Judges: Cudahy
Filed: Aug. 20, 2009
Latest Update: Mar. 02, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit No. 08-4041 CENTRA, INC. and DETROIT INTERNATIONAL BRIDGE CO., Plaintiffs-Counterdefendants-Appellants, v. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, Defendant-Counterplaintiff-Appellee. Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 07-C-6312—William T. Hart, Judge. ARGUED MAY 27, 2009—DECIDED AUGUST 20, 2009 Before CUDAHY, RIPPLE and WOOD, Circuit Judges. CU
Summary: In the United States Court of Appeals For the Seventh Circuit No. 08-4041 CENTRA, INC. and DETROIT INTERNATIONAL BRIDGE CO., Plaintiffs-Counterdefendants-Appellants, v. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, Defendant-Counterplaintiff-Appellee. Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 07-C-6312—William T. Hart, Judge. ARGUED MAY 27, 2009—DECIDED AUGUST 20, 2009 Before CUDAHY, RIPPLE and WOOD, Circuit Judges. CUD..
More
In the
United States Court of Appeals
For the Seventh Circuit
No. 08‐4041
CENTRA, INC. and DETROIT INTERNATIONAL BRIDGE CO.,
Plaintiffs‐Counterdefendants‐Appellants,
v.
CENTRAL STATES, SOUTHEAST AND SOUTHWEST
AREAS PENSION FUND,
Defendant‐Counterplaintiff‐Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 07‐C‐6312—William T. Hart, Judge.
ARGUED MAY 27, 2009—DECIDED AUGUST 20, 2009
Before CUDAHY, RIPPLE and WOOD, Circuit Judges.
CUDAHY, Circuit Judge. CenTra, Inc. is a holding company
that owns subsidiaries in trucking and real estate, as well as
one that operates the Ambassador bridge between Detroit
and Windsor, Ontario. In 1995, CenTra was reorganized to
shed its unprofitable unionized trucking operations. Two
years later, CenTra’s last unionized subsidiary—the Detroit
2 No. 08‐4041
International Bridge Co. (DIBC)—withdrew from the
Central States pension fund, and the fund assessed more
than $14 million in withdrawal liability against CenTra
under the Multiemployer Pension Plan Amendments Act
of 1980 (MPPAA), 29 U.S.C. §§ 1381–1461. CenTra chal‐
lenged the assessment in arbitration, and the arbitrator
reduced the assessment to roughly $960,000. The district
court vacated the arbitrator’s award and reinstated the
fund’s assessment. We affirm.
I
The MPPAA amended Title IV of ERISA to require
employers withdrawing from multiemployer pension
plans to pay their proportionate share of the plans’ un‐
funded vested benefits—the so‐called “withdrawal liabil‐
ity.” 29 U.S.C. § 1381(b)(1). The purpose of withdrawal
liability is to protect the other employers in the plan
from having to pay for the benefits vested in the with‐
drawing employer’s employees. See, e.g., Santa Fe Pacific
Corp. v. Central States, Southeast and Southwest Areas
Pension Fund, 22 F.3d 725, 726–27 (7th Cir. 1994). The
pension plan calculates a withdrawing employer’s with‐
drawal liability based in large part on the employer’s
history of contributions to the fund. See Central States,
Southeast and Southwest Areas Pension Fund v. Nitehawk
Express, Inc., 223 F.3d 483, 486 (7th Cir. 2000). Here, the
“employer” withdrawing from the fund is the group
made up of CenTra and its subsidiaries—a “controlled
No. 08‐4041 3
group” in the argot of the MPPAA.1 The question is whether
CenTra’s controlled group, which withdrew from the plan
in 1997, was properly assessed withdrawal liability based on
the contribution histories of two CenTra subsidiaries that
disappeared in the 1995 reorganization.
A
Though the parties quibble about the details, the facts
are not materially in dispute. In 1970, T.J. Moroun and
his four children created CenTra as a holding company
for various trucking subsidiaries the family had owned
for decades. T.J. died in 1992; by 1994 his son Manuel
(Matty), CenTra’s first president, was also CenTra’s princi‐
pal owner and controlling shareholder. Matty’s three sisters
were minority owners.
From 1970 until 1995, two of CenTra’s subsidiaries were
Central Cartage Co. and Central Transport, Inc. (Old
Subsidiaries or Old Subs). Central Cartage performed
local pick‐up and delivery services in cities across the
Midwest and employed drivers and dockmen. Central
Transport was an “over‐the‐road” line haul carrier that
employed drivers who owned their own trucks. The
Old Subsidiaries worked together to provide shippers door‐
to‐door service. The dockmen, local drivers and over‐the‐
1
Under the statute, all trades or businesses under common
control are treated as a single employer or “controlled group.” 29
U.S.C. § 1301(b)(1); see Central States, Southeast and Southwest Areas
Pension Fund v. Nitehawk Express, Inc., 223 F.3d 483, 486 (7th Cir.
