National Shopmen Pension Fund v. DISA Industries, Inc.National Shopmen Pension Fund v. DISA Industries, Inc.
DISA Industries, Inc., is an Illinois corporation engaged principally in the foundry equipment business. In 2000 and
National Shopmen then upped the ante by filing suit in the Northern District of Illinois asserting that DISA is in default for failure to pay the full amount requested, see 29 U.S.C. § 1399(c)(5)(A), and that DISA’s failure to resolve the dispute through mandatory arbitration proceedings counts as a forfeiture of any right to challenge the Fund’s interpretation of the statute. The district court concluded that DISA’s failure to exhaust its administrative remedies was immaterial because the Fund also failed to seek arbitration when it revised DISA’s withdrawal liability. The court then dismissed the complaint based on a finding that National Shop-men’s interpretation of the statute, on which it relied in demanding the increased sum from DISA, was plainly incorrect, and so DISA was not in default. We think that DISA’s failure to exhaust its administrative remedies is dispositive and therefore we reverse the judgment of the district court.
I
This case arises under the Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001,
et seq.,
as amended by the Multiemployer Pension Plan Amendments Act of 1980, (MPPAA), see 29 U.S.C. §§ 1301-1461. Congress enacted the MPPAA to address the risk of insolvency that arises when an employer withdraws from a pension plan. When that happens, the plan must ensure that it is adequately funded to provide benefits to workers as promised. See
Central States, Se. and Sw. Areas Pension Fund v. O’Neill Bros. Transfer and Storage Co.,
There is no doubt that DISA completely withdrew from the Fund in 2002, see § 1383, triggering withdrawal liability un
For six months, matters progressed exactly as envisioned by the MPPAA’s “pay now, fight later” regime. As we have said time and again, an employer is almost always required to make payments while it seeks review of a fund’s calculation of withdrawal liability, see § 1399(b)(2)(A), or pursues arbitration, see § 1401(a)(1).
Central States, Se. and Sw. Areas Pension Fund v. Hunt Truck Lines, Inc.,
DISA complied with these provisions following its receipt of the original assessment of liability. It began paying $652 each month, asked the Fund to review the liability assessment, and submitted a letter stating its intent to seek arbitration. Things changed, however, when National Shopmen notified DISA on January 24, 2007, that it had made an error in calculating DISA’s monthly payments. Initially, National Shopmen was reticent in explaining what kind of error caused the miscalculation, yet it demanded that DISA begin paying $978 per month and remit an additional $1,956 to cover what it owed for the prior six months based on the revision. As the Fund provided more information concerning the supposed error in a letter dated February 15, 2007, however, it became clear that at issue was the interpre
To provide context for this dispute, we must now turn to 29 U.S.C. § 1399(c)(l)(C)(i), which provides:
Except as provided in subparagraph (E), the amount of each annual payment shall be the product of—
(I) the average annual number of contribution base units for the period of S consecutive plan years, during the period of 10 consecutive plan years ending before the plan year in which the withdrawal occurs, in which the number of contribution base units for which the employer had an obligation to contribute under the plan is the highest, and
(II) the highest contribution rate at which the employer had an obligation to contribute under the plan during the 10 plan years ending with the plan year in which the withdrawal occurs.
(emphasis added). Recall that DISA participated in National Shopmen’s pension plan for only two years before closing its covered facility, raising the question of how to calculate the average for “3 consecutive plan years.” When National Shop-men first calculated the 20-year payment schedule, it averaged the annual number of contribution base units for the two years that DISA contributed to the plan with a zero for the third year. That calculation required DISA to pay $652 each month. The Fund then altered its interpretation of the statute, concluding that only years “for which the employer had an obligation to contribute under the plan,” see § 1399(c)(l)(C)(i)(I), should be included in the calculation. This led it to calculate an average based solely on the two years that DISA contributed to the plan, resulting in monthly payments from DISA of $978 instead of $652.
