Citations
- 880 F. Supp. 388
Full opinion text
MEMORANDUM
DuBOIS, District Judge.
Table of Contents
I. Introduction. 391
A. Procedural History and Background . 391
B. The Defendants. 392
II. MPPAA Withdrawal Liability. 392
III. Arbitration. 393
A. Flying Tiger and Doherty . 393
B. Date of Withdrawal .394
C. Controlled Groups.394
1. Epes Carriers, Inc. and
Epes Transport System, Inc.394
a. The “Option Contract”.394
b. Post-Withdrawal Common Control.395
2. Brigadier and Bodford.396
IV. Statute of Limitations .397
V. Notice and Demand.397
VI. Employer Status at Time of Withdrawal.399
A Brigadier and Bodford.399
B. Epes Carriers, Inc. and Epes Transport System.402
VII.Conclusion.'..402
Presently before the Court are defendants’ Motion to Dismiss and plaintiffs’ Cross-Motion to Dismiss or Stay Pending Arbitration. Both Motions will be denied for the following reasons.
I. Introduction
A. Procedural History and Background
This ease forms part of the extensive litigation arising under the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), 29 U.S.C. § 1381 et seq., that grew out of the withdrawal of Hall’s Motor Transit Co. (“Hall’s”) from a number of mul-tiemployer pension funds. See, e.g., Flying Tiger Line, Inc. v. Central States, S.E. & S.W. Areas Pension Fund, 704 F.Supp. 1277 (D.Del.1989).
The facts and procedural history may be summarized as follows:
Hall’s was an interstate trucking company that contributed on behalf of covered employees to various multiemployer pension funds including that of plaintiff Teamsters Pension Trust Fund of Philadelphia and Vicinity (“the Fund”). On March 10, 1986, Hall’s filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq., and subsequently reduced and then ceased contributing to the pension funds.
From January 1980 to January 1985, Hall’s was a wholly-owned subsidiary of Tiger International, Inc. (“Tiger”). Anticipating that the pension funds would assert that Tiger was jointly and severally liable for Hall’s withdrawal liability, Tiger and its subsidiaries filed a complaint in July 1986 in the United States District Court for the District of Delaware seeking declaratory and injunc-tive relief against various pension funds including the Fund. Tiger alleged that it was not liable to any pension funds as a result of Hall’s withdrawal. Tiger ultimately settled with all the pension funds in that case except for the Fund.
By late 1987, Hall’s ceased contributing to the Fund, and on January 20,1988, the Fund sent Tiger a notice and demand for payment of Hall’s withdrawal liability which the Fund assessed at approximately $2.1 million. The Delaware District Court referred the dispute between the Fund and Tiger to arbitration. On December 22, 1993, the arbitrator issued a decision in Tiger’s favor. That decision is currently on appeal in the Delaware District Court.
On March 21, 1994, the Fund and Charles J. Schaffer, a fiduciary of the Fund, filed the instant action against defendants Alvin Bod-ford, Brigadier Leasing Associates, Epes Transport System, and Epes Carriers, Inc., “as a protective matter following an adverse arbitration award.” Pl.Surreply Mot.Dism. at 26. An Amended Complaint was filed on March 28, 1994. The Amended Complaint alleges that under MPPAA’s provisions, defendants and Hall’s were businesses under common control at the time of withdrawal and are therefore jointly and severally liable for Hall’s withdrawal liability. Jurisdiction is based on 29 U.S.C. § 1451(c), which gives federal district courts jurisdiction over civil actions arising under MPPAA.
B. The Defendants
In December 1984, defendant Alvin Bod-ford (“Bodford”), then Chief Financial Officer of Hall’s, and other senior members of Hall’s management formed the Hall’s Acquisition Corporation (“HAC”) as part of a planned buyout of Hall’s from Tiger. Tiger transferred 75% of Hall’s stock to HAC in January 1985 for $1,000 and a secured note for $10.5 million of existing inter-company debt. Tiger transferred its remaining 25% of Hall’s stock to HAC in December 1985. According to defendants, HAC returned the latter 25% of Hall’s stock to Tiger in March 1986 because the transfer constituted a default under various agreements to which Hall’s was a party. Defendants claim that the transfer of this 25% of Hall’s stock was not consummated until May 1988.
