The opinion of the court was delivered by: JAN E. DUBOIS
Presently before the Court are defendants' Motion to Dismiss and plaintiffs' Cross-Motion to Dismiss or Stay Pending Arbitration. Both Motions will be denied for the following reasons.
A. Procedural History and Background
This case forms part of the extensive litigation arising under the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. § 1381 et seq., that grew out of the withdrawal of Hall's Motor Transit Co. ("Hall's") from a number of multiemployer pension funds. See, e.g., Flying Tiger Line, Inc. v. Central States, S.E. & S.W. Areas Pension Fund, 704 F. Supp. 1277 (D. Del. 1989).
The facts and procedural history may be summarized as follows:
Hall's was an interstate trucking company that contributed on behalf of covered employees to various multiemployer pension funds including that of plaintiff Teamsters Pension Trust Fund of Philadelphia and Vicinity ("the Fund"). On March 10, 1986, Hall's filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq., and subsequently reduced and then ceased contributing to the pension funds.
From January 1980 to January 1985, Hall's was a wholly-owned subsidiary of Tiger International, Inc. ("Tiger"). Anticipating that the pension funds would assert that Tiger was jointly and severally liable for Hall's withdrawal liability, Tiger and its subsidiaries filed a complaint in July 1986 in the United States District Court for the District of Delaware seeking declaratory and injunctive relief against various pension funds including the Fund. Tiger alleged that it was not liable to any pension funds as a result of Hall's withdrawal. Tiger ultimately settled with all the pension funds in that case except for the Fund.
By late 1987, Hall's ceased contributing to the Fund, and on January 20, 1988, the Fund sent Tiger a notice and demand for payment of Hall's withdrawal liability which the Fund assessed at approximately $ 2.1 million. The Delaware District Court referred the dispute between the Fund and Tiger to arbitration. On December 22, 1993, the arbitrator issued a decision in Tiger's favor. That decision is currently on appeal in the Delaware District Court.
On March 21, 1994, the Fund and Charles J. Schaffer, a fiduciary of the Fund, filed the instant action against defendants Alvin Bodford, Brigadier Leasing Associates, Epes Transport System, and Epes Carriers, Inc., "as a protective matter following an adverse arbitration award." Pl. Surreply Mot. Dism. at 26. An Amended Complaint was filed on March 28, 1994. The Amended Complaint alleges that under MPPAA's provisions, defendants and Hall's were businesses under common control at the time of withdrawal and are therefore jointly and severally liable for Hall's withdrawal liability. Jurisdiction is based on 29 U.S.C. § 1451(c), which gives federal district courts jurisdiction over civil actions arising under MPPAA.
In December 1984, defendant Alvin Bodford ("Bodford"), then Chief Financial Officer of Hall's, and other senior members of Hall's management formed the Hall's Acquisition Corporation ("HAC") as part of a planned buyout of Hall's from Tiger. Tiger transferred 75% of Hall's stock to HAC in January 1985 for $ 1,000 and a secured note for $ 10.5 million of existing inter-company debt. Tiger transferred its remaining 25% of Hall's stock to HAC in December 1985. According to defendants, HAC returned the latter 25% of Hall's stock to Tiger in March 1986 because the transfer constituted a default under various agreements to which Hall's was a party. Defendants claim that the transfer of this 25% of Hall's stock was not consummated until May 1988.
Defendant Brigadier Leasing Associates ("Brigadier") was formed in June 1985 as a limited partnership with one general partner. Under the express terms of the partnership agreement, the purpose of the partnership was to lease 70 GMC Brigadier tractors to Hall's. See Pl. Mem. Opp. Mot. Dism. Ex. 9 at 3-4. Alvin Bodford was general partner of Brigadier at all times. According to defendants, shortly after Hall's filed its petition under Chapter 11 of the Bankruptcy Code in March 1986, Brigadier sold all of its tractors and ceased all business other than winding up the affairs of the partnership. The final distribution of the remaining assets was made on October 19, 1987, and the partnership ceased to exist at that time.
In July 1987, Bodford and the F. R. Langley Family Trust ("the Trust"), by its trustee Phyllis Brown, created defendant Epes Carriers, Inc. ("ECI"), with the stock ownership and voting control evenly divided between Bodford and the Trust. In September 1987, ECI purchased all the stock of defendant Epes Transport System, Inc. ("ETS"), a trucking company. In May 1988, Bodford acquired the Trust's interest in ECI and became sole owner of ECI.
II. MPPAA Withdrawal Liability
MPPAA was enacted in 1980 as an amendment to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. MPPAA requires employers who withdraw from a multiemployer pension plan to pay their portion of the unfunded vested benefits of that plan. Under ERISA, the term "employer" encompasses any trade or business under common control with the organization whose withdrawal triggers the liability. 29 U.S.C. § 1301(b)(1). A pension plan may demand and collect withdrawal payments from any such trade or business.
