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.
Judge Higginbotham's "certainly" language was followed in Doherty v. Teamsters Pension Trust Fund of Philadelphia and Vicinity, 16 F.3d 1386 (3d Cir. 1994), where the court held that a defendant that was not "certainly" a MPPAA employer at some time may not be compelled to arbitrate at the outset because the district court must first determine the applicability of the MPPAA arbitration scheme. Id. at 1390. "The distinction rests on the fact that § 1401(a)(1) mandates arbitration for disputes between 'an employer and the plan sponsor,' and an entity that is not an MPPAA employer because it has never been in a controlled group with the contributing entity is not subject to arbitration." Id. (citations omitted); see also Teamsters Joint Council No. 83 v. Centra, 947 F.2d 115, 122 (4th Cir. 1991); Bowers v. Transportacion Maritima Mexicana, S.A., 901 F.2d 258, 261 (2d Cir. 1990); Banner, 657 F. Supp. at 882.
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 not be imposed under 29 U.S.C. § 1401(a)(1).
B. Date of Withdrawal
Under MPPAA, the date of withdrawal is defined as "the date of the cessation of the obligation to contribute or the cessation of covered operations." 29 U.S.C. § 1383(e). The Third Circuit has held that "substantial cessation of normal business activity" constitutes withdrawal. Crown Cork & Seal Co. v. Central States S.E. & S.W. Areas Pension Fund, 982 F.2d 857, 865-66 (3d Cir. 1992). Thus, a court may find that withdrawal has occurred where an employer ceases its normal business operations in preparation for a total shut down but maintains a minimal number of employees to assist with the shut down. Id.
Defendants contend that Hall's withdrawal occurred during the final week of October 1987. In support of this position, defendants have submitted audit reports of Hall's during the year 1987 which show a sharp decline in man-hours and contributions to the Fund after October 1987. Def. Reply Mot. Dism. Ex. 1. Plaintiffs have not offered evidence of any withdrawal date more specific than the year 1987.
The Court cannot determine the withdrawal date on the present state of the record. First, plaintiffs represent that they have not completed discovery on this issue. Second, defendants have not presented evidence as to what the normal level of business operations was for Hall's and whether the changes that took place in October of 1987 signified a cessation of normal business operations in preparation for a shut down. Therefore, in analyzing whether the individual defendants were ever a controlled group member prior to withdrawal, the Court will assume arguendo that plaintiffs' position is correct and that withdrawal could have occurred at any point in 1987.
C. Controlled Groups
1. Epes Carriers, Inc. and Epes Transport System, Inc.
a. The "Option Contract"
On July 2, 1987, defendant Alvin Bodford and the Langley Trust, through its trustee Phyllis Brown, formed Epes Carriers, Inc. ("ECI"), with the stock ownership and voting control evenly split between Bodford and Brown. On September 30, 1987, ECI acquired complete control of Epes Transport System, Inc. ("ETS"), a trucking company. Defendants contend, and it is not disputed, that neither the Trust nor any Trust beneficiary has ever owned an interest in Brigadier, Hall's, or HAC. Defendants also contend, and it is not disputed, that no ETS shareholder prior to its acquisition by ECI has ever owned an interest in Brigadier, Hall's, or HAC.
On May 25, 1988, Phyllis Brown sold the Trust's 50% interest in ECI to Bodford, thus giving him 100% ownership of ECI. It is plaintiffs' position that this 1988 transaction somehow shows that ECI and HAC were under common control in 1987.
First, plaintiffs claim that the transfer of the Trust's stake in ECI to Bodford was pursuant to a stock transfer restriction agreement made some time in 1987. Plaintiffs have produced an unsigned draft of a "Stock Purchase and Restriction Agreement" dated September 18, 1987. The relevant portion of the draft provides as follows:
4. Sale of Shares Between Restricted Shareholders.
(a) At any and all times during the term of this Agreement, a Restricted Holder shall have the right to offer to purchase the Shares of any other Restricted Holder, and the Restricted Holder receiving such offer shall be required to either sell his Shares or purchase the Shares of the Restricted Holder making such offer in accordance with the terms and provisions of this Paragraph 4. For purposes of the remainder of this Paragraph 4, the Restricted Holder making such offer shall be referred to as the "Offeror" and the Restricted Holder receiving such offer shall be referred to as the "Offeree."