Central States Areas v. Hunt Truck Lines Inc

In the
United States Court of Appeals
For the Seventh Circuit

No. 00-3922

Central States, Southeast and
Southwest Areas Pension Fund
and Howard McDougall,

Plaintiffs-Appellants,

v.

Hunt Truck Lines, Inc.,
an Iowa corporation,

Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 96 C 5634--John A. Nordberg, Judge.

Argued May 14, 2001--Decided December 3, 2001

Before Bauer, Rovner, and Diane P. Wood,
Circuit Judges.

Diane P. Wood, Circuit Judge. Prior to a
series of corporate sales and
bankruptcies, Hunt Truck Lines
participated in the Central States,
Southeast and Southwest Areas Pension
Fund. In 1996, Central States determined
that Hunt owed withdrawal payments to the
fund. It accordingly sent a notice
demanding that Hunt begin making interim
payments while the parties arbitrated
Hunt’s ultimate liability. Hunt, however,
refused to pay. Central States responded
with this suit seeking the interim
payments. Despite the broad power pension
funds generally have to demand such
payments, the district court refused to
order Hunt to pay, finding that this was
one of those rare cases in which the fund
had exceeded its powers. In February
2000, a panel of this court affirmed that
decision. Central States, Southeast and
Southwest Areas Pension Fund v. Hunt
Truck Lines, Inc., 204 F.3d 736 (7th Cir.
2000) (Hunt I). Hunt then returned to the
district court to request attorneys’
fees, and the district court awarded it
over $100,000. Central States has
appealed that award, arguing that its
position in the underlying case was
substantially justified and that special
circumstances exist in this case that
make an award of fees unjust. We agree
with Central States and reverse the
judgment of the district court.

I

In 1994, Hunt withdrew from the Central
States pension fund. In many
circumstances, this action would
havegiven rise to withdrawal liability on
Hunt’s part under the relevant provisions
of the Multiemployer Pension Plan
Amendments Act of 1980, 29 U.S.C.
sec.sec. 1381-1461 (MPPAA). Because Hunt
sold its assets to another company, Wintz
Parcel Drivers, Inc., however, the
situation was morecomplicated. As long as
Wintz continued to make payments to the
fund, Hunt did not face withdrawal
liability under the MPPAA. In 1996, one
of Wintz’s subsidiaries went bankrupt,
which triggered withdrawal liability on
Wintz’s part under the relevant statutes.
Central States first sent a notice to
Wintz demanding that it begin making
installment payments on the withdrawal
liability, but Wintz defaulted. Its
default permitted Central States to
pursue Hunt’s secondary liability for the
withdrawal payments.

On May 31, 1996, Central States sent
Hunt a notice demanding that it begin
making installment payments on its
withdrawal liability. Hunt refused, and
Central States brought this lawsuit. At
the same time, Central States commenced
arbitration to determine Hunt’s final
liability.

The provisions of the MPPAA that give
pension plans the right to demand interim
payments of withdrawal liability are
quite broad, and the general rule is that
the plan is entitled to receive interim
payments while the parties arbitrate the
employer’s ultimate withdrawal liability.
See, e.g., Trustees of the Chicago Truck
Drivers, Helpers and Warehouse Workers
Union (Independent) Pension Fund v.
Central Transp., Inc., 935 F.2d 114, 118
(7th Cir. 1991). There are very few
exceptions to the plan’s right to such
payments, because the purpose of the
interim payment provisions is to ensure
that the plan is protected from the risk
of insolvency and that it remain fully
funded while the parties arbitrate their
dispute. The statute mandating
arbitration of disputes over withdrawal
liability would be thwarted if employers
could litigate the merits of their claims
before interim payments were made. See
id. at 118-19. In most cases, therefore,
when a plan seeks an order for interim
payments, the district court enters the
order as a matter of course.

This case proved to be an exception to
that rule. In the district court, Hunt
pointed out that Central States sent the
notice and demand to Hunt on May 31, but
that in its memorandum in support of
summary judgment in the district court,
Central States stated that Wintz withdrew
from the plan "on or about July 20."
Because Hunt could not have incurred
withdrawal liability until Wintz actually
withdrew from the plan, it was apparent
that Central States had sent the notice
to Hunt at least a month and a half
before Hunt incurred any liability. Hunt
argued that, although the provision for
interim payments was broad, at a minimum
the statute did not allow Central States
to seek payments until after Hunt
incurred withdrawal liability. Central
States responded to this assertion in two
ways. First, it argued that it thought
the withdrawal might have occurred as
early as May 3, and that since the date
of withdrawal was disputed, that issue
should be submitted to arbitration. In
addition, Central States argued that,
even if its notice was premature, it was
clear that Wintz had withdrawn by the
time Central States filed its complaint
in the district court on September 5, and
so the district court could order the
interim payments despite the fact that
the initial notice was premature.
The district court sided with Hunt, and
a panel of this court affirmed that
decision. Hunt I, 204 F.3d at 743. We
rejected Central States’ effort to argue
that "on or about July 20" could mean "as
early as May 3" and held instead that
Central States would be bound by the
admission it made in its summary judgment
memorandum; this meant that the date of
withdrawal was not legitimately in
dispute. Id. at 742. We also ruled that,
under the MPPAA, a pension fund was not
permitted to issue a notice and demand
for withdrawal liability until after the
employer incurred such liability. Id.
Because Central States did not comply
with this statutory requirement, we
agreed that Central States could not
collect interim payments based on the May
31 notice. Id.

