AMERICAN ARBITRATION ASSOCIATION Multiemployer Pension Plan Withdrawal Liability Arbitration Tribunal

In the Matter of the Arbitration between AAA No. 51-621-0010-88V HOFFMAN MANAGEMENT CORPORATION, formerly d/b/a CHICAGO KANSAS CITY FREIGHT LINE, INC. and CHICAGO TRUCK DRIVERS, HELPERS AND WAREHOUSE WORKERS UNION (INDEPENDENT) PENSION FUND. __________________________________/

OPINION OF THE ARBITRATOR

May 15, 1989

Upon a Stipulated Record For the Company: GAGE & TUCKER R.F. Beagle Robert J. Harrop 2345 Grand Avenue P.O. Box 418200 Kansas City, Missouri 64141

For the Fund: JACOBS, BURNS, SUGARMAN & ORLOVE Joseph M. Burns 201 North Wells Street Suite 1900 Chicago, Illinois 60606

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STIPULATION OF FACTS 1. Hoffman Management Corporation ("Hoffman"), formerly known as Chicago Kansas City Freight Line, Inc. ("CKC"), was engaged in the motor freight industry pursuant to operating authority issued by the Interstate Commerce Commission in Docket No. MC-3005 and by the Illinois Commerce Commission in Docket No. 10636. 2. The Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund ("CTDU Pension Fund" or "Fund") is an employee pension benefit plan as defined by 29 USC §1002(2)(A). The Fund's plan year is from April 1 to March 31. 3. On March 13, 1981, Hoffman entered into an agreement of sale and purchase with Manley Truck Line, Inc. ("Manley") and Overland Enterprises, Inc. providing for the sale of its operating authority, name, good will, and customer accounts, and first the lease and then the sale of its rolling stock, and other assets. Exhibit A is a true and accurate copy of this agreement ("Sale Agreement") (including Appendices and Leases). COMMENT: The parties furnished the arbitrator with copies of their abstracts of the Sale Agreement, which they previously had filed with the District Court. See Stipulation #22, infra. 4. At the time of the sale, the Sale Agreement complied with the provisions of 29 USC §1384(a)(1)(A)-(C). 5. Hoffman represents and warrants that the sale of CKC was a bona fide, arm's-length sale of assets to unrelated parties. 6. At the time of the sale, Hoffman was subject to various collective bargaining agreements, including one with the Chicago Truck Drivers Union, which agreement required contributions to and participation in the CTDU Pension Fund. 7. On March 13, 1981, Hoffman notified its employees of the sale to Manley and advised that Hoffman would continue to operate until temporary ICC approval was granted. Exhibit B is a true and accurate copy of the communication provided to Hoffman's employees.

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8. On March 18, 1981, Hoffman advised the Chicago Truck Drivers Union that it had entered into a contract with Manley for the sale and that the purchaser would assume its obligations under the collective bargaining agreement. Exhibit C attached hereto is a true and accurate copy of the notice provided to Chicago Truck Drivers Union. 35. On March 18, 1981, Hoffman entered into two Agreements to sell its Kansas City terminal and the real estate owned by a related partnership for a total of $1,950,000.00. Hoffman represents that it was sold to an unrelated party in a bona fide, arm's-length sale. The Agreements to Sell are attached as Exhibits W and X. COMMENT: The parties' Stipulation #35 has been inserted in chronological order. 9. On March 31, 1981, Hoffman and Manley applied to the Interstate Commerce Commission for approval of the transfer of Hoffman's operating authority. Exhibit D attached hereto is a true and accurate copy of this application. 10. On April 8, 1981, the Interstate Commerce Commission granted temporary approval for Manley's operation under Hoffman's authority. Exhibit E is a true and accurate copy of the ICC's decision. 11. After March 13, 1981 and up to April 13, 1981, Hoffman continued to operate its trucking business. Hoffman continued to have an obligation to contribute to the Fund and did so contribute. Ownership of the assets remained with Hoffman, as did the company's obligations for insurance, taxes, etc. 12. On April 13, 1981, Manley took over Hoffman's operations in accordance with the terms of Exhibit A. 33. Hoffman contributed to the Plan in May, 1981 for its share of the monthly contributions required for work performed in April, 1981. Exhibit S is the monthly remittance report for Hoffman/CKC and Manley for April 1981; Exhibit T are copies of the checks issued by Hoffman/CKC and Manley for their April, 1981 contribution. ("Local 705" refers to the CTDU) COMMENT: The parties Stipulation #33 has been inserted in chronological order.

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36. Manley signed a collective bargaining agreement with the Chicago Truck Drivers Union on May 27, 1981, and became obligated to contribute to the CTDU Pension Fund. COMMENT: The parties' Stipulation #36 has been inserted in chronological order. 13. On July 13, 1981, the ICC granted permanent approval for Manley's operation under Hoffman's authority. Exhibit F is a true and accurate copy of the ICC's approval. 14. On July 20, 1981, Hoffman and Manley concluded the Sale Agreement and calculated, and Manley paid, the final purchase price of $1,334,222.31. A copy of the final closing statement is attached hereto as Exhibit G. 15. On November 20, 1981, Manley applied for, pursuant to 29 USC §1384(c), an exemption from the bond requirements of 29 USC §1384(a)(1)(B). Exhibit H is a true and accurate copy of this application. COMMENT: Exhibit BB is a letter dated February 16, 1982, to PBGC from the Central States, Southeast and Southwest Areas Pension Fund, opposing Manley's application. Exhibit Z is a letter dated February 19, 1982, to PBGC from counsel for the CTDU Pension Fund, adopting Central States' position. 16. On or about April 21, 1982, the CTDU Pension Fund notified Hoffman that according to its information, Hoffman had completely withdrawn from said Fund on March 31, 1981 and demanded payment of withdrawal liability in the amount of $387,820.00. Exhibit I is a true and accurate copy of this notification. 17. Review of the assessment and collection of the alleged withdrawal liability was deferred pending determination of Manley's request for an exemption from the §1384(a)(1)(B) requirement. COMMENT: Exhibit AA is a letter dated June 24, 1982, to counsel for the CTDU Pension Fund from Manley's counsel, confirming agreement to defer action on the Fund's demand for withdrawal liability from Hoffman, pending PBGC action on Manley's application. 18. On or about April 4, 1984, the Pension Benefit Guaranty Corporation ("PBGC"), over the objection of the Fund, granted Manley an exemption from

