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TRUSTEES OF THE AMALGAMATED INS. FUND v. SHELDON H

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA


January 12, 1988

Trustees of the Amalgamated Insurance Fund, Plaintiffs
v.
Sheldon Hall Clothing, Inc.; Sheldon Mehrman, t/a Meyer D. Mehrman & Son; and Sheldon Mehrman, Defendants

The opinion of the court was delivered by: TROUTMAN

MEMORANDUM AND ORDER

 TROUTMAN, S.J.

 The plaintiff instituted this action on December 18, 1984, pursuant to the Employee Retirement Income Security Act ("ERISA"), as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA") (hereinafter simply "ERISA"), Pub.L. 93-406, 88 Stat. 832 (codified as amended in scattered sections of 26 and 29 U.S.C.), seeking to recover monies allegedly due it as a result of the defendants withdrawal from the Fund. Specifically, the plaintiff seeks to recover what it calculates to be the defendants' "withdrawal liability" pursuant to Sections 4201 through 4219 of ERISA, 29 U.S.C.A. §§ 1381-1399 (West 1985). The defendants interposed a variety of objections to the plaintiff's claim. Because of perceived disputed issues of material fact, the matter was tried before this Court sitting without a jury. The following discussion constitutes our Findings of Fact and Conclusions of Law as required by Federal Rule of Civil Procedure 52(a).

 At the beginning of the trial of this matter, the parties presented a joint stipulation of facts which was read into the record. The stipulated facts may be summarized as follows:

 

1. The plaintiff, by and through its Deputy Plan Administrator, Richard S. Burker, gave notice of withdrawal liability and demand for payment upon "Sheldon Mehrman, President of Sheldon Hall Clothing, Inc./Meyer D. Mehrman", by letter dated December 28, 1981. (See Joint Exhibit # 1.);

 

2. The defendants made a timely request for review of the aforesaid withdrawal liability assessment pursuant to 29 U.S.C.A. § 1399(b)(2)(A)(i) by letter dated February 18, 1982, sent to Mr. Richard S. Burker, certified mail, return receipt requested, which was accepted by the said Richard S. Burker on February 22, 1982. (See Joint Exhibit # 2.);

 

3. The Deputy Plan Administrator for the plaintiff responded to the defendants' request for review by letter dated March 25, 1982. (See Joint Exhibit # 3.);

 

4. On January 15, 1982, the plaintiff's Deputy Plan Administrator, Richard S. Burker, made demand on Sheldon Mehrman, as president of Sheldon Hall Clothing, Inc./Meyer D. Mehrman, for the payment of withdrawal liability assessed by the plaintiff's calculation in the amount of $ 238,198.75, payable in quarterly installments of $ 7,189.92. (See Joint Exhibit # 4.);

 

5. In order to enforce the aforesaid calculation of withdrawal liability against Sheldon Hall Clothing, Inc., and Meyer D. Mehrman, plaintiff demanded an arbitration at 77 Broadway, New York, New York, on September 20, 1983, (see Joint Exhibit # 5), wherein the arbitrator noted appearences as follows: for petitioners (i.e., the plaintiff Fund), Mark Schwartz, Esq.; for respondents, David C. Schattenstein, Esq., and Meyer D. Mehrman, (see Joint Exhibit # 6); *fn1"

 

6. Sheldon Mehrman did appear at the arbitration hearing with his counsel, David Schattenstein, Esq.;

 

7. The arbitrator of the aforesaid arbitration, Millard Cass, rendered findings and an award against both Sheldon Hall Clothing, Inc. (hereinafter simply "SHC"), and Meyer D. Mehrman, on October 27, 1983, awarding the plaintiff: (1) $ 238,198.75 by way of withdrawal liability; (2) $ 9,719.35 by way of interest and liquidated damages under § 4301 of ERISA, together with interest from the date of hearing until the date of payment; (3) the sum of $ 50.00 for arbiter's fees and costs; and (4) the sum of $ 100.00 for legal fees, for a total award of $ 248,218.10.