2000).
4 No. 08‐4041
road truckers that the Old Subs employed all belonged to
local unions affiliated with the Teamsters. The Old Subs
each had labor agreements with those unions under which
they contributed to the Central States pension fund on
behalf of their employees. In 1979, Central Cartage pur‐
chased DIBC, which owns and operates the Ambassador
Bridge. DIBC was also a union employer and contributed to
the Central States pension fund. Also relevant here is Crown
Enterprises, Inc., a real estate firm that, prior to the 1995
reorganization, was owned by Central Transport. Crown
never participated in the pension plan. Rounding out the
relevant employers in the pre‐1995 CenTra controlled group
was U.S. Truck Company, Inc., another fund contributor.
Matty’s sister Agnes Anne (Anne) owned U.S. Truck. It was
affiliated with CenTra by virtue of an agreement between
Matty and Anne giving Matty an option to purchase U.S.
Truck’s stock. U.S. Truck also contributed to the fund.
Pre‐1995, then, the CenTra controlled group looked like
this:
Matty, Anne, Florence and
Victoria Moroun
CenTra U.S. Truck
(fund contributor)
Central Cartage Central Transport
(fund contributor) (fund contributor)
DIBC Crown Enterprises
(fund contributor)
No. 08‐4041 5
Deregulation of the trucking industry in the 1980s led
to increased competition, and CenTra began looking
for ways to cut costs. In particular, CenTra sought to
alleviate the burdens imposed by the unions’ standard wage
rates, which were higher than non‐union rates. According
to CenTra, the unions stood fast, and the Old Subs suffered
financially. Matty wanted to reorganize in a way that would
allow CenTra to get rid of the Old Subs’ trucking operations
while retaining DIBC and Crown, which were profitable. He
also wanted the reorganization to be tax neutral. In 1987,
CenTra obtained a favorable tax ruling from the Internal
Revenue Service for a proposed reorganization, but it would
be another eight years before the Moroun siblings reached
an agreement allowing the reorganization to go forward.2
In 1995 the reorganization finally did go forward. In
preparation, CenTra created two new subsidiaries, Central
Cartage Co. of Michigan, Inc. and Central Transport of
Michigan, Inc. (New Subsidiaries or New Subs), which were
intended to take on CenTra’s union trucking operations, and
a third subsidiary, Central Transport International, Inc.
(CTII), which was to engage in non‐union trucking.
2
Throughout the 1980s and 1990s there was acrimony and
litigation among the Moroun siblings regarding control of the
family business. For the most part, that family dispute is irrele‐
vant to the matters at issue here.
6 No. 08‐4041
Matty, Anne,
Florence and
Victoria Moroun
CenTra
Central Cartage Central Transport New Cartage New Transport CTII
(fund (fund (fund (fund
contributor) contributor) contributor) contributor)
DIBC Crown
(fund Enterprises
contributor)
Then, on December 31, 1995, the Old Subs merged into
CenTra and ceased to exist as such, leaving CenTra as
the surviving corporation. At the same time or shortly
thereafter (as discussed below, the timing is irrelevant to the
analysis), CenTra contributed certain assets and assigned
certain liabilities to the New Subs, and the New Subs were
renamed to take on the names of the Old Subs (i.e., the “of
Michigan, Inc.” was dropped).
CenTra refers to the contribution of capital and assign‐
ment of liabilities to the New Subs as a “drop down.” In
particular, CenTra “dropped down” Old Transport’s
line haul operations, which constituted a portion of Old
Transport’s motor carrier division, to New Transport.
CenTra also contributed $266,000 in common stock and
paid‐in capital to New Transport. CenTra retained the
remainder of Old Transport’s motor carrier division,
which included Crown Enterprises, the real estate
business that had been a subsidiary of Old Transport
No. 08‐4041 7
and which had a book value of $44.5 million at the time
of the merger. In addition, CenTra retained Old
Transport’s freight receivables and other receivables, as well
as its other divisions, including a Mexico sales office, several
terminal properties and some Canadian real estate, all of
which appear to have been contributed by CenTra to CTII.
CenTra Chief Financial Officer Robert Youngert testified
that New Transport was to be a line haul carrier for CenTra
only, and that CenTra retained Old Transport’s freight
receivables to avoid saddling New Transport with the risk
that they would not be collectible.
The Old Transport assets and liabilities that CenTra
dropped down to New Transport had a book value of about
$6.8 million; those transferred to CTII or retained by CenTra
were valued at roughly $104.2 million. With respect to
Central Cartage, CenTra “dropped down” Old Cartage’s
freight division to New Cartage, and contributed $306,000
in common stock and paid‐in capital. CenTra retained DIBC.