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the bond requirement of §1384(a)(1)(B). Exhibit J is a true and accurate copy of the PBGC's decision. 32. Manley's last contribution to the Fund was received on or about January 23, 1987 and represented partial payment of its October 1986 contribution. COMMENT: The parties' Stipulation #32 has been inserted in chronological order. 19. On or before February 25, 1987, Manley closed its Chicago area trucking operation. Manley filed for bankruptcy under Chapter 11 of the Bankruptcy Code on February 25, 1987. Manley's Chicago operations have not re-opened. On April 9, 1987, the Fund advised Manley of the Fund's position that Manley had completely withdrawn on February 25, 1987. The Fund calculated Manley's withdrawal liability to be $299,390.00. Exhibit K is a true copy of this notification. 20. On April 17, 1987, the CTDU Pension Fund advised Hoffman that it intended to hold Hoffman liable for its withdrawal liability as a result of Manley's alleged complete withdrawal. Exhibit L is a true and accurate copy of this notice. 21. On September 1, 1987, the CTDU Pension Fund advised Hoffman of Manley's failure to make its July 1, 1987 withdrawal payment and demanded that Hoffman commence its quarterly withdrawal payments effective September 15, 1987. Exhibit M is a true and accurate copy of this letter. 22. On September 22, 1987, CTDU Pension Fund filed suit against Hoffman in the United States District Court for the Northern District of Illinois, Case No. 87-C-8204. 23. On November 2, 1987, Hoffman, by its counsel, sent a letter to the Trustees of the Pension Fund. A copy of the letter is attached as Exhibit N. 24. On December 14, 1987, Hoffman, by its counsel, sent a letter to the Trustees of the Pension Fund. A copy of the letter is attached as Exhibit O. COMMENT: Exhibit Y is a letter dated December 22, 1987, to Hoffman's counsel from the Fund's counsel, responding to the numbered paragraphs of Exhibit N.

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25. On or about December 3, 1987, CTDU Pension Fund filed its motion to compel interim withdrawal liability payments. On or about January 10, 1988, Hoffman filed its motion for summary judgment. 26. On February 11, 1988, Hoffman, by its counsel, sent a letter to counsel for the Pension Fund. A copy of the letter is attached as Exhibit P. 27. On or about February 29, 1988, the CTDU Pension Fund advised Hoffman that the original determination of its withdrawal liability date as being on or before March 31, 1981 was withdrawn and the Fund issued a revised assessment based upon a withdrawal during the 1981-1982 plan year which began April 1, 1981. The assessment was for $380,822.00. This was the first occasion on which the Fund took the position that Hoffman's withdrawal had occurred after March 31, 1981. Exhibit Q is a true and accurate copy of the February 29, 1988 letter. 28. On or about August 5, 1988, the United States District Court entered its order granting the CTDU Pension Fund's motion to compel interim payments and ordering the parties to arbitrate the issues in this matter. A true and accurate copy of the Court's opinion is attached hereto as Exhibit R. 29. Hoffman filed a notice of demand for arbitration. The arbitrator has jurisdiction of all disputes, claims and defenses of and between the parties. COMMENT: Hoffman filed its Demand for Arbitration with the Kansas City office of the American Arbitration Association ("AAA") on April 26, 1988. Subsequently, the case was transferred to AAA's Chicago office. 30. On or about October 11, 1988, Hoffman deposited the sum of $102,949.93 in account no. 36-10209 in the name of Chicago Truck Drivers Union Pension Fund/Hoffman Management Corporation at the Mid-City National Bank, 809 West Madison, Chicago, Illinois. This sum represented $80,664.00 for past due quarterly withdrawal payments for September 15, 1987, October 1, 1987 January 1, 1988, April 1, 1988, July 1, 1988, and October 1, 1988. Said sum also included $3,681.93 in interest on said payments (through August 31, 1988). In addition, said deposit included $13,444.00 in liquidated damages and $5,160.00 in attorney's fees, claimed by CTDU Pension Fund but not expressly addressed in the court's decision. It was agreed by the parties that the deposit of said sum representing liquidated damages and attorney's fees is not to be construed as an admission that said amounts are due and owing.

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31. Hoffman does not object to the actuarial calculations or the actuarial assumptions used by the Fund. 34. The contribution histories of Hoffman/CKC and Manley are set forth in Exhibits U & V respectively. The "total" entry at the bottom of each column represents the total money paid; the figure below the total, e.g. "4.20", is the daily contribution rate for that plan year; the figure at the very bottom of each column represents the employer's contribution base units (total paid/ daily rate).

REMARKS ON EVIDENCE On January 19, 1989, the arbitrator met with the counsel for the parties,

in AAA's Chicago office, at which time the parties presented the arbitrator with

a stipulation of facts consisting of thirty-six numbered paragraphs, along with

exhibits marked A-X. Per the conference on January 19 and the arbitrator's

confirmation letter of January 22, 1989, the parties made minor modifications to

the stipulation and adduced exhibits Y, Z, AA and BB. The final stipulation,

with the arbitrator's comments, is set forth above.

Inasmuch as the stipulated facts contain no inconsistencies, they are

adopted as the basic facts of the case. Additional basic facts and the ultimate

facts are included in the following opinion, without express designation as such.

See 29 CFR §2641.7(a)(1).

THRESHOLD ISSUE As indicated in the Stipulation, this dispute began in the United States

District Court for the Northern District of Illinois, No. 87-C-8204. In a 17-page

Memorandum Opinion and Order dated August 5, 1988 (Ex R or "Slip Op"), the

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Court ordered Hoffman to make interim withdrawal liability payments and

referred the case to arbitration. Because the Fund seeks to raise issues addressed

in the Court's Memorandum Opinion, the threshold question presented is the

effect of the Court's findings and conclusions upon this arbitration.

In its brief received April 24, 1989 ("Fund Brief"), the Fund asserts that

Hoffman waived its right to arbitrate, because it did not make a timely request to

review within the meaning of 29 USC §1399(b)(2)(A):

No later than 90 days after the employer receives the notice described in paragraph (1), the employer -- (i) may ask the plan sponsor to review any specific matter relating to the determination of the employer's liability and the schedule of payments, (ii) may identify any inaccuracy in the determination of the amount of the unfunded vested benefits allocable to the employer, and (iii) may furnish any additional relevant information to the plan sponsor.