Defendant Brigadier Leasing Associates (“Brigadier”) was formed in June 1985 as a limited partnership with one general partner. Under the express terms of the partnership agreement, the purpose of the partnership was to lease 70 GMC Brigadier tractors to Hall’s. See Pl.Mem.Opp.Mot.Dism.Ex. 9 at 3-^4. Alvin Bodford was general partner of Brigadier at all times. According to defendants, shortly after Hall’s filed its petition under Chapter 11 of the Bankruptcy Code in March 1986, Brigadier sold all of its tractors and ceased all business other than winding up the affairs of the partnership. The final distribution of the remaining assets was made on October 19, 1987, and the partnership ceased to exist at that time.
In July 1987, Bodford and the F.R. Langley Family Trust (“the Trust”), by its trustee Phyllis Brown, created defendant Epes Carriers, Inc. (“ECI”), with the stock ownership and voting control evenly divided between Bodford and the Trust. In September 1987, ECI purchased all the stock of defendant Epes Transport System, Inc. (“ETS”), a trucking company. In May 1988, Bodford acquired the Trust’s interest in ECI and became sole owner of ECI.
II. MPPAA Withdrawal Liability
MPPAA was enacted in 1980 as an amendment to the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. MPPAA requires employers who withdraw from a multiemployer pension plan to pay their portion of the unfunded vested benefits of that plan. Under ERISA, the term “employer” encompasses any trade or business under common control with the organization whose withdrawal triggers the liability. 29 U.S.C. § 1301(b)(1). A pension plan may demand and collect withdrawal payments from any such trade or business.
ERISA provides that the term “trades or businesses ... under common control” is to be defined by regulations promulgated by the Internal Revenue Service. 29 U.S.C. § 1301(b)(1). The regulations define three types of controlled groups. First, a parent-subsidiary controlled group is formed when one person or organization has a controlling interest, i.e., an 80% or greater interest, in another organization. 26 C.F.R. § 1.414(e)-2(b). Second, a brother-sister group is formed by two or more organizations where five or fewer persons own a controlling interest in each organization and such persons are in effective control of each organization. 26 C.F.R. § 1.414(c)-2(c). Effective control is found where the sum of the lowest percentage interest of each person in each organization is 50% or more. Third, a combined group of common control is formed by three or more organizations where each organization is a member of either a parent-subsidiary or brother-sister group and at least one organization is simultaneously a member of a parent-subsidiary and brother-sister group. 26 C.F.R. § 1.414(e)-2(d).
The Fund alleges that Hall’s and the defendants formed a combined group of common control as follows: HAC wholly owned Hall’s, and thus HAC and Hall’s form a parent-subsidiary controlled group. HAC and ECI form a brother-sister controlled group because, according to plaintiffs, Alvin Bodford owned a controlling interest in and had effective control of both firms. ETS is a wholly-owned subsidiary of ECI and forms a parent-subsidiary control group with ECI. HAC and Brigadier formed a brother-sister group because, according to plaintiffs, Bod-ford and two other investors owned a controlling interest in and had effective control of both firms. Together, Hall’s, HAC, and defendants ECI, ETS, and Brigadier formed a combined group of trades or businesses under common control and a single MPPAA employer. As general partner of Brigadier, Bodford is personally liable for the withdrawal liability of Brigadier.
The parties have agreed that defendants’ Motion to Dismiss should be treated as a motion for summary judgment because the Motion is based on evidence beyond the scope of the pleadings. See Fed.R.Civ.P. 12(b). Plaintiffs, in turn, have filed a motion pursuant to Fed.R.Civ.P. 41(a)(2) to dismiss the Amended Complaint without prejudice or, in the alternative, to stay proceedings, pending arbitration.
