In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 06-3362, 06-3397, 06-4040, 07-1353
CHICAGO TRUCK DRIVERS, HELPERS
AND WAREHOUSE WORKERS UNION
(INDEPENDENT) PENSION FUND, and
JACK STEWART, Trustee,
Plaintiffs-Appellees,
Cross-Appellants,
v.
EL PASO CGP COMPANY, EL PASO
MIDWEST COMPANY, EL PASO
CNG COMPANY, L.L.C., AMERICAN
NATURAL RESOURCES COMPANY, and
ANR ADVANCE HOLDINGS, INC.,
Defendants-Appellants,
Cross-Appellees.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division
No. 04 C 7872—David H. Coar, Judge.
____________
ARGUED SEPTEMBER 20, 2007—DECIDED MAY 13, 2008
____________
Before CUDAHY, POSNER, and WILLIAMS, Circuit Judges.
CUDAHY, Circuit Judge. The Chicago Truck Drivers,
Helpers and Warehouse Workers Union (Independent)
2 Nos. 06-3362, 06-3397, 06-4040, 07-1353
Pension Fund (the Fund) and its trustee, Jack Stewart,
brought this suit against Defendants El Paso CGP Com-
pany, El Paso Midwest Company, El Paso CNG Company,
L.L.C., American Natural Resources Company and ANR
Advance Holdings, Inc. to collect withdrawal liability
under the Multiemployer Pension Plan Amendments Act of
1980 (MPPAA). See 29 U.S.C § 1401(b)(1). The Defendants
deny that they owe any withdrawal liability. The Fund,
however, argues that the Defendants are not only liable but
have forfeited their right to contest liability by failing to
make a timely demand for arbitration back in 1999, when
a proof of claim for withdrawal liability payment was filed
in the Chapter 7 bankruptcy of one of the Defendants’
affiliates. The Defendants believe that their duty to arbi-
trate was not triggered in 1999 because the proof of claim
was not the valid notice and demand for payment pre-
scribed by the statute. The district court agreed with the
Fund and granted its motion for summary judgment on
liability but denied the Fund’s motion for judgment on
damages, choosing instead to calculate damages under
another theory. Both parties appealed.
The question before us immediately is not whether
the Defendants are liable for the withdrawal assessment;
it is whether the Fund’s filing of the proof of claim in a
Chapter 7 bankruptcy constituted a statutory notice and
demand and thus cut off the Defendant’s right to con-
test liability. We hold that the proof of claim was suf-
ficient but only because the Defendants had actual notice
of it no later than January 1, 2002. We therefore AFFIRM
the judgment of the district court on liability. We dis-
agree, however, with the district court’s resolution of the
damages issues, so we VACATE the judgment on damages
and REMAND the case for further proceedings.
Nos. 06-3362, 06-3397, 06-4040, 07-1353 3
I.
The MPPAA is, of course, actually a series of amend-
ments to the Employee Retirement Income Security Act
of 1974 (ERISA). See 29 U.S.C. § 1001 et seq. ERISA is
famously complicated and often tedious. As is customary,
we begin with a brief review of the relevant law. Hope-
fully, this will make the exposition of the facts a bit more
digestible.
The MPPAA protects employees in multiemployer pen-
sion plans by requiring employers who withdraw from
such plans to pay their share of “unfunded vested bene-
fits.” 29 U.S.C. § 1381(b)(1). This is known as “withdrawal
liability.” When an employer withdraws, the plan sponsor
calculates the amount of liability and, “[a]s soon as practi-
cable,” notifies the employer of the liability and demands
payment. 29 U.S.C. § 1399(b)(1). This “notice and demand”
must include the amount of liability and a schedule of
installment payments. When the employer receives the
notice, it must begin paying according to the schedule.
See Robbins v. Pepsi-Cola Metro. Bottling Co., 800 F.2d 641,
642-43 (7th Cir. 1986) (per curiam). The statute places a
premium on prompt payment; it is a “pay now, dispute
later” scheme. Id. at 642. But the withdrawing em-
ployer “owes nothing” until the plan notifies it of its
liability and demands payment. Milwaukee Brewery Workers’
Pension Plan v. Joseph Schlitz Brewing Co., 513 U.S. 414,
423, 115 S. Ct. 981, 130 L. Ed.2d 932 (1985).
If the employer wishes to dispute a plan sponsor’s
assessment of withdrawal liability, it must arbitrate the
issue. See 29 U.S.C. § 1401(a)(1). Exceptions to the arbitra-
tion requirement are made only in the rarest cases. See
Central States, Se. & Sw. Areas Pension Fund v. Slotky, 956
F.2d 1369, 1373 (7th Cir. 1992). Upon receipt of the notice
4 Nos. 06-3362, 06-3397, 06-4040, 07-1353
and demand, the employer has 90 days to request an
informal review by the plan of the assessment. See 29
U.S.C. § 1399(b)(2)(A). The employer then has roughly
120 additional days to demand arbitration. See 29 U.S.C.
