Hop Energy, L.L.C. v. Local 553 Pension Fund

Filing

OPINION, affirming the judgment of the district court, by DJ, RCW, SULLIVAN, FILED.[597958] [10-3889]

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10-3889-cv
HOP Energy, L.L.C. v. Local 553 Pension Fund

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UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

August Term, 2011
(Argued: October 21, 2011

Decided: May 3, 2012)

Docket No. 10-3889-cv

HOP ENERGY, L.L.C.,
Plaintiff-Appellant,
-v.LOCAL 553 PENSION FUND,
Defendant-Appellee.

Before:
JACOBS, Chief Judge, WESLEY, Circuit Judge,
and SULLIVAN, District Judge.*
Appeal from a judgment of the United States District
Court for the Southern District of New York (Koeltl, J.),
which confirmed an arbitration award in favor of Local 553
Pension Fund. The district court held that HOP Energy was
not exempt from withdrawal liability under the MultiEmployer Pension Plan Amendments Act (“MPPAA”) because the
purchaser of HOP’s New York City operating division lacked
an obligation to contribute “substantially the same number
of contribution base units” to the pension fund post-sale as

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The Honorable Richard J. Sullivan, of the United States
District Court for the Southern District of New York, sitting by
designation.

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HOP had contributed pre-sale. We agree. Here, the
“contribution base units” were hours of employee pay.
Although the purchaser of HOP’s New York City operating
division had an obligation to contribute to the pension fund
at the same contribution base unit rate, it had no
obligation to contribute substantially the same number of
hours of employee pay. Therefore, HOP is not exempt from
withdrawal liability.
Chief Judge Jacobs dissents by separate opinion.
AFFIRMED.
LINDA L. MORKAN (Frank F. Coulom, Jr., on the brief),
Robinson & Cole LLP, Hartford, CT, for PlaintiffAppellant.
EUGENE S. FRIEDMAN (William K. Wolf, Anusha Rasalingam,
Cristina E. Gallo, on the brief), Friedman & Wolf,
New York, NY, for Defendant-Appellee.
ERIC FIELD, Assistant Chief Counsel (Israel Goldowitz,
Chief Counsel, Karen L. Morris, Deputy Chief
Counsel, Beth A. Bangert & Richard Luna,
Attorneys, on the brief), Pension Benefit Guaranty
Corporation, Washington, D.C., for Amicus Curiae
Pension Benefit Guaranty Corporation.

WESLEY, Circuit Judge:
I.
Plaintiff-Appellant HOP Energy, L.L.C. (“HOP”) delivers

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fuel oil and provides heating services to homes and

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businesses in Massachusetts, Connecticut, Rhode Island, New

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Jersey, Pennsylvania, and Delaware through independent

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operating divisions.

Prior to May 12, 2007, it serviced New
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York City customers through its Madison Oil (“Madison”)

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operating division.

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signed the Teamsters Local 553 2004-07 Master Collective

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Bargaining Agreement (the “2004-07 Master CBA”).

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2007, HOP sold 100% of Madison’s operating assets to

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Approved Oil Company (“Approved”), also a signatory to the

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2004-07 Master CBA.

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Madison was a “union shop” and had

On May 12,

Teamsters Local 553 has a multi-employer pension fund

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under the Employee Retirement Income Security Act (“ERISA”).

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The 2004-07 Master CBA based signatory contributions on the

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number of hours respective employees worked.

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To effectuate Madison’s sale, HOP and Approved entered
into an Asset Purchase Agreement (“APA”).

The APA provided:

[Approved] shall make contributions to the Local
553 Pension Fund (the “Teamsters Fund”) for
substantially the same number of contribution base
units for which [HOP] had an obligation to
contribute with respect to the operations covered by
the Teamsters Fund.
Notwithstanding the previous
sentence and except as otherwise provided in Section
12.1, nothing in this Section shall impair or limit
the Purchaser’s right to discharge, lay off, or hire
employees or otherwise to manage the operations of
the Business, including the right to amend, revise
or terminate any collective bargaining agreement
currently in effect and, as a consequence, reduce to
any extent the number of contribution base units
with respect to which [Approved] has an obligation
to contribute to any plan.
(emphasis added).
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Following the sale, HOP ceased operations in New York

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City and also ceased contributing to the Local 553 Pension

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Fund.

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for $1,204,007.

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assessment, claiming that the sale was exempt from

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withdrawal liability because the Madison sale satisfied 29

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U.S.C. § 1384(a)(1) as a bona fide asset sale.

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upheld its assessment, and HOP commenced an arbitration to

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challenge its liability.

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The fund’s sponsor assessed HOP withdrawal liability
HOP asked the fund to reconsider the

The fund

Prior to the arbitration, HOP and Local 553 stipulated

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that the asset sale satisfied §§ 1384(a)(1)(B) (bond

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requirement) and 1384(a)(1)(C) (requirement that the seller

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remain secondarily liable for five years after the sale).

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Therefore, the only issue for the arbitrator was whether

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Approved had a post-sale obligation to contribute

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“substantially the same number of contribution base units”

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as HOP.

