Central States, Southeast and Southwest Areas Pension Fund et al v. Dworkin, Inc. et al
Filing
41
MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, the Defendants' motion 15 to dismiss or in the alternative to stay is denied. In addition, because the Defendants were instructed to a ddress why judgment should not be entered if they lost the motion, and they offered no reason, judgment is entered in favor of the Pension Fund and against the Defendants in the amount of $7,722,361.20 in withdrawal liability. A separate AO-450 judgment shall be entered. Post-judgment interest shall apply. The status hearing of 09/11/2020 is vacated. Civil case terminated. Emailed notice (mw, )
Case: 1:19-cv-06716 Document #: 41 Filed: 09/08/20 Page 1 of 14 PageID #:296
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CENTRAL STATES, SOUTHEAST AND
SOUTHWEST AREAS PENSION FUND,
et al.,
Plaintiffs,
v.
DWORKIN, INC., et al.,
Defendants.
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No. 19 C 06716
Judge Edmond E. Chang
MEMORANDUM OPINION AND ORDER
The Central States Pension Fund alleges that a group of related companies
owes withdrawal liability to the Fund under the Employee Retirement Income
Security Act, 29 U.S.C. § 1001 et seq.1 The lead defendant is Dworkin, Inc., which
apparently was a trucking company. Dworkin was the primary owner of Triumph
Trucking of Cleveland, Inc. (call it Cleveland for convenience’s sake), which in turn
was the sole owner of Triumph Trucking of Newburgh, Ltd. (referred to as Newburgh
in this Opinion). The Defendants moved to dismiss under Federal Rule of Civil
Procedure 12(b)(3), arguing that this Court is the improper venue for their dispute
because the parties are already in the midst of mandatory arbitration over the
amount and payment timeline of the withdrawal liability. R. 16, Defs.’ Mot. Dismiss
1The
Court has federal-question subject matter jurisdiction over this action under 29
U.S.C. § 1451(c) and 28 U.S.C. § 1331.
1
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at 1.2 In light of the nature of the dispute—enforcement of the “pay now, dispute
later” provision of ERISA, the Court also instructed the parties to brief whether
denial of the dismissal motion necessarily meant that the Pension Fund is entitled to
judgment. R. 23. For the reasons discussed below, the motion to dismiss or to stay is
denied, and instead judgment is entered in favor of the Pension Fund.
I. Background
For purposes of a motion to dismiss on improper-venue grounds, the Court
accepts as true the allegations in the complaint unless the defense offers evidence to
the contrary. Faulkenberg v. CB Tax Franchise Systems, LP, 637 F.3d 801, 806 (7th
Cir. 2011). Dworkin and Newburgh were trucking companies that participated in the
multi-employer Pension Fund, obligating them to contribute to the Fund pursuant
collective bargaining agreements with certain local unions. Compl. ¶¶ 4, 16. Dworkin
owned at least 80% of the total voting shares of Triumph of Cleveland. Id. ¶ 12. In
turn, Cleveland collectively owned at least 80% of the membership interest of
Newburgh. Id. ¶ 13. Dworkin, Cleveland, and Newburgh thus qualified as a group of
businesses under common control, which the parties refer to as the “Dworkin
Controlled Group.” Id. ¶ 14.3
2 Citations
to the docket are indicated by “R.” followed by the docket number and,
where necessary, a page or paragraph citation.
3 The membership of the “Dworkin Controlled Group”—which is relevant to the
question of whether the withdrawal liability may appropriately be accelerated—is one of the
topics of the ongoing arbitration. R. 16-2, Defs.’ Mot. Dismiss, Exh. 2, Req. for Arb. at 5. But
in an October 12, 2017 letter to the Pension Fund, Dworkin and Newburgh affirmed that “the
Dworkin/Triumph controlled group also includes Cleveland as well as Dworkin and
Triumph.” Mot. Dismiss, Exh. 2 (Oct. Letter) at 1 n.1. In the briefing in this case, the defense
did not rebut this characterization. Given the parties’ apparent agreement, the Court will
2
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In late February 2017, both Dworkin and Newburgh “permanently ceased to
have an obligation to contribute to the Pension Fund and/or permanently ceased all
covered operations, thereby effecting a ‘complete withdrawal’ from the Pension
Fund.” Id. ¶ 17. As a result of the withdrawal, the Pension Fund sent a letter to
Dworkin and Newburgh in June 2017, notifying the companies that it believed that
they had withdrawn from the Fund and requesting completion of a “Statement of
Business Affairs.” R. 28-1, Defs.’ Reply, Ex. 1, June 2017 Letter. In July 2017, the
Pension Fund demanded that the Defendants pay withdrawal liability of
$6,525,802.79, due in full on August 1, 2017. Compl. ¶ 19. The Pension Fund invoked
an ERISA provision, 29 U.S.C. § 1399(c)(5)(B), to demand immediate payment when
it is substantially likely that an employer will be unable to pay its withdrawal
liability in installments. Id.
