Trustees of the Plumbers & Pipefitters National Pension Fund v. MAR-LEN, Inc.

United States Court of Appeals,

Fifth Circuit.

No. 93-5066.

TRUSTEES OF the PLUMBERS AND PIPEFITTERS NATIONAL PENSION FUND,
Plaintiff-Appellee,

v.

MAR-LEN, INC., Defendant-Appellant.

Sept. 2, 1994.

Appeal from the United States District Court for the Eastern
District of Texas.

Before GARWOOD, JOLLY and SMITH, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

When an employer withdraws from a pension fund and there

remain unfunded vested benefits, the employer is promptly required,

upon demand by the pension fund, to make interim payments to the

fund notwithstanding that it is legally challenging the underlying

liability, ("pay now, dispute later"). See Employee Retirement

Income Security Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA"),

as amended by the Multiemployer Pension Plan Amendments Act of

1980, 29 U.S.C. § 1381 et seq. ("MPPAA"). In this case, the

employer refused to make interim payments to the pension fund while

it was arbitrating the underlying question of whether it owed

anything at all. The pension fund brought this suit to compel the

employer to make interim payments while the arbitration proceeding

was ongoing. In this appeal, we are required to decide whether,

when and under what standard, a withdrawing employer may be excused

from this interim payment requirement.

1
 I

MAR-LEN, Inc., a construction contractor active in industrial

construction, was a participating employer in the Sabine Area

Pipefitters Local 195 Pension Trust Fund (the "Sabine Fund"). In

December 1988, MAR-LEN made its final payment into the Sabine Fund

and completely withdrew from participation. At the time MAR-LEN

withdrew, the Sabine Fund had unfunded vested benefits, thus,

subjecting MAR-LEN to withdrawal liability. Approximately two

years after MAR-LEN withdrew from the Sabine Fund, the fund merged

with Plumbers and Pipefitters National Pension Fund ("NPF"). Soon

after the merger and as required by statute, NPF notified MAR-LEN

that it, MAR-LEN, had effectuated a complete withdrawal from the

Sabine Fund in December 1988, and that it owed NPF $329,285 in

withdrawal liability.

In response to NPF's notice of withdrawal liability, MAR-LEN

initiated arbitration proceedings pursuant to 29 U.S.C. § 1401(a),

which provides that any dispute of liability to the pension fund

shall be resolved through arbitration. Although MAR-LEN was

statutorily required to make "interim" withdrawal liability

payments while arbitration of the underlying liability proceeded,

see 29 U.S.C. §§ 1399(c)(2) & 1401(d)1, MAR-LEN refused to make

these interim payments. NPF filed this action to compel MAR-LEN to

make interim payments.2

1
See infra notes 6 and 7.
2
We want to make it clear at the outset that two separate
and distinct actions involving MAR-LEN and NPF are proceeding
simultaneously. The first action, which was originally heard by