Crucial to the Fund's position is its argument that Hoffman's letter of November

2, 1987 (Ex N) did not constitute a request for review within the meaning of the

statute.

In Hoffman's brief, also received April 24, 1989 ("Co Brief"), the

Company counters that the issue was decided by the District Court in its

Memorandum Opinion of August 5, 1988. The Company appears to be correct,

because the Court wrote the following:

On November 2, 1987, Hoffman requested the Fund to provide certain information and to review its determination that Manley had withdrawn during the fifth plan year pursuant to 29 U.S.C. Section 1399(b)(2)(A). Hoffman filed its answer on November 18, 1987, denying liability on the ground that if

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Manley's Chapter 11 filing in February, 1987 did constitute a withdrawal, then it occurred more than five plan years after the company's sale of assets to Manley. In a letter dated December 11, 1987, Hoffman renewed its previous request for information and review. Hoffman further advised the Fund of its intention to request arbitration on or before February 28, 1988, with regard to the fifth plan year issue and any other disputed matters. See 29 U.S.C. Section 1401(a)(1).

*** The Fund filed suit on September 22, 1987, well before the period for initiating arbitration had run. In a letter dated November 2, 1987, Hoffman requested review of the Fund's determination that Manley had withdrawal during the fifth plan year. Hoffman renewed his request in a letter dated December 11, 1987. In addition, Hoffman contested its liability in this court by filing its answer and summary judgment motion, raising its defenses therein. Thus, Hoffman has actively pursued its defenses in this court. Slip Op at 6, 12-13; emphasis supplied; footnote omitted. Plainly, the District

Court already has concluded that Hoffman's letter of November 2, 1987 was a

request to review within the meaning of the statute, one of the very issues the

Fund now seeks to arbitrate. I, in turn, conclude that, absent factors, such as the

issuance of an intervening opinion by a Court of Appeals or the Supreme Court,

that would persuade the District Court to reverse itself, I must follow the District

Court's ruling.

Hoffman characterizes the Court's ruling as "the law of the case" but,

strictly speaking, that doctrine applies to subsequent appeals, 5 Am Jur 2d,

Appeal and Error, §744, at 188, which is not our situation. Federal Rule of Civil

Procedure 54(b) makes clear that the Court's decision is not final, so that res

judicata and collateral estoppel also are inapplicable. The statutory framework

provides little guidance on the point. Although 29 USC §1401(c) does

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determine the effect of an arbitrator's findings of fact in a subsequent district

court action, the statute says nothing about conclusions of law, and the courts

are divided over their impact. See Fraser Shipyards, Inc and IAM National

Pension Fund, 7 EBC 2562, 2582-2584 (Arb, 1986); confirmed and enforced 9

EBC 2484 (D DC, 1988). Moreover, our situation is just the reverse of that

addressed in the statute, because here, the Court's opinion preceded arbitration.

Nevertheless, just as parties are not permitted to turn arbitration into spring

training for "the big show", they should not be entitled to test their theories

inconsequentially before repairing to arbitration. Because I am persuaded that

the statute makes courts the final arbiters of issues of law in withdrawal liability

disputes, Fraser Shipyards, supra, I feel that an arbitrator, operating under a

court's mandate, must follow the court's preliminary conclusions of law, in the

absence of factors that would persuade the court to reverse itself.

THE REQUEST FOR REVIEW The Fund proffers no argument that would cause the District Court to

reverse its conclusion regarding the November 2, 1987 (Ex N). Moreover, I

agree with the Court's conclusion. The letter plainly states:

The purpose of this letter is to initiate the review procedures described in the Act.

The fund overlooks the sentence just quoted and focuses instead upon the

penultimate paragraph of the letter, which states:

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Request for Review. Once the foregoing information has been furnished to, and evaluated by, the Company (and any follow-up information requested and furnished), the Company intends, pursuant to ERISA §4219(b)(2)(A), to furnish the Fund, on or before November 29, 1987, additional relevant information for consideration by the Trustees.

From this isolated paragraph, the Fund concludes that Hoffman's letter was a

mere request for information, rather than a request for review within the

meaning of 29 USC §1399(b)(2)(A). I do not think that either the letter or the

statute should be given such a narrow construction.

I do not believe that a reasonable person, upon receiving Hoffman's 3-

page letter, sent certified, return receipt requested, could mistake its purpose,

especially when that purpose was articulated in the second paragraph. A

reasonable person should have understood that Hoffman was putting at issue the

matters raised in numbered paragraphs 1-8, about which it sought information.

The Company's stated intention, "to furnish the Fund on or before November

29, 1987, additional relevant information for consideration by the Trustees," is

not inconsistent with an interpretation of the letter as also being a present

request for review.

Indeed, in the Fund's reply dated December 22, 1987, the Fund itself

wrote:

This is in response to your letters of November 2 and December 11 to the Board of Trustees of the Chicago Truck Drivers Union Pension Fund. Your request for review is under consideration and I expect that the

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Trustees at their scheduled meeting in late February or early March, 1988, will consider the issues raised.

Ex Y; emphasis supplied. Hoffman's letter of December 11, 1989 (EX O) was

not a new or different request for review but rather described its earlier letter as

having been a request for information and review and reiterated the request.

Having contemporaneously characterized Hoffman's letter as a request for

review, the Fund cannot now seriously urge that the letter sought information

only.

The authorities cited by the Fund are distinguishable. In Niagara Paper

Corp v Paper Industry Pension Fund, 5 EBC 1496 (D Minn, 1983), the

employer's letter stated that the employer had "no reason to feel the liability and

the periodic installments are … inappropriate." In the matter before me,

Hoffman pointed out eight potential areas of disagreement, implicit in which

was the pivotal one over the March 13/31, 1981, date of sale/withdrawal. See

Ex N, ¶¶4-6. Moreover, as noted by the District Court, Hoffman expressly put

the Fund on notice in its answer to the Fund's complaint that the Company

intended to contest application of the 5-year rule of 29 USC §1384. See Slip Op

at 6. Hoffman's answer was filed on November 18, 1987, well within the 90-day

time limit for requesting review. See 29 USC §1399(b)(2)(A). The statute does

not require that a request for review take any particular form, and Hoffman's

letter of November 2, 1987, together with its answer to the Fund's complaint,

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gave the Fund ample and timely notice of the areas of disagreement.