In October 2017, the Defendants responded and asked for a review of the
withdrawal liability, invoking an ERSIA liability-review provision, 29 U.S.C.
§ 1399(b)(2)(A). Id. ¶ 21. The next month, the Pension Fund rejected the request for
review and repeated its demand for full payment of the liability—by then revised
upward to $7,722,361.20—pursuant to the immediate-payment provision. Id. ¶¶ 20,
22. In January 2018, Dworkin and Newburgh initiated arbitration under ERISA, 29
U.S.C. § 1401(a), to determine (1) which entities would be deemed part of the
controlled group (and therefore could be responsible for withdrawal liability); and (2)
treat as established the fact that Dworkin, Triumph, and Cleveland together constitute the
“Dworkin Controlled Group.”
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whether the 20-year payment schedule permitted under 29 U.S.C. § 1399(c)(1)(B)
should apply to the controlled group. Id. at ¶ 23; Req. for Arb. at 5.
In the meantime, the Defendants have made no withdrawal liability payments,
so the Pension Fund brought this lawsuit seeking to collect. Compl. at ¶¶ 1, 25. The
Defendants now move to dismiss, arguing that this Court is the improper venue for
resolving the collection dispute because it is already pending before the American
Arbitration Association. Defs.’ Mot. Dismiss at 3.4 In the alternative, the Defendants
seek to stay this litigation pending resolution of the arbitration. Id.
II. Standard of Review
A motion to dismiss for improper venue under Rule 12(b)(3) is the appropriate
procedural vehicle to invoke when a litigant seeks to dismiss a lawsuit based on an
arbitration clause. Faulkenberg v. CB Tax Franchise Systems, LP, 637 F.3d 801, 808
(7th Cir. 2011). “Although the Federal Arbitration Act favors resolution of disputes
through arbitration, its provisions are not to be construed so broadly as to include
claims that were never intended for arbitration.” American United Logistics, Inc. v.
Catellus Dev. Corp., 319 F.3d 921, 929 (7th Cir. 2003). Whether the parties have
agreed to arbitrate “is a question normally answered by the court rather than by the
arbitrator.” Continental Cas. Co. v. American Nat. Ins. Co., 417 F.3d 727, 730 (7th
Cir. 2005). But mindful of the “liberal federal policy” favoring arbitration, “any doubts
concerning the scope of arbitrable issues should be resolved in favor of arbitration
….” Id. at 730-31.
4The
parties’ ongoing arbitration is captioned Dworkin, Inc., et al. v. Central States,
Southeast and Southwest Areas Pension Fund, AAA Case No. 01-18-0000-2189.
4
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Under Rule 12(b)(3), the Court must assume the truth of the plaintiff’s factual
allegations (unless the defense offers evidence to the contrary) and draw reasonable
inferences in the plaintiff’s favor. Faulkenberg, 637 F.3d. at 806. The Court is not
limited to consideration of the pleadings when ruling on a motion to dismiss for
improper venue, though, and if there is a dispute over the factual allegations, then
the Court may consider evidence submitted with the motion without converting it to
a summary judgment motion. Id. at 809-10.
III. Analysis
This dispute over withdrawal liability arises under ERISA, 29 U.S.C. §§ 1001,
et seq., and specifically as amended by the Multiemployer Pension Plan Amendments
Act of 1980 (MPPAA), 29 U.S.C. § 1301-1461. Under ERISA, a multi-employer
pension plan “is created when various employers agree to make contributions to a
common pension fund on behalf of their respective employees.” Cent. States Se. & Sw.
Areas Pension Fund v. O’Neill Bros. Transfer & Storage Co., 620 F.3d 766, 767 (7th
Cir. 2010). Congress later enacted the MPPAA “to address the risk of insolvency that
arises when an employer withdraws from a [multi-employer] pension plan.” Nat’l
Shopmen Pension Fund v. DISA Indus., Inc., 653 F.3d 573, 757 (7th Cir. 2011). The
MPPAA “discourages withdrawal and protects the solvency of multiemployer pension
plans by making an employer that withdraws from the plan liable for an amount of
money designed to cover the employees’ share of the vested, but not unfunded,
5
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benefits,” id. (cleaned up);5 in other words, it creates “a substitute for the annual
payments that an employer would have made had [it] not withdrawn,” Cent. States,
Se. & Sw. Areas Pension Fund v. Basic Am. Indus., 252 F.3d 911, 918 (7th Cir. 2001).