 

8. At the time of the award, SHC was a Pennsylvania corporation with its principal place of business at 418 N. Franklin St., Allentown, Lehigh County, Pennsylvania, with its sole shareholder and president as Sheldon Mehrman;

 

9. On or about October 1981, Sheldon Mehrman operated a sole proprietorship under the name of Meyer D. Mehrman & Son; and

 

10. Plaintiffs are the sponsors of a multiemployer benefit retirement plan within the meaning of ERISA.

 Following the introduction of these stipulated facts into the record, further undisputed facts came to light. They are as follows: On November 29, 1983, thirty-one(31) days after the arbitrator rendered his award in favor of the plaintiff, the Fund instituted an action against SHC and Meyer D. Mehrman in the United States District Court for the Southern District of New York pursuant to 29 U.S.C. § 1401(b)(2) to enforce the arbitrator's award. *fn2" (See plaintiff's Exhibit # 3.) For reasons which still remain a mystery, the New York action was dismissed on November 13, 1984, by order of the Hon. Robert W. Sweet on the ground that the action had been settled. (See plaintiff's Exhibit # 1.) Thereafter, on December 7, 1984, upon request of the plaintiff, Judge Sweet entered a second order dismissing the case, without prejudice, pursuant to Federal Rule of Civil Procedure 41(a)(1). The plaintiff's stated reason for this request was that it had been unable to render effective service of process upon SHC and Meyer D. Mehrman. (See plaintiff's Exhibits 1 and 2.) *fn3"

 On December 18, 1984, more than a year after the arbitrator entered his award in favor of the Fund and the Fund had instituted its action against SHC and Meyer D. Mehrman in the Southern District of New York, the plaintiff commenced this action against SHC and Sheldon Mehrman, individually and trading as Meyer D. Mehrman & Son. *fn4" In its Complaint, the plaintiff sets forth three(3) Counts. Count I seeks judgment against both defendants under what is perhaps best described as an "independent" cause of action, i.e., independent of the arbitration award. In Count II, the plaintiff seeks judgment against both defendants in the form of confirmation and enforcement of the arbitration award described above pursuant to 29 U.S.C. § 1401(b)(2). In their answer, the defendants aver, inter alia, that they were not part of a commonly controlled group as defined by ERISA, that no arbitration award had ever been entered against Sheldon Mehrman, as opposed to Meyer D. Mehrman, and that the plaintiff has failed to comply with 29 U.S.C. § 1401(b)(2) by filing this action more than thirty(30) days after the arbitrator had rendered his decision.

 At trial, Sheldon Mehrman testified that in 1981, he was the sole shareholder and chief operations officer of SHC, and had been such for approximately ten(10) years prior thereto. He stated that from January 1976, SHC had operated as a sewing contractor. He further testified that approximately nine(9) months after the corporation started operations as a sewing contractor, the employees formed a collective bargaining unit and negotiated a contract. It was pursuant to this contract and the renewals thereof that SHC made payments to the plaintiff Fund. SHC ceased operations in late October-early November of 1981 for economic reasons, and, as a result, all union employees were terminated.

 As to Meyer D. Mehrman & Son, Sheldon Mehrman testified that he was the sole owner of the proprietorship which had been founded by his father. He stated that Meyer D. Mehrman & Son functioned as a "manufacturer" of men's and some women's clothing, i.e., the proprietorship purchased fabric and designed and cut patterns. The patterns were then sent to outside personnel for "assembly", and thereafter, were returned to Meyer D. Mehrman & Son. Sheldon Mehrman stated that Meyer D. Mehrman & Son did not cease operations until some time in 1983. At his deposition, however, he testified that the "businesses" ceased operations on November 13, 1981. Likewise, the arbitrator found that both SHC and "Meyer D. Mehrman" ceased operations on the same date, and that such a cessation of operations constituted a withdrawal from the Fund's pension plan as defined by ERISA. (See Joint Exhibit # 6, Finding of Fact # 2.) Further, the only evidence before us as to what occurred during the arbitration hearing, i.e., the arbitrator's Findings and Award, indicates that the only challenge to the plaintiff's assessment asserted by the defendants was the Fund's determination that SHC and Meyer D. Mehrman constituted a commonly controlled group. (See, id.)

 Regarding the "relationship" between SHC and the sole proprietorship, Sheldon Mehrman testified that while both businesses operated out of the same building and the union employees of both entities were represented by the same union, the two businesses functioned as two completely separate and distinct commercial entities. He stated that the two businesses had separate contracts with the union, though both agreements had the same expiration date; that the businesses, though located in the same building, occupied different floors under separate leases; that SHC sewed none of the clothing manufactured by the sole proprietorship, nor were there any contracts between the two; and finally, that no money passed between the two entities.