§ 1401(a)(1). If an employer fails to demand arbitration,
the assessment becomes “due and owing on the sched-
ule set forth by the plan sponsor.” 29 U.S.C § 1401(b)(1).
When a plan sponsor sues to collect withdrawal liability,
it may sue the withdrawing employer or any trade or
business under “common control” with the employer
because members of a “controlled group” are jointly and
severally liable for the withdrawal. 29 U.S.C. § 1301(b)(1).
The definition of a “controlled group” under the MPPAA
tracks the definition under the Internal Revenue Code
and includes parent-subsidiary relationships. See 26
U.S.C. § 1563(a). The controlled group provision allows
a plan “to deal exclusively with the defaulting em-
ployer known to the fund, while at the same time assuring
[itself] that legal remedies can be maintained against all
related entities in the control group.” Bd. of Trs. of Trucking
Employees of North Jersey Welfare Fund, INC-Pension Fund v.
Kero Leasing Corp., 377 F.3d 288, 306 (3d Cir. 2004) (Rosenn,
J., dissenting). Thus, any notice sent to one member of a
controlled group is considered constructive notice to
all other members of such a group. See Slotky, 956 F.2d
at 1375.
Of course, the purpose of the MPPAA is to ensure that
employers live up to the obligations they owe to the
pension fund and to the employees who participate in it.
But Congress also recognized that employers that have
substantial pension liabilities may attempt to shirk their
obligations through deceptive transactions. See Teamsters
Pension Trust Fund—Bd. of Trs. of the Western Conference
Nos. 06-3362, 06-3397, 06-4040, 07-1353 5
v. Allyn Transp. Co., 832 F.2d 502, 507 (9th Cir. 1987).
Congress thus provided that “[i]f a principal purpose of
any transaction is to evade or avoid liability under this
part, [Sections 1381 to 1405] shall be applied (and liability
shall be determined and collected) without regard to such
transaction.” 29 U.S.C. § 1392(c). This discourages com-
panies from using corporate forms and manipulations
to shield themselves from withdrawal liability.
II.
With all this in mind, we turn to the facts of the case. The
Chicago Truck Drivers, Helpers and Warehouse Workers
Union (Independent) (the Union) entered into a collective
bargaining agreement with a trucking company called
ANR Freight System, Inc. (ANR Freight) on April 3, 1994.
The agreement required ANR Freight to contribute to
the Fund.
ANR Freight was the wholly owned subsidiary of the
Coastal Corporation (Coastal), a large oil and gas com-
pany. Coastal controlled ANR Freight through a series
of intermediaries: Coastal was the sole stockholder of
Coastal Natural Gas Company (Coastal Natural); Coastal
Natural was the sole stockholder of ANRC; ANRC was the
sole stockholder of ANRFS Holdings; and ANRFS Hold-
ings was the sole stockholder of ANR Freight. Most of these
companies subsequently changed names or were suc-
ceeded by other companies: Coastal became El Paso CGP
Company; Coastal Natural became EL Paso CNG Com-
pany, L.L.C.; and ANRFS Holdings merged with El Paso
Midwest Company. It is undisputed that, until November
3, 1995, these companies constituted a “controlled group,”
which we will call the Coastal Group.
6 Nos. 06-3362, 06-3397, 06-4040, 07-1353
In 1995, the Coastal Group arranged to have ANR
Freight merge with Advance Transportation Company
(ATC), a wholly unrelated trucking company owned by
its employees and by individual shareholders. The merger
was accomplished in two steps. First, on August 14,
1995, ANR Freight exchanged stock with ATC, with the
result that the Coastal Group and the shareholders of
ATC each became 50% owners of each other’s companies.
Second, on November 3, 1995, ATC merged with ANR
Freight and the resulting company was immediately
renamed ANR Advance Transportation Company (ANR
Advance). As a result of the exchange of stock and the
subsequent merger, ANR Advance was no longer part
of the Coastal Group because the Coastal Group no
longer owned 80% or more of ANR Advance’s stock. See
United States v. Vogel Fertilizer Co., 455 U.S. 16, 29, 102 S. Ct.
821, 70 L. Ed.2d 792 (1982).
Over the next three years, ANR Advance operated its
trucking business and made regular contributions to the
Fund. On February 2, 1999, an involuntary Chapter 11
petition was filed against ANR Advance and, on
March 3, 1999, a court converted the case into a Chapter 7
proceeding. The Fund decided that ANR Advance had
withdrawn from the Fund and filed a proof of claim for
withdrawal liability in the ANR Advance bankruptcy on
June 3, 1999. The proof of claim referred to “withdrawal
liability,” stated the total amount of the assessment and
carried a liability payment schedule, which broke the
assessment down into ten installments.