In Evans v Frito-Lay Inc, No. C83-2237 (ND Ohio, 1983), the court took

a very narrow view of the company's letter, observing:

The letter does not: (1) "… ask the plan sponsor to review any specific matter relating to the determination of [Frito-Lay's] liability [or] the schedule of payments"; (2) … identify any inaccuracy in the determination of the amount of the unfunded vested benefits allocable to [Frito-Lay]" and (3) finally, it does not relate that Frito-Lay intended to "furnish any relevant information to the plan sponsor."

At the very least, Hoffman's letter related that the Company intended to furnish

additional relevant information to the plan sponsor and, therefore, Frito-Lay is

distinguishable. Both the District Court and I are in agreement that Hoffman

made an effective, and hence timely, request for review within the meaning of

29 USC §1399(b)(2)(A).

THE DATE OF SALE The pivotal issue in this matter is when Hoffman's sale of CKC to

Manley took place, because 29 USC §1384(a)(2) provides:

If the purchaser -- (A) withdraws before the last day of the fifth plan year beginning after the sale, and (B) fails to make any withdrawal liability payment when due , then the seller shall pay the plan an amount equal to the payment that would have been due from the seller but for this section.

If the sale took place on March 13, 1981, upon execution of the Sale Agreement

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(Ex A), as Hoffman contends, then the 5 plan year period described in 29 USC

§1384(a)(2)(A) commenced April 1, 1981 and expired March 31, 1986, well

before Manley withdrew from the Fund on February 25, 1987. On the other

hand, if the sale did not take place until July 20, 1981, upon closing (Ex G), as

the Fund contends, then the 5 plan year period did not commence until April 1,

1982 and did not expire until March 31, 1987, several weeks after Manley's

withdrawal. Thus, either Hoffman owes nothing at all or it is secondarily liable

for the withdrawal liability it would have had but for the operation of 29 USC

§1384. The plain language of the Sale Agreement and 49 USC §11343

precludes decision for Hoffman.

The very first substantive provision of the Sale Agreement, entitled

"Lease and Sale of Certain Assets", states:

On the First Closing Date (as hereinafter defined), CKC agrees to lease to Manley and Manley agrees to lease from CKC … the assets described below until the Second Closing Date (as hereinafter defined), at which time CKC agrees to … sell … to Manley the assets described below, … and Manley agrees to purchase … said assets.

Ex A, §1; emphasis supplied. The "First Closing Date" is defined in §17 and

readily is seen to be April 13, 1981, as determined by the ICC's grant of

temporary operating authority. Similarly, the "Second Closing Date" is July 20,

1981, as determined by the ICC's grant of permanent authority. Both of these

critical dates fell into the 1981-1982 plan year. Under the plain language of the

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Sale Agreement, the sale did not take place until the later date.

That the parties used different language when they intended an event to

be measured from the date of execution of the Sale Agreement is seen readily

from an examination of §2 ("within five business days of the date hereof").

Absolutely nothing in the contract can be construed as a present sale. Virtually

all of the extensive provisions pertaining to compliance with 29 USC §1384

(e.g., §12.2) measure events from the First or Second Closing Date, not from the

date of execution. Several phrases from §12.1, in which the parties parroted the

language of 29 USC §1384 (e.g., "for a period of five plan years commencing

with the first plan year beginning after the sale of assets"), at most beg the

question and in no way detract from the plain and simple language of §1, which

expressly places the sale at the Second Closing Date, i.e., July 20, 1981.

The limited case law on the subject points to a date of sale, later that the

date of execution of the contract of sale. The fact situation reported in Mason

and Dixon Tank Lines, Inc v Central States, Southeast and Southwest Areas

Pension Fund, 852 F2d 156 (CA 6, 1988), gave rise to a number of reported

opinions, e.g., Central Transport, Inc v Central States, Southeast and Southwest

Areas Pension Fund, 639 F Supp 788 (ED Tenn, 1986); 640 F Supp 56; both

aff'd w/o published opinion 816 F2d 678 (CA 6, 1987); cert den 108 S Ct 290,

which Hoffman seeks to distinguish. Although it is true that the principal issue

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in that series of opinions pertained to the concept of a controlled group found in

29 USC §1301(b)(1) and that the underlying transaction was a stock sale rather

than a sale of assets, it is clear from 49 USC §11343 that the determinative issue

is "control," rather than the structure of the transaction. See 49 USC §10102(7)

[broad definition of "control"]. As a result, the district court's conclusion,

affirmed by the Sixth Circuit, that no sale occurred, or even could have

occurred, until after ICC approval, is applicable here. See 852 F2d at 160-161,

161-162 ("Nor had the ICC ultimately approved the stock acquisitions as

required by law until March 7, 1984.") [emphasis supplied]. Under 49 USC

§11343, Hoffman's sale of CKC to Manley could not as a matter of law, and did

not in fact, occur until after ICC approval.

Perhaps more definitive than an analysis of the instant matter under

contract law or the Transportation Act is an analysis of the contribution history

of Hoffman and Manley, because it is clear that Congress' principal concern in

29 USC §1384 was with an uninterrupted period of contributions by the

purchaser for a full five plan years. It is undisputed that Manley did not begin

making contributions to the Fund until April 13, 1981, following the ICC's grant

of temporary operating authority. Thus, Manley's five plan year period for

uninterrupted contributions could not have begun to run until the 1982-1983

plan year commenced on April 1, 1982.

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Because both of the critical dates, April 13, 1981 and July 20, 1981, fall

into the same 1981-1982 plan year, it is unnecessary to decide whether, in a

proper case, the ICC's grant of temporary operating authority and a purchaser's

contemporaneous commencement of contributions might mark the "date of

sale" for purposes of 29 USC §1384. However, because Hoffman complains of

the harshness of the operation of the statute under the facts of this case, I note

that Hoffman would not qualify for such liberal interpretation, because of its

own tardiness in seeking ICC approval.