The assets and liabilities dropped down to New Cartage
were valued at roughly $23.5 million and those retained by
CenTra were valued at approximately $29.9 million.3
All of the Old Subs’ union trucking operations (in‐
cluding drivers and other employees) were transferred
to the New Subs. The New Subs also assumed the Old Subs’
labor agreements and their obligations to contribute to the
3
The numbers vary depending on which balance sheet or
journal entry is consulted in the record. Robert Youngert,
CenTra’s chief financial officer, testified that this might be
because some of the financial documents in the record were
audited and some were not.
8 No. 08‐4041
pension fund. CenTra, however, retained the Old Subs’
freight contracts and transferred those contracts to CTII.
After the merger of the Old Subs into CenTra and the drop
down to the New Subs, the CenTra controlled group looked
like this:
Matty, Anne,
Florence and
Victoria Moroun
CenTra
DIBC Crown New Cartage New Transport CTII
(fund Enterprises (fund (fund
contributor) contributo r) contributor)
On February 29, 1996, CenTra sold its stock in New
Transport to U.S. Truck. On August 9, 1996, CenTra
sold its stock in New Cartage to U.S. Truck. Then on
August 19, 1996, Matty and Anne entered a settlement
agreement in which Matty gave up his option to
purchase U.S. Truck stock. This agreement ended CenTra’s
affiliation with U.S. Truck. Following the stock sale
and settlement agreement, there were two controlled
groups, one headed by CenTra and one headed by U.S.
Truck:
No. 08‐4041 9
CenTra U.S. Truck
DIBC Crown CTII New Transport New Cartage
(fund Enterprises
contributor) (fund contributor) (fund contributor)
U.S. Truck’s controlled group did not fare well. In 1997,
New Transport shut down. In 1999 New Cartage failed, and
U.S. Truck filed for bankruptcy and was ultimately liqui‐
dated. The fund assessed withdrawal liability against U.S.
Truck for a partial withdrawal in 1998, 29 U.S.C. § 1385, and
again for a complete withdrawal in 1999, 29 U.S.C. § 1383.
Meanwhile, DIBC remained the last fund contributor in
CenTra’s controlled group. DIBC’s labor agreement expired
in November 1997, and Central States terminated DIBC’s
participation in the fund as of that date. DIBC, Crown and
CTII are CenTra subsidiaries to the present day.
B
DIBC’s withdrawal from the fund marked CenTra’s
“complete withdrawal” under 29 U.S.C. § 1383(a), and
Central States assessed withdrawal liability. The fund
calculated CenTra’s withdrawal liability based on the
contribution histories of the Old and New Subs up
through August 1996, and based on DIBC’s entire con‐
tribution history. The total amount of liability assessed
was $14,761,082.66. CenTra objected that the contribu‐
tion histories for the Old Subs and the New Subs should not
10 No. 08‐4041
have been used to calculate its withdrawal liability. CenTra
argued that as a result of the 1995 reorganization,
U.S. Truck, not CenTra, was the employer responsible
for those contribution histories if and when U.S. Truck
withdrew from the plan.4 Under MPPAA procedure, CenTra
paid the full amount assessed and then
demanded arbitration. The arbitrator ruled for CenTra,
finding that its withdrawal liability should have been
calculated without regard to the Old and New Subs’
contribution histories, and the fund’s award was
reduced to $959,332, representing DIBC’s history of contri‐
butions to the fund.
The arbitrator found that the merger of the Old Subs
into CenTra, followed by the “drop down” to the New Subs,
the stock sales to U.S. Truck and the ultimate separation of
U.S. Truck from CenTra’s controlled group met
certain statutory safe harbors under the MPPAA, 29
U.S.C. §§ 1398, 1369(b), which prevented CenTra from
incurring withdrawal liability at any point along the
way. The upshot of the arbitrator’s finding was that it
meant the Old Subs’ contribution histories traveled first
to CenTra in the merger, then to the New Subs in the
4
The fund filed an unsecured claim for withdrawal liability
in U.S. Truck’s bankruptcy proceeding, and noted that the
amount of liability had been calculated on the assumption
that the contribution histories for the Old and New Subs prior to
September 1996 would be attributable to CenTra. The
fund reserved the right to increase its claim against U.S.
Truck, however, if that assumption proved to be incorrect.
No. 08‐4041 11
“drop down,” and ultimately along with the New Subs
in the stock sales to U.S. Truck.5
The district court vacated the arbitrator’s award and
reinstated the fund’s assessment, finding that the Old
Subs’ contribution histories were assumed by CenTra in the
merger and stayed with CenTra because none of the later
steps in the reorganization met the MPPAA’s statutory
requirements for avoiding withdrawal liability. We agree
with the district court’s analysis and therefore affirm.
