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Carl Colteryahn Dairy Inc. v. Western Pennsylvania Teamsters and Employers Pension Fund

filed: May 31, 1988.

CARL COLTERYAHN DAIRY, INC., APPELLANT/CROSS APPELLEE
v.
WESTERN PENNSYLVANIA TEAMSTERS AND EMPLOYERS PENSION FUND, AMERICAN BENEFIT CORPORATION, MELVIN M. BROOKS, C.P.A., FRANK STOKES, INDIVIDUALLY AND AS AGENT OF AMERICAN BENEFIT CORPORATION, LEON B. WILNEFF, INDIVIDUALLY AND AS AGENT OF AMERICAN BENEFIT CORPORATION, THOMAS L. FAGAN, W.F. HARDY, JAMES H. HUTCHINSON, JR., SAMUEL A. MONTANI, CHARLES E. SALVATORE, JOSEPH E. ZAUCHA, RICHARD R. PELUSO, RAYMOND H. BAKER, INDIVIDUALLY AND AS TRUSTEES OF THE WESTERN PENNSYLVANIA TEAMSTERS EMPLOYERS PENSION FUND, APPELLEES; THE WESTERN PENNSYLVANIA TEAMSTERS AND EMPLOYERS PENSION FUND AND ITS INDIVIDUALLY NAMED TRUSTEES, THOMAS L. FAGAN, W. F. HARDY, JAMES H. HUTCHINSON, JR., SAMUEL A. MONTANI CHARLES E. SALVATORE, JOSEPH E. ZAUCHA, RICHARD R. PELUSO, AND RAYMOND H. BAKER, APPELLEES/CROSS APPELLANTS



On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civil No. 86-2428).

Sloviter, Becker and Cowen,*fn* Circuit Judges.

Author: Becker

Opinion OF THE COURT

BECKER, Circuit Judge.

Plaintiff Carl Colteryahn Dairy, Inc. ("Colteryahn") withdrew as a contributing employer to the Western Pennsylvania Teamsters and Employers Pension Fund ("Western Pennsylvania Fund" or "Fund"), a multiemployer pension plan, whereupon the Fund imposed a withdrawal liability assessment under the Multiemployer Pension Plan Amendments Act ("MPPAA"), 29 U.S.C. §§ 1381-1453 (1982). Colteryahn challenged the assessment by suing the Fund, its trustees, and its accountants and actuaries in the district court for the Western District of Pennsylvania, alleging that: (1) the defendants had fraudulently induced Colteryahn to accede to a merger of the Fund with another plan to which Colteryahn belonged through a series of misrepresentations and concealments that violated the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1461 (1982), and directly led to the improper assessment; (2) the Fund had improperly calculated the assessment because of an erroneous interpretation of 29 U.S.C. § 1391 (methods for computing withdrawal liability); and (3) the defendants had breached certain state common law contract and tort duties. On motion of the Fund, the district court dismissed the complaint for lack of subject matter jurisdiction, holding that the federal claims must first proceed to MPPAA arbitration and that the court thus lacked pendent jurisdiction over the state law claims. Colteryahn appealed, and the Fund and its trustees cross-appealed.

Colteryahn contends that its fraud claim is not cognizable by a MPPAA arbitrator because the claim does not fall within the specific statutory provisions reserved for arbitral resolution, and that its improper calculation claim is a pure statutory interpretation question for which arbitration is unnecessary. The Fund rejoins that the fraud claim is really a claim for breach of fiduciary duty under 29 U.S.C. § 1132 which Colteryahn has no standing to bring, and that the improper calculation claim falls squarely within the statutory provisions expressly reserved for arbitration. On its cross-appeal, the Fund contends that the district court should have declared the state law claims preempted by ERISA, rather than dismissing them for lack of jurisdiction.

We will reverse the district court's dismissal of the fraud, misrepresentation and concealment counts for several reasons. First, we conclude that this is not the type of technical calculation issue that Congress explicitly reserved for MPPAA arbitration. Second we determine that the district court had subject matter jurisdiction over these claims under 29 U.S.C. § 1451. Third, we find that Colteryahn has alleged a violation of either MPPAA's merger regulations, 29 U.S.C. § 1411, or the federal common law of pension plans. Determining a question of first impression, we hold that under this federal common law, which we are authorized by ERISA to develop, a defrauded employer has a cause of action for the return of any sums that were fraudulently assessed by a pension plan.

We will affirm the district court's order insofar as it refused to decide the improper calculation claim, because we agree that Colteryahn must first submit this claim to arbitration under 29 U.S.C. § 1401; however we will remand so that the court can stay, rather than dismiss, the action. Finally, on the cross-appeal, given our holding that a federal question remains within the district court's jurisdiction, we will reverse the district court's dismissal of the state law claims and remand for a determination of whether those claims are preempted by ERISA.