Although the Sale Agreement was executed March 13, 1981, Hoffman

and Manley waited until March 31, 1981, to seek ICC approval for the

transaction. See Ex D at 2. The ICC acted promptly and granted temporary

authority on April 8, 1981. Ex E. Had Hoffman and Manley proceeded

diligently and filed their application with the ICC right away, there would have

been plenty of time for the ICC to have acted before the end of the plan year on

March 31, 1981, in which case Hoffman might have had a good argument that,

for purposes of 29 USC §1384, the grant of temporary operating authority and

Manley's immediate commencement of contributions to the Fund, ought to

mark the sale of CKC's assets. But Hoffman and Manley delayed for several

weeks, and now Hoffman must accept the consequences of that delay. See Ex

A, §3.

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HOFFMAN'S DEFENSES Hoffman couches its defenses in terms of estoppel, waiver, and laches.

The doctrine of estoppel is applicable against a party who makes a false or

misleading representation to one ignorant of the truth, who relies on the

misrepresentation to his detriment. See Mangan and Owens Truckmen, Inc, 7

EBC 1353, 1365 & n 17 (Arb, 1986). In its brief, Hoffman claims that the Fund

misled it into believing that the sale of CKC to Manley occurred in plan year

1980-1981, by means of the Fund's demand letter of April 21, 1982 (Ex I), in

which the Fund stated:

According to our information, your company completely withdrew from the … Fund on March 31, 1981.

A reading of the plain language of the Sale Agreement (Ex A) compels

the conclusion that Hoffman could not have been, and was not, misled by the

Fund. Moreover, Hoffman was well aware of the fact that it had continued

making contributions to the Fund beyond the March 31, 1981 date specified in

the Fund's letter. Conspicuously absent from the Stipulation of Facts is any

evidence that anyone at Hoffman actually believed the Fund's erroneous

statement, much less relied upon it detrimentally.

Just as Hoffman's estoppel defense must be discounted, so must its

defense of waiver. Waiver is applicable against a party that voluntarily

relinquishes a known right or acts in a manner wholly inconsistent with

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retention of that right. See Owens Truckmen, supra, 7 EBC at 1365. There is

nothing in the Fund's letter of April 21, 1982 (Ex I) or its subsequent conduct

that indicates abandonment of its right to collect withdrawal liability. To the

contrary, the Fund's issuance of a demand letter even after it had been apprised

of Manley's application to PBGC for an exemption from the bonding

requirement of 29 USC §1384(a)(1)(B) [Ex H] suggests that the Fund was intent

upon exercising its rights to the fullest extent of the law. The parties agreed to

hold matters in abeyance pending PBGC action (Ex AA), following which, the

Fund concluded that Huffman had complied with 29 USC §1384, and hence the

Fund could take no further action at that time, because, technically speaking,

Hoffman had not withdrawn. See 29 USC §1384(a)(1) ["withdrawal … does not

occur"]; emphasis supplied.

Although laches may be interposed as a defense to the assessment of

withdrawal liability, a pension plan's time for acting is measured from the date

of withdrawal, which in this case, was not until February 25, 1987, when

Manley closed its doors and filed for bankruptcy. See 29 USC §1399(b)(1) ["as

soon as practicable"]; Ludington News Co and Michigan UFCW/Drug

Employers Pension Fund, 9 EBC 1913, 1919-1920 (Arb, 1988). The Fund

notified Hoffman of its potential secondary liability under 29 USC §1384, by

letter dated April 17, 1987 (Ex L), less than two months after Manley's

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withdrawal. Thus, no serious timeliness issue is presented.

Finally, Hoffman's suggestion that the Sixth Circuit's reasoning about

DEFRA §558, in Central States, Southeast and Southwest Areas Pension Fund

v 888 Corp, 813 F2d 760 (CA 6, 1987), somehow applies to the execution of the

Sale Agreement, is not well taken. The opinion makes clear that DEFRA §558

is concerned with only binding agreements to withdraw, entered into before

September 26, 1980. 813 F2d at 765. Hoffman's argument (Co Brief at 38), that

the Sixth Circuit observed "that §558(d) makes the execution date the effective

date for all purposes under MPPAA," is rebutted by Mason and Dixon Tank

Lines, supra, in which the Sixth Circuit noted that the stock purchase agreement

did not become effective for purposes of forming a controlled group, until after

ICC approval. 852 F2d at 162. DEFRA is wholly inapplicable to this matter.

MANLEY'S CONTRIBUTION HISTORY As an alternative basis for the assessment against Hoffman, over and

above Hoffman's secondary liability resulting from Manley's withdrawal, the

Fund asserts that Hoffman is primarily liable because of non-compliance with

29 USC §1384(a)(1)(A). Specifically, the Fund points out that for five plan

years, Manley averaged only 69.2% of Hoffman's five-year annual average

contribution base units, and hence did not in fact contribute for "substantially

the same number of contribution base units" as Hoffman. The fallacy in the

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Fund's argument is that there is no such test in the statute itself.

The distinction between a mere "obligation to contribute" and a history of

actual contributions is too clear to require much discussion, and there can be no

doubt that Congress was well aware of the distinction. Compare, for example,

the language of 29 USC §1384(a)(1)(A) with that of 29 USC §1385(b)(1)(B)(ii),

where Congress specified the contribution base unit measurement to be used in

the 70% contribution decline test. Nowhere in the statute itself does Congress

address the purchaser's actual contribution history; Congress actually addressed

only the purchaser's contribution obligation at the time of the sale of assets.

In the matter before me, Hoffman and Manley went to great lengths in

the Sale Agreement to insure continuity of contribution base units. See Ex A,

§12.2, "Operations After Sale". Although some arbitrators have expressed

skepticism that such contractual provisions may be designed to reduce the

obligations under 29 USC §1384, e.g., Cullum Cos and Central States Pension

Fund, 10 EBC 1926, 1935-1936 (Arb, 1988), I find that the provisions in

Exhibit A were put there in an effort to comply with the statute, not to evade

withdrawal liability. Abuses can be addressed readily under 29 USC

§1384(a)(1) ["bona fide, arm's-length sale"] or even under 29 USC §1392(c)

[sham transaction rule].

Although the Fund's position, that "substantially the same" means at least

22

85% as much, may not be unreasonable, Owens Truckmen, supra, 7 EBC at

1378-1379; Oolite Industries, Inc and Central States Pension Fund, 8 EBC

2009, 2017 (Arb, 1987), its use of five-year average, under the facts of this case,

is patently unreasonable. As Hoffman points out, if you compare Manley's

contribution base units against Hoffman's for the plan year 1980-1981, the last

plan year before the sale, you can come up with percentages like 87% (1981-

1982) and 89% (1983-1984). Co Brief, Attachment A.

