In the
United States Court of Appeals
For the Seventh Circuit
No. 01-1501
Gerald Sprague,
Plaintiff-Appellant,
v.
Central States, Southeast and Southwest Areas
Pension Fund, an employee pension benefit
plan, and Ray Cash, Joe Orrie, Jerry Younger,
George J. Westley, Howard McDougall, and
Arthur H. Bunte, Jr., Individually, and as
Trustees of Central States, Southeast and
Southwest Areas Pension Fund, and
United Parcel Service, INC., an Ohio
corporation,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99-C-7726--James B. Moran, Judge.
Argued September 14, 2001--Decided October 18, 2001
Before Flaum, Chief Judge, and Manion and
Williams, Circuit Judges.
Flaum, Chief Judge. Gerald Sprague, a
participant in the Central States,
Southeast and Southwest Areas Pension
Fund ("the Fund"), brought suit in the
Northern District of Illinois, alleging
that defendants violated the Employee
Retirement Income Security Act ("ERISA")
when they entered into an arrangement
whereby UPS would agree to remain an
employer-member of the Fund for a new
five-year term, but would not contribute
for the first five months of the term.
Sprague, a non-UPS participant, claimed
that the Fund and its trustees
(collectively "Central States") violated
29 U.S.C. sec. 1104(a)(1)(D) (ERISA sec.
404(a)(1)(D)), and that Central States
and UPS violated 29 U.S.C. sec.sec.
1106(a)(1)(B) and (D) (ERISA sec. 406
(a)(1)(B) and (D)). Central States and
UPS each filed motions for summary
judgment claiming that the arrangement
was lawful and no ERISA violations
occurred. The district court granted both
motions, holding that because UPS never
had an obligation to contribute during
the five-month period, no genuine issue
of material fact existed as to Sprague’s
claims. Sprague appeals. For the reasons
stated herein, we affirm.
I. Background
The Fund is a pension plan with multiple
employer-members, including UPS. It
exists via a trust agreement between the
trustees, the employers, and local unions
affiliated with the International
Brotherhood of Teamsters ("IBT"). For
many years prior to August 1, 1997, UPS
had been the largest employer-member of
the Fund; its employees comprised 18% of
the Fund’s participants and, in the prior
year, UPS contributed 22% of the Fund’s
total contributions. On July 31, 1997,
the then-current five-year collective
bargaining agreement between UPS and IBT
was due to expire. From May through
August 1997, the parties negotiated a new
five-year agreement. The negotiations did
not go smoothly. In May, UPS informed IBT
that it was considering withdrawing from
the Fund and establishing its own
national pension program. Because UPS was
such a large contributor and because its
employees constituted such a large and
demographically favorable percentage of
the Fund’s active participants, Central
States grew concerned about the effect
such a withdrawal would have on the
financial soundness of the plan. It hired
Millman & Robertson, an actuarial firm,
to analyze the impact of the proposed
withdrawal. The firm’s report indicated
that UPS’s withdrawal would harm the
Fund’s actuarial health in several ways:
the period for amortizing actuarial
liabilities would be extended, the Fund’s
ability to meet ERISA’s minimum funding
requirements would be threatened, and the
Fund’s ability to cushion itself from
market fluctuations would be restricted.
The central disagreement throughout the
negotiations was the amount of UPS’s
contributions to the Fund. On July 22,
1997, UPS made a last and best offer and
again warned that it was prepared to
withdraw from the Fund altogether. IBT
refused the offer and authorized a
nationwide strike. During the strike,
both parties looked for ways to come to
an agreement. Ronald Kubalanza, the
Fund’s executive director, and Ray Cash,
a trustee, along with the actuarial team,
developed the plan that, in its final
form, is the source of this dispute: UPS
would remain a member of the Fund and
enter into a new five-year agreement with
IBT, with contribution rates higher than
those in the previous five-year term. In
exchange, UPS’s contribution obligations
would be abated from August 1, 1997
through December 31, 1997. The actuaries
at Millman & Robertson concluded that the
Fund’s financial health would be
significantly better with UPS as a member
under the abatement plan than without UPS
as a member at all. IBT agreed to the
plan and proposed it to David Murray,
UPS’s chief negotiator. On August 18,
1997, Kubalanza faxed a letter confirming
the agreement to Murray, and faxed a copy
to Ken Hall, IBT’s chief negotiator
("Kubalanza letter").
The terms of the abatement plan were as
follows: in exchange for UPS’s agreement
to participate in the Fund for a new
five-year term, Central States agreed
that (1) UPS shall cease contributing to
the Fund from August 1, 1997 through
December 31, 1997; (2) the Fund shall
grant contributory service credit to UPS
employees during this period; (3) the
abatement will not constitute withdrawal
from the Fund; (4) UPS shall be deemed to
have contributed during this period; (5)
UPS shall recommence contributing on
January 1, 1998; and (6) the plan is
dependent on UPS entering into a new
five-year agreement with IBT. Later on
August 18, UPS and IBT announced that
they had reached a satisfactory deal and
that the strike had ended. The next day,
the Fund received a summary of the
Tentative National Master UPS Agreement
for 1997-2002 ("tentative CBA"). In
discussing the summary, the trustees of
the Fund agreed to the increased
contribution rates and agreed, orally and
in writing (in the "letter of
agreement"), that the CBA was contingent
upon the abatement plan. When the CBA was
still tentative, Central States
distributed a newsletter describing the
nature of the CBA and the abatement plan.
