Teamsters Pension v. Littlejohn ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
8-26-1998
Teamsters Pension v. Littlejohn
Precedential or Non-Precedential:
Docket 97-1856
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Recommended Citation
"Teamsters Pension v. Littlejohn" (1998). 1998 Decisions. Paper 204.
http://digitalcommons.law.villanova.edu/thirdcircuit_1998/204
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Filed August 26, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-1856
TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA
& VICINITY; WILLIAM J. EINHORN
v.
SILAS LITTLEJOHN; TEAMSTERS LOCAL UNION NO. 115
Teamsters Local Union No. 115,
Appellant
Appeal from the United States District Court
For the Eastern District of Pennsylvania
D.C. No.: 95-cv-07556
Argued July 20, 1998
Coram: STAPLETON, ROSENN, Circuit Judges and
RESTANI, Court of International Trade*
(Filed August 26, 1998)
Walter H. DeTreux, III (argued)
2833 Cottman Avenue
Philadelphia, PA 19149
Counsel for Appellant
_________________________________________________________________
*The Honorable Jane A. Restani, Judge, United States Court of
International Trade, sitting by designation.
Frank C. Sabatino (argued)
Schnader, Harrison, Segal & Lewis
1600 Market Street, Suite 3600
Philadelphia, PA 19103
Counsel for Appellees
OPINION OF THE COURT
ROSENN, Circuit Judge.
This appeal presents an unusual question pertaining to
the liability of a surviving unincorporated local union after
merger with it by another unincorporated local union for a
debt of the latter. The district court held that pre-merger
notice of the debt owed by the non-surviving local was not
required and that the surviving local union was liable for
the debt. The surviving local timely appealed. We affirm.
I.
The facts of this case are undisputed. Teamsters Local
513 was a labor union which represented certain employees
in the Philadelphia metropolitan area for purposes of
collective bargaining. In September 1991, the members of
Local 513 voted to merge into another local union,
Teamsters Local Union No. 115. The merger became
effective in early February 1992. Both of the local unions
were unincorporated associations. On June 12, 1978, Silas
Littlejohn began working for Local Union No. 513 as an
office employee. He left this job in early February 1992.
As an employee of Local 513, Littlejohn was covered by
the Teamsters Pension Trust Fund of Philadelphia &
Vicinity (the "Pension Fund"), the Plaintiff/Appellee. All
participating local unions were required to make
contributions to the Pension Fund on behalf of their own
employees. In spite of this obligation, Local 513 did not
make any contributions to the Pension Fund on Littlejohn's
behalf. On December