II
A
The MPPAA, the most extensive amendment of ERISA
to date, “overhaul[ed]” ERISA’s Title 4, the plan termination
insurance system. John H. Langbein, Susan J. Stabile
& Bruce A. Wolk, Pension and Employee Benefit Law 92
(4th ed. 2006). In addition to protecting employers who
remain in a plan, the MPPAA protects the Pension
Benefit Guaranty Corporation (PBGC), the agency
charged with implementing and interpreting the statute,
from the enormous burden of insuring pension benefits, all
in the interest of ensuring that employees will be able to
collect their benefits upon retirement. Langbein, Stabile &
5
The arbitrator also found that the evidence was insufficient
for a conclusion that a principal purpose of the reorganization
was to evade or avoid withdrawal liability under 29 U.S.C.
§ 1392(c). Like the district court, we resolve the case under
§§ 1398 and 1369(b), and therefore we need not reach this
question.
12 No. 08‐4041
Wolk, Pension and Employee Benefit Law at 69. Prior to the en‐
actment of ERISA, an employer’s liability to a multiem‐
ployer plan was governed by the terms of the collective bar‐
gaining agreement, which typically lacked any provision
for contingent liability. Id. at 69–70. ERISA Title 4 im‐
posed liability upon withdrawal by a substantial employer
from a multiemployer plan, and the MPPAA imposed
strict technical rules governing such withdrawals. Id.; see
29 U.S.C. §§ 1381(b)(1), 1391.
With respect to this case, there are at least three steps
to a pension plan’s determination of withdrawal liability.6
First, the fund determines whether an employer (here,
CenTra’s controlled group) has withdrawn from the plan. A
complete withdrawal occurs when an employer “perma‐
nently ceases to have an obligation to contribute under the
plan” or “permanently ceases all covered operations under
the plan.” 29 U.S.C. § 1383(a)(1)–(2).
Often key to this determination are three sections of the
MPPAA establishing that certain corporate level transac‐
tions do not count as a withdrawal. The first is 29 U.S.C.
§ 1398, which provides that a withdrawal does not
occur merely because of a change in business form. In
particular, and “[n]otwithstanding any other provision of
this part,”
an employer shall not be considered to have withdrawn
from a plan solely because—
6
Under 29 U.S.C. § 1382, the plan sponsor determines the
amount of withdrawal liability, notifies the employer of that
amount and collects it from the employer.
No. 08‐4041 13
(1) an employer ceases to exist by reason of—
(A) a change in corporate structure described in
section 1369(b) of this title, or
(B) a change to an unincorporated form of busi‐
ness enterprise,
if the change causes no interruption in employer
contributions or obligations to contribute under the
plan . . .
Section 1369(b), in turn, provides that “[i]f a person ceases
to exist by reason of a merger, consolidation, or division, the
successor corporation or corporations shall be treated as the
person to whom this subtitle applies.” 29 U.S.C.
§ 1369(b)(3). Taken together, §§ 1398 and 1369(b) specify
that an employer does not “withdraw” from a plan
solely because it undergoes a merger, consolidation, or
division (terms that are, unfortunately, undefined). Follow‐
ing such reorganizations, the successor corporation “or
corporations” are deemed the “original employer” for
purposes of determining withdrawal liability, and with‐
drawal liability is not incurred until such time (if any) as the
successor withdraws from the plan.
The third provision relevant to the question whether
an employer has withdrawn is 29 U.S.C. § 1384, which
provides that asset sales meeting certain stringent require‐
ments—the buyer must assume an obligation to make
contributions to the plan at substantially the same level as
the seller’s contribution, the seller must post a bond and
assume secondary liability and the sale must be at arm’s
length to an unrelated entity—will not result in a with‐
14 No. 08‐4041
drawal. See 29 U.S.C. § 1384(a); Nitehawk Express, 223 F.3d
at 488.
Sections 1398, 1369(b) and 1384 are most often given effect
by courts addressing whether and when a withdrawal has
occurred, and they are treated as “safe harbors” exempting
predecessor employers from withdrawal liability. Central
States, Southeast and Southwest Areas Health and Welfare Fund
v. Cullum Cos., Inc., 973 F.2d 1333, 1337 (7th Cir. 1992)
(discussing § 1384 and quoting I.A.M. National Pension Fund
v. Clinton Engines, Corp., 825 F.2d 415, 420 (D.C. Cir. 1987));
Central States, Southeast and Southwest Areas Pension Fund v.
Sherwin‐Williams Co., 71 F.3d 1338, 1342 (7th Cir. 1995)
(calling § 1398 a “savings clause”). In the present case, there
is no dispute about when CenTra withdrew from the plan.
The withdrawal occurred in 1997, when DIBC terminated its
obligation to the fund. The parties agree that the 1995
reorganization did not cause a withdrawal. Nevertheless, as
will appear, the safe harbor provisions, and §§ 1398 and
1369(b) in particular, remain crucial to determining the
allocation of the assessed withdrawal liability among the Old
Subs’ successors.