2
 Before the district court rendered its decision in this case,

an arbitrator ruled on the underlying question that MAR-LEN had

incurred withdrawal liability to NPF, but that NPF had incorrectly

calculated the total amount MAR-LEN owed. NPF then recalculated

the amount and submitted the new figures to the arbitrator. After

the arbitrator reached his conclusion in the case concerning the

underlying liability, the district court rendered final judgment in

this case in favor of NPF, stating that MAR-LEN owed NPF $223,565

in delinquent interim withdrawal liability payments. The district

court entered final judgment in that amount3 and also awarded NPF

$72,681.25 in attorney's fees, $73,647 in interest, and $614.58 in

costs.4 MAR-LEN now appeals the district court's judgment awarding

the arbitrator and is now on appeal before the district court,
concerns whether MAR-LEN owes withdrawal liability to NPF at all.
This appeal concerns the second action that was brought in
federal district court, which raises only the question of whether
MAR-LEN is required to make interim payments while the first
action concerning the underlying liability is pending.
3
After the district court entered final judgment, NPF
garnished approximately $14,000 from MAR-LEN. This money is
currently being held in an escrow account. The amount awarded by
the district court was the amount NPF had recalculated pursuant
to the arbitrator's directions.
4
Under the MPPAA, an employer's failure to make interim
withdrawal liability payments creates a delinquency in
contribution under 29 U.S.C. § 1451(b), which gives rise to the
MPPAA's mandatory grant of attorneys' fees. 29 U.S.C. §
1132(g)(2)(D) ("In any action ... on behalf of a plan to enforce
Section 1145 of this title in which a judgment in favor of the
plan is awarded, the court shall award the plan ... reasonable
attorney's fees and costs of the action [ ] to be paid by the
defendant."). MAR-LEN does not appear to contest the issue of
attorney's fees. As such, we affirm the district court's award
of attorney's fees. Moreover, because NPF prevailed on appeal,
we award NPF that amount of attorney's fees reasonably necessary
to defend the district court's judgment to be determined by the
district court on remand. See Carpenters Amended & Restated

3
interim payments.5

II

Under ERISA, as amended by the MPPAA, an employer withdrawing

from a multiemployer pension trust, is required to cover its share

of any unfunded pension obligations. 29 U.S.C. § 1381 (1985).

After an employer completely withdraws from a multiemployer plan,

the plan must notify the employer of the date it withdrew from the

plan, determine the amount of withdrawal liability, if any, and

collect that amount from the employer. 29 U.S.C. §§ 1382 &

1399(b)(1) (1985). The withdrawal liability payments are to be

calculated by the fund on a unilateral basis, and assessed to the

withdrawing employer according to a schedule set up by the fund,

with payments to begin within sixty days after the fund demands

payment. 29 U.S.C. § 1399(b)(1) (1985).

If, however, the pension fund and the withdrawing employer do

not agree on the amount of the employer's obligation, they must

arbitrate their dispute. 29 U.S.C. § 1401(a)(1) (1985). While the

arbitration of the dispute proceeds, the employer must make

periodic interim payments in amounts determined by the pension

Health Benefit Fund v. John W. Ryan Constr. Co., 767 F.2d 1170,
1176 (5th Cir.1985) (extending the MPPAA's award of attorney's
fees to the appellate process).
5
After the district court rendered its judgment in this
case, the arbitrator determined that NPF's recalculated amount of
withdrawal liability was correct. MAR-LEN is in the process of
challenging in a separate lawsuit the arbitrator's final order
that held that MAR-LEN was in fact liable for withdrawal payments
to NPF. See supra note 2.

4
fund. 29 U.S.C. §§ 1399(c)(2)6 & 1401(d)7 (1985). If the employer

refuses to make interim payments, a plan fiduciary, such as a

trustee, may file a civil action in federal court to collect. 29

U.S.C. § 1451(a)(1) (1985). In essence, Congress through the MPPAA

has devised a "pay now, dispute later" scheme, making the pension

fund the stakeholder. Robbins v. McNicholas Transport Co., 819

F.2d 682, 685 (7th Cir.1987); see also Debreceni v. Merchants

Terminal Corp., 889 F.2d 1, 5-6 (1st Cir.1989) (holding that the

employer must make interim payments while awaiting the outcome of

arbitration); Marvin Hayes Lines, Inc. v. Southeast & Southwest

Areas Pension Fund, 814 F.2d 297, 299 (6th Cir.1987) (same);

6
Section 1399(c)(2) states

Withdrawal liability shall be payable in accordance
with the schedule set forth by the plan sponsor under
subsection (b)(1) of this section beginning no later
than 60 days after the date of the demand
notwithstanding any request for review or appeal of
determinations of the amount of such liability or of
the schedule.

29 U.S.C. § 1399(c)(2) (1985).
7
Section 1401(d) states that

Payments shall be made by an employer in accordance
with the determinations made under this part until the
arbitrator issues a final decision with respect to the
determination submitted for arbitration, with any
necessary adjustments in subsequent payments for
overpayments or underpayments arising out of the
decision of the arbitrator with respect to the
determination. If the employer fails to make timely
payment in accordance with such final decision, the
employer shall be treated as being delinquent in the
making of a contribution required under the plan
(within the meaning of section 1145 of this title.)