III. Arbitration
Plaintiffs maintain that all issues in the ease, including those involving the statute of limitations and notice, must be arbitrated, and that, as a result, the action should be dismissed without prejudice, or in the alternative, stayed, pending arbitration. Because arbitrability is a threshold issue, the Court will first address plaintiffs’ Motion. The Motion will be denied because defendants have presented evidence that they were never part of a group of trades or businesses under common control with Hall’s and therefore are not subject to the MPPAA arbitration provisions.
A. Flying Tiger and Doherty
MPPAA requires arbitration of “[a]ny dispute between an employer and the plan sponsor ... concerning a determination made under sections 1381 through 1399 of [title 29].” 29 U.S.C. § 1401(a)(1) (emphasis added). Because the statute applies specifically to employers, courts have held that parties who present evidence they were not a MPPAA employer prior to withdrawal are not subject to the MPPAA arbitration provisions.
In the related case of Flying Tiger Line, Inc. v. Teamster Pension Trust Fund of Philadelphia, 830 F.2d 1241, 1250 (3d Cir. 1987), the plaintiff — who was seeking a judicial declaration that it was not liable to various pension funds — argued that it was not subject to arbitration because it was not a MPPAA employer on the date of withdrawal. Writing for the court, Judge Higginbotham reasoned that “where the party against which withdrawal liability is being asserted was certainly part of the controlled group of an employer subject to MPPAA at some point in time, and where the issues in dispute fall within the purview of MPPAA provisions that are explicitly designated for arbitration, the Act’s dispute resolution procedures must be followed.” Id. at 1247 (emphasis added). Judge Higginbotham carefully distinguished between the issue of whether the defendant was never a MPPAA employer and the issue of whether the defendant had ceased to be a MPPAA employer before the date of withdrawal. Id. at 1250 (quoting Banner Indus., Inc. v. Central States, S.E. & S.W. Areas Pension Fund, 657 F.Supp. 875 (N.D.Ill. 1987)). The former is a question for the district court to decide, while the latter falls within the arbitrator’s jurisdiction. The Third Circuit concluded that Tiger had been a MPPAA employer at one time prior to withdrawal, and thus the question whether Tiger was a MPPAA employer at the time of withdrawal was arbitrable.
Judge Higginbotham’s “certainly” language was followed in Doherty v. Teamsters Pension Trust Fund of Philadelphia and Vicinity, 16 F.3d 1386 (3d Cir.1994), where the court held that a defendant that was not “certainly” a MPPAA employer at some time may not be compelled to arbitrate at the outset because the district court must first determine the applicability of the MPPAA arbitration scheme. Id. at 1390. “The distinction rests on the fact that § 1401(a)(1) mandates arbitration for disputes between ‘an employer and the plan sponsor,’ and an entity that is not an MPPAA employer because it has never been in a controlled group with the contributing entity is not subject to arbitration.” Id. (citations omitted); see also Teamsters Joint Council No. 83 v. Centra, 947 F.2d 115, 122 (4th Cir.1991); Bowers v. Transportacion Maritima Mexicana, S.A., 901 F.2d 258, 261 (2d Cir.1990); Banner, 657 F.Supp. at 882.
According to plaintiffs, Doherty does not require the district court to decide the employer status issue if such a determination entails adjudication of issues of fact. That is, an arbitrator must resolve all issues of fact regardless of whether the party against whom liability is asserted can present evidence that it was never a MPPAA employer.
Plaintiffs misunderstand Doherty and misinterpret 29 U.S.C. § 1401(a)(1). Doherty holds that unless a party was certainly a MPPAA employer prior to withdrawal, the district court must first decide whether the dispute is “between an employer and the plan sponsor.” 29 U.S.C. § 1401(a)(1). Plaintiffs’ theory that arbitration must be ordered whenever a dispute requires adjudication of issues of fact ignores the threshold requirement, imposed by § 1401(a)(1) and recognized by Doherty, that arbitration be applied only to disputes between an employer and a plan sponsor.