 As stated above, one of the defendants' primary contentions is that the plaintiff failed to timely file its action. Specifically, the defendants argue that the plaintiff failed to file this action within the time prescribed by 29 U.S.C. § 1401(b)(2), i.e., thirty (30) days after the issuance of the arbitrator's award. In response, the plaintiff argues that, even if it is barred from seeking to enforce the arbitration award pursuant to § 1401(b)(2), it still possesses an "independent" cause of action under 29 U.S.C. § 1451, pursuant to which it is entitled to judgment in the same amount as if it were simply seeking to enforce the aforementioned arbitration award.

 In interpreting a statute, here ERISA, we are required to read the act so as to, wherever possible, give effect to all of its component parts. Likewise, given ERISA's remedial nature, we must also construe the statute, wherever possible, so as to favor plan sponsors such as the plaintiff. The complexity of ERISA, combined with its less than concise drafting, makes these tasks no simple chore. The dearth of case law and legislative history further complicates our job. See 1980 U.S. Code Cong. & Admin. News 2918-3067; see also, Central States Southeast and Southwest Areas Pension Fund v. T.I.M.E.-DC, Inc., 826 F.2d 320, 327 n.5 (5th Cir. 1987).

 We believe that to interpret § 1401(b)(2) in the manner suggested by the defendants, i.e., so as to require the plaintiff to have filed its action within thirty(30) days of the arbitrator's award, would neither give effect to all of ERISA's enforcement provisions nor effect the statute's remedial purpose. Under the defendants' interpretation of the statute, wherever arbitration proceedings have been initiated pursuant to § 1401(a)(1), plan sponsors such as the plaintiff would be required to seek enforcement of the arbitration award within thirty(30) days of the issuance of the award. In other words, the plan sponsor would be required to reduce the arbitration award to a judgment by filing an action in district court. Though we admit it is extremely difficult to glean from the face of the statute, specifically, §§ 1401(b) and 1451, exactly what Congress intended, we find the defendants' proposed construction of § 1401(b)(2) illogical. First, Congress specifically provided in § 1401(b)(2) that any action pursuant thereto shall be brought in accordance with § 1451. Section 1451(f) provides that any cause of action under that section must be brought within the later of six(6) years after the cause of action arose or three(3) years after the earliest date on which the plaintiff acquired or should have acquired actual knowledge of the existence of such cause of action. The action sub judice was clearly brought within the time prescribed by § 1451(f). Second, the defendants' interpretation of § 1401(b)(2) makes no provision for those cases in which an employer fully complies with its statutory obligation to make installment payments on its withdrawal liability as calculated by the plan sponsor pending § 1399(b)(2)'s review process and § 1401(a)'s arbitration procedures, and does not default on its obligation until, for example, three(3) years after the arbitrator issued a decision. We sincerely doubt that Congress intended that a plan sponsor in such a case would be deprived of a remedy because it had failed to seek "enforcement" of an arbitration award with which the employer had to that point complied. To construe § 1401(b)(2) in such a manner would not only result in an unnecessary waste of judicial resources, but also in an unnecessary depletion, through the expenditure of attorney's fees and related costs, of the fund's assets. Had Congress intended that plan sponsors be required to reduce arbitration awards to judgments in all cases, regardless of whether the employer had defaulted on its obligation, we believe it could and would have found a clearer manner in which to express such an intent.

 Based on the foregoing discussion, we believe that the only logical and reasonable way in which § 1401(b)(2) can be interpreted is that where a plan sponsor or an employer wishes to seek to vacate or modify an arbitration award rendered pursuant to § 1401(a), it must file its action within thirty(30) days of the arbitrator's award. Where, however, a plan sponsor is simply seeking to enforce an arbitration award and the employer, as here, has not sought to have that award vacated or modified, the plan sponsor must file its action within the time prescribed by § 1451(f). We believe that this is the only reasonable and harmonious construction of § 1401(b)(2) which effects the statute's remedial purpose. Based on this conclusion, we find that the plaintiff's action was timely filed.