I. STATUTORY BACKGROUND

The Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. §§ 1381-1453, was Congress' response to the growing problem of financial insolvencies of multiemployer pension plans. The problem was caused in large part by the ease with which employers could withdraw from such plans, often leaving those plans starving for funds. See H.R. Rep. No. 869, 96th Cong., 2d Sess. 54-55, 60, 67, 73, reprinted in 1980 U.S. Code Cong. & Admin. News 2918.*fn1 Congress intended MPPAA to discourage such withdrawals and thus ensure the solvency of such plans. See United Retail & Wholesale Employees Teamsters Union Local No. 115 Pension Plan v. Yahn & McDonnell, Inc., 787 F.2d 128, 130 (3d Cir. 1986), aff'd by an equally divided Court sub nom. Pension Benefit Guar. Corp. v. Yahn & McDonnell, Inc., 481 U.S. 735, 107 S. Ct. 2171, 95 L. Ed. 2d 692 (1987). The heart of the Act is its requirement that withdrawing employers pay a substantial withdrawal liability sum to the pension plan, a sum to be calculated without regard either to the net worth of the withdrawing employer or to the continued viability of the plan itself.*fn2

At bottom, an employer's withdrawal liability is essentially equal to the employer's allocable share of the plan's unfunded vested benefits, subject to certain adjustments, see 29 U.S.C. § 1381(b) (1982). An employer's allocable share of these benefits is based primarily on the employer's proportionate share of contributions made to the Fund. See, e.g., 29 U.S.C. § 1391(b) (1982 & Supp. III 1985). The Act provides a series of complex formulas by which a withdrawal liability sum is to be calculated. See § 1391.*fn3 Given the complexity of the calculations and the many technical issues that must be addressed to assess a bottom line liability, see 29 U.S.C. §§ 1381-1399, Congress has created a system of arbitration designed to resolve most disputes over such determinations. See 29 U.S.C. § 1401 (1982). Those disputes that "concern[] determination made under sections 1381 through 1399 of [title 29]" may ultimately be heard in court upon review of an arbitration proceeding, 29 U.S.C. § 1401(a)(1);*fn4 however MPPAA's primary mandate for these disputes is plain: arbitrate first. § 1401(a)(1); Flying Tiger Line v. Teamsters Pension Trust Fund, 830 F.2d 1241, 1248-49 (3d Cir. 1987).

The pages of the Federal Reporter are replete with challenges to this mandate, as litigants have attempted to bypass arbitration in favor of the federal courts and the courts have struggled to develop rules to determine when a MPPAA dispute must first go to arbitration. See, e.g., Flying Tiger; Dorn's Transp. v. Teamsters Pension Trust Fund, 787 F.2d 897 (3d Cir. 1986); Republic Indus. v. Central Pa. Teamsters Pension Fund, 693 F.2d 290 (3d Cir. 1982); Grand Union Co. v. Food Employers Labor Relations Ass'n, 257 U.S. App. D.C. 171, 808 F.2d 66 (D.C. Cir. 1987). This dispute presents another such challenge. See infra Parts III.A., IV. However, because we conclude that part of Colteryahn's claim, which alleges fraud and misrepresentation, need not first be submitted to arbitration, we must also consider the basis for federal jurisdiction over that claim, see infra Part III.B., and the substantive basis, if any, for a federal cause of action, see infra Part III.C.

II. FACTS AND PROCEDURAL HISTORY

The district court dismissed this case pursuant to Fed. R. Civ. P. 12(b)(1) before defendants even filed an answer, and thus no factual record has been developed. The following facts, therefore, are culled primarily from plaintiff's complaint, all of which we must assume to be true for purposes of this appeal. See Saporito v. Combustion Engineering, Inc., 843 F.2d 666, slip op. at 5 (3d Cir. 1988).

Prior to 1976, Colteryahn was a member of the Greater Pittsburgh Dairy Industry Pension Fund ("Dairy Fund"). After extended negotiations in 1975 and 1976 between the Dairy Fund and the Western Pennsylvania Fund, the Dairy Fund agreed to merge into the Western Pennsylvania Fund. A merger agreement was executed in December, 1976. However, the date of the actual consummation of the merger is unclear, occurring sometime between December, 1975 and April, 1984.*fn5

The events that surrounded this merger agreement form the gravamen of Colteryahn's complaint. Colteryahn charges that the Western Pennsylvania Fund, its trustees, and various actuaries and accountants employed by the Fund, misrepresented the financial status of the Fund at the time of the merger, and thus fraudulently induced Colteryahn to accede to and approve the merger.*fn6 Moreover, Colteryahn charges the defendants with a continuing series of misrepresentations, concealments and non-disclosures that induced Colteryahn to remain a contributing employer of the Fund until 1984 or 1985. Specifically, Colteryahn contends that during the merger negotiations, and up until an extensive examination of ...


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