Unsurprisingly, DISA disagreed with National Shopmen’s revised assessment. The company filed a demand for arbitration in March 2007, but refused to pay the higher amount in the interim. In response, on January 23, 2008, National Shopmen filed suit in the District of Columbia seeking interim payments in the amount of $978 per month while arbitration was pending. Before the district court, DISA defended by arguing that it remained in compliance with the MPPAA by paying the original amount requested, and it further contended that National Shopmen’s revised calculation based on only two years’ experience was in conflict with the statute. The district court expressed serious doubt that National Shop-men’s revised calculation of withdrawal liability was correct, but it concluded that the question should be resolved by the arbitrator. See
National Shopmen Pension Fund v. Disa,
With this triumph in hand, DISA withdrew its arbitration demand on March 23, 2009. National Shopmen did not oppose that move, nor did it initiate arbitration on its own. Instead, by a letter dated April 8, 2009, National Shopmen notified DISA that since arbitration was no longer pending, monthly payments of $978 were immediately due. The letter took the position that DISA’s failure to pay $978 per month and remit the difference between $978 and
The district court was not persuaded. See
National Shopmen Pension Fund v. DISA Industries, Inc.,
No. 09 C 6983,
II
National Shopmen argues that the district court made two errors that require reversal. First, the Fund contends that the court erred by allowing DISA to challenge its calculation of monthly liability payments without pursuing arbitration first. Second, it argues that its interpretation of the statute requiring DISA to pay $978 each month is correct. After oral argument, we invited the Pension Benefit Guarantee Corporation (PBGC) to provide its views on the issues presented, and we appreciate the agency’s submission of its
amicus
brief. We review the district court’s decision to dismiss the plaintiffs complaint, along with issues of statutory interpretation,
de novo.
See
Tamayo v. Blagojevich,
We begin with the district court’s conclusion that DISA’s failure to exhaust was beside the point since National Shop-men also failed to seek arbitration. This view presumes that the exhaustion requirements apply equally, at least here, to the Fund and the employer. As we understand it, the court’s analysis on this issue was based on the atypical facts of this case, where the Fund revised DISA’s monthly payment schedule based on a questionable interpretation of the statute after DISA had been making payments according to the original assessment. These circumstances, according to the court, gave rise to an obligation for National Shopmen to seek arbitration when it revised the assessment. From there, the court leapt to the conclusion that National Shopmen’s failure to seek arbitration ab
This line of reasoning is problematic. It is true that § 1401(a) says that “[either party may initiate the arbitration proceeding,” suggesting a symmetry in the burdens placed on the employer and the pension plan to arbitrate. But the next subsection, § 1401(b)(1), disposes of the contention that the parties evenly bear the burden of seeking arbitration. This is because § 1401(b)(1) says that “[i]f no arbitration proceeding has been initiated pursuant to subsection (a) of this section, the amounts demanded by the plan sponsor ... shall be due and owing on the schedule set forth by the plan sponsor.” Not only that, the plan can then immediately file suit to collect the entire amount of withdrawal liability, and in that proceeding the employer will have forfeited any defenses it could have presented to the arbitrator, see
Robbins v. Chipman Trucking, Inc.,
Is there any reason to think that the MPPAA’s exhaustion requirements are inapplicable when a pension plan notifies an employer of a revised, as opposed to an original, assessment? DISA thinks so, because in its view National Shopmen lacked the authority to revise the assessment at all, meaning that DISA was under no obligation to pay the revised amount or submit the dispute to an arbitrator. According to DISA, the MPPAA provides only three methods by which a pension plan may revise its original assessment: (1) under § 1399(b)(2), the assessment may be altered after an employer challenges the calculation of withdrawal liability; (2) under § 1401(a), the assessment may be revised through arbitration proceedings requested by either party; and (3) under § 1401(b)(2), after arbitration proceedings have been completed, either party may file suit in federal court to “enforce, vacate, or modify the arbitrator’s award.” In DISA’s view, because National Shopmen failed to pursue any of those paths, it lacks the authority to revise the original assessment and the revision is a “nullity.”