It must be borne in mind that justification for any test involving actual

contributions is to be found not in the statute itself, but in the legislative history.

See Senate Labor Committee Summary and Analysis of Consideration of S

1076 (April 1980), §III.B.4(d), reproduced in 310 BNA Pension Rptr (Special

Supplement, September 29, 1980), at 83. In the matter before me, Hoffman and

Manley incorporated provisions in the Sale Agreement specifically designed to

keep the employment level at 90% or above for at least one year following the

First Closing Date. Ex A, §12.3.D. Courts and arbitrators that have examined

contribution histories generally have not condoned rigid application of extra-

statutory tests. See, for example, IAM National Pension Fund Benefit Plan A v

Cooper Ind's, 635 F Supp 335, 340 (D DC, 1986) ["recognizing the folly of

attempting to endow the nebulous phraseology of section 1384(a)(1)(A) with

some precise meaning"]; IAM National Pension Fund v Dravo Corp, 7 EBC

23

1892 (D DC, 1986), affirming and enforcing 6 EBC 2641 (Arb, 1985); Terson

Co and Bakery Drivers Local 734 Pension Funds, 4 EBC 1009 (Arb, 1983).

The decline in Manley's contribution base units, of which the Fund

complains, was the result of deregulation in the trucking industry. Indeed, the

exhibits are replete with references to industry problems (e.g., Ex D, Appendix

A), and the Fund candidly concedes, "Both parties certainly would agree that

deregulation has adversely affected the trucking industry." Fund Brief at 11. Not

only was Manley unable to rescue CKC's business, but it was unable to save

itself, through no fault of its own.

Had Hoffman not sold CKC, then the Fund well might have experienced

as even more precipitous decline in contribution base units. The handwriting

was on the wall, as Hoffman's contribution base units plunged by almost 1200

units from 1979-1980 to 1980-1981 (Ex U), and the Company's profit picture

disappeared (Ex D, Appendix A). The sale to Manley at least provided the Fund

with over $250,000 in contributions (Ex V), some of which it otherwise might

have not have received. In retrospect, a withdrawal based upon a decline in

CKC's business may have been inevitable. That occurred it in 1987 rather than

1981 is fortuitous.

The Fund has stipulated that, "[a]t the time of the sale, the Sale

Agreement complied with the provisions of 29 USC §1384(a)(1)(A)-(C)," and I

24

am persuaded that that is all the statute requires. For the Fund, at this late date,

to attempt to review Manley's subsequent operational history, is grossly unfair

to Hoffman, especially in view of the fact that the decline in contribution base

units was due to forces beyond any private party's control. Dravo, supra.

THE AMOUNT OWED

Because the date of sale, whether April 13, 1981 or July 20, 1981, falls

into plan year 1981-1982, a finding of liability on the part of Hoffman is not

difficult. The far trickier question is how much Hoffman owes. To decide this,

let us note that it is not just Manley's withdrawal within the period April 1, 1982

-- March 31, 1987, that triggers Hoffman's secondary liability, but rather

Manley's failure "to make any withdrawal liability payment when due." 29 USC

§1384(a)(2)(B).

According to the Fund's demand letter to Manley, dated April 9, 1987

(Ex K), Manley's withdrawal liability is $299,390, payable in a lump sum or in

16 quarterly installments of $22,279, with a final quarterly payment of $1,216.

See 29 USC §1399(c); Ludington News, supra, 9 EBC at 1917 n 7. Had

Hoffman paid the Fund $299,390 on or before July 1, 1987, or even begun to

make Manley's quarterly payments, the Fund would have no standing to

complain. This being the case, the issue becomes whether the Fund is entitled to

the full $380,822 claimed in its letter of February 29, 1988 (Ex Q). I conclude

25

that it is not.

The statute does not answer the question; indeed, the statute is incomplete

in many respects. See, e.g., Kroger Co and Southern Cal. Food Workers

Pension Fund, 6 EBC 1345, 1358 n 14 (Arb, 1985), pointing out that 29 USC

§1384(b)(1) does not always provide an adequate basis for computing the

purchaser's withdrawal liability. However, it is clear that thoughtless application

of the statute could lead to a windfall for pension plans. Suppose, for example,

that a withdrawing purchaser made all but the final withdrawal liability

payment; would the seller then be liable for the full amount of its withdrawal

liability? One's sense of equity says no, but the statute doesn't say, at least not

explicitly, and there is no authority on the point.

Besides 29 USC §1384(a)(2), there are four other statutory provisions

that may bear on the question, 29 USC §§1384(a)(1)(B), (C), (a)(3), and (4):

(B) the purchaser provides to the plan for a period of 5 plan years commencing with the first plan year beginning after the sale of assets, a bond issued by a corporate surety company that is an acceptable surety for purposes of section 412 of this Act, or an amount held in escrow by a bank or similar financial institution satisfactory to the plan, in an amount equal to the greater of -- (i) the average annual contribution required to be made by the seller with respect to the operations under the plan for the 3 plan years preceding the plan year in which the sale of the employer's assets occurs, or (ii) the annual contribution that the seller was required to make with respect to the operations under the plan for the last plan year before

26

the plan year in which the sale of the assets occurs, which bond or escrow shall be paid to the plan if the purchaser withdraws from the plan, or fails to make a contribution to the plan when due, at any time during the first 5 plan years beginning after the sale; and (C) the contract for the sale provides that, if the purchaser withdraws in a complete withdrawal, or a partial withdrawal with respect to operations, during such first 5 plan years, the seller is secondarily liable for any withdrawal liability it would have had to the plan with respect to the operations (but for this section) if the liability of the purchaser with respect to the plan is not paid. (3)(A) If all, or substantially all, of the seller's assets are distributed, or if the seller is liquidated before the end of the 5 plan year period described in paragraph (1)(C), then the seller shall provide a bond or amount in escrow equal to the present value of the withdrawal liability the seller would have had but for this subsection. (B) If only a portion of the seller's assets are distributed during such period, then a bond or escrow shall be required, in accordance with regulations prescribed by the corporation, in a manner consistent with subparagraph (A). (4) The liability of the party furnishing a bond or escrow under this subsection shall be reduced, upon payment of the bond or escrow to the plan, by the amount thereof. (Emphasis supplied.)

