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Board of Trustees of Trucking Employees of North Jersey Welfare Fund Inc. v. Centra

argued: October 22, 1992.


On Appeal from the United States District Court for the District of New Jersey. (D.C. Civ. No. 90-04902).

Before: Cowen, Nygaard And Seitz Circuit Judges.

Author: Cowen


COWEN, Circuit Judge.


The Board of Trustees of Trucking Employees of North Jersey Welfare Fund, Inc. - Pension Fund ("the Fund") filed this suit pursuant to the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. § 1381 et seq. (amending provisions of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq.) seeking to collect withdrawal liability from Centra, Inc. and several of its subsidiaries (collectively "Centra"). Centra's potential liability to the Fund arose from Centra's acquisition of Mason and Dixon Lines, Inc. ("Mason-Dixon"), a contributor to the Fund that later filed for bankruptcy and permanently withdrew from the Fund. Mason-Dixon and the Fund previously had signed a settlement agreement, approved by the bankruptcy court, under which the Fund received Mason-Dixon preferred stock in exchange for releasing Mason-Dixon and its successors from any further liability. Centra defended the collection action by arguing that it did not control Mason-Dixon at the time Mason-Dixon withdrew from the Fund and that the broad release clause in the settlement agreement immunized Centra from liability.

Subsequently, the Fund filed a motion with the bankruptcy court, seeking to vacate the order approving the settlement agreement on the grounds of misrepresentation, mistake and breach of the settlement agreement. The bankruptcy court refused to vacate its prior order and made findings that neither misrepresentations nor justifiable mistake induced the Fund to sign the agreement. The district court then entertained a summary judgment motion by the Fund on the issue of interim payments. The district court found that Centra controlled Mason-Dixon and ordered Centra to make interim payments to the Pension Fund pending final resolution, by an arbitrator, of the dispute concerning the enforceability of the settlement agreement. Centra appeals this ruling.

Because, on the date of Mason-Dixon's withdrawal from the Fund, Centra possessed the same degree of control over Mason-Dixon that an option contract confers, we agree with the district court that Centra was in common control with Mason-Dixon. Although the bankruptcy court reserved the ultimate issue of the propriety of the Fund's rescission of the settlement agreement, its specific findings that neither mistake nor misrepresentation caused the Fund to sign the settlement agreement bar relitigation of these issues. The remaining issue, whether the Fund could rescind the settlement agreement due to Mason-Dixon's breach, must be decided on remand in the district court because this issue does not fall within the exhaustive list of arbitrable issues outlined in MPPAA. Finally, MPPAA's "pay first, dispute later" policy requires Centra to make interim payments to the Fund pending final resolution of the dispute. Therefore, we will affirm in part and reverse in part the district court's ruling, and will remand for trial on the issue whether Mason-Dixon breached the settlement agreement, and if it did, whether the breach was sufficiently substantial to justify the Fund's rescission of the agreement.


The Pension Fund, a plan sponsor of a multiemployer fund as defined by 29 U.S.C. § 1301(a)(3) (1988), filed this action against Centra to collect withdrawal liability pursuant to MPPAA. Under MPPAA, when a contributing employer withdraws from participation in a fund, the employer is responsible for his pro rata share of the unfunded vested liability remaining in the fund at the time of withdrawal, subject to certain adjustments. See 29 U.S.C. § 1381(b) (1988). The Act provides a series of complicated formulas by which the amount of liability is to be calculated. See 29 U.S.C. § 1391 (1988 & Supp. I 1989). Not only contributing employers, but also any businesses "under common control" with that employer are liable to a fund when an employer withdraws. See 29 U.S.C. § 1301(b)(1).*fn1 Under a common control theory, the Fund sought collection from Centra of the allegedly unpaid withdrawal liability assessments of Mason-Dixon, a company acquired by Centra that later entered bankruptcy and permanently withdrew from the Fund.

Mason-Dixon, a trucking company, signed a collective bargaining agreement with its union, which obligated Mason-Dixon to contribute to the Pension Fund on behalf of its union employees. Mason-Dixon made regular payments to the Fund for several years. On March 29, 1984, because of severe financial difficulties, Mason-Dixon filed a Chapter 11 petition for reorganization in a North Carolina bankruptcy court. Mason-Dixon discontinued contributions to the Fund on April 9, 1984.*fn2 The Fund admits that it learned of the Mason-Dixon bankruptcy during the summer of 1984. Nevertheless, on July 10, 1985, a year after they initially became aware of the bankruptcy proceeding, the Fund sent a statutory Notice and Demand to Mason-Dixon, claiming $778,616 in withdrawal liability and demanding payment. Although MPPAA allows an employer sixty days to arbitrate any dispute concerning a determination under specified MPPAA sections or to challenge other aspects of the withdrawal liability assessment in court, see 29 U.S.C. § 1401(a)(1) (1988), Mason-Dixon never responded to the Notice and Demand letter.

At the same time it sent the Notice and Demand letter, the Fund also filed a proof of claim for withdrawal liability with the North Carolina bankruptcy court overseeing Mason-Dixon's reorganization. The proof of claim was filed long after the deadline set by the bankruptcy court. Eight months after the filing of the proof of claim, Mason-Dixon objected to the Fund's claim on the grounds that it was untimely, and the Fund failed to respond to this procedural objection. Pursuant to an Order of Confirmation dated March 29, 1986, the bankruptcy court disallowed the Fund's claim due to its belated filing and discharged Mason-Dixon's debts.