Although Hunt prevailed on the narrow
question presented, this court was
careful to note that the decision would
not preclude Central States from
recovering the withdrawal payments once
it issued a revised demand notice. In
closing Hunt I, this court opined that
"it appears certain that Central States
will (and should) receive the full
withdrawal fee to which it is entitled,"
and warned that "Hunt should comply with
the fund’s later demand." Id. at 743.
Central States indeed filed a revised
notice, quite promptly. Nevertheless, as
of the date of oral argument in this
case, Hunt had yet to pay a dime on the
underlying liability.

Far from agreeing to pay what it owes,
Hunt instead filed a number of motions in
the district court seeking to have
Central States pay Hunt for its
attorneys’ fees in litigating Hunt I.
Hunt did prevail on the only issue it
raised in the case, which was whether
Central States could demand interim
payments based on a premature notice of
liability. There is a modest presumption
in ERISA cases in favor of awarding
attorneys’ fees to the prevailing party,
Meredith v. Navistar Int’l Transp. Corp.,
935 F.2d 124, 128 (7th Cir. 1991), and
the district court accordingly granted
Hunt’s fee petitions. Despite the
presumption in favor of awarding fees in
usual cases, however, we believe that the
district court erred in failing to take
into account the broader context of this
litigation.

II

ERISA generally permits a district court
to award attorneys’ fees to either party
in a dispute over withdrawal liability.
29 U.S.C. sec. 1132(g). This court has
described the approach the district
courts should take in determining whether
to award fees in ERISA cases in two ways.
The first looks to five factors that the
court should consider in connection with
the fee question: (1) the degree of the
losing party’s culpability or bad faith;
(2) the ability of the losing party to
satisfy an award of fees; (3) whether an
award of fees against the losing party
would deter others from acting under
similar circumstances; (4) whether the
party requesting fees sought to benefit
all participants and beneficiaries of an
ERISA plan or to resolve a significant
legal question regarding ERISA; and (5)
the relative merits of the parties’
positions. Meredith, 935 F.2d at 128. The
second approach indicates that the
district court should award fees to the
prevailing party unless either (1) the
losing party’s position was substantially
justified or (2) special circumstances
make a fee award unjust. Id. In the end,
we think these two formulations are
simply alternative ways of making the
same basic point: as we have put it
before, "the bottom-line question is . .
. : was the losing party’s position
substantially justified and taken in good
faith, or was that party simply out to
harass its opponent?" Id. We review the
district court’s decision to award fees
for abuse of discretion. Bowerman v. Wal-
Mart Stores, Inc., 226 F.3d 574, 592 (7th
Cir. 2000).

Here, in the broader context of this
litigation, an award of fees would do
nothing but encourage the very foot-
dragging and avoidance of interim payment
liability that the statute was designed
to prevent, and thus would be "unjust."
The district court apparently felt that
it was without power to consider events
not directly related to the case before
it. This assumption was in error. Our
cases make clear that a district court
considering an award of fees should take
into consideration any "special
circumstances" which would make an award
of fees unjust, see Meredith, 935 F.2d at
128, and that directive is broad enough
to encompass consideration of pending,
related litigation between the parties.

Once we take this broader context into
account, it becomes clear why fees would
be inappropriate here. Although Hunt won
this round of its battle with Central
States, as far as we can tell from the
record, there is no dispute that Hunt
will ultimately face withdrawal
liability. Nevertheless, Hunt has
continued to refuse to make payments to
Central States, and as of the date of
oral argument in this case had not paid
anything. The fact that Hunt has now
managed to put off making its first
payment on its liability for several
years confirms our suspicion that Hunt’s
primary motivation in this case was not
to force Central States to issue a new
demand notice revising the withdrawal
date by a few months (which Central
States has long since done), but to delay
paying its withdrawal liability for as
long as possible. In the face of Hunt’s
obstinance, it would be unjust to require
Central States to pay Hunt over $100,000.
Given the fact that Hunt apparently is
not financially stable and that Central
States fears that, when it finally does
receive an enforceable award against
Hunt, Hunt will no longer be able to pay,
the injustice of ordering an award at
this stage is particularly acute.