When the proof of claim was filed, the bankruptcy
proceeding was under Chapter 7 and was being adminis-
tered by a trustee, who apparently never informed the
Defendants of the filing of the claim. The claim languished
Nos. 06-3362, 06-3397, 06-4040, 07-1353 7
amidst sundry paperwork for over two years. In late 2001,
Steven McKemy, a lawyer for the Defendants, finally
discovered it while doing due diligence in the settle-
ment of another case. The Defendants did not, however,
respond to the proof of claim. They chose to sit on their
hands.
So, apparently, did the Fund, which did not follow up
on the notice and did not file suit to collect the liability.
On November 18, 2004, more than five years after the
original proof of claim was filed in the Chapter 7 bank-
ruptcy, the Fund sent the Defendants a letter containing
a notice and demand, which the Defendants received
two days later. This notice and demand contained a
new schedule of ten installments, with the first due on
December 1, 2004. The Defendants did not pay the first
installment until February 10, 2005. The Defendants
requested review of the assessment on February 15,
2005. On August 3, 2005, they demanded arbitration.
On December 6, 2004, the Fund and its trustee,
Jack Stewart, brought this action to collect withdrawal
liability from the Defendants. The parties then filed cross-
motions for summary judgment on the question of liabil-
ity. On April 18, 2006, the district court granted the
Fund’s motion for summary judgment and denied the
Defendants’ motion. Shortly thereafter, the Fund moved
for summary judgment on damages. The district court
denied the Fund’s motion and, in a separate opinion,
entered a final judgment following a different theory
of damages.
III.
We first discuss the district court’s judgment on liability.
Although ANR Advance severed its ties with the De-
8 Nos. 06-3362, 06-3397, 06-4040, 07-1353
fendants’ controlled group years before it withdrew from
the plan, the Fund argues that the Defendants may still
be held liable because the November 3, 1995 merger
was designed to “evade or avoid” withdrawal liability. See
29 U.S.C. § 1392(c). Evade or avoid allegations, however,
are generally reserved for arbitration. See Banner Industries,
Inc. v. Central States, Se. & Sw. Areas Pension Fund, 875
F.2d 1285, 1288 (7th Cir. 1989). Thus, the Fund argues
that the Defendants have waived their right to assert their
non-liability by failing to demand arbitration.
If an employer fails to demand arbitration, the assess-
ment becomes due and owing on the schedule provided by
the plan. See 29 U.S.C § 1401(b)(1). But the Defendants’
statutory duty to arbitrate is not triggered initially until
they receive a proper notice and demand. The district
court thus correctly stated that, to prevail on a collection
claim, the Fund must show that: (1) “the Fund was a
multiemployer pension plan and the Defendants were an
employer for the purposes of ERISA,” (2) “the Fund
notified the Defendants of their assessed liability,” and
(3) “Defendants failed to timely initiate arbitration.”
Chicago Truck Drivers, Helpers & Warehouse Workers
Union (Indep.) Pension Fund v. El Paso CGP Co., No. 04 C
7872, 2006 WL 1037152, at *4 (N.D. Ill. April 17, 2006).
The Fund is, of course, a multiemployer pension plan
and it is undisputed that the Defendants were once
MPPAA employers.1 This case hinges, in the first ins-
tance, on the adequacy and propriety of the June 3, 1999
1
While the Defendants claim that they were no longer MPPAA
employers at the time of the withdrawal, this defense needs
to be raised in arbitration. See Banner Industries, 875 F.2d at 1288.
Nos. 06-3362, 06-3397, 06-4040, 07-1353 9
notice and demand because a proper notice and demand
starts the arbitration clock running and thus determines
whether the initiation of arbitration was timely. If the
only valid notice and demand in this case is the letter
sent by the Fund on November 18, 2004, then the Defen-
dants made a timely demand for arbitration. But, if the
proof of claim filed in ANR Advance’s Chapter 7 bank-
ruptcy on June 3, 1999 was a valid notice and demand,
the Defendants waived their right to arbitration when
this purported proof of claim was filed. The Fund would
then prevail and we would need only to establish damages.
A.
We first examine the adequacy, as statutory notice and
demand, of the proof of claim filed in bankruptcy on
June 3, 1999. In order to satisfy the statutory require-
ments, a notice and demand must include the amount of
the liability, a schedule of payments and a demand for
payment; it must also be sent “to the employer.” 29 U.S.C.