The second step to determining withdrawal liability is the
calculation of the amount owed by the withdrawing
employer. The rules governing this calculation are complex,
29 U.S.C. §§ 1381, 1391,7 but the calculation is based largely
7
The amount of withdrawal liability is determined first by
calculating the plan’s unfunded vested benefits at the time of
the withdrawal, defined by subtracting the value of the plan’s
(continued...)
No. 08‐4041 15
on the withdrawing employer’s contribution history over
the five or ten years preceding the withdrawal. See 29 U.S.C.
§ 1391(c)(2), (c)(5)(C); Central States Southeast and Southwest
(...continued)
assets from the present value of its nonforfeitable benefits.
Jayne E. Zanglein & Susan J. Stabile, ERISA Litigation 1478 (3d ed.
2008). In the absence of regulations governing these valuations,
pension plans may use actuarial assumptions so long as they are
“reasonable.” Id. Second, the withdrawing employer’s share of
the unfunded vested benefits is determined according to one of
the methods listed in 29 U.S.C. § 1391, or by an alternative
method adopted by an amendment to the pension plan, subject
to approval of the Pension Benefit Guaranty Corporation. 29
U.S.C. § 1391; Central States, Southeast and Southwest Areas Pension
Fund v. 888 Corp., 813 F.2d 760, 762 n.2 (6th Cir. 1987) (citation
omitted); see also Zanglein & Stabile, ERISA Litigation at 1481;
60A Am. Jr. 2d Pensions § 728 (2009).
Unless otherwise provided for in the plan, the amount of
unfunded vested benefits allocable to an employer is calcu‐
lated by the “presumptive method” described in 29 U.S.C.
§ 1391(b) . . . Under this method, withdrawal liability is
calculated by multiplying the plan’s aggregate unfunded
benefit liability from all employers by the fraction made up
of the sum of all contributions required to have been made
by the withdrawing employer, divided by the sum of all
contributions by all employers in the plan during the same
time period.
888 Corp., 813 F.2d at 762 n.2 (citing Peick v. Pension Benefit
Guaranty Corp., 724 F.2d 1247, 1256 (7th Cir. 1983)); see also Borden,
Inc. v. Bakery & Confectionery Union & Industry Int’l Pension, 974
F.2d 528, 530 n.2 (4th Cir. 1992); Park South Hotel Corp. v. New York
Hotel Trades Council, 851 F.2d 578, 580 (2d Cir. 1988).
16 No. 08‐4041
Areas Pension Fund v. Safeway, Inc., 229 F.3d 605, 613 (7th Cir.
2000). The parties here do not dispute the amount of with‐
drawal liability so much as they dispute whether and how
that amount is to be allocated to CenTra. To understand
the distinction between the amount of the liability and
its allocation, consider how the amount of the liability was
calculated in this case. CenTra’s withdrawal occurred in
November 1997, and the fund calculated CenTra’s with‐
drawal liability based on that date. To do so, the fund
looked at the contribution histories of CenTra’s controlled
group going back ten years prior to the 1997 withdrawal
date. In eight of those ten years, the Old Subs belonged
to the CenTra controlled group. In fact, the Old Subs’
contributions made up the bulk of the group’s contribu‐
tions during that period. If we calculated withdrawal
liability merely according to § 1391, then, arguably that
calculation would not take into account or make adjust‐
ments for the 1995 reorganization: the CenTra controlled
group’s contribution history over the ten years preceding
November 1997 included contributions by the Old Subs,
and therefore those contributions would be included in
the calculation under § 1391. End of story.
The statute does not comment one way or the other
about whether this method of calculation is appropriate.
The PBGC, however, has blessed a third and further
step in the process, the allocation step. The fund looks to the
safe harbor provisions discussed above to determine how to
allocate the withdrawal liability calculated under § 1391
among multiple employers. The PBGC has found that where
an employer avoids withdrawal liability under one of the
safe harbor provisions—by undergoing a merger, division
No. 08‐4041 17
or exempted asset sale, for instance—the successor em‐
ployer “inherits” the contribution history of the predecessor
for purposes of calculating liability for any subsequent
withdrawal. PBGC Opinion Letters 82‐40 (Dec. 27, 1982), 92‐
1 (Mar. 30, 1992); see Nithawk Express, 223 F.3d at 491; Park
South Hotel Corp. v. New York Hotel Trades Council, 851 F.2d
578, 583–84 (2d Cir. 1988). If there is more than one succes‐
sor employer, the PBGC has said that the contribution
history of the predecessor should be apportioned among the
successors on a “reasonable” basis. PBGC Opinion Letter 92‐
1; see also Nitehawk Express, 223 F.3d at 491.