The statute provides formulas for calculating the amount and the installmentpayment schedule of withdrawal payments, 29 U.S.C. §§ 1391, 1399(c), and the plan
sponsor must notify an employer as soon as practicable of the amount of the liability
and the payment schedule that the plan has set. 29 U.S.C. § 1399(b). An employer
“may seek review of [the plan sponsor’s] calculations and then challenge the plan’s
determination in arbitration.” O’Neill, 620 F.3d at 768 (citing 29 U.S.C. §§ 1399(c),
1401(d)). If the employer is found to have overpaid, then its overpayments are
returned. 29 U.S.C. § 1401(d).
Here, the Defendants argue that the Pension Fund’s effort to collect
withdrawal liability is “premature and improper” because the parties are currently
engaged, pursuant to 29 U.S.C. § 1401, in mandatory arbitration over the amount
and the installment schedule. Defs.’ Mot. Dismiss at 1. Under the statute, it argues,
“any dispute between an employer and the plan sponsor of a multiemployer plan
concerning a determination made under sections 1381 through 1399 of this title shall
be resolved through arbitration.” 29 U.S.C.A. § 1401 (emphasis added); see also
Robbins v. Chipman Trucking, Inc., 866 F.2d 899, 902 (7th Cir. 1988) (“Any dispute
over withdrawal liability … shall be arbitrated.” (emphases in original)). So disputes
5This
Opinion uses (cleaned up) to indicate that internal quotation marks, alterations,
and citations have been omitted from quotations. See Jack Metzler, Cleaning Up Quotations,
18 Journal of Appellate Practice and Process 143 (2017).
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over the amount and the installment schedule of liability payments—which fall
within ERISA Section 4219—must be arbitrated. Moreover the Pension Fund’s own
plan rules provide that “[a]ny dispute concerning … the amount and/or payment of
any withdrawal liability” shall be resolved first through a review by the Fund and,
thereafter, by arbitration. Defs.’ Mot. Dismiss, Exh. 1, Pension Plan App’x E at 12627.
That is all true—as far as it goes. Yes, the amount of withdrawal liability and
the payment schedule ultimately will be determined via arbitration. But that does
not impact the Pension Fund’s ability to collect withdrawal liability in the meantime.
To keep pension funds solvent, ERISA establishes a “pay now, dispute later”
collection framework under which “withdrawal liability is ordinarily payable during
the pendency of arbitration.” O’Neill, 620 F.3d at 772 (emphasis added). To effectuate
that collection framework, ERISA instructs: “Withdrawal liability shall be payable in
accordance with the schedule set forth [by the plan sponsors] … notwithstanding any
request for review or appeal of determinations of the amount of such liability or of
the schedule.” 29 U.S.C. § 1399(c)(2) (emphasis added). Similarly, in the ERISA
provision that creates the arbitration scheme, again pay-now, dispute-later is
established: “Payments shall be made by an employer in accordance with the
determinations made under this part until the arbitrator issues a final decision ….”
29 U.S.C. § 1401(d) (emphasis added).
This “pay now, dispute later” system is especially relevant where, as here, a
plan sponsor finds that an employer is in “default” as defined by ERISA. If there is a
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default for ERISA purposes, then pension plans may demand immediate payment of
the outstanding amount of the withdrawal liability. O’Neill, 620 F.3d at 768. ERISA
deems an employer in “default” in two ways: (1) if an employer fails “to make, when
due, any payment under [29 U.S.C. § 1399], [and] if the failure is not cured within 60
days after the employer receives written notification from the plan sponsor of such
failure,” and (2) if there occurs “any other event defined in the rules adopted by the
plan which indicates a substantial likelihood that an employer will be unable to pay
its withdrawal liability.” 29 U.S.C. § 1399(c)(5). The first type of default is a “missed
payment default”; the second is an “insecurity default.” O’Neill, 620 F.3d at 774 n.8.
An “insecurity default” calls into question an employer’s ability to make future
payments, so when a plan sponsor determines that an employer has incurred an
insecurity default, then “the entire amount of the withdrawal payment is
immediately payable upon default and that obligation is not deferred because of the
pendency of arbitration.” O’Neill, 620 F.3d at 775.