 The next issue we must address is defendant Sheldon Mehrman's contention that the plaintiff's action as to him should be dismissed on the grounds that he did not receive the notice and demand for payment of withdrawal liability prescribed by § 1399, nor was an arbitration award ever entered against him personally pursuant to § 1401(a). The defendants' argument in this regard is based upon the plaintiff's incorrect denotement, until the filing of this case, of Meyer D. Mehrman as the employer from which it was seeking to collect withdrawal liability. Based on the facts of record, however, we do not believe Sheldon Mehrman's argument possesses any merit. The facts we refer to are as follows: (1) that Sheldon Mehrman received all notices sent by the plaintiff, though the plaintiff incorrectly named Meyer D. Mehrman as the respondent; (2) that Sheldon Mehrman retained counsel to represent both SHC and "Meyer D. Mehrman"; (3) that Sheldon Mehrman personally attended the arbitration hearing held pursuant to § 1401(a), though the arbitrator improperly referred to him in his decision as Meyer D. Mehrman and incorrectly named Meyer D. Mehrman as respondent along with SHC; and (4) that neither Sheldon Mehrman nor his attorney ever attempted to point out the plaintiff's error. Based on these facts, we do not believe Sheldon Mehrman can now be heard to say that the plaintiff failed to comply with the requirements of § 1399 or that he was not a participant in the arbitration proceedings initiated by the plaintiff. To hold otherwise would be the ultimate exaltation of form over substance.

 We now proceed to the defendants' substantive challenges to the arbitrator's award. Initially, we note the recent affirmation, by an equally divided Supreme Court, of the Third Circuit Court of Appeals decision in United Retail & Wholesale Employees Teamsters Union Local No. 115 Pension Plan v. Yahn & McDonnell, Inc., 787 F.2d 128 (3d Cir. 1986), aff'd., 481 U.S. 735, 107 S. Ct. 2171, 95 L. Ed. 2d 692 (1987). Prior to the Third Circuit's decision in Yahn and McDonnell, § 1401(a)(3)(A) required an arbitrator to apply a presumption of correctness to the plan sponsor's determination of the employer's withdrawal liability. Likewise, under § 1401(c), a district court reviewing the decision of an arbitrator pursuant to § 1401(b)(2) is required to apply a presumption, rebuttable only by a clear preponderance of the evidence, that the findings of fact made by the arbitrator are correct. In Yahn and McDonnell, the Third Circuit struck down § 1401(a)(3)(A) as unconstitutional on the ground that the presumption of correctness given a fund's calculation of an employer's withdrawal liability denied the employer an impartial decision, and hence, denied the employer procedural due process. In this case, it is unclear whether the arbitrator applied any such presumption of correctness as to the plaintiff's assessment of the defendants' withdrawal liability. We also note that, according to arbitrator's decision, the only challenge to the plaintiff's assessment by the defendants was the plaintiff's treatment of them as a "commonly controlled group" within the meaning of ERISA, thereby rendering them jointly and severally liable for their combined withdrawal liability. We do not believe the fact that the arbitrator may have accorded, in light of Yahn and McDonnell, an improper presumption of correctness to the plaintiff's assessment presents an impediment to our resolving this matter, however, for even according the defendants de novo review of the plaintiff's calculations, we find the plaintiff is entitled to enforcement of the arbitration award against the defendants.

 The defendants' challenge to the plaintiff's treatment of them as a "commonly controlled group" consists of two facets. First, they cite Sheldon Mehrman's testimony as to the manner in which SHC and the sole proprietorship were maintained as two completely separate and distinct entities. The concept of a "commonly controlled group" for purposes of ERISA, however, is not so much a question of the purported group members' operational relationship as it is of ownership and control. Here, Sheldon Mehrman readily admitted that not only was he the sole owner of the proprietorship, but that he was also the sole shareholder and chief operations officer of SHC. Thus, the sole proprietorship and SHC formed the purest commonly controlled group possible, i.e., a group with only one owner and head. See, e.g., IUE AFL-CIO Pension Fund v. Barker & Williamson, 788 F.2d 118 (3d Cir. 1986) and Connors v. Calvert Development Co., 622 F. Supp. 877 (D.D.C. 1985).

 The defendants next contend that the common control group concept as contemplated in ERISA applies only to corporations. The defendants' argument is baseless. 29 U.S.C. § 1301(b) specifically provides that, ". . . all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer and all such trades and businesses as a single employer . . ." (Emphasis added.); see also, Connors v. Peles Coal Co., 637 F. Supp. 321 (D.D.C. 1986) and Connors v. Clavert Development Co., supra. A commonly controlled group may, for example, consist of a group of corporations, a partnership and corporation or, as here, a sole proprietorship and a corporation. Hence, we find no merit in the defendants' argument.