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concluded that the sale did not satisfy § 1384(a)(1)(A)

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because the APA specifically disclaimed the purported

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contribution obligation.

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timely appealed.

29 U.S.C. § 1384(a)(1)(A).

The arbitrator

The district court agreed; HOP

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II.

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We have yet to decide the standard of review for an

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arbitrator’s finding that a party does not qualify for an

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exemption from withdrawal liability under 29 U.S.C.

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§ 1384(a)(1).

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Guaranty Corporation1 (“PBGC”) argue for “clear error”

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review, while HOP argues for de novo review.

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presented is inherently a question of law as it requires

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review of contract language juxtaposed to a statutory

Local 553 and amicus curiae Pension Benefit

The question

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obligation.

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standard of review to be de novo; we agree.

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Andrew Weir Shipping, Ltd., 27 F.3d 800, 804-05 (2d Cir.

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1994) (cataloging other cases and presuming, but not

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deciding, that the standard of review was de novo).

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Other courts of appeals have found the proper
See Bowers v.

III.

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To qualify for the sale of assets exemption from

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withdrawal liability, a purchaser must have substantially

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the same post-sale “obligation to contribute” to the pension
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PBGC is the federal government agency responsible for
administering and enforcing Title IV of ERISA, including the
provisions added by the Multi-Employer Pension Plan Amendments
Act (“MPPAA”). It often appears as amicus curiae in cases
involving MPPAA issues and its views on such issues are entitled
to deference. Beck v. PACE Int’l Union, 551 U.S. 96, 104 (2007).
On December 15, 2011, PBGC responded to our invitation to the
United States government to provide its views on certain issues.

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fund as the seller had pre-sale.

29 U.S.C. § 1384(a)(1)(A).

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The MPPAA defines an “obligation to contribute” as one

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arising “(1) under one or more collective bargaining (or

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related) agreements, or (2) as a result of a duty under

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applicable labor-management relations law.”

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§ 1392(a).

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with respect to which an employer has an obligation to

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contribute under a multiemployer plan.”

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§ 1301(a)(11).

29 U.S.C.

It defines a “contribution base unit” as “a unit

29 U.S.C.

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Before HOP sold Madison to Approved, it had a year-to-

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year ongoing ERISA obligation to maintain a threshold level

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of contribution base units.

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base units by 70%, or partially ceased its contributions in

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a given year, it would have been subject to partial

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withdrawal liability.

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went out of business or terminated Madison’s operations, it

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would have been subject to complete withdrawal liability.

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29 U.S.C. § 1383.

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contribution obligation constant to maintain the financial

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stability of the fund; a sale of assets is only exempt from

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withdrawal liability if the purchaser assumes substantially

If HOP reduced its contribution

29 U.S.C. § 1385.

If it permanently

The MPPAA seeks to keep this pre-sale

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the same “obligation to contribute” as the seller had pre-

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sale.2

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Here, the “contribution base unit” was hours of

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employee pay.

The 2004-07 Master CBA obligated HOP to

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contribute to the pension fund based on the hours of pay its

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Madison employees worked.

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1392(a).

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ongoing ERISA obligation to maintain a threshold level of

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hours of employee pay.

See 29 U.S.C. §§ 1301(a)(11),

Thus, before the sale, HOP had a year-to-year

Therefore, for HOP to qualify for

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the sale of assets exemption, Approved had to assume

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substantially the same obligation: Approved had to have an

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obligation to contribute substantially the same hours of

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employee pay as HOP had contributed pre-sale.

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HOP argues that Approved had the requisite contribution

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obligation because Approved simply “stepped into HOP’s

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shoes.”

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contributed for a Madison employee’s “hour of pay,” Approved

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would now have an identical contribution obligation.

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problem with HOP’s argument, however, is that it conflates

According to HOP, where HOP previously had

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The

The purpose of withdrawal liability "is to relieve the
funding burden on remaining employers and to eliminate the
incentive to pull out of a plan which would result if liability
were imposed only on a mass withdrawal by all employers." Park
S. Hotel Corp. v. N.Y. Hotel Trades Council, 851 F.2d 578, 580
(2d Cir. 1988).

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two distinct terms: (1) contribution base units and (2)

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contribution base unit rates.

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Approved had an obligation to contribute to the fund at the

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same rate.

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Approved had no obligation to maintain substantially the

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same number of “hours of pay.”

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qualify HOP for an exemption from withdrawal liability.

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HOP’s argument is that

We agree that Approved had this obligation.

But

Therefore, the sale did not

Other sections of the statute support our view that
“contribution base unit” and “contribution base unit rate”

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are distinct.

For instance, when a plan assesses

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withdrawal liability, it must calculate the annual

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withdrawal liability payment, which, in pertinent part, is

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the product of “the average annual number of contribution

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base units” and the “highest contribution rate at which the

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employer had an obligation to contribute.”

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§ 1399(c)(1)(C)(i) (emphases added).

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and as mentioned earlier, the MPPAA explains that an

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employer partially withdraws from a plan and is subject to

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partial withdrawal liability when its contributions decline

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by at least 70% measured by comparing the number of

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contribution base units from year-to-year.

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§ 1385(b).