The Court concludes that it must first determine whether any or all defendants were MPPAA employers prior to withdrawal. Until that issue is resolved, arbitration may not be imposed under 29 U.S.C. § 1401(a)(1).
B. Date of Withdrawal
Under MPPAA, the date of withdrawal is defined as “the date of the cessation of the obligation to contribute or the cessation of covered operations.” 29 U.S.C. § 1383(e). The Third Circuit has held that “substantial cessation of normal business activity” constitutes withdrawal. Crown Cork & Seal Co. v. Central States S.E. & S.W. Areas Pension Fund, 982 F.2d 857, 865-66 (3d Cir.1992). Thus, a court may find that withdrawal has occurred where an employer ceases its normal business operations in preparation for a total shut down but maintains a minimal number of employees to assist with the shut down. Id.
Defendants contend that Hall’s withdrawal occurred during the final week of October 1987. In support of this position, defendants have submitted audit reports of Hall’s during the year 1987 which show a sharp decline in man-hours and contributions to the Fund after October 1987. Def.Reply Mot.Dism.Ex. 1. Plaintiffs have not offered evidence of any withdrawal date more specific than the year 1987.
The Court cannot determine the withdrawal date on the present state of the record. First, plaintiffs represent that they have not completed discovery on this issue. Second, defendants have not presented evidence as to what the normal level of business operations was for Hall’s and whether the changes that took place in October of 1987 signified a cessation of normal business operations in preparation for a shut down. Therefore, in analyzing whether the individual defendants were ever a controlled group member prior to withdrawal, the Court will assume arguen-do that plaintiffs’ position is correct and that withdrawal could have occurred at any point in 1987.
C. Controlled Groups
1. Epes Carriers, Inc. and Epes Transport System, Inc.
a. The “Option Contract”
On July 2,1987, defendant Alvin Bod-ford and the Langley Trust, through its trustee Phyllis Brown, formed Epes Carriers, Inc. (“ECI”), with the stock ownership and voting control evenly split between Bod-ford and Brown. On September 30, 1987, ECI acquired complete control of Epes Transport System, Inc. (“ETS”), a trucking company. Defendants contend, and it is not disputed, that neither the Trust nor any Trust beneficiary has ever owned an interest in Brigadier, Hall’s, or HAC. Defendants also contend, and it is not disputed, that no ETS shareholder prior to its acquisition by ECI has ever owned an interest in Brigadier, Hall’s, or HAC.
On May 25, 1988, Phyllis Brown sold the Trust’s 50% interest in ECI to Bodford, thus giving Mm 100% ownersMp of ECI. It is plaintiffs’ position that this 1988 transaction somehow shows that ECI and HAC were under common control in 1987.
First, plaintiffs claim that the transfer of the Trust’s stake in ECI to Bodford was pursuant to a stock transfer restriction agreement made some time in 1987. Plaintiffs have produced an unsigned draft of a “Stock Purchase and Restriction Agreement” dated September 18, 1987. The relevant portion of the draft provides as follows:
4. Sale of Shares Between Restricted Shareholders.
(a) At any and all times during the term of this Agreement, a Restricted Holder shall have the right to offer to purchase the Shares of any other Restricted Holder, and the Restricted Holder receiving such offer shall be required to either sell his Shares or purchase the Shares of the Restricted Holder making such offer in accordance with the terms and provisions of this Paragraph U- For purposes of the remainder to as the “Offeror” and the Restricted Holder receiving such offer shall be referred to as the “Offeree.”
(c) Upon receipt of an offer from an Offer- or to purchase his Shares, the Offeree shall have the option, at his sole discretion, to either accept such offer or to purchase the Shares of the Offeror under the same terms and conditions as contained in the Offeror’s offer; provided, however, that the Offeree must elect to purchase all, and not less than all, of the Shares then owned by the Offeror_ In the event the Of-feree exercises his right and option to purchase the Shares of the Offeror, the Offer- or shall be required to sell his Shares to the Offeree in accordance with the terms and conditions of this Paragraph A
Pl.Mem.Opp.Mot.Dism.Ex. 13. According to plaintiffs, this agreement constituted an option contract by wMeh Bodford acquired an option for the Trust’s interest in ECI. The existence of an option contract is relevant to the controlled group issue because, for the purposes of MPPAA, a person who has an option to acquire stock is considered to own such stock. See 26 U.S.C. § 1663(e)(1); IUE AFL-CIO Pension Fund v. Barker & Williamson, 788 F.2d 118, 123 (3d Cir.1986).