§ 1399(b)(1). We have been indulgent about the specific
form a notice and demand may take, and have recognized
proofs of claim in bankruptcy to be adequate notices under
the statute, at least in some situations. See Slotky, 956 F.2d
at 1375; Trs. of the Chicago Truck Drivers, Helpers & Ware-
house Workers Union (Indep.) Pension Fund v. Central Trans-
port, Inc., 888 F.2d 1161, 1162 (7th Cir. 1989). In Slotky
and Central Transport, we recognized proofs of claim in
Chapter 11 bankruptcies as meeting the statutory require-
ments. Here, the Defendants contend that the proof of
claim did not contain a demand for payment but we
have held that a proof of claim is, by definition, a demand
for payment. Id. The Defendants also complain that the
proof of claim here did not contain a schedule, which
10 Nos. 06-3362, 06-3397, 06-4040, 07-1353
they interpret to mean a “timetable” rather than a “list.”
This is beside the point. A proof of claim filed in bank-
ruptcy need not contain a schedule of payment; such a
schedule would be useless in that context, for the bank-
ruptcy court can ultimately set its own schedule.2 Slotky,
956 F.2d at 1375.
But, as the Defendants point out, the statutory trigger
for arbitration is not the mere existence of a proper
notice and demand; the notice must be sent “to the em-
ployer.” 29 U.S.C. § 1399(b)(1). What distinguishes the
present case from Slotky and Central Transport is that the
proof of claim here was filed in a Chapter 7 bankruptcy,
not a Chapter 11 bankruptcy. In a typical Chapter 11
bankruptcy, the debtor continues to control the business
as debtor-in-possession, so notice to the debtor-in-posses-
sion is, strictly speaking, notice to the employer. A Chapter
7 bankruptcy, on the other hand, is conducted by a
trustee who is neither the agent of the debtor nor the
fiduciary of the debtor. The trustee has no general duty to
inform the debtor of the filing of a proof of claim; a duty
to inform the debtor of the progress of the liquidation
arises only if the debtor so requests. See 11 U.S.C. § 704(a)(7).
And it is unlikely that debtors will request this information,
for debtors in a Chapter 7 bankruptcy know that the
remaining funds will be inadequate to meet all obligations.
As a result, a proof of claim filed in a Chapter 7 bankruptcy
will not foreseeably come to the attention of the employer
2
When a schedule does not specify the date when the first
installment is due, the first installment would presumably
be due sixty days after the notice was received. See 29 U.S.C.
§ 1399(c)(2).
Nos. 06-3362, 06-3397, 06-4040, 07-1353 11
or to a member of the controlled group (and apparently did
not here until it was later inadvertently discovered).
This is, at least, how things typically work, and the Fund
has not come forward with any evidence that suggests a
different situation here. Perhaps the Fund could have
shown that the debtor had, in fact, been an active partici-
pant in this bankruptcy; perhaps the debtor held meetings
with the trustee and kept close tabs on the proceedings.
Under these circumstances, the Fund should at least be
charged with showing that the filing of a proof of
claim was an effective means of conveying notice,
which has not been done here. Nor did the Fund notify
the Defendants directly of the Chapter 7 filing. Conse-
quently, the proof of claim filed on June 3, 1999 was an
insufficient notice and demand under the statute.
B.
In addition, even if the present case had involved a
Chapter 11 bankruptcy, we would have a serious problem
of the adequacy of notice in this case. The problem arises
with respect not to notice delivered directly to the em-
ployer but to notice delivered indirectly through the
controlled group. The theory that notice to one member of a
controlled group is notice to all is characterized as con-
structive notice and is generally recognized in connection
with withdrawal liability. See Slotky, 956 F.2d at 1375;
Central Transport, 888 F.2d at 1163-64.
When the proof of claim was filed on June 3, 1999,
however, the Defendants were no longer a part of the
same controlled group as ANR Advance (the subject of
the proof of claim) and, hence, notice to the Defendants
via the controlled group here is problematic. In essence,
12 Nos. 06-3362, 06-3397, 06-4040, 07-1353
the Fund asks us to extend the constructive notice
principle to include notice to former members of the
controlled group. Such an application of the constructive
notice principle is unprecedented in this circuit. In the
cases we have examined in which the constructive
notice principle has been applied, the employer has
always been a member of the then-existing controlled
group. See, e.g., Central States, Se. & Sw. Areas Pension Fund
v. Nitehawk Exp., Inc., 223 F.3d 483 (7th Cir. 2000); Slotky,
956 F.2d at 1375; Central Transport, 888 F.2d at 1163-64; IUE
AFL-CIO Pension Fund v. Barker & Williamson, Inc., 788 F.2d
118 (3d Cir. 1986). The Third Circuit, the only other
circuit court to consider the issue, balked at such an
extension of the constructive notice principle. See Kero
Leasing, 377 F.3d at 298-99 & n.10.