In early 1998, UPS employees ratified the
new CBA which included the Teamsters
Central Regional UPS Supplemental
Agreement ("Central Supplement"). Neither
the master CBA nor the supplement
expressly mentions the abatement plan;
both documents address UPS’s overall con
tribution rate for multi-employer plans,
and do not distinguish the unique Central
States abatement agreement. Since
ratification, the Fund has provided
service credit to UPS employees, and UPS
has contributed pursuant to the abatement
plan. UPS never paid and the Fund never
requested contribution for the period of
August 1, 1997 through December 31, 1997.
II. Discussion
We review the district court’s grant of
summary judgment de novo, construing all
of the facts and reasonable inferences
that can be drawn from those facts in
favor of the nonmoving party. See Central
States, Southeast & Southwest Areas
Pension Fund v. Fulkerson, 238 F.3d 891,
894 (7th Cir. 2001). A grant of summary
judgment is appropriate if the pleadings,
affidavits, and other supporting
materials leave no genuine issue of
material fact, and the moving party is
entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(c).
Sprague argues that the defendants
violated ERISA whether or not UPS was
obligated to contribute to the Fund
during the abatement period. If there was
an obligation, he contends, Central
States violated section 404 when it
failed to collect the contributions as
required by the documents governing the
plan, and both Central States and
UPSviolated section 406 by engaging in a
transaction that constitutes a lending of
money or extension of credit, or a
transfer of assets to a party in
interest. If no obligation existed,
Sprague continues, Central States
violated section 404 when it awarded
service credits and retirement benefits
to UPS employees during the abatement
period in violation of the governing
documents. Under this reasoning, if
defendants have not violated one
provision of ERISA, they have violated
another. We cannot agree with that
assessment. Because the governing
documents include the letters setting
forth the abatement plan, no section 404
violation occurred. Furthermore, since
UPS was under no obligation to contribute
to the Fund during the abatement period,
no section 406 violation occurred.
Summary judgment was appropriate on each
claim.
A. ERISA sec. 404(a)(1)(D)
ERISA sec. 404(a)(1)(D) provides in
relevant part that "a fiduciary shall
discharge his duties with respect to a
plan solely in the interest of the
participants and beneficiaries and in
accordance with the documents and
instruments governing the plan. . . ."
Sprague makes two claims that are
mutually exclusive. First, he argues that
if UPS was obligated under the governing
documents to contribute to the Fund
during the abatement period, then the
trustees’ failure to enforce that
obligation violates the provision.
Second, he argues that if UPS was not
obligated to contribute, then the
trustees’ award of service credit and
retirement benefits to UPS employees
during the abatement period violated the
provision because the Pension Fund’s Plan
provides that "[a] participant shall earn
contributory service for any employment
with a contributing employer required to
make employer contributions on his behalf
according to a collective bargaining
agreement." Both of these claims, Sprague
contends, should have been presented to a
jury.
Although they hinge on different legal
theories, each contention relies on a
faulty premise: that the CBA and the
Central Supplement constitute the
entirety of the governing documents. We
agree with the district court’s finding
that this is not so. When interpreting a
collective bargaining agreement, a court
must "consider the scope of other related
collective bargaining agreements, as well
as the practices, usage and customs
pertaining to such agreement."
Transportation-Communication Employees
Union v. Union Pacific Railroad Co., 385
U.S. 157, 161 (1966). The Kubalanza
letter and the letter of agreement,
laying out the abatement plan which the
parties entered into before the 1997-
2002 CBA was created, are key components
of the overarching agreement between UPS
and IBT, and must be included within the
scope of "governing documents." The Fund,
UPS, and IBT all clearly intended that
the abatement plan be considered in
conjunction with the CBA. The terms of
the abatement plan were negotiated along
with the CBA. Furthermore, each of the
three negotiating parties agrees that no
abatement plan would exist without the
new CBA and, more importantly, no new CBA
would exist without the abatement plan.
See Central States, Southeast and
Southwest Areas Pension Fund v. Kroger
Co., 73 F.3d 727, 731-32 (7th Cir. 1996)
(noting the importance of the negotiating
parties’ intent in defining the scope of
the collective bargaining agreement);
Murphy v. Keystone Steel & Wire Co., 61
F.3d 560, 567 (7th Cir. 1995)
(emphasizing that when a specific plan is
negotiated along with a CBA, the plan
should be read together with the CBA).
The abatement plan need not have been
expressly incorporated into the CBA to be
considered part of the overall agreement.
Central States, Southeast and Southwest
Areas Pension Fund v. Kroger Co. at 731.
