrawal liability
court's mandate, must follow the court's preliminary conclusions of law, in the
The Fund proffers no argument that would cause the District Court to
reverse its conclusion regarding the November 2, 1987 (Ex N). Moreover, I
The fund overlooks the sentence just quoted and focuses instead upon the
10
Request for Review. Once the foregoing information has been
furnished to, and evaluated by, the Company (and any follow-up
information requested and furnished), the Company intends, pursuant to
ERISA §4219(b)(2)(A), to furnish the Fund, on or before November 29,
1987, additional relevant information for consideration by the Trustees.
From this isolated paragraph, the Fund concludes that Hoffman's letter was a
mere request for information, rather than a request for review within the
meaning of 29 USC §1399(b)(2)(A). I do not think that either the letter or the
page letter, sent certified, return receipt requested, could mistake its purpose,
reasonable person should have understood that Hoffman was putting at issue the
The Company's stated intention, "to furnish the Fund on or before November
Indeed, in the Fund's reply dated December 22, 1987, the Fund itself
wrote:
11
Trustees at their scheduled meeting in late February or early March,
1988, will consider the issues raised.
not a new or different request for review but rather described its earlier letter as
having been a request for information and review and reiterated the request.
review, the Fund cannot now seriously urge that the letter sought information
only.
Corp v Paper Industry Pension Fund, 5 EBC 1496 (D Minn, 1983), the
employer's letter stated that the employer had "no reason to feel the liability and
was the pivotal one over the March 13/31, 1981, date of sale/withdrawal. See
the Fund on notice in its answer to the Fund's complaint that the Company
intended to contest application of the 5-year rule of 29 USC §1384. See Slip Op
at 6. Hoffman's answer was filed on November 18, 1987, well within the 90-day
time limit for requesting review. See 29 USC §1399(b)(2)(A). The statute does
not require that a request for review take any particular form, and Hoffman's
letter of November 2, 1987, together with its answer to the Fund's complaint,
12
gave the Fund ample and timely notice of the areas of disagreement.
In Evans v Frito-Lay Inc, No. C83-2237 (ND Ohio, 1983), the court took
The letter does not: (1) "… ask the plan sponsor to review any specific
matter relating to the determination of [Frito-Lay's] liability [or] the
schedule of payments"; (2) … identify any inaccuracy in the
determination of the amount of the unfunded vested benefits allocable to
[Frito-Lay]" and (3) finally, it does not relate that Frito-Lay intended to
"furnish any relevant information to the plan sponsor."
At the very least, Hoffman's letter related that the Company intended to furnish
distinguishable. Both the District Court and I are in agreement that Hoffman
made an effective, and hence timely, request for review within the meaning of
29 USC §1399(b)(2)(A).
If the purchaser --
(A) withdraws before the last day of the fifth plan year beginning after
the sale, and
(B) fails to make any withdrawal liability payment when due ,
then the seller shall pay the plan an amount equal to the payment that
would have been due from the seller but for this section.
If the sale took place on March 13, 1981, upon execution of the Sale Agreement
13
(Ex A), as Hoffman contends, then the 5 plan year period described in 29 USC
§1384(a)(2)(A) commenced April 1, 1981 and expired March 31, 1986, well
before Manley withdrew from the Fund on February 25, 1987. On the other
hand, if the sale did not take place until July 20, 1981, upon closing (Ex G), as
the Fund contends, then the 5 plan year period did not commence until April 1,
1982 and did not expire until March 31, 1987, several weeks after Manley's
for the withdrawal liability it would have had but for the operation of 29 USC
§1384. The plain language of the Sale Agreement and 49 USC §11343
On the First Closing Date (as hereinafter defined), CKC agrees to lease to
Manley and Manley agrees to lease from CKC … the assets described
below until the Second Closing Date (as hereinafter defined), at which
time CKC agrees to … sell … to Manley the assets described below, …
and Manley agrees to purchase … said assets.
Ex A, §1; emphasis supplied. The "First Closing Date" is defined in §17 and
temporary operating authority. Similarly, the "Second Closing Date" is July 20,
critical dates fell into the 1981-1982 plan year. Under the plain language of the
14
Sale Agreement, the sale did not take place until the later date.