Nevertheless, the Fund believes that here the district
court’s application of a constructive notice principle can
be validated on the basis of the “evade or avoid” provi-
sion of 29 U.S.C. § 1392(c). This provision states that, if
the primary purpose of a transaction is to “evade or
avoid” pension liability, the transaction may be disre-
garded and liability enforced “without regard to such
transaction.” Id. Again, this claim is unprecedented. In the
reported cases, when a fund has alleged an “evade or
avoid” transaction, the issue has been not the adequacy of
notice but the validity of the transaction itself or the
arbitrability of that issue. See, e.g., Sherwin-Williams Co. v.
New York State Teamsters Conference Pension & Ret. Fund, 158
F.3d 387 (6th Cir. 1998); Santa Fe Pacific Corp. v. Central
States, Se. & Sw. Areas Pension Fund, 22 F.3d 725 (7th Cir.
1994); Doherty v. Teamsters Pension Trust Fund of Philadelphia
& Vicinity, 16 F.3d 1386 (3d Cir. 1994); Banner Industries,
875 F.2d at 1288. Using the “evade or avoid” provisions to
Nos. 06-3362, 06-3397, 06-4040, 07-1353 13
establish notice could have troubling consequences; those
courts that have addressed the argument have thus
rejected it. See Kero Leasing, 377 F.3d at 298-99 & n.10; Trs.
of the Chicago Truck Drivers, Helpers & Warehouse Workers
Union (Indep.) v. Rentar Indus., Inc., 1989 U.S. Dist. LEXIS
13385, at **11-14 (N.D. Ill. Nov. 7, 1989).
As a practical matter, we cannot expect former owners
always to be aware of a notice and demand that is sent after
they have left the controlled group entirely. It is important
to keep in mind that provisions like the “evade or avoid”
provision reflect “congressional concern that the realities of
business organizations should prevail over the formalities
of corporate structure in imposing liability.” Cf. Pension
Benefit Guar. Corp. v. Anthony Co., 537 F.Supp. 1048, 1052 n.6
(N.D. Ill. 1982). In the instant case, the Defendants retained
an ownership interest in ANR Advance after the merger
and loaned the company a substantial amount of money.
But it is not difficult to imagine a case in which the rela-
tionship between current and former members of a con-
trolled group is distant or, indeed, non-existent. In those
cases, the practical justification for recognizing the applica-
tion of a constructive notice principle loses much of its
force.
We question the equity of denying a former owner the
right to contest liability because it failed to respond to a
notice sent to a company from which it was already
separated. See Rentar Indus., 1989 U.S. Dist. LEXIS 13385,
at **11-14. When a plan sponsor asserts a claim against a
former member of a controlled group, the best practice
always is to send that notice directly to the former owner,
so that it has a clear opportunity to contest liability.
14 Nos. 06-3362, 06-3397, 06-4040, 07-1353
C.
Despite all these objections, the Fund’s proof of claim
here did eventually reach the Defendants. In fact, in their
answers to the Fund’s interrogatories, the Defendants
admitted that their lawyer reviewed the proof of claim in
question while doing due diligence in another lawsuit,
and that the Defendants had “actual knowledge of the
Proof of Claim no later than January 1, 2002.” Appellee’s
App. at 275, 277. The Fund’s notice thus actually got “to the
employer,” and the statutory duty to arbitrate was trig-
gered when the Defendants “receive[d] the notice.” 29
U.S.C. § 1399(b)(2)(A). Nothing more is required if the
notice and demand contains the necessary information,
as this one did.3 Thus, this actual notice trumps any
deficiencies in it as a statutory notice.
Desperate to avoid this conclusion, the Defendants now
argue that “mere awareness” or “mere possession” of the
proof of claim does not amount to “receipt.” They also
argue that they knew of the proof of claim but did not
know of its content. These arguments partake of the meta-
physical. The proof of claim clearly stated that it con-
cerned withdrawal liability; the Defendants cannot stick
their heads in the sand and later claim ignorance. The
3
Notes written in the margins of the Defendants’ copy of the
proof of claim (as well as other documents) suggest that the
Defendants were also aware of the potential consequences of
failing to respond. The Defendants objected to the admission of
these documents on the grounds of attorney-client privilege,
despite the fact that these objections had already been waived
in prior litigation. The Fund’s motion to compel was denied
as moot after the district court ruled in the Fund’s favor on
liability. We need not consider these matters here.
Nos. 06-3362, 06-3397, 06-4040, 07-1353 15
Defendants also argue that the notice should have con-
tained some signal that it could operate “against them,” but
this is not the law. See Slotky, 956 F.2d at 1375.