29 U.S.C. § 1401(d) (1985).

5
United Retail & Wholesale Employees Teamsters Union Local No. 115

Pension Plan v. Yahn & McDonnell, Inc., 787 F.2d 128, 132-34 (3d

Cir.1986), aff'd by equally divided court, 481 U.S. 735, 107 S.Ct.

2171, 95 L.Ed.2d 692 (1987) (same); Trustees of Amalgamated Ins.

Fund v. Geltman Industries, Inc., 784 F.2d 926, 932 (9th Cir.),

cert. denied, 479 U.S. 822, 107 S.Ct. 90, 93 L.Ed.2d 42 (1986)

(same).

III

In this case, MAR-LEN argues that the district court employed

the incorrect standard when determining whether MAR-LEN was

required to make interim payments to NPF. Specifically, MAR-LEN

contends that the district court ignored the detrimental economic

impact on the company of NPF's demand for interim payments before

liability had been fully adjudicated. MAR-LEN also argues that the

district court erred in this case by failing to evaluate,

independently of the arbitrator's ruling, the merits of the

underlying liability before ordering the interim payments.8

8
MAR-LEN presents two additional arguments that we should
address briefly. First, MAR-LEN contends that the withdrawal
liability payment scheme is constitutionally infirm. The Supreme
Court, however, has unequivocally held that the withdrawal
liability scheme of the MPPAA is constitutionally sound.
Concrete Pipe & Prods., Inc. v. Construction Laborers Pension
Trust Fund, --- U.S. ----, ----, 113 S.Ct. 2264, 2289, 124
L.Ed.2d 539 (1993) ("The imposition of withdrawal liability here
is rationally related to the terms of Concrete Pipe's
participation in the plan it joined and that suffices for
substantive due process scrutiny of this economic legislation.").
Next, MAR-LEN presented lengthy arguments concerning the
arbitrator's computation of withdrawal liability. As discussed
in note 2 supra, the arbitrator's computation of withdrawal
liability is the subject of a separate proceeding. As such, we
will not address the computation of liability here. See also
Trustees of Chicago Truck Drivers, Helpers & Warehouse Workers

6
 A

The Fifth Circuit has never determined precisely what

standard a district court should employ when determining whether a

withdrawing employer should be compelled to make interim withdrawal

payments. We have previously held that a district court has a

"measure of discretion" when determining whether a withdrawing

employer must make interim withdrawal liability payments. See

Central States Southeast & Southwest Areas Pension Fund v.

T.I.M.E.-DC, Inc., 826 F.2d 320, 330 (5th Cir.1987) (hereafter

"T.I.M.E.-DC." ). Although we have never considered the precise

extent of that "measure of discretion," other circuits, most

notably the Seventh Circuit, have had the opportunity. The Seventh

Circuit, in Robbins v. McNicholas Transport Co., 819 F.2d 682 (7th

Cir.1987), adopted a standard advocated at that time by the Pension

Benefit Guaranty Board.9 Under the McNicholas standard, "where the

trustees bring an action to compel payment, pending arbitration,

the court should consider the probability of the employer's success

in defeating liability before the arbitrator and the impact of the

demanded interim payments on the employer and his business." Id.

Union Pension Fund v. Central Transport, Inc., 935 F.2d 114, 118
(7th Cir.1991). Any errors committed by the arbitrator in
reaching its decision are subject to review during the direct
appeal of that case, which is currently pending in another court.
See also note 5 supra.
9
The Pension Benefit Guaranty Board is a government owned
corporation created to guarantee payments to plan participants.
As the Supreme Court has directed, the Courts of Appeals must
consider the views of the Pension Benefit Guaranty Board when
deciding ERISA issues. Mead Corp. v. Tilley, 490 U.S. 714, 726-
28, 109 S.Ct. 2156, 2164, 104 L.Ed.2d 796 (1989).

7
at 685. In dicta, we discussed the McNicholas standard in

T.I.M.E.-DC; however, because the issue concerning the extent of

a district court's discretion was not before us, we did not adopt

the McNicholas standard. T.I.M.E.-DC 826 F.2d at 330.