We do not read the statute so rigidly. As a preliminary matter, only the second option identified by DISA is relevant in this context: National Shopmen could have initiated arbitration pursuant to § 1401(a) to resolve the dispute. Section 1399(b)(2) is inapplicable because it explains how an employer can challenge the plan’s assessment of withdrawal liability, and § 1401(b)(2) is relevant only after arbitration proceedings have been completed. So in fact DISA’s argument is that, pursuant to § 1401(a), a plan must seek arbitration if it wants to revise an employer’s liability. This is a slightly different argument from the one we disposed of above, because it focuses on the plan’s authority to revise rather than on the operation of the exhaustion requirements. That distinction, however, is telling because it reveals that DISA’s argument is based on a misunderstanding of § 1401(a)(1). As we have just explained, that provision establishes that arbitration is mandatory for all disputes concerning the plan’s determination of withdrawal liability, and it also sets forth time limits governing when either party may initiate the proceedings. There is no reason to think that the exhaustion provision governs the substantive authority of a
Indeed, the MPPAA is silent with regard to a plan’s authority to revise an assessment of withdrawal liability. But we are not left without any guidance on this issue, since the PBGC has long held the view that a plan may revise an assessment if it discovers an error in the calculation of liability while the assessment is still subject to arbitration or litigation. See PBGC Opinion Letter 90-2 (April 20, 1990); PBGC Amicus Br. at 6. According to the PBGC, “[i]f the employer contests the plan’s right to revise its original assessment or issue a second assessment, this dispute, like other disputes involving withdrawal liability, must be resolved first through arbitration and then, if necessary, through the courts.” Opinion Letter 90-2. Although we owe no deference to the position taken by the agency in an opinion letter, see CenTra, Inc. v. Central States, Se. and Sw. Areas Pension Fund, 578 F.3d 592, 601 (7th Cir.2009) (adopting PBGC’s position in an opinion letter), we find the agency’s views persuasive. Given the strong preference the MPPAA establishes for the collection of withdrawal liability in a manner that protects the solvency of multiemployer plans, a fund must be able to revise an assessment of withdrawal liability, within a reasonable period of time, if it discovers that it has undercharged an employer.
The Fourth Circuit adopted exactly this position in
Masters, Mates & Pilots Pension Plan v. USX Corp.,
DISA attempts to distinguish
Masters
by arguing that it merely established that a plan has the authority to correct
undisputed
errors in the calculation of withdrawal liability. While it is true that the “correctness of the revision and the error of the original” were not in dispute in
Masters,
see
id.,
that point cannot be dispositive. As the opposing arguments in this case illustrate, it may be difficult to know
ex ante
whether a revision will lead to a more accurate assessment. A recalcitrant employer can make any asserted error disputed simply by disputing it. Even in the best of circumstances, the parties may genuinely disagree about the interpretation of the statute, which sets forth an intricate series of formulas that are not always straightforward to apply.
E.g., Central States, Se. and Sw. Areas Pension Fund v. Safeway, Inc.,
We recognize that
Shopmen I
and
Shop-men II
expressed concern that under our reading of the statute a pension plan could arbitrarily jack up an employer’s payments after assessing a lower, perhaps uneontroversial, amount. But we do not share this apprehension. As long as an employer is able to seek the full panoply of administrative and judicial remedies set forth in the MPPAA, there is little reason to think that a pension plan would be any more inclined to revise an assessment of withdrawal liability gratuitously than it is to make an arbitrary assessment in the first instance. If a plan’s revised assessment is patently ridiculous, the arbitrator should promptly reject the revision. And if that avenue fails, the courts are available to vacate or modify the award — but only after the completion of arbitration proceedings. See § 1401(b)(2). Moreover, ERISA’s fee-shifting provision, § 1132(g), combined with the fact that the plan would naturally have to return any payments to which it was not entitled, is sufficient to prevent arbitrary revisions. True, the employer is stuck with the higher bill in the interim, and that may be a cost it would rather not bear. But as we have explained, there are good reasons for the MPPAA’s “pay now, fight later” rule, and Congress has decided to assign that cost to the withdrawing employer. Yet if the employer is nevertheless confident that the revision is indisputably incorrect, we have recognized limited situations where it is not obligated to make interim liability payments while seeking arbitration. See
Hunt Truck Lines, Inc.,
The arbitration requirement could have been satisfied in this case if the parties had followed through with the proceedings that were underway when the Fund filed suit in Shopmen I. If they had done so, we presume that Shopmen I, which held that DISA was not obligated to pay the revised amount while arbitration proceedings were pending, would have provided DISA with cover to pay only $652 per month until the dispute was resolved. National Shopmen did not appeal that decision to the D.C. Circuit, and of course we do not review it here. As we understand the statute, when a plan revises its assessment of withdrawal liability, the MPPAA compels the employer to comply with the revised assessment as if it were an original assessment and follow the standard statutory procedures for review. Nevertheless, we express no view on whether Shopmen I was correctly decided because it has no applicability where, as here, arbitration proceedings are not pending. As far as we are concerned, when DISA withdrew its request for arbitration on March 23, 2009, it lost the right to use Shopmen I as a shield from the Fund’s demands for the revised amount. We note as well that nothing prevented DISA from filing a second request for arbitration after it received the January 24, 2007, notice from the Fund demanding $978 per month. Perhaps the arbitrator would have consolidated the new proceeding with the pending one; perhaps he would have handled them separately. There is no point in speculating further about this, because it did not happen.