The language of the statutory scheme suggests that Congress' principal

concern was with payment of the purchaser's withdrawal liability; that is the

purpose of the bond in 29 USC §1384(a)(1)(B), and it is non-payment of the

purchaser's liability that triggers the seller's secondary liability under 29 USC

§§1384(a)(1)(C), (2). I read the total amount of the seller's liability in 29 USC

§1384(a)(1)(C) ["any withdrawal liability it would have had to the plan with

27

respect to operations (but for this section)"] and the amount of the seller's

quarterly payments in 29 USC §1384(a)(2) ["an amount equal to the payment

that would have been due from the seller but for this section"] as placing outside

limits on the seller's secondary liability and not as defining the actual amount

due in any particular fact situation. This interpretation is consonant with the

concept of secondary liability, under which the seller stands as guarantor of the

purchaser's withdrawal liability payments, at least to the extent of the seller's

own schedule.

The credit due the purchaser under 29 USC §1384(a)(4) for the bond

posted pursuant to 29 USC §1384(a)(1)(B) tends to confirm the interpretation

that the primary amount due is the purchaser's liability. Again, it would be

anomalous for the purchaser to forfeit a bond, receive "credit" for the amount of

the bond, which might pay off a substantial portion of the purchaser's

withdrawal liability, and still leave the seller liable for the full amount of its

withdrawal liability. All of the statutory provisions can be read harmoniously

and inequitable results avoided by interpreting the seller's payment schedule as

placing an outside limit on the seller's secondary liability, rather than defining

the amount of that liability. "The courts have declined … to apply the statute in

a nonsensical fashion in order to assure full payment of withdrawal liability."

Teamsters Pension Trust Fund of Philadelphia and Vicinity v Central Michigan

28

Trucking, Inc, 857 F2d 1107, 1109 (CA 6, 1988) [citation omitted].

In arriving at this interpretation, I am not unmindful of the Supreme

Court's admonition against attempting to fine tune Congress' "comprehensive

and reticulated statute". Mass. Mutual Life Ins Co v Russell, 473 US 134, 146-

147 (1985). However, the statute itself empowers the arbitrator to make

"necessary adjustments" to a scheduled of payments, 29 USC §1401(d); 29 CFR

§2641.7(a)(2), and the District Court evidently expects me to do so, Slip Op at

11 ("[T]he arbitrator will correct any factual and legal errors made by the

Fund."). I proceed to adjust Hoffman's payment schedule, following the

statutory scheme as closely as possible.

As set forth in Exhibit K, Manley's schedule of withdrawal liability called

for its balance of $299,390 to be paid off in 16 quarterly installments of

$22,279, with a final quarterly payment of $1,216. Although I do not have the

benefit of the Fund's computational worksheets, the Fund appears to have

utilized an interest rate on the order of 8½%. As set forth in Exhibit Q,

Hoffman's schedule called for its balance of $380,822 to be retired in 37

quarterly installments of $13,444, with a final quarterly payment or $11,981. In

Hoffman's case, the rate utilized appears to have been on the order of 6%. Cf.

Ex Y, ¶6. In both cases, the Fund appears to have employed a standard short cut

and merely amortized the principal amounts quarterly at one-fourth of the stated

29

rates, as opposed to preparing annual amortizations and then dividing the annual

payments by four. See Ludington News, supra, 9 EBC at 1917-1918 n 7(d)-(g).

The effect of this short cut is to charge withdrawing employers less than the

statute permits. Id., n 7(g).

Because the Fund utilized different interest rates reflecting changes in the

fund's plan funding interest assumption between 1981 and 1987 (see Ex Y, ¶6),

we must decide which rate to use in comparing Manley's and Hoffman's

schedules. The statute itself may suggest an answer. 29 USC §1384(a)(3)

requires that a seller undergoing dissolution post a bond "equal to the present

value of the withdrawal liability the seller would have had but for this

subsection." This language may suggest that some current rate be utilized in

computing the present value. Intuitively, if the same rate were employed in

computing the present value of the seller's schedule of payments as was used to

prepare the schedule in the first place, except in rare cases affected by the 20-

year cap of 29 USC §1399(c)(1)(B), the present value would equal the seller's

withdrawal liability. Thus, by its choice of statutory language, Congress may

have had a more current rate in mind. Cf. Ludington News, supra, 9 EBC at

1918 n 7(i)-(j).

In the matter before me, the more current rate is on the order of 8½%, the

plan funding rate as of the date of Manley's withdrawal. This is decidedly the

30

fairer rate to use, because the Fund should not be saddled with the risk of

interest rate fluctuations. Using the current rate, we may ask how many

quarterly payments Hoffman must make to pay off Manley's withdrawal

liability of $299,390. The amount of Hoffman's quarterly payments is, of

course, fixed by the statutory formula at $13,444. See 29 USC §§1384(a)(2),

1399(c)(1)(C)(i). Standard estimates show that number to be about 27, plus

perhaps some final quarterly payment. In making this estimate, I have used the

Fund's short cut, which is not inappropriate, because the Fund must treat all

withdrawing employers equally. See 29 USC §1394(b).

Although in theory it is possible to back out the precise interest rates used

from the payment schedules themselves, I hesitate to do so because of the risk of

error. If, for example, the Fund made an inadvertent mistake in computing either

schedule, then any data I might extract would only compound the error.

Inasmuch as Hoffman's quarterly payments are fixed at $13,444 and will extend

well into the future, I see no need to rush to determine immediately the precise

date and exact amount of the very last payment. Therefore, I leave this

computation to the parties.

Within fifteen (15) days of receipt of this opinion, the Fund shall transmit

to Hoffman complete worksheets to support the preparation of Hoffman's (Ex

Q) and Manley's (Ex K) payment schedules, and shall propose a schedule for

31

payment of Manley's liability by Hoffman, using the interest rate assumed in

Exhibit K. The Fund shall supply Hoffman supporting worksheets for the

proposed schedule as well. Copies of all materials shall be filed with arbitrator

and with AAA. Hoffman then shall have fifteen (15) days to accept the Fund's

proposed schedule or to apply to the arbitrator for modification. This

computational directive is not intended to affect the finality of this award for

purposes of 29 USC §1401(b)(2) [30 days to enforce, vacate, or modify],

because all that remains to be done is purely ministerial in nature.