That the parties used different language when they intended an event to
be measured from the date of execution of the Sale Agreement is seen readily
(e.g., §12.2) measure events from the First or Second Closing Date, not from the
date of execution. Several phrases from §12.1, in which the parties parroted the
language of 29 USC §1384 (e.g., "for a period of five plan years commencing
with the first plan year beginning after the sale of assets"), at most beg the
question and in no way detract from the plain and simple language of §1, which
expressly places the sale at the Second Closing Date, i.e., July 20, 1981.
The limited case law on the subject points to a date of sale, later that the
date of execution of the contract of sale. The fact situation reported in Mason
and Dixon Tank Lines, Inc v Central States, Southeast and Southwest Areas
Pension Fund, 852 F2d 156 (CA 6, 1988), gave rise to a number of reported
opinions, e.g., Central Transport, Inc v Central States, Southeast and Southwest
Areas Pension Fund, 639 F Supp 788 (ED Tenn, 1986); 640 F Supp 56; both
aff'd w/o published opinion 816 F2d 678 (CA 6, 1987); cert den 108 S Ct 290,
which Hoffman seeks to distinguish. Although it is true that the principal issue
15
in that series of opinions pertained to the concept of a controlled group found in
29 USC §1301(b)(1) and that the underlying transaction was a stock sale rather
than a sale of assets, it is clear from 49 USC §11343 that the determinative issue
is "control," rather than the structure of the transaction. See 49 USC §10102(7)
affirmed by the Sixth Circuit, that no sale occurred, or even could have
occurred, until after ICC approval, is applicable here. See 852 F2d at 160-161,
161-162 ("Nor had the ICC ultimately approved the stock acquisitions as
§11343, Hoffman's sale of CKC to Manley could not as a matter of law, and did
purchaser for a full five plan years. It is undisputed that Manley did not begin
making contributions to the Fund until April 13, 1981, following the ICC's grant
of temporary operating authority. Thus, Manley's five plan year period for
uninterrupted contributions could not have begun to run until the 1982-1983
16
Because both of the critical dates, April 13, 1981 and July 20, 1981, fall
proper case, the ICC's grant of temporary operating authority and a purchaser's
the harshness of the operation of the statute under the facts of this case, I note
that Hoffman would not qualify for such liberal interpretation, because of its
Although the Sale Agreement was executed March 13, 1981, Hoffman
and Manley waited until March 31, 1981, to seek ICC approval for the
diligently and filed their application with the ICC right away, there would have
been plenty of time for the ICC to have acted before the end of the plan year on
March 31, 1981, in which case Hoffman might have had a good argument that,
for purposes of 29 USC §1384, the grant of temporary operating authority and
mark the sale of CKC's assets. But Hoffman and Manley delayed for several
weeks, and now Hoffman must accept the consequences of that delay. See Ex
A, §3.
17
HOFFMAN'S DEFENSES
EBC 1353, 1365 & n 17 (Arb, 1986). In its brief, Hoffman claims that the Fund
misled it into believing that the sale of CKC to Manley occurred in plan year
1980-1981, by means of the Fund's demand letter of April 21, 1982 (Ex I), in
the conclusion that Hoffman could not have been, and was not, misled by the
Fund. Moreover, Hoffman was well aware of the fact that it had continued
making contributions to the Fund beyond the March 31, 1981 date specified in
the Fund's letter. Conspicuously absent from the Stipulation of Facts is any
18
retention of that right. See Owens Truckmen, supra, 7 EBC at 1365. There is
nothing in the Fund's letter of April 21, 1982 (Ex I) or its subsequent conduct
contrary, the Fund's issuance of a demand letter even after it had been apprised
requirement of 29 USC §1384(a)(1)(B) [Ex H] suggests that the Fund was intent
upon exercising its rights to the fullest extent of the law. The parties agreed to
hold matters in abeyance pending PBGC action (Ex AA), following which, the
Fund concluded that Huffman had complied with 29 USC §1384, and hence the
Fund could take no further action at that time, because, technically speaking,
Hoffman had not withdrawn. See 29 USC §1384(a)(1) ["withdrawal … does not
withdrawal liability, a pension plan's time for acting is measured from the date
of withdrawal, which in this case, was not until February 25, 1987, when
Manley closed its doors and filed for bankruptcy. See 29 USC §1399(b)(1) ["as
Employers Pension Fund, 9 EBC 1913, 1919-1920 (Arb, 1988). The Fund
letter dated April 17, 1987 (Ex L), less than two months after Manley's
19
withdrawal. Thus, no serious timeliness issue is presented.