The question then is simply whether the Defendants were
entitled to ignore the proof of claim and wait to be sued, or
whether they had to initiate arbitration. We have answered
this question many times:
Anyone who suspects that he might be adjudged a
member of a controlled group and therefore subjected
to withdrawal liability would be well advised to
commence arbitration, so that if a court holds that he is
a member of such a group and hence is subject to
such liability he won’t have waived the issues that
are reserved for arbitration, as [the Defendant] did
here.
Id. at 1373. Thus, the proof of claim—whatever its initial
deficiencies—when it came to be inspected by an agent
of the employer, operated to put the employer on notice
of its withdrawal liability. The Fund was merely for-
tunate that its assessment of liability fell into the right
hands. This stroke of luck cured the deficiencies in the
Fund’s conformity with the statutory requirements. The
information thus communicated to the employer was
adequate for statutory purposes. It also disposes of the
Defendant’s as-applied due process claim. The judgment
entered by the district court on liability is thus affirmed.
IV.
We now turn to the judgment on damages. The central
dispute here is whether the debt based on withdrawal
liability owed by the Defendants was accelerated and
16 Nos. 06-3362, 06-3397, 06-4040, 07-1353
became due when the Defendants became aware of their
indebtedness. In its opinion on liability, the district court
had stated that the Fund was entitled to accelerate the
debt and cited our decision in Central States, Se. & Sw.
Areas Pension Fund v. Basic American Indus., 252 F.3d 911
(7th Cir. 2001). Shortly after the judgment on liability was
entered, the Fund moved for an entry of summary judg-
ment on damages and submitted a memorandum that
relied heavily on our decision in Basic American. The
Defendants filed a memorandum in opposition that
advanced a different theory of damages than the one
discussed in the Fund’s brief. The Fund was never given
an opportunity to file a reply, although it had offered to do
so.
In its decision on damages, the Court distinguished Basic
American as a case applicable only to the statute of limita-
tions and rejected the Fund’s calculation of damages. It
held that the debt associated with withdrawal liability
had never been accelerated and that the Defendants
were required only to make installment payments accord-
ing to the November 18, 2004 schedule. It thus limited the
amount of interest to that accrued on past due installment
payments. It did, however, award liquidated damages in
the amount of 20% of the full withdrawal liability assess-
ment plus attorney’s fees.
The Fund claims that the district court entered judg-
ment on damages without giving the it notice or an oppor-
tunity to be heard on the issue. See R.J. Corman Derailment
Servs., LLC v. Int’l Union of Operating Eng’rs, Local Union
150, AFL-CIO, 335 F.3d 643 (7th Cir. 2003). The Fund argues
that the district court gave the impression that the calcula-
tion of damages would involve a simple application of
Basic American. The Defendants quarrel only with the
Nos. 06-3362, 06-3397, 06-4040, 07-1353 17
district court’s decision to base liquidated damages on the
full withdrawal liability assessment rather than on only
the delinquent payments. Ultimately, we believe that the
case must be remanded for further proceedings on the
issue of damages.
A.
The MPPAA provides plan sponsors with a right to
accelerate debt if the employer defaults. See 29 U.S.C.
§ 1399(c)(5). There are two ways to default under the
statute: under § 1399(c)(5)(A), the employer can fail to
make a payment when due; and, under § 1399(c)(5)(B),
an event can transpire which creates a “substantial likeli-
hood that an employer will be unable to pay its liability.”
29 U.S.C. § 1399(c)(5). Before an employer can be held to
have defaulted on a missed payment, there must be
notice and a sixty-day opportunity to cure. See 29 U.S.C.
§ 1399(c)(5)(A). Acceleration under the statute is permis-
sive, not mandatory. See Chicago Truck Drivers, Helpers &
Warehouse Union (Indep.) Pension Fund v. Century Motor
Freight., 125 F.3d 526, 533 (7th Cir. 1997). This permissive
feature reflects the fact that acceleration might not be in
the plan’s best interests. Cf. Bd. of Trs. of Dist. No. 15
Machinists’ Pension Fund v. Kahle Eng’n Corp., 43 F.3d 852,
859 & n.7 (3d Cir. 1994). Relying on our decision in Basic
American, however, the Fund argues that acceleration
occurred automatically on July 3, 1999 or, at the latest, on
April 1, 2002, despite its failure to satisfy any of the statu-
tory requirements applying to notice of acceleration. See 29
U.S.C. § 1399(c)(5).