In 1988, approximately two years after the Fund's claim was dismissed, the Fund filed a motion with the bankruptcy court requesting reconsideration of its untimely claim because the Fund's law firm, Zazzali, Zazzali & Kroll, never received any notice of the hearing to dismiss the Fund's claim as time-barred.*fn3 During the pendency of that motion, the Fund and Mason-Dixon successfully negotiated a settlement agreement. The Fund received $545,031, seventy percent of the face value of its claim, to be paid in Mason-Dixon preferred stock. The stock was worth very little since it was redeemable only after twenty years, paid no interest, and provided its owner with no voting rights. The agreement provided that Mason-Dixon would issue this stock within ten days of the date of settlement. The agreement also contained a broad release clause, releasing Mason-Dixon and all of its successors in interest from all claims, including withdrawal liability claims.*fn4 The parties signed the settlement agreement on December 28, 1989 and the bankruptcy court approved it on January 5, 1990.

On November 29, 1983, unbeknownst to the Fund, Centra had executed a stock-purchase agreement with the shareholders of Mason-Dixon. The agreement gave Centra the exclusive right to purchase all of the outstanding shares of Mason-Dixon, contingent upon approval from the Interstate Commerce Commission ("ICC") and several state regulatory agencies. On January 4, 1984, the ICC granted Centra temporary authority to operate Mason-Dixon, and the ICC finally approved the stock acquisition on March 7, 1984. Because several state agencies regulating intrastate commerce did not announce their approval until after the ICC,*fn5 the stock purchase agreement was not finalized until February of 1985.

The Fund alleges that at the time it negotiated the settlement agreement with Mason-Dixon, it was unaware of the existence of Centra or any other solvent party that was a potential source of payment. Although the settlement agreement contained signature lines only for the Fund and Mason-Dixon, the accompanying bankruptcy court order was signed by these parties as well as a Centra attorney. The Fund claims that it was unaware that a Centra representative signed the agreement.

After the agreement was signed and incorporated into a judgment by the bankruptcy court, the Fund inadvertently discovered that Centra previously had acquired Mason-Dixon. If Centra was under "common control" with Mason-Dixon at the time of Mason-Dixon's withdrawal from the Fund and possessed no other valid defenses, Centra would be jointly and severally liable for the withdrawal liability of Mason-Dixon. See 29 U.S.C. § 1301(b)(1). The Fund, therefore, investigated the timing of the transaction.

To eliminate Centra's potential defense that the settlement agreement released them from liability,*fn6 the Fund brought a motion in the bankruptcy court to vacate the January 5, 1990 order approving the settlement agreement. The Fund claimed that the agreement was induced by misrepresentations and mistakes of fact because the Fund did not know about Centra's acquisition of Mason-Dixon. The Fund also asserted that it could rescind the agreement because Mason-Dixon breached their contractual obligation to issue the stock by failing to deliver any stock certificates or other evidence of ownership to the Fund. Centra conceded that Mason-Dixon had not delivered stock certificates to the Fund, but contended that the stock was issued when Mason-Dixon entered a notation to that effect in its corporate records. In its defense, Centra also argued that recission was not an available remedy even if Mason-Dixon had committed a technical breach of the agreement.

In an August 19, 1991 order, the bankruptcy court refused to vacate its prior order, but explicitly declined to reach the ultimate issue of whether the Fund could rescind the agreement. The bankruptcy court specifically found that neither Mason-Dixon nor its counsel made any misrepresentations.*fn7 The court further determined that the Fund could not assert mistake of fact as a basis to invalidate the contract because Centra's ownership of Mason-Dixon was a matter of public record in the bankruptcy proceeding and the information contained in the court record would be imputed to the parties.*fn8 The bankruptcy court did not address the breach issue.

Concurrently with the motion in bankruptcy court, the Fund sent a Notice and Demand letter and a Notice of Rescission of the Settlement Agreement to Centra, and filed this action to secure payment. Within the sixty-day period allowed by statute, see 29 U.S.C. § 1401(a)(1), Centra initiated arbitration proceedings to contest the assessment. On August 2, 1991, the Pension Fund filed an amended complaint seeking interim payments pending final resolution of the dispute through arbitration.

The Fund moved for summary judgment in the district court on its claim for interim payments, arguing that MPPAA obligates Centra to make interim payments to the Fund while the dispute is being arbitrated. In response to Centra's assertion that the settlement agreement with Mason-Dixon immunizes it from liability, the Fund reiterated the arguments it raised in the bankruptcy court - (1) the agreement is void due to misrepresentation and mistake of fact; and (2) Mason-Dixon breached the agreement by failing to "issue," i.e. physically deliver, the preferred stock certificates. Centra contested these issues and asserted the affirmative defense that it was not in common control with Mason-Dixon on the date of withdrawal. Centra also argued that the district court, not arbitration, was the proper forum to ultimately resolve whether the Fund could collect Mason-Dixon's withdrawal liability from Centra.

In an opinion dated October 17, 1991, the district court granted the Fund's motion for summary judgment. The district court found: (1) interim payments are mandatory; (2) Mason-Dixon was under Centra's control at the time of withdrawal; (3) the bankruptcy court's refusal to vacate its order approving the settlement does not bar any of the Fund's present claims; and (4) the Fund's claims are not time-barred. The district court sent the dispute concerning the validity of the settlement agreement to an arbitrator for resolution, although Centra argued that the district court should decide this issue. A judgment reflecting the district court's Conclusions was entered on November 15, 1991. Centra appealed this ruling and filed a motion for remand to allow the district court to correct defects in its judgment. We granted this motion and the district court entered a revised judgment on February 26, 1992. ...

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