We also conclude that the district court
erred in concluding that Central States
had no legitimate justification for its
position in the underlying litigation and
was pursuing the case in bad faith. The
district court was understandably
unimpressed with Central States’ argument
that when it said Wintz withdrew from the
plan "on or about July 20," it might have
meant as early as May 3. Perhaps that
rather silly assertion detracted from the
force of Central States’ key point, which
was that the legal question it was
presenting was not so simple after all.
The district court thought it clear under
the relevant statutes that Central States
had overstepped its bounds by trying to
collect interim payments based on a
premature demand notice. Noting that
Central States still had the power to
reissue a valid notice, the district
court believed that an award of fees
would serve as a deterrent to Fund
attempts to skirt the statutory framework
in the future. Finally, although the
district court acknowledged that Central
States was likely to prevail on the issue
of Hunt’s ultimate liability, it regarded
that issue as relevant only to the
related cases before other judges and not
to the merits of the parties’ positions
in the case before it.

In fact, the issues that Central States
was litigating were more complex than the
district court acknowledged and its
position was, even if not ultimately a
winning one, substantially justified. In
several cases prior to Hunt I, we
stressed that under the MPPAA an employer
is required to make interim payments at
the fund’s request in almost all cases.
It therefore followed, we said, that we
would refuse to order interim payments
only if the employer could show both (1)
that the fund did not have even a
colorable claim on the merits of its
assessment of liability, and (2) that
making the interim payments while the
claim’s merits were arbitrated would
cause the employer irreparable harm. See
Trustees of the Chicago Truck Drivers,
Helpers and Warehouse Workers Union
(Independent) Pension Fund v. Rentar
Indus., Inc., 951 F.2d 152, 154-55 (7th
Cir. 1991); Central Transp., 935 F.2d at
118-19.

In this case, Hunt never even attempted
to show that it would suffer irreparable
harm if it were required to make interim
payments. Under Rentar Industries and
Central Transport, Central States thus
had a respectable argument that Hunt
could not avoid an order for interim
payments regardless of any problems with
Central States’ notice. Ultimately, of
course, we determined that if a fund’s
demand for payments was facially
defective, we would not inquire into the
harm the company would suffer from making
interim payments. Nevertheless, prior to
Hunt I, we had never found any exceptions
to the two-part rule of Rentar Industries
and Central Transport. Under those
circumstances, one could not say that
Central States lacked a substantial
justification for the argument it raised
in reliance on these cases.

Central States also had a significant
good-faith reason for taking the position
it did. Central States operates a pension
fund supported by contributions from
multiple employers, and when an employer
defaults on its obligations to the fund,
Central States’ ability to pay the
promised pensions to its beneficiaries
may be endangered. Nevertheless, as
Central States’ frequent resort to this
court shows, employers who have withdrawn
from the fund are often recalcitrant when
it comes to paying withdrawal liability.
See, e.g., Central States, Southeast and
Southwest Areas Pension Fund v. Bomar
Nat’l, Inc., 253 F.3d 1011 (7th Cir.
2001); Central States, Southeast and
Southwest Areas Pension Fund v. Safeway,
Inc., 229 F.3d 605 (7th Cir. 2000);
Central States, Southeast and Southwest
Areas Pension Fund v. Midwest Motor
Express, Inc., 181 F.3d 799 (7th Cir.
1999). As we explained in Central
Transport, the fund’s ability to collect
interim payments while the parties
arbitrate the employer’s ultimate
liability is a critical component of the
MPPAA’s statutory scheme. 935 F.2d at
118. Because many employers that have
withdrawn from a fund are financially
unstable, the interim payments provide
the fund with a needed assurance that, in
the event the employer is ultimately
found liable, there will be funds
available to cover the employer’s
liability. Id. Recognizing this need,
Congress intentionally drafted the
interim payment provisions of the MPPAA
to give funds very broad power to demand
interim payments, id., and the funds have
an obligation to their constituents to
try to keep that power as broad as
required to meet the statutory purposes.

From the perspective of the employer,
the difference between having to pay
based on a premature notice and being
able to wait until the fund issues a
proper notice may be insignificant--a few
months of payments at the most. Given the
number of withdrawal liability notices
the fund sends out in any given year,
however, the delay in payment during
those few months could quickly add up to
substantial losses for the fund. In
addition, although the district court
found that there was no legitimate
dispute over the appropriate withdrawal
date in this case, withdrawal dates are
often difficult to compute with
precision, which means that the fund had
a substantial interest in arguing for a
rule that would not penalize it for
occasional miscalculations. For these
reasons, we believe Central States had a
significant, good-faith reason for
litigating this case.

Once it is established that Central
States’ position in this case was
substantially justified and taken in good
faith, the district court’s concern that
an award of fees was necessary to deter
similar conduct by funds in future cases
loses much of its force. Although Central
States’ position in this case was
substantially justified, now that we have
answered the legal question, a similar
argument in a future case would lack
merit.

In closing, we stress that we are not
holding that an award of fees could never
be appropriate in an interim payments
case. Rather, as we have repeatedly held,
the district court must evaluate a fee
request on the basis of all the
circumstances of the case. In the unique
circumstances of this case, however, we
find that an award of fees to Hunt would
be unjust, and that the district court
accordingly abused its discretion in
making that award. The judgment of the
district court is Reversed.