Plaintiffs have presented no direct evidence that the draft or any stock transfer restriction agreement or option contract was ever signed. It is plaintiffs’ position that “[a]s Bodford admittedly purchased the entire interest of the Langley Trust by May, 1988, we infer that an option agreement existed, even if never formally signed, for purposes of the present opposition to Defendants’ motion.” Pl.Mem.Opp.Mot.Dism. at 23. Plaintiffs also maintain that the fact that a copy of the unsigned draft was given to the Metro North State Bank while Bodford was seeking a $3.5 million dollar loan wMch the Bank ultimately approved establishes the existence of an actual, binding agreement be: tween Bodford and Brown. Transcript of Oral Argument of Oct. 24, 1994 at 31-32 [hereinafter “Transcript”]. To counter such evidence, defendants have submitted affidavits from Alvin Bodford and from Robert M. Hickey, the Property Manager for the Langley Trust, in which they explicitly deny that the Trust and Bodford ever entered into any agreement restricting the sale or transfer of ECI stock. See Def.Reply Mot.Dism.Exs. 5 & 8.
The Court does not agree with plaintiffs’ contention that the unsigned draft agreement or the bank loan show that ECI and ETS were “certainly” part of a controlled group with Hall’s. There is simply no evidence that the parties actually entered into the agreement or into any option contract prior to any possible withdrawal date. In the absence of such evidence, the Court cannot conclude that Bodford ever owned an option to purchase the Trust’s interest in ECI. Plaintiffs thus have failed to establish that Bodford owned a controlling interest in ECI at any time prior to withdrawal and that ECI was under common control with Hall’s.
b. Post-Withdrawal Common Control
Plaintiffs next argue that arbitration is appropriate for ECI and ETS because they formed a controlled group with Hall’s after Bodford acquired full control of ECI in late May 1988 — months after any possible withdrawal date. In support of this position, plaintiffs rely on the Flying Tiger and Do-herty opinions which state that the defendants need be a MPPAA employer only “at some point in time.” Flying Tiger, 830 F.2d at 1247; Doherty, 16 F.3d at 1390 (“at one time”). Defendants argue that Doherty and Flying Tiger logically must refer only to time prior to and encompassing the date of withdrawal, because liability attaches only to trades or businesses that are part of the controlled group at the time of withdrawal.
The Court agrees with .defendants that a MPPAA employer’s relationship with other trades or businesses following withdrawal is not relevant to withdrawal liability. Withdrawal liability is imposed only on those trades and businesses that ar.e under common control with the withdrawing employer :on the date of withdrawal. A trade or business that becomes part of a controlled group with the employer after the withdrawal has no obligation to contribute and is never a contributing MPPAA employer. Thus, Do-herty requires arbitration only for trades or businesses under common control with a MPPAA employer prior to withdrawal.
This reading of Doherty is supported by an earlier Third Circuit ease, Board of Trustees of Trucking Employees of North Jersey Welfare Fund v. Centra, 983 F.2d 495 (3d Cir. 1992), which involved a defendant who acquired a MPPAA employer which at some point incurred withdrawal liability. The defendant argued that it had not acquired control of the withdrawing organization until after the date of withdrawal and thus was not itself liable under MPPAA. In other words, the question was whether a defendant that was part of a controlled group at some time, possibly before withdrawal and certainly after withdrawal, could be ordered into arbitration. In affirming the district court, the Third Circuit held that the issue whether the defendant had acquired control by the date of withdrawal was properly determined by the district court.