Here, the Pension Fund accelerated the withdrawal liability payment schedule
because it determined that Dworkin’s and Newburgh’s cessation of operations
constituted an insecurity default. Under 29 U.S.C. § 1399(c)(5), pension plans may
define what type of “event” qualifies as an insecurity default so long as the event
“indicates a substantial likelihood that an employer will be unable to pay its
withdrawal liability.” § 1399(c)(5). Here, the Pension Fund’s rules define a default to
include, among other things: “(A) the Employer’s insolvency ... (E) the cessation of all
or substantially all of an Employer’s operations, or the liquidation of all or
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substantially of an Employer’s assets … or (G) any other event or circumstance which
in the judgment of the Trustees materially impairs the Employer’s credit worthiness
or the Employer’s ability to pay its withdrawal liability when due.” Pension Plan
App’x E, Sections 5(e)(2)(A), (E), and (G). In the July 2017 letter, the Pension Fund
put Dworkin and Newburgh on notice that the companies’ cessation of operations met
the Section 5(e)(2)(E) criteria because “[i]n light of the shutdown of Dworkin, Inc. and
Triumph Trucking of Newburgh, LTD, the Pension Plan believes that there is a
substantial likelihood that the employer will be unable to pay its withdrawal
liability.” Defs.’ Mot. Dismiss, Exh. 2 at 17 (July Letter). A few months later, in the
November 2017 letter, the Pension Fund again cited the cessation of operations, and
this time added the Defendants’ insolvency: “[b]ased on the fact the Dworkin
Controlled Group claims it is insolvent as well as the fact Dworkin and Triumph
ceased operations, the Pension Fund acted in accordance with … Appendix E,
Sections 5(e)(2)(E) and 5(e)(2)(A) by demanding immediate payment of the 2017
complete withdrawal liability assessment.” Id. at 45 (Oct. Letter). Those
circumstances—the cessation of operations and the Defendants’ insolvency—
qualified as insecurity defaults under 29 U.S.C. § 1399(c)(5), thus providing the
Pension Fund with the legal authority to demand full and immediate payment of the
withdrawal liability instead of having to resort to a 20-year installment schedule.
In response, Dworkin and Newburgh challenge the validity of the Pension
Fund’s insecurity-default determinations. Mot. Dismiss at 6; R. 28, Defs.’ Reply at 26. According to the Defendants, the membership of the Dworkin Controlled Group—
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the “employer” under ERISA that is responsible for paying the withdrawal liability
to the Pension Fund 6 —is itself contested; therefore, without first confirming the
membership of the controlled group, the Pension Fund could not possibly evaluate
the group’s solvency for purposes of establishing an insecurity default. Defs.’ Reply
at 2-6.
But the Defendants offer no valid reason to dispute that the membership of the
Dworkin Controlled Group comprises Dworkin, Newburgh, and Cleveland. Indeed, in
the October 12, 2017 letter written by the law firm that is still representing the
Defendants (Hahn Loeser & Parks LLP), the Defendants outright conceded that “the
Dworkin/Triumph controlled group also includes Cleveland as well as Dworkin and
Triumph” and that it “does not include any of the Other Companies.” Defs.’ Mot.
Dismiss, Exh. 2 at 1 n.1, 4. Nowhere in the briefing do the Defendants offer any
reason to doubt that concession. See R. 16, 28. At least in this case, there simply is no
open question on the membership of the controlled group that would undermine the
Pension Fund’s assessment of an insecurity default.
6Section
1381(a) of Title 29 provides that an “employer” that withdraws from a multiemployer pension plan either fully or partially is liable to the plan for withdrawal liability. If
the withdrawing employer cannot pay the amount in full, then the plan may recover from
“trades or businesses” under “common control” with the withdrawing employer. 29 U.S.C.
§ 1301(b)(1) (“For purposes of this subchapter … all employees of trades or businesses
(whether or not incorporated) which are under common control shall be treated as employed
by a single employer and all such trades and businesses as a single employer.”) Those other
trades or businesses, in addition to the withdrawing employer, are deemed a “controlled
group” under the MPPAA and thus are jointly and severally liable for the withdrawal liability
incurred by any one group member. Central States, Se. and Sw. Areas Pension Fund v. Koder,
969 F.2d 451, 452 (7th Cir. 1992).
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It is possible that Dworkin and Newburgh are relying on the fact that the
Pension Fund’s July and November letters referred to Dworkin and Newburgh—but
not Cleveland—as part of the Dworkin Controlled Group. Defs.’ Mot. Dismiss, Exh. 2
at 16 (July Letter), at 44 (Oct. Letter). But that too does not matter. The controlledgroup provision of the MPPAA allows a pension plan “to deal exclusively with the
defaulting employer[s] known to the fund, while at the same time assuring itself that
legal withdrawal remedies can be maintained against all related entities in the
control group.” Chi. Truck Drivers, Helpers & Warehouse Workers Union (Indep.)