In the years after the opinions in McNicholas and T.I.M.E.-DC

were issued, the Seventh Circuit has issued other opinions

clarifying the McNicholas standard. With the support of the

Pension Benefit Guaranty Board,10 the Seventh Circuit held that a

district court's discretion to consider equitable factors such as

the employer's probability of success on the merits and the

economic impact of interim payments is "not an invitation to

pre-try the case or to excuse payments by those employers whose

precarious financial condition creates the greatest risk to the

pension plan." Trustees of Chicago Truck Drivers Union Pension

Fund v. Central Transport, Inc., 935 F.2d at 119. The court

further reasoned that the McNicholas standard is

at most a recognition that if the fund's claim is frivolous—if
the arbitrator is almost certain to rule for the employer—then
the plan is engaged in a ploy that a court may defeat. When
an employer is thinly capitalized and could be propelled into
bankruptcy by interim payments, an unscrupulous pension plan
could squeeze something from the firm without much chance of
success before the arbitrator. Having assured itself that the
plan's claim is legitimate, however, the court should order
the making of interim payments and leave the rest to the
arbitrator.

Id. Thus, in effect, a reviewing court merely determines whether

10
Since 1989, the Pension Benefit Guaranty Board's position
has been that enforcement of interim payments is a routine,
relatively mechanical statutory obligation for the courts, and
not the occasion for an extended factual inquiry. Debreceni v.
Merchants Terminal Corp., 889 F.2d at 6-7.

8
the pension plan's claim is nonfrivolous and colorable11. If the

claim for withdrawal liability is colorable, the employer must make

interim payments while it contests the underlying liability. If,

on the other hand, the claim is frivolous or not colorable, the

district court has the narrow measure of discretion to excuse the

employer from making interim withdrawal liability payments.

This limited measure of discretion protects employers from

frivolous claims, while at the same time giving effect to

congressional intent that the pension fund be the stakeholder

during disputes over withdrawal liability. As other circuits have

noted, withdrawing employers are often financially troubled

companies. Deferring interim withdrawal liability payments may

ultimately leave a pension fund with an obligation to the workers

without a corresponding source of funds. The "pay now, dispute

later" aspect of the MPPAA was designed to reduce the risk of

nonpayment by a withdrawing employer. See, e.g., Trustees of

Chicago Truck Drivers v. Central Transport, Inc., 935 F.2d at 118.

Contributing employers, on the other hand, have relatively little

risk of losing the interim payments. Pension funds are highly

regulated institutions, and only in the most uncommon of cases will

a fund be unable to repay interim withdrawal liability payments if

so required.12 Therefore, like the other circuits that have

11
A claim is colorable if it is more likely than not to have
some merit.
12
It should be noted, however, that, in some instances, a
withdrawing employer may be at risk of losing the interim
payments if the pension fund itself is financially unstable. If
such an employer is required to make interim withdrawal liability

9
considered this issue, we hold that a court has the ability to

consider whether the pension fund's claim against a withdrawing

employer is frivolous. If the pension fund's claim is frivolous or

not colorable, then the district court has a narrow measure of

discretion to excuse payments of interim withdrawal liability.

B

In this case, the district court properly applied the limited

McNicholas standard when it concluded that NPF's claim was

colorable. The district court also correctly declined to evaluate

independently the merits of the underlying dispute concerning

withdrawal liability. Thus, the district court properly determined

that NPF's claim was colorable without encroaching on territory

that properly was controlled by the arbitrator.

IV

For the foregoing reasons, the judgment of the district court

requiring MAR-LEN to make interim withdrawal liability payments is

AFFIRMED.

payments, i.e., the pension fund's claim is colorable, the
district court should take steps to insure that the employer will
be able to recover the interim payments in the event that the
arbitrator rules in favor of the employer. One possible measure
would be the establishment of an escrow account in which the
interim payments may be safely held until resolution of the
dispute. See T.I.M.E.-DC, Inc. v. Management-Labor Welfare &
Pension Funds, 756 F.2d 939, 947 (2d Cir.1985); Bowers v.
Compania Peruana De Vapores, S.A., 689 F.Supp. 215, 220
(S.D.N.Y.1988).

10