We have previously relied on PBGC Opinion Letter 92‐
1 in determining how to allocate withdrawal liability among
multiple employers, Nitehawk Express, 223 F.3d at 491, and
we see no reason to depart from this practice here. We note,
however, that the PBGC has not promulgated regulations on
this question but has merely issued the above‐cited opinion
letters on the subject. Opinion letters are not entitled to
Chevron deference, or even the deference we accord an
agency’s interpretation of its own ambiguous regulation,
Auer v. Robbins, 519 U.S. 452, 461 (1997) (An agency’s
interpretation of its regulation is “controlling unless ‘plainly
erroneous or inconsistent with the regulation.’ ”) (quoting
Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 359
(1989)) (further quotation marks and citation omitted), but
opinion letters are “ ‘entitled to respect’ . . . to the extent that
[they] have the ‘power to persuade,’ ” Christensen v. Harris
County, 529 U.S. 576, 587 (2000) (quoting Skidmore v. Swift &
Co., 323 U.S. 134, 140 (1944)).
We remain persuaded that the PBGC’s method of appor‐
tioning withdrawal liability is a reasonable interpretation of
18 No. 08‐4041
the statute. It respects the statute’s purpose of ensuring that
the plan’s benefits will be adequately funded without overly
burdening employers that have undergone changes in
corporate structure covered by the MPPAA’s safe harbors
(and, therefore, without deterring such employers from
engaging in beneficial reorganizations). The safe harbor
provisions give structure to the MPPAA that comports with
general corporate law principles. Looking to those provi‐
sions in allocating withdrawal liability therefore should
respect parties’ expectations regarding the effect of a
corporate transaction on the corporation’s obligations.
To be concrete, §§ 1398 and 1369(b) treat mergers, consoli‐
dations and divisions one way for purposes of determining
whether a withdrawal has occurred, while asset sales are
generally treated another way. This distinction is common
to corporate law and to Title IV of ERISA. “It is axiomatic
that a stock sale, merger, or consolidation has no effect on a
corporation’s contractual obligations. Similar principles
have always applied under Title IV of ERISA.” Jayne E.
Zanglein & Susan J. Stabile, ERISA Litigation 1474 (3d ed.
2008). A successor corporation in a merger or stock sale
inherits the predecessor’s contribution history just as it
assumes contractual liabilities.
In contrast to a stock sale, an asset sale generally does
not result in assumption of liabilities by operation
of law. Again, the result under MPPAA is congru‐
ent—an asset sale generally results in a complete
withdrawal if the seller’s controlled group no longer has
covered operations or an obligation to contribute. By the
same token, the buyer generally does not inherit the
contribution history.
No. 08‐4041 19
Id. at 1476 (citing PBGC Opinion Letter 82‐40).
However, § 1384, the third MPPAA safe harbor provision,
creates “an elective relief rule” for buyers and sellers of
assets, id., so that struggling companies will not be deterred
from financially beneficial asset sales by the “daunting
prospect of withdrawal liability,” Nitehawk Express, 223 F.3d
at 487. Section 1384’s limited exemption for asset sales that
meet its stringent requirements does not undercut the
general distinction between mergers and divisions on the
one hand (transactions that transfer contribution histories to
the successor corporation) and asset sales on the other
(transactions that generally do not transfer contribution
histories to the purchaser). Because these provisions track
typical distinctions in the law of corporate transactions, it is
reasonable to apply them in determining the effect such
transactions have on an employer’s withdrawal liability.
B
The district court reviewed the arbitrator’s decision
regarding the fund’s assessment of withdrawal liability
for clear error, and we review the district court’s
decision under the same standard. Nitehawk Express, 223
F.3d at 488. In assessing whether the fund reasonably
allocated the Old Subs’ contribution histories to CenTra, we
take CenTra’s reorganization one step at a time.8 The first
8
CenTra appears to object to this approach, preferring to
view the reorganization “holistically.” But even were we to
(continued...)
20 No. 08‐4041
step was the merger of the Old Subs into CenTra, which
clearly caused the Old Subs to cease to exist and left CenTra
as the surviving corporation. The record contains several
merger documents to this effect, and the parties do not
meaningfully dispute that this is the case. Under safe harbor
provisions §§ 1398 and 1369(b), CenTra inherited the Old
Subs’ contribution histories as a consequence of the merger.
See Nitehawk Express, 223 F.3d at 491 (citing PBGC Opinion
Letter 92‐1).