29 U.S.C.

In another section,

29 U.S.C.

Under each of these sections, one looks at the

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“number of hours of pay” as the “contribution base unit.”

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“[W]e read statutes as a whole, with no section interpreted

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in isolation from the context of the whole Act.”

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States v. Al Kassar, 660 F.3d 108, 124 (2d Cir. 2011)

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(internal quotation marks omitted).

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United

It is clear from the sale agreement that Approved had

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no “obligation to contribute” substantially the same number

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of hours of pay as HOP had contributed pre-sale.

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the APA specifically disclaimed any such obligation.

For one,
In

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addition, HOP offers no language in the 2004-07 Master CBA,

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any other collective bargaining agreement, or any

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applicable labor management relations law that obligated

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Approved to contribute substantially the same number of

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hours of pay as HOP had contributed pre-sale.3

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U.S.C. § 1392(a).

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As the arbitrator explained:

Nothing in the union-employer agreements in the
record [those between Local 553 and Approved]
require[d] Approved, in respect to the operations of
HOP, which for all practical purposes was the same
as Approved’s, to keep a certain number of
employees, whether from Approved’s ranks or HOP’s,
on the payroll to achieve a contribution base unit

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For instance, as part of the sale, Approved could have
entered a stand alone collective bargaining agreement with Local
553 obligating it to ensure substantially the same number of
hours of pay as HOP had provided pre-sale. See Cent. States, Se.
& Sw. Areas Health & Welfare Fund v. Cullum Co., Inc., 973 F.2d
1333, 1338 (7th Cir. 1992).

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level that would remain substantially the same as
HOP’s pre-sale.

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We agree with the district court that Approved lacked an

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“obligation to contribute . . . substantially the same

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number of contribution base units” to the pension fund as

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HOP had contributed pre-sale.

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Finally, it makes no difference that Approved might

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actually have contributed to the plan based on

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substantially the same number of hours of pay as HOP had

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contributed pre-sale.

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the purchaser’s obligation at the time the sale closes and

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not what happens after the fact.

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Areas Health & Welfare Fund, 973 F.2d at 1338.

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Section 1384(a)(1)(A) focuses on

Cent. States, Se. & Sw.

IV.
HOP next argues that the arbitrator erred by excluding

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extrinsic evidence about its intent when entering the APA.

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New York law governs the APA.

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must give full effect to unambiguous contract terms.

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Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569

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(2002).

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terms of a facially unambiguous contract.

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Assocs. v. Paul, 66 N.Y.2d 570, 572 (1986).

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unambiguous contracts, a party’s subjective intent and

Under New York law, a court

Extrinsic evidence cannot be used to vary the

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See Chimart
With

See

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understanding of the terms is irrelevant.

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under the MPPAA, it is the arbitrator who determines

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whether a contract is ambiguous.

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Co. v. Milwaukee Brewery Worker’s Pension Plan, 3 F.3d 994,

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999 (7th Cir. 1993).

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contract unambiguous.

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Additionally,

Joseph Schlitz Brewing

Here, the arbitrator found the
This was not error.
V.

The dissent presses for reversal because, it asserts,
the majority opinion views the purchaser’s obligation to

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contribute as ongoing and, apparently, perpetual.

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Dissenting Op. at 3-4.

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duration of the buyer’s obligation to contribute was

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neither raised by the parties nor decided by this majority

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opinion.

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at the time of sale, Approved had substantially the same

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obligation to contribute as HOP.

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Approved did not.

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But, as the dissent recognizes, the

The sole issue presented for review was whether,

We think it clear

Our dissenting brother fears that our decision can be

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read to imply an “obligation to maintain historical

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contribution levels into the future.”

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We see no reason to decide an issue out of fear that some

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will misunderstand our efforts here when the parties never

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raised the issue.
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Dissenting Op. at 8.

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Simply put, 29 U.S.C. § 1384(a)(1)(A) does not address

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the duration of the purchaser's obligation to contribute.

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It asks only whether the purchaser had the same obligation

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to contribute as the seller at the time of sale.

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plain language of the statute impairs the ability of an

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employer to sell its business (we are not sure it does), as

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our dissenting brother fears, the problem lies with the

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statute and not this Court.

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Judges are not statutory fix-it-folk.

If the

No one,

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including our dissenting brother, has argued that the

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statute imposes an absurd result.

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Laundry Mach. Co., 490 U.S. 504, 527 (1989) (Scalia, J.,

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concurring).

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raises an issue of concern, we do not feel called upon to

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address it.4

See Green v. Bock

While we do not dispute that the dissent

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CONCLUSION

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HOP has not demonstrated that Approved was obligated

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to contribute substantially the same number of

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“contribution base units” (hours of pay) as HOP had

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contributed pre-sale.

The arbitrator did not err by

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It does strike us as odd that, notwithstanding the
dissent’s plausible concern that the statute affects the
alienability of businesses that are subject to the type of
retirement plans at issue here, there is a dearth of cases
dealing with this issue.

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excluding extrinsic evidence of the parties’ intent when

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entering the transaction because the APA was unambiguous.

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We therefore AFFIRM the district court’s judgment.

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AFFIRMED.

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