Union Employer's Transaction Did Not Meet The Statutory Safe-Harbor Requirements And Did Not Result In A Transfer Of Its Former Subsidiaries' Contribution History For Withdrawal Liability Calculation Purposes
CENTRA, INC. V. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND (August 20, 2009)
CenTra, Inc. is a family-owned holding company with several subsidiaries, including the Detroit International Bridge Co. (“DIBC”), which operates the Ambassador Bridge between Detroit and Windsor. Prior to 1995, two of the other subsidiaries were Central Cartage Company and Central Transport, Inc. Each of those subsidiaries had labor agreements with unions and contributed to the defendant's pension fund. The company reorganized in 1995. It created two new subsidiaries to take on the union-trucking operations of Cartage and Transport and a third subsidiary to engage in non-union operations. It then merged Cartage and Transport into the holding company. Those companies ceased to exist. Shortly thereafter, the holding company contributed selected assets and liabilities of the former subsidiaries into the newly formed union-trucking subsidiaries. The stock in the new subsidiaries was sold the following year to U.S. Truck, a company controlled by members of the same family. The new companies did not do well and U.S. Truck was liquidated within a few years. DIBC still had union agreements and contributed to the defendant's pension fund until 1997. Under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), an employer withdrawing from a multi-employer pension plan must pay a "withdrawal liability," a proportionate share of the plans underfunded, vested benefits. A complex formula for calculating the withdrawal liability is based for the most part on an employer's history of contributions. Here, defendant assessed in excess of $14 million in withdrawal liability against CenTra, including in its calculations the contribution history of Cartage and Transport, the two subsidiaries that ceased to exist in 1995. CenTra challenged the assessment in arbitration and was successful in getting it reduced to under $1 million. The district court reinstated the assessment. CenTra appeals.
In their opinion, Judges Cudahy, Ripple and Wood affirmed. The Court examined the re-organization process one step at a time to determine the effect on the company's withdrawal liability under the MPPAA. The first step, the merger of Cartage and Transport into CenTra, resulted in CenTra inheriting the contribution histories of those subsidiaries. In the second step, CenTra transferred selected assets and liabilities of the former subsidiaries into the new subsidiaries. The Court concluded that this transaction did not meet the statute's specific safe-harbor requirements for transferring the contribution histories from CenTra into the new subsidiaries. The assets and liabilities of the old subsidiaries were not transferred intact into the new subsidiaries, but were transferred piecemeal at the discretion of CenTra. The district court was correct in concluding that the calculation of the withdrawal liability of CenTra included the contribution history of Cartage and Transport.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select