We agree with the district court that Basic American is
distinguishable from the case at hand. Basic American
18 Nos. 06-3362, 06-3397, 06-4040, 07-1353
was a case in which we decided at what point in time a
claim for withdrawal liability first accrued for purposes
of the statute of limitations. In order to determine that
time, we had to determine the earliest possible moment
at which the claim could have been brought. See Basic
American, 252 F.3d at 915. Relying on principles of
contract law, we found that the Fund could have
brought a claim when the employer repudiated its
withdrawal liability by ceasing operations and filing for
bankruptcy. Id. at 918. Because that repudiation took place
more than six years before the Fund brought suit, we held
that the suit was barred. Given the nature of our inquiry,
whether the plan sponsor in that case effectively exercised
its right to accelerate under the statute was not relevant,
and we have never applied Basic American outside of the
statute of limitations context, which was applicable to that
case. We did not purport in Basic American to find there a
general principle of automatic acceleration of withdrawal
debt. Thus, Basic American did not hold that the filing of a
proof of claim in bankruptcy automatically accelerated a
debt under the MPPAA. In fact, Basic American explicitly
stated otherwise. Id. at 916 (“Filing for bankruptcy . . . is
not anticipatory repudiation per se.”). This makes sense
within the statutory scheme, where the decision to exercise
the right of acceleration is left to the Fund and the
employer is given a statutory right to cure. See 29 U.S.C.
§ 1399(c)(5). The filing of a proof of claim does not absolve
the Fund of its responsibility to comply with the statutory
requirement of serving notice on the employer before
accelerating the debt.4 Nor is there any basis for the
4
Further, if the Fund had intended to accelerate the debt, why
did it send a second notice and demand years later with an
(continued...)
Nos. 06-3362, 06-3397, 06-4040, 07-1353 19
Fund to argue that the debt was accelerated on June 3,
1999, years before the Defendants ever actually received
the notice and demand.
The fact that we agree with the district court’s reasoning,
however, does not resolve the issue of damages because
the district court granted summary judgment on
grounds very different from those presented in the
Fund’s motion. In fact, the court ruled on the statutory
acceleration issue without warning the Fund that it
intended to do so. The Fund assumed that its summary
judgment motion on its damage calculation would involve
an application of Basic American. It is inconsequential that
the Fund itself sought summary judgment, the question is
whether the Fund was “fairly apprised of the ultimate
basis for the district court’s reasoning.” R.J. Corman, 335
F.3d at 650. Of course, the district court may enter
judgment on a ground not contained in the motion “if the
parties have had an adequate opportunity to argue and
present evidence on that point and summary judgment is
otherwise appropriate.” 10A CHARLES ALAN WRIGHT,
ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE
AND PROCEDURE § 2719 (3d ed. 1998); accord Brock v. Carroll,
107 F.3d 241, 247 (4th Cir. 1997) (Phillips, J., concurring
and dissenting); Gasser Chair Co., Inc. v. Infanti Chair Mfg.
Corp., 60 F.3d 770, 777-78 (Fed. Cir. 1995).
We think that summary judgment was inappropriate in
this case. The Fund was clearly surprised, for it had relied
4
(...continued)
entirely new, superceding schedule? While that notice did
purport to “reserve” the Fund’s rights, it is troubling that the
Fund would send what appear to be alternative or incon-
sistent demands for payment.
20 Nos. 06-3362, 06-3397, 06-4040, 07-1353
on Basic American throughout the litigation and the
reference to Basic American in the district court’s opinion
on liability signaled to the Fund that it would prevail on
that theory.5 The Fund was thus under the impression that
it was entitled to accelerate under the theory enunciated in
Basic American. That is why the Fund addresses only Basic
American in its motion and its supporting memorandum
(statutory requirements for acceleration were mentioned
but only for purposes of contrast). The Defendants, of
course, try to argue that this omission operates as a waiver.
We think the Fund’s silence on this issue is evidence of lack
of notice and surprise, not waiver. See R.J. Corman, 335 F.3d
at 648.
We also think that the Fund was disadvantaged.
Obviously, it was not put on notice that it might argue an
entitlement to accelerate the debt under § 1399(c)(5)(A).
What is worse, the Fund was twice denied the oppor-
tunity to introduce additional evidence—once when its
oral proffer was denied, and again when its motion to
supplement the record was denied. The Fund’s potential
evidence included a supplemental declaration by an
employee of the Fund, Phyllis Gabriel, who stated that
bankruptcy is an event under plan rules that indicates
a substantial likelihood that an employer will be
unable to pay its withdrawal liability. This evidence
5
The Fund’s complaint had two counts. Count I was an action
for the full amount of withdrawal liability, while Count II was
an action for interim installment payments. In the opinion
on liability, the district court ruled in favor of the Fund on
Count I. The opinion on damages, however, seems to reflect a
Count II award rather than a Count I award. Thus, there
seems to be some tension in the decision.