The second step was the “drop down” of assets and
liabilities from CenTra to the New Subs. CenTra argues that
this step was a “division” under § 1369(b)(3), and therefore
that the New Subs inherited the Old Subs’ contribution
histories along with the other assets and liabilities “dropped
down” by CenTra. We cannot agree. Although “division” is
not defined in the MPPAA, see Sherwin‐Williams, 71 F.3d at
1339, the case law has never treated a transaction such as the
“drop down” of assets and liabilities at issue here as a
division under the statute. Rather, “division” generally
means a sale of stock, rather than a transfer of assorted
assets and liabilities. See id. (“[The] sale of a subsidiary’s
stock is a form of corporate ‘division.’ ”) (citing PBGC
Opinion Letters 82‐4 (Feb. 10, 1982) and 84‐7 (Dec. 20,
1984)); Nitehawk Express, 223 F.3d at 491–92 (“[U]nder the
statute, the contribution history of a subsidiary whose stock
is sold automatically transfers to the buyer.”) (citing PBGC
Opinion Letter 92‐1); Bowers v. Andrew Weir Shipping Ltd., 27
(...continued)
emphasize the whole over its parts—a position for which CenTra
offers no authority—we know of no other way to talk about the
reorganization than to discuss its constituent transactions.
No. 08‐4041 21
F.3d 800, 805 (2d Cir. 1994) (“While ‘division’ is not a term
of art with a widely established meaning, the district
court—relying on the scant legislative history and an
opinion letter of the [PBGC]—concluded that the term, ‘as
used in the MPPAA, appears to connote a transaction
whereby the stock of a contributing corporation is “divided”
away from its controlled group and acquired by or distrib‐
uted to new owners.’ . . . . We agree with this analysis . . .”)
(citation omitted).
CenTra urges us to follow its holistic approach and to find
that the merger of the Old Subs into CenTra and the simul‐
taneous “drop down” of the trucking operations to the New
Subs is a division under § 1369(b)(3)—that the merger and
drop down were not separate transactions but rather were
“an integrated division of the trucking operations from the
Old Subsidiaries into the New Subsidiaries.” In effect,
CenTra wants us to treat its reorganization as though the
Old Subs’ were merged into CenTra and then dropped
down unchanged into the New Subs (or, perhaps, as though
the Old Subs were merged directly into the New Subs). If
that were what happened, we might agree that the merger +
drop down was a “division” under the statute. But that is
not what happened. The Old Subs are not equivalent to the
New Subs. The Old Subs disappeared into CenTra, and
only pieces of the Old Subs were transferred to the New
Subs.9
9
Less than half of Old Cartage’s book value transferred to
New Cartage, and only about 7 percent of Old Transport’s
book value made its way to New Transport.
22 No. 08‐4041
CenTra has derided this analysis, calling it a “substantial
asset” requirement “grafted” onto the statute by the district
court below, and argues that nothing in § 1398 suggests that
the “successor to a covered change in corporate form” must
retain “a certain level of its predecessor’s assets.” But this
argument ignores the basic fact that a successor is not a
“successor” unless it succeeds to the predecessor corpora‐
tion’s obligations in the first place. Here, the successor to the
Old Subs is CenTra, not the New Subs. CenTra has pointed
to nothing in the record, and we have found nothing,
supporting the assertion that CenTra turned around and
transferred the Old Subs to the New Subs, contribution
histories and all. What are in the record are balance sheets
and financial journal entries showing how carefully CenTra
picked out specific assets and liabilities and transferred only
those assets and liabilities to the New Subs. There is no
reason to believe that the Old Subs’ contribution histories
went with those assets and liabilities by fiat.
Moreover, CenTra ignores § 1398’s requirement that
the predecessor employer must “cease to exist” if the
transaction is to be exempt from withdrawal liability.
No corporate entity ceased to exist in the “drop down,”
as the Old Subs did in the merger with CenTra (as evi‐
denced by the merger documents noting that the Old
Subs’ stock was dissolved and CenTra was the sur‐
viving corporation). It may be more in line with CenTra’s
framing of the argument to say that, rather than “ignoring”
the § 1398 requirement, CenTra urges that we shoehorn
the merger and the “drop down” into a single transaction by
which the Old Subs ceased to exist and their
trucking operations and contribution histories (but not
No. 08‐4041 23
much else) were “divided” into the New Subs. But as stated
above, this ignores the merger into CenTra and CenTra’s
retention of DIBC, Crown, and the various other valuable
assets that CenTra failed to transfer to the New Subs.
A construction analogous to CenTra’s was rejected in Penn
Central Corp. v. Western Conference of Teamsters Pension Fund,
75 F.3d 529 (9th Cir. 1996). In that case, the Ninth Circuit
held that a successor corporation that purchased one of the
companies in a controlled group became the “original
employer” under §§ 1398 and 1369(b) of that company only,
and did not inherit the contribution histories of other
subsidiaries in the controlled group that had previously
ceased operations. Id. at 534. “It would be unreasonable to
interpret the last sentence in 29 U.S.C. § 1398 as requiring
the successor corporation to assume additional withdrawal
liability for each of the parent’s subsidiaries, where, as here,
only one of the subsidiaries is purchased by the successor
and the other subsidiaries ceased operations long before the
successor’s purchase.” Id. Here, U.S. Truck purchased the
New Subs, not the Old Subs, which ceased operations prior
to U.S. Truck’s purchase. We can see no reason why U.S.