DEFRA §558, in Central States, Southeast and Southwest Areas Pension Fund
v 888 Corp, 813 F2d 760 (CA 6, 1987), somehow applies to the execution of the
Sale Agreement, is not well taken. The opinion makes clear that DEFRA §558
September 26, 1980. 813 F2d at 765. Hoffman's argument (Co Brief at 38), that
the Sixth Circuit observed "that §558(d) makes the execution date the effective
date for all purposes under MPPAA," is rebutted by Mason and Dixon Tank
Lines, supra, in which the Sixth Circuit noted that the stock purchase agreement
did not become effective for purposes of forming a controlled group, until after
ICC approval. 852 F2d at 162. DEFRA is wholly inapplicable to this matter.
29 USC §1384(a)(1)(A). Specifically, the Fund points out that for five plan
contribution base units, and hence did not in fact contribute for "substantially
the same number of contribution base units" as Hoffman. The fallacy in the
20
Fund's argument is that there is no such test in the statute itself.
actual contributions is too clear to require much discussion, and there can be no
doubt that Congress was well aware of the distinction. Compare, for example,
the 70% contribution decline test. Nowhere in the statute itself does Congress
only the purchaser's contribution obligation at the time of the sale of assets.
In the matter before me, Hoffman and Manley went to great lengths in
obligations under 29 USC §1384, e.g., Cullum Cos and Central States Pension
Fund, 10 EBC 1926, 1935-1936 (Arb, 1988), I find that the provisions in
Exhibit A were put there in an effort to comply with the statute, not to evade
Although the Fund's position, that "substantially the same" means at least
21
85% as much, may not be unreasonable, Owens Truckmen, supra, 7 EBC at
1378-1379; Oolite Industries, Inc and Central States Pension Fund, 8 EBC
2009, 2017 (Arb, 1987), its use of five-year average, under the facts of this case,
contribution base units against Hoffman's for the plan year 1980-1981, the last
plan year before the sale, you can come up with percentages like 87% (1981-
It must be borne in mind that justification for any test involving actual
contributions is to be found not in the statute itself, but in the legislative history.
1076 (April 1980), §III.B.4(d), reproduced in 310 BNA Pension Rptr (Special
Supplement, September 29, 1980), at 83. In the matter before me, Hoffman and
keep the employment level at 90% or above for at least one year following the
First Closing Date. Ex A, §12.3.D. Courts and arbitrators that have examined
statutory tests. See, for example, IAM National Pension Fund Benefit Plan A v
Cooper Ind's, 635 F Supp 335, 340 (D DC, 1986) ["recognizing the folly of
some precise meaning"]; IAM National Pension Fund v Dravo Corp, 7 EBC
22
1892 (D DC, 1986), affirming and enforcing 6 EBC 2641 (Arb, 1985); Terson
Co and Bakery Drivers Local 734 Pension Funds, 4 EBC 1009 (Arb, 1983).
complains, was the result of deregulation in the trucking industry. Indeed, the
A), and the Fund candidly concedes, "Both parties certainly would agree that
deregulation has adversely affected the trucking industry." Fund Brief at 11. Not
only was Manley unable to rescue CKC's business, but it was unable to save
Had Hoffman not sold CKC, then the Fund well might have experienced
was on the wall, as Hoffman's contribution base units plunged by almost 1200
units from 1979-1980 to 1980-1981 (Ex U), and the Company's profit picture
disappeared (Ex D, Appendix A). The sale to Manley at least provided the Fund
with over $250,000 in contributions (Ex V), some of which it otherwise might
CKC's business may have been inevitable. That occurred it in 1987 rather than
1981 is fortuitous.
The Fund has stipulated that, "[a]t the time of the sale, the Sale
23
am persuaded that that is all the statute requires. For the Fund, at this late date,
to Hoffman, especially in view of the fact that the decline in contribution base
units was due to forces beyond any private party's control. Dravo, supra.
Because the date of sale, whether April 13, 1981 or July 20, 1981, falls
into plan year 1981-1982, a finding of liability on the part of Hoffman is not
difficult. The far trickier question is how much Hoffman owes. To decide this,
let us note that it is not just Manley's withdrawal within the period April 1, 1982
-- March 31, 1987, that triggers Hoffman's secondary liability, but rather
Manley's failure "to make any withdrawal liability payment when due." 29 USC
§1384(a)(2)(B).