Nos. 06-3362, 06-3397, 06-4040, 07-1353 21
might have supported an argument for acceleration
under § 1399(c)(5)(B), a possibility that the district court
apparently never considered and which the Fund never
had an opportunity to fully present. Had it been able
at least to file a reply brief, the Fund could have alerted
the district judge to these potential bases for statutory
acceleration. Under the present circumstances, we be-
lieve that the district court should not have granted
summary judgment on damages before giving the Fund
an opportunity to present its statutory argument. The
judgment on damages is thus vacated and the case
remanded for consideration of acceleration under the
statute, including an opportunity for the Fund to present its
views on that issue. The district court’s decision
on acceleration is therefore vacated and remanded for
further proceedings.
B.
The district court awarded liquidated damages based on
the entire withdrawal liability assessment, including
payments that, under the district court’s decision, were not
yet due. The liquidated damages issue raised by the
Defendants thus depends on a resolution of the
acceleration issue.6
An action for withdrawal liability under the MPPAA is
treated as an action for delinquent contributions under
ERISA. ERISA permits 20% of any delinquent contribu-
tion to be charged to a defendant as liquidated damages,
see 29 U.S.C. § 1132(g)(C)(ii). This is the penalty that the
6
The attorney’s fees issue can also wait until the resolution of
these issues.
22 Nos. 06-3362, 06-3397, 06-4040, 07-1353
employer pays for forcing a plan sponsor to litigate. See
Central States, Se. & Sw. Areas Pension Fund v. Lady Baltimore
Foods, Inc., 960 F.2d 1339, 1342 (7th Cir. 1992). But a
contribution is delinquent only if the “employer fails to
make timely payment.” 29 U.S.C. § 1401(d). Thus, we
have held that liquidated damages should be due only
on delinquent payments, not on the portions of the
withdrawal liability that have not yet come due. See
Century Motor Freight, 125 F.3d at 535. W e t h i n k t h e
district court was inconsistent in finding that there had
been no acceleration and yet imposing liquidated dam-
ages on the entire withdrawal liability assessment. On
remand, the district court may first determine whether
the debt was ever accelerated and, if so, when accelera-
tion occurred. Liquidated damages may then be assessed
on the delinquent portion of the assessment.
C.
The final question before us is whether the Defendants’
interim payments should have been applied first to the
principal or to the accrued interest. It is the practice of the
Fund to apply payments first to accrued interest; this
practice comports with the federal common-law rule
known as the United States Rule. See Story v. Livingston,
38 U.S. (13 Pet.) 359, 371 (1839). The rule that payment
is first applied to accrued interest “applies in the absence
of ‘a clearly expressed intention’ by the parties to allocate
payments in some other way,” and it “does not permit
the debtor unilaterally to allocate payments to principal
rather than interest.” S. Natural Gas Co. v. Pursue Energy,
781 F.2d 1079, 1088 n.11 (5th Cir. 1986) (citations omitted).
Because the parties did not specify otherwise in this case,
the Rule would appear to apply.
Nos. 06-3362, 06-3397, 06-4040, 07-1353 23
The district court held, however, that the common-law
rule contradicted federal regulations stating that interest
on overdue withdrawal liability should be paid only from
the “due date” until the “date paid.” 29 C.F.R.
§ 4219.32(a)(1). The regulations specify that the “date
paid” is deemed to be the “date on which [the payment
of withdrawal liability] is received.” 29 C.F.R. § 4219.32(d).
The district court stressed that the Fund had “received”
several quarterly installment payments (albeit late
payments) from the Defendants. Those quarterly install-
ments had, according to the district court, thus been “paid”
and no further interest could be charged on them.
The district court apparently assumed that the payments
were earmarked for the principal. This, however, begs the
question. In order to determine when the payment was
“received,” we need to know how the payment is applied.
If the payment received by the Fund is not applied to the
principal but instead applied to the accrued interest, then
a portion of the principal was never “paid” and interest
continues to accrue on that unpaid portion.7 We see
no contradiction between the federal common-law rule
and the regulations. Indeed, the United States Rule was
intended to fill this kind of interstitial gap and we believe
that it should be applied here. The statute should be
broadly construed to effectuate its remedial purposes,
7
For example, assume that an employer was obligated to
make a $1,000 installment payment to a pension fund on a
certain date but sent the $1,000 a month later, after $100 of
interest had already accrued. If the fund has a practice of
paying the accrued interest first, then the fund has only really
“received” $900 toward the installment payment because
$100 was applied to the interest.
24 Nos. 06-3362, 06-3397, 06-4040, 07-1353
which are to protect plan participants and the solvency
of pension funds. See Teamsters Joint Council No. 83 v.
Centra, Inc., 947 F.2d 115, 123 (4th Cir. 1991). The common-
law rule encourages employers to pay the balance in full,
and this comports with the remedial goals of the statute.
V.
We AFFIRM the judgment of the district court on liability
but VACATE the judgment on damages and REMAND
the case for further proceedings.
USCA-02-C-0072—5-13-08