INTEREST ADJUSTMENTS

Per order of the District Court (Slip Op at 14-15), Hoffman has

commenced making its quarterly payments of $13,444 and has paid some

interest on overdue payments ("delinquency charge"). The status of Hoffman's

payments is as follows:

Payment Number

Due Date Date Paid Delinquency Charge

(1) (2) (3) (4) (5)

7/1/87 extended to 9/15/87 per Ex M 10/1/87 1/1/88 4/1/88 7/1/88

10/11/88 10/11/88 10/11/88 10/11/88 10/11/88

Paid through 8/31/88; owed for 9/1/88-10/10/88 Paid through 8/31/88; owed for 9/1/88-10/10/88 Paid through 8/31/88; owed for 9/1/88-10/10/88 Paid through 8/31/88; owed for 9/1/88-10/10/88 Paid through 8/31/88;

32

(6) (7) (8) (9)

10/1/88 1/1/89 4/1/89 7/1/89

10/11/88 4/13/89 Unpaid Unpaid

owed for 9/1/88-10/10/88 Owed for 10/1/88-10/10/88 Owed for 1/1/89-4/12/89 Owed for 4/1/89-present Not yet due

The rules and rates for computing delinquency charges are set forth in 29 CFR

§2644.3; the current rate is 11.50%.

The Fund claims, and is entitled to, interest on all late payments. 29

§§1399(c)(3), (6). Pursuant to 29 CFR §2644.3, the Fund is entitled to:

(a) interest on payments (1)-(5) for 9/1/88-10/10/88 in the amount of (1 x 9%/12 + 10 x 10%/360) x $67,220 = $691; (b) interest on payment (6) for 10/1/88-10/10/88 in the amount of (10 x 10%/360) x $13,444 = $37; (c) interest on payment (7) for 1/1/89-4/12/89 in the amount of (1 x 10.50%/4 + 12 x 11.50%/360) x $13,444 = $404; and (d) interest on payment (8) for 4/1/89 until paid. The interest for April 1989 is (11.50%/12) x $13,444 = $129; interest is accruing in May at the rate of (11.50%/360) x $13,444 = $4.29 per day.

Note that under 29 CFR §2644.3(c)(4), there appears to be no interest

upon interest; i.e., the computational scheme seems to call for simple, as

opposed to compound, interest on delinquent payments. This should cause no

problem, since a pension plan is free to credit payments first toward interest,

then toward principal. For some reason, the Fund has not done so and, as before,

33

I follow the Fund's methodology, since that must be the same for all

withdrawing employers, to insure equality of treatment. Like the Fund's interest

short cut, the Fund's failure to apply payments first against interest runs in favor

of withdrawing employers.

As in the case of the payment schedules, the Fund does not claim the full

amount to which it is entitled; e.g., the Fund apparently uses a 365-day year to

compute daily interest, instead of the more favorable 360 days permitted by

PBGC Regulations. Compare Fund Brief at 34 with 29 CFR §2644.3(c)(3).

Again, the result favors withdrawing employers. To assure Hoffman equality of

treatment, I award the Fund only the interest requested, $1,189.84 plus $4.23 per

day for each day the April 1, 1989 quarterly payment is delinquent. See Fund

Brief at 35. As indicated above, there is to be no interest upon interest, provided

that Hoffman makes prompt payment upon receipt of this opinion.

CREDITS FROM MANLEY'S BANKRUPTCY At this point, it is unclear what, if anything, the Fund will receive from

Manley's bankruptcy. All that can be said now is that if and when the Fund does

receive something, Hoffman will be entitled to credit for the net amount

received, where, by "net", I mean the gross amount received, less the Fund's

expenses of collecting that amount in the bankruptcy proceeding.

34

MISCELLANEOUS COSTS AND FEES Along with its quarterly payments and delinquency charges, Hoffman

deposited $13,444 in liquidated damages and $5,160 in attorney's fees,

representing disputed claims under 29 USC §§1451(b), 1145, and 1132(g)(2).

Because the Fund was forced to sue Hoffman to compel it to make interim

withdrawal liability payments, the Fund is entitled to liquidated damages and

attorney's fees, as a matter of law. See Connors v Brady-Cline Coal Co, 668 F

Supp 5, 10 (D DC, 1987).

COSTS OF ARBITRATION Although the Fund prevailed, it did not do so entirely, and I do not find

the bad faith on the part of Hoffman that would entitle the Fund to an award of

attorney's fees. 29 CFR §2641.9(c). The parties shall divide the cost of this

arbitration equally. 29 CFR §2641.9(b).

BURDEN OF PROOF This arbitration presents unusual difficulties regarding the burden of

proof, because at least one judge in the Northern District of Illinois has sided

with the Third Circuit in United Retail & Wholesale Employees Teamsters

Union Local No 155 Pension Plan v Yahn and McDonnell, Inc, 787 F2d 128 [

(CA 3, 1986); aff'd by equally divided court 481 US 735 (1987), and declared

the arbitral presumptions of 29 USC §1401(a)(3) to be unconstitutional. Robbins

35

v Pepsi-Cola Metropolitan Bottling Co, 636 F Supp 641 (ND Ill, 1986)

[Nordberg, J]. Although the judge in the instant case did not provide any

specific guidance regarding the burden of proof, he did cite Pepsi-Cola

affirmatively. Slip Op at 16 n 1.

To avoid potential constitutional objections, except as noted at the outset

with respect to the District Court's findings and conclusions (primarily

concerning the sufficiency of Hoffman's request for review), I decide this matter

de novo under a more probable than not standard. See IAM National Pension

Fund v Fraser Shipyards, Inc, 9 EBC 2484, 2486, 2491 (D DC, 1988),

affirming and enforcing 7 EBC 2562 (Arb, 1986). The Company certainly

cannot complain and, to the extent I have disagreed with the Fund's

interpretation of 29 USC §1384, there is ample authority that no deference is

due the Fund's legal conclusions. See Central Michigan Trucking, supra, 857

F2d at 1111-1112; Slip Op at 11 ("[T]he arbitrator will correct any … legal

errors made by the Fund."); Oolite Industries, supra, 8 EBC at 2019 n 7

(quoting PBGC Official).

DATED: May 15, 1989 ________________________________ E. Frank Cornelius, Arbitrator