Hoffman paid the Fund $299,390 on or before July 1, 1987, or even begun to
complain. This being the case, the issue becomes whether the Fund is entitled to
the full $380,822 claimed in its letter of February 29, 1988 (Ex Q). I conclude
24
that it is not.
The statute does not answer the question; indeed, the statute is incomplete
in many respects. See, e.g., Kroger Co and Southern Cal. Food Workers
Pension Fund, 6 EBC 1345, 1358 n 14 (Arb, 1985), pointing out that 29 USC
§1384(b)(1) does not always provide an adequate basis for computing the
of the statute could lead to a windfall for pension plans. Suppose, for example,
that a withdrawing purchaser made all but the final withdrawal liability
payment; would the seller then be liable for the full amount of its withdrawal
liability? One's sense of equity says no, but the statute doesn't say, at least not
that may bear on the question, 29 USC §§1384(a)(1)(B), (C), (a)(3), and (4):
(B) the purchaser provides to the plan for a period of 5 plan years
commencing with the first plan year beginning after the sale of assets, a
bond issued by a corporate surety company that is an acceptable surety
for purposes of section 412 of this Act, or an amount held in escrow by a
bank or similar financial institution satisfactory to the plan, in an amount
equal to the greater of --
(ii) the annual contribution that the seller was required to make
with respect to the operations under the plan for the last plan year before
25
the plan year in which the sale of the assets occurs,
(C) the contract for the sale provides that, if the purchaser
withdraws in a complete withdrawal, or a partial withdrawal with respect
to operations, during such first 5 plan years, the seller is secondarily
liable for any withdrawal liability it would have had to the plan with
respect to the operations (but for this section) if the liability of the
purchaser with respect to the plan is not paid.
(4) The liability of the party furnishing a bond or escrow under this
subsection shall be reduced, upon payment of the bond or escrow to the
plan, by the amount thereof. (Emphasis supplied.)
concern was with payment of the purchaser's withdrawal liability; that is the
purchaser's liability that triggers the seller's secondary liability under 29 USC
§§1384(a)(1)(C), (2). I read the total amount of the seller's liability in 29 USC
§1384(a)(1)(C) ["any withdrawal liability it would have had to the plan with
26
respect to operations (but for this section)"] and the amount of the seller's
that would have been due from the seller but for this section"] as placing outside
limits on the seller's secondary liability and not as defining the actual amount
due in any particular fact situation. This interpretation is consonant with the
concept of secondary liability, under which the seller stands as guarantor of the
own schedule.
The credit due the purchaser under 29 USC §1384(a)(4) for the bond
that the primary amount due is the purchaser's liability. Again, it would be
anomalous for the purchaser to forfeit a bond, receive "credit" for the amount of
the bond, which might pay off a substantial portion of the purchaser's
withdrawal liability, and still leave the seller liable for the full amount of its
placing an outside limit on the seller's secondary liability, rather than defining
the amount of that liability. "The courts have declined … to apply the statute in
27
Trucking, Inc, 857 F2d 1107, 1109 (CA 6, 1988) [citation omitted].
and reticulated statute". Mass. Mutual Life Ins Co v Russell, 473 US 134, 146-
147 (1985). However, the statute itself empowers the arbitrator to make
11 ("[T]he arbitrator will correct any factual and legal errors made by the
$22,279, with a final quarterly payment of $1,216. Although I do not have the
Hoffman's case, the rate utilized appears to have been on the order of 6%. Cf.
Ex Y, ¶6. In both cases, the Fund appears to have employed a standard short cut
and merely amortized the principal amounts quarterly at one-fourth of the stated
28
rates, as opposed to preparing annual amortizations and then dividing the annual
The effect of this short cut is to charge withdrawing employers less than the
Because the Fund utilized different interest rates reflecting changes in the
fund's plan funding interest assumption between 1981 and 1987 (see Ex Y, ¶6),
requires that a seller undergoing dissolution post a bond "equal to the present
value of the withdrawal liability the seller would have had but for this
subsection." This language may suggest that some current rate be utilized in
computing the present value. Intuitively, if the same rate were employed in
computing the present value of the seller's schedule of payments as was used to
prepare the schedule in the first place, except in rare cases affected by the 20-
year cap of 29 USC §1399(c)(1)(B), the present value would equal the seller's
have had a more current rate in mind. Cf. Ludington News, supra, 9 EBC at
1918 n 7(i)-(j).