Construing the governing documents under
ERISA sec. 404(a)(1)(D) to include those
that describe the abatement plan does not
end our discussion, however. Two
questions remain: (1) Under the governing
documents, was UPS obligated to
contribute during the abatement period?
and (2) If not, do the governing
documents require that no service credit
be granted to UPS employees during the
abatement period?
1.
Sprague contends that the CBA suggests,
and the Central Supplement mandates, that
UPS contribute to the Fund during each
month of the five-year term of the CBA,
including the abatement period. Article
14 of the Central Supplement states:
Effective on the dates listed below
[including the abatement period], the
Employer shall contribute to [the Fund]
the corresponding dollar amounts for each
full-time seniority employee covered by
this Agreement (except as may be modified
by an approved Local Union Rider).
By ignoring this provision, Sprague
argues, the trustees have breached their
fiduciary duties under ERISA sec. 404(a)
(1)(D), which requires them to discharge
their duties in accordance with the
governing documents. When we consider the
governing documents as a whole, however,
as the district court did, it is clear
that the trustees have not violated the
provision. As discussed above, the
Kubalanza letter and letter of agreement
state that "[UPS] shall temporarily cease
contributing to the Pension Fund during
the period August 1, 1997 to and
including December 31, 1997." IBT, UPS,
and the Fund each properly assumed that
the documents of the abatement plan were
controlling. The Central Supplement, and
the CBA itself, were written after the
abatement plan was accepted, and
concerned the multiple funds of which UPS
was a member; they were not written with
the intention to override the Central
States abatement plan. When read
holistically, the governing documents do
not require UPS to contribute to the Fund
during the abatement period. Therefore,
the trustees did not violate ERISA sec.
404(a)(1)(D) by failing to require such
contributions.
2.
Sprague next advances that if UPS had no
obligation to contribute during the
abatement period, then the Fund’s award
of service credit and retirement benefits
to UPS employees during that time was a
violation of the Fund’s governing
documents and, therefore, of ERISA sec.
404(a) (1)(D). This argument is nearly
impossible to support because we find, as
the district court did, that UPS had no
contribution obligation because the
Kubalanza letter and the letter of
agreement are integral components of the
governing documents. Therefore, the
argument that the award of credits and
benefits violates the documents of the
agreement is belied by the language of
the letter of agreement--a crucial
governing document--itself:
During this period, the Pension Fund
shall grant contributory service credit
for all purposes on behalf of all
eligible employees of the Company who
worked and were entitled under the new
collective bargaining agreement to have
pension contributions on their behalf.
The analysis here is the same as that
above. UPS, IBT, and the Fund intended
for the documents comprising the
abatement plan to be controlling as to
the behavior of UPS and the Fund during
the months of August through December
1997. The trustees, therefore, did not
fail to act in accordance with the
governing documents and did not breach
their fiduciary duty under ERISA sec.
404(a)(1)(D). The Fund’s Plan does state
that "[a] participant shall earn
contributory service credit for any
employment with a contributing employer
required to make employer contributions
on his behalf according to a collective
bargaining agreement." However, the
governing documents must be read together
in a way that reconciles provisions of a
bargaining agreement. Diehl v. Twin Disc,
Inc., 102 F.3d 301, 306 (7th Cir. 1996).
The abatement plan provided a way for the
Fund to remain financially sound by
keeping UPS as a member who was
obligated, but for five months, to
contribute to the Fund through 2002. It
is part of the overall collective
bargaining agreement; UPS’s employees,
then, were entitled to credit so long as
UPS was contributing according to the
overall abatement agreement. It was, and
no violation occurred.
B. ERISA sec. 406
Sprague lastly urges that UPS and the
Fund engaged in a per se prohibited
transaction in violation of ERISA sec.
406 (a)(1)(B) or (D) which provide, in
relevant part, that a fiduciary shall not
knowingly cause the plan to engage in a
transaction that constitutes a "(B)
lending of money or other extension of
credit between the plan and a party in
interest, or "(D) transfer to, or use by
or for the benefit of, a party in
interest, of any assets of the plan."/1
This argument is easily disposed of,
however, because it is viable only if UPS
(the party in interest) had an obligation
to contribute to the Fund during the
abatement period. In that case, if the
parties agreed that the Fund would not
collect the delinquent contributions, the
arrangement may be deemed a prohibited
transaction. See Prohibited Transaction
Exemption 76-1, 41 Fed. Reg. 12740, 12741
(1976). If no obligation existed,
however, then no extension of credit was
granted or received, and no transfer of
plan assets took place. As discussed
above, UPS had no obligation under the
governing documents to contribute to the
Fund during the abatement period.
Therefore, no prohibited transaction
occurred under ERISA sec. 406(a)(1).
III. Conclusion
For the foregoing reasons, we AFFIRM the
district court’s grant of summary
judgment in favor of the defendants.
FOOTNOTE
/1 Sprague amended his original claim to name UPS as
a defendant to the prohibited transaction charge
after the Supreme Court held that a plan partici-
pant under ERISA may maintain a direct action
against a nonfiduciary party in interest in
Harris Trust and Savings Bank v. Salomon Smith
Barney, Inc., 530 U.S. 238 (2000).