 The defendants' final challenge to the plaintiff's claim is that, should this Court determine that they are liable for withdrawal liability in the amount assessed by the plaintiff, i.e., $ 238,198.75, the Fund is, nevertheless, not entitled to collect the interest and liquidated damages they seek. At trial, Jeffrey Warbet, an acting assistant vice-president of Amalgamated Life Insurance Company, the administrator of the Fund, testified that as of July 2, 1987, he calculated the defendants' combined withdrawal liability to be $ 490,493.65. He stated that this figure was based on a principal of $ 238,198.75, i.e., the plaintiff's calculation of the defendants' withdrawal liability, compounded by the addition of interest thereon at the rate of 20 % per annum. Warbet testified that the interest rate of 20 % was arrived at by taking the interest rate of 10 % prescribed by the Plan and doubling it so as to include an equal amount in the form of "liquidated" damages. The defendants contend that since neither § 1401(b) nor § 1451 provide for the recovery of such interest and liquidated damages, the plaintiff possesses no right to recover such. The defendants' argument, however, ignores the import of § 1451(b), which provides that in an action under § 1451 to compel the payment of withdrawal liability, ". . . any failure of the employer to make any withdrawal liability payment within the time prescribed shall be treated in the same manner as a delinquent contribution (within the meaning of section 1145 of this title). " (Emphasis added.) Therefore, in an action such as this, by virtue of §§ 1451(b) and 1145, we must look to 29 U.S.C. § 1132(g)(2). See Penn Elastic Company v. United Retail and Wholesale Employees Union, Local 115 Joint Pension Fund, 792 F.2d 45 (3d Cir. 1986). Doing so, we find that not only is the plaintiff entitled to recover the defendants' unpaid withdrawal liability, but also (1) interest thereon, (2) an amount equal to the greater of the same interest just mentioned or liquidated damages provided for under the plan, and (3) reasonable attorney's fees and costs. See New York State Teamsters Council Health and Hospital Fund v. City of Utica, 643 F. Supp. 619 (N.D.N.Y. 1986); Bennett v. Machined Metals Co., Inc., 591 F. Supp. 600 (E.D.Pa. 1984); and Lewart v. Woodhull Care Center Associates, 549 F. Supp. 879 (S.D.N.Y. 1982). Section 1132(g)(2) further provides that the rate of interest to be applied is that prescribed by the plan, or, if none, the rate prescribed by 26 U.S.C. § 6621. Here, Warbet testified that the rate of interest provided for by the Plan is 10 %. Thus, the plaintiff's calculation of "double interest" at the rate of 20 % per annum was completely correct.

 In sum, we find and conclude the following: (1) that the plaintiff timely filed this action; (2) that the plaintiff is entitled to enforcement of the arbitration award described above as to Sheldon Mehrman as well as SHC; (3) that Sheldon Mehrman, t/a Meyer D. Mehrman & Son, and SHC constitute a "commonly controlled group" within the meaning of ERISA, and thus, each is jointly and severally liable for the combined withdrawal liability of both; (4) that the plaintiff is entitled to "double interest" on the defendants' unpaid withdrawalliability obligation at the rate of 20 % per annum from March 17, 1982; and (5) that the plaintiff is entitled to recover reasonable attorney's fees and costs incurred in prosecuting this action. Judgment will be entered accordingly.

 ORDER

 TROUTMAN, S.J.

 AND NOW, this 12th day of January, 1988, in accordance with the attached memorandum, IT IS ORDERED that:

 (1) JUDGMENT IS ENTERED in favor of the plaintiff and against the defendants, jointly and severally, in the amount of $ 490,643.65 ($ 238,198.75 plus "double interest" thereon at the rate of 20 % per annum from March 17, 1987, to July 2, 1987 plus $ 150.00 for arbitrator's fees and legal costs as awarded by the arbitrator); and

 (2) the plaintiff is awarded the reasonable attorney's fees and costs it incurred in prosecuting this action. The plaintiff shall within twenty(20) days of the date that this Order is filed with the Clerk of this Court file an appropriate affidavit setting forth such fees and costs.


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