Pension Fund v. El Paso CGP Co., 525 F.3d 591, 595-6 (7th Cir. 2001). So the Pension
Fund had no obligation to directly address Cleveland, which was not a direct party to
the pension plan. All that the Pension Fund needed to do to declare an insecurity
default was identify the circumstances creating a “substantial likelihood” that the
Dworkin Controlled Group would be unable to pay the withdrawal liability. 29 U.S.C.
§ 1399(c)(5); App’x E, Section 5(e)(2). Even with Cleveland in the mix, Dworkin’s and
Newburgh’s cessation of operations and insolvency would have been more than
enough to trigger a “substantial likelihood” of non-payment for the group, especially
where—by Dworkin’s and Triumph’s own representations—Cleveland’s “sole asset”
was a worthless “100% membership interest in Triumph of Newburgh,” which itself
was insolvent. Defs.’ Mot. Dismiss, Exh. 2 (Oct. Letter) at 1 n.1. So with or without
Cleveland, there were ample grounds for the Pension Fund’s declaration of an
insecurity default, and the withdrawal payment schedule thus was permissibly
accelerated.
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It is true that the “pay now, dispute later” mechanism under the MPPAA is not
absolute. There is an exception. Central States, Southeast and Southwest Areas
Pension Fund. v. Bomar Nat., Inc., 253 F.3d 1011, 1015-19 (7th Cir. 2001). Federal
courts may excuse interim withdrawal payments pending arbitration “if the employer
can show both that the pension fund lacks a colorable claim and that the employer
will suffer severe financial hardship if compelled to make interim payments.” Id. at
1016. To avoid interim liability, an “employer must establish 1) that the pension
fund’s claim is frivolous and 2) that imposing interim liability would cause
irreparable harm.” Id. at 1019. “Frivolous” for these purposes has historically been
satisfied by a showing that a withdrawal liability assessment was “undisputably
premature.” Id. (citing Cent. States. Se. & Sw. Areas Pension Fund v. Hunt Truck
Lines, Inc., 204 F.3d 736 (7th Cir. 2000)). Not surprisingly, this “is a difficult standard
to meet, and it is meant to be that way.” Id. at 1019.
The Defendants have failed to develop any argument that the Pension Fund’s
declaration was frivolous. Nor can the Court discern one on the record: there is no
reason to think that the Pension Fund’s assessment of withdrawal liability was
“undisputably premature.” Dworkin and Newburgh ceased operations and thereby
withdrew from the fund in February 2017, whereas the Pension Fund’s first notice of
withdrawal liability was dated July 14, 2017. Compl. at ¶¶ 17, 19; Defs.’ Mot.
Dismiss, Ex. 2 at 17. Even if the Defendants are still contesting in the arbitration
(they have not done so here) who is part of the Dworkin Controlled Group, that would
not tag the Pension Fund’s position as frivolous. Nor is there a problem with notice,
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because (as discussed earlier) the MPPAA permits pension funds to deal exclusively
with the defaulting employers known to the funds (here, Dworkin and Newburgh),
and any notice sent to one member of the group is considered constructive notice to
all. Chi. Truck Drivers, 525 F.3d at 595-96.
Even had Dworkin and Newburgh satisfied the first element of the “pay now,
dispute later” exception, they made no showing on the second: that imposing the
withdrawal liability would cause them to suffer “irreparable harm.” Bomar, 253 F.3d
at 1019. An assertion of irreparable harm must be supported by evidence, such as
affidavits or balance sheets. Trs. of Chi. Truck Drivers, Helpers & Warehouse Workers
Union (Indep.) Pension Fund v. Rentar Indus., Inc., 951 F.2d 152, 155 (7th Cir. 1991).
But the only evidence concerning financial stability here—Dworkin’s and Newburgh’s
October 12, 2017 representations that they were insolvent and had ceased
operations—would lead to the opposite conclusion, that is, no additional harm would
accrue from an accelerated payment schedule for already-insolvent companies. Defs.’
Mot. Dismiss, Ex. 2 (Oct. Letter) at 42. The Defendants have not made—indeed, did
not try to make—a showing that the exception to the “pay now, dispute later”
mechanism applies.
IV. Conclusion
For the reasons explained above, the Defendants’ motion to dismiss or in the
alternative to stay is denied. What’s more, because the Defendants were instructed
to address why judgment should not be entered if they lost the motion, and they
offered nothing, judgment is entered in favor of the Pension Fund and against the
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Defendants in the amount of $7,722,361.20 in withdrawal liability. Post-judgment
interest shall apply. The status hearing of September 11, 2020 is vacated.
ENTERED:
s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: September 8, 2020
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