In the matter before me, the more current rate is on the order of 8½%, the
plan funding rate as of the date of Manley's withdrawal. This is decidedly the
29
fairer rate to use, because the Fund should not be saddled with the risk of
interest rate fluctuations. Using the current rate, we may ask how many
perhaps some final quarterly payment. In making this estimate, I have used the
Fund's short cut, which is not inappropriate, because the Fund must treat all
Although in theory it is possible to back out the precise interest rates used
error. If, for example, the Fund made an inadvertent mistake in computing either
schedule, then any data I might extract would only compound the error.
Inasmuch as Hoffman's quarterly payments are fixed at $13,444 and will extend
well into the future, I see no need to rush to determine immediately the precise
date and exact amount of the very last payment. Therefore, I leave this
Within fifteen (15) days of receipt of this opinion, the Fund shall transmit
Q) and Manley's (Ex K) payment schedules, and shall propose a schedule for
30
payment of Manley's liability by Hoffman, using the interest rate assumed in
Exhibit K. The Fund shall supply Hoffman supporting worksheets for the
proposed schedule as well. Copies of all materials shall be filed with arbitrator
and with AAA. Hoffman then shall have fifteen (15) days to accept the Fund's
computational directive is not intended to affect the finality of this award for
INTEREST ADJUSTMENTS
commenced making its quarterly payments of $13,444 and has paid some
payments is as follows:
31
owed for 9/1/88-10/10/88
The rules and rates for computing delinquency charges are set forth in 29 CFR
The Fund claims, and is entitled to, interest on all late payments. 29
(d) interest on payment (8) for 4/1/89 until paid. The interest for April
1989 is (11.50%/12) x $13,444 = $129; interest is accruing in May at the
rate of (11.50%/360) x $13,444 = $4.29 per day.
upon interest; i.e., the computational scheme seems to call for simple, as
problem, since a pension plan is free to credit payments first toward interest,
then toward principal. For some reason, the Fund has not done so and, as before,
32
I follow the Fund's methodology, since that must be the same for all
short cut, the Fund's failure to apply payments first against interest runs in favor
of withdrawing employers.
As in the case of the payment schedules, the Fund does not claim the full
amount to which it is entitled; e.g., the Fund apparently uses a 365-day year to
compute daily interest, instead of the more favorable 360 days permitted by
treatment, I award the Fund only the interest requested, $1,189.84 plus $4.23 per
day for each day the April 1, 1989 quarterly payment is delinquent. See Fund
At this point, it is unclear what, if anything, the Fund will receive from
Manley's bankruptcy. All that can be said now is that if and when the Fund does
receive something, Hoffman will be entitled to credit for the net amount
received, where, by "net", I mean the gross amount received, less the Fund's
33
MISCELLANEOUS COSTS AND FEES
Because the Fund was forced to sue Hoffman to compel it to make interim
attorney's fees, as a matter of law. See Connors v Brady-Cline Coal Co, 668 F
COSTS OF ARBITRATION
Although the Fund prevailed, it did not do so entirely, and I do not find
the bad faith on the part of Hoffman that would entitle the Fund to an award of
attorney's fees. 29 CFR §2641.9(c). The parties shall divide the cost of this
BURDEN OF PROOF
proof, because at least one judge in the Northern District of Illinois has sided
with the Third Circuit in United Retail & Wholesale Employees Teamsters
Union Local No 155 Pension Plan v Yahn and McDonnell, Inc, 787 F2d 128 [
(CA 3, 1986); aff'd by equally divided court 481 US 735 (1987), and declared
34
v Pepsi-Cola Metropolitan Bottling Co, 636 F Supp 641 (ND Ill, 1986)
[Nordberg, J]. Although the judge in the instant case did not provide any
affirmatively. Slip Op at 16 n 1.
concerning the sufficiency of Hoffman's request for review), I decide this matter
de novo under a more probable than not standard. See IAM National Pension
Fund v Fraser Shipyards, Inc, 9 EBC 2484, 2486, 2491 (D DC, 1988),
affirming and enforcing 7 EBC 2562 (Arb, 1986). The Company certainly
cannot complain and, to the extent I have disagreed with the Fund's
due the Fund's legal conclusions. See Central Michigan Trucking, supra, 857
35