Truck would have incurred withdrawal liability based on
the Old Subs’ contribution histories, even if the merger was
simultaneous with the “drop down” and the New Subs
continued making contributions to the fund on behalf of
employees who formerly worked for the Old Subs. The drop
down was not a division, nor did it meet the stringent
requirements governing asset sales under § 1384. Therefore
the Old Subs’ contribution histories were not inherited
by the New Subs but remained with CenTra after the
merger.
24 No. 08‐4041
Because the Old Subs’ contribution histories remained
with CenTra, we need not consider whether the sale of the
New Subs’ stock to U.S. Truck constituted a “division.”
Even if it did, the Old Subs’ contribution histories were
not a part of the stock sale because they never made it into
the New Subs in the first place. Likewise, we need not
consider whether the settlement agreement ending the
affiliation between CenTra and U.S. Truck constituted
a statutory division.
That leaves one final matter to put to rest: CenTra’s
argument that this conclusion rests on a theory that with‐
drawal liability “accrues over time,” a theory that CenTra
correctly points out has been rejected by various courts. Our
holding is not based on this theory, which takes as its
premise the idea that a parent cannot shed a subsidiary’s
contribution histories by engaging in a transaction covered
by one of the safe harbor provisions discussed above. As
should be clear from what we have said thus far, we agree
entirely with CenTra and the courts that have considered
this argument that it lacks merit. See Teamsters Pension Trust
Fund of Philadelphia v. Central Michigan Trucking, Inc., 857
F.2d 1107, 1109 (6th Cir. 1988) (rejecting the fund’s argu‐
ment that a change in corporate structure under § 1398 did
not relieve the predecessor parent company from with‐
drawal liability that had “accrued” during its ownership of
the former subsidiary); Godchaux v. Conveying Techniques,
Inc., 846 F.2d 306, 310–11 & n.12 (5th Cir. 1988). A parent can
shed its subs’ contribution histories (or, more correctly, a
parent can avoid having those contributions used in
the calculation of the parent’s withdrawal liability) by
No. 08‐4041 25
engaging in such a transaction. CenTra simply failed
to engage in the necessary transaction here.
CenTra ignores this thrust of the argument, as did the
arbitrator below, both focusing instead on the notion of
liability growing in a contributing employer with the
passage of time. The arbitrator found that “Central States’
case is premised on the theory that, at all times prior to
the reorganization, the Old Subs were accruing with‐
drawal liabilities, and that these accruals never left the
CenTra controlled group. . . . The evidence and argu‐
ments in this case, however, fail to persuade one that
contribution histories are, or should be, treated as lia‐
bilities.”
Setting aside the question whether contribution
histories are appropriately treated as liabilities,10 it is
not quite right to characterize contribution histories as
“accruing” until the occurrence of a reorganization covered
by a safe harbor. They do not “accrue” so much as they
form the basis for any eventual calculation of the employer’s
withdrawal liability. That means that if the employer never
withdraws (i.e., if the employer engages in a transaction
covered by one of the safe harbor provisions, or if the
employer simply continues in operation indefinitely and
10
As discussed, the PBGC reasonably allows the fund to look to
the statute’s safe harbor provisions to determine whether a
successor employer or purchaser of assets has “inherited”
contribution histories. This inheritance is similar to the
means whereby an employer would assume other contractual
liabilities, but we do not address whether the similarity
extends further.
26 No. 08‐4041
continues contributing to the fund), that employer will
never be assessed withdrawal liability. Therefore, no
contribution histories have “accrued”; any liability is
contingent on withdrawal.
Again, where an employer engages in a transaction
covered by one of the statute’s safe harbors, the
successor employer is treated as the original employer
for purposes of calculating the successor’s subsequent
withdrawal liability, and no liability is assessed against
the predecessor. In the present case, the Old Subs are
the predecessor and CenTra is the successor. When the fund
calculated CenTra’s withdrawal liability, it was therefore
appropriate to consider the Old Subs’ contribution histories;
the fund did not assess any liability against the Old Subs.
Likewise, when the fund initially calculated U.S. Truck’s
withdrawal liability, it excluded the Old Subs’ contribution
histories on grounds elaborated here: CenTra’s drop down
of assets to the New Subs did not transfer the Old Subs’
contribution histories to the New Subs, so those contribution
histories stayed with CenTra instead of transferring to U.S.
Truck in the sale of the New Subs’ stock.
The district court’s decision vacating the arbitration award
and reinstating the fund’s assessment of with‐
drawal liability is therefore
AFFIRMED.
8‐20‐09