ERISA provides that the term "trades or businesses . . . under common control" is to be defined by regulations promulgated by the Internal Revenue Service. 29 U.S.C. § 1301(b)(1). The regulations define three types of controlled groups. First, a parent-subsidiary controlled group is formed when one person or organization has a controlling interest, i.e., an 80% or greater interest, in another organization. 26 C.F.R. § 1.414(c)-2(b). Second, a brother-sister group is formed by two or more organizations where five or fewer persons own a controlling interest in each organization and such persons are in effective control of each organization. 26 C.F.R. § 1.414(c)-2(c). Effective control is found where the sum of the lowest percentage interest of each person in each organization is 50% or more. Third, a combined group of common control is formed by three or more organizations where each organization is a member of either a parent-subsidiary or brother-sister group and at least one organization is simultaneously a member of a parent-subsidiary and brother-sister group. 26 C.F.R. § 1.414(c)-2(d).
The Fund alleges that Hall's and the defendants formed a combined group of common control as follows: HAC wholly owned Hall's, and thus HAC and Hall's form a parent-subsidiary controlled group. HAC and ECI form a brother-sister controlled group because, according to plaintiffs, Alvin Bodford owned a controlling interest in and had effective control of both firms. ETS is a wholly-owned subsidiary of ECI and forms a parent-subsidiary control group with ECI. HAC and Brigadier formed a brother-sister group because, according to plaintiffs, Bodford and two other investors owned a controlling interest in and had effective control of both firms. Together, Hall's, HAC, and defendants ECI, ETS, and Brigadier formed a combined group of trades or businesses under common control and a single MPPAA employer. As general partner of Brigadier, Bodford is personally liable for the withdrawal liability of Brigadier.
The parties have agreed that defendants' Motion to Dismiss should be treated as a motion for summary judgment because the Motion is based on evidence beyond the scope of the pleadings. See Fed. R. Civ. P. 12(b). Plaintiffs, in turn, have filed a motion pursuant to Fed. R. Civ. P. 41(a)(2) to dismiss the Amended Complaint without prejudice or, in the alternative, to stay proceedings, pending arbitration.
Plaintiffs maintain that all issues in the case, including those involving the statute of limitations and notice, must be arbitrated, and that, as a result, the action should be dismissed without prejudice, or in the alternative, stayed, pending arbitration. Because arbitrability is a threshold issue, the Court will first address plaintiffs' Motion. The Motion will be denied because defendants have presented evidence that they were never part of a group of trades or businesses under common control with Hall's and therefore are not subject to the MPPAA arbitration provisions.
A. Flying Tiger and Doherty
MPPAA requires arbitration of "any dispute between an employer and the plan sponsor . . . concerning a determination made under sections 1381 through 1399 of [title 29]." 29 U.S.C. § 1401(a)(1)(emphasis added). Because the statute applies specifically to employers, courts have held that parties who present evidence they were not a MPPAA employer prior to withdrawal are not subject to the MPPAA arbitration provisions.
In the related case of Flying Tiger Line, Inc. v. Teamsters Pension Trust Fund of Philadelphia, 830 F.2d 1241, 1250 (3d Cir. 1987), the plaintiff -- who was seeking a judicial declaration that it was not liable to various pension funds -argued that it was not subject to arbitration because it was not a MPPAA employer on the date of withdrawal. Writing for the court, Judge Higginbotham reasoned that "where the party against which withdrawal liability is being asserted was certainly part of the controlled group of an employer subject to MPPAA at some point in time, and where the issues in dispute fall within the purview of MPPAA provisions that are explicitly designated for arbitration, the Act's dispute resolution procedures must be followed." Id. at 1247 (emphasis added). Judge Higginbotham carefully distinguished between the issue of whether the defendant was never a MPPAA employer and the issue of whether the defendant had ceased to be a MPPAA employer before the date of withdrawal. Id. at 1250 (quoting Banner Indus., Inc. v. Central States, S.E. & S.W. Areas Pension Fund, 657 F. Supp. 875 (N.D. Ill. 1987)). The former is a question for the district court to decide, while the latter falls within the arbitrator's jurisdiction. The Third Circuit concluded that Tiger had been a MPPAA employer at one time prior to withdrawal, and thus the question whether Tiger was a MPPAA employer at the time of withdrawal was arbitrable.
According to plaintiffs, Doherty does not require the district court to decide the employer status issue if such a determination entails adjudication of issues of fact. That is, an arbitrator must resolve all issues of fact regardless of whether the party against whom liability is asserted can present evidence that it was never a MPPAA employer.
Plaintiffs misunderstand Doherty and misinterpret 29 U.S.C. § 1401(a)(1). Doherty holds that unless a party was certainly a MPPAA employer prior to withdrawal, the district court must first decide whether the dispute is "between an employer and the plan sponsor." 29 U.S.C. § 1401(a)(1). Plaintiffs' theory that arbitration must be ordered whenever a dispute requires adjudication of issues of fact ignores the threshold requirement, imposed by § 1401(a)(1) and recognized by Doherty, that arbitration be applied only to disputes between an employer and a plan sponsor.
The Court concludes that it must first determine whether any or all defendants were MPPAA employers prior to withdrawal. Until that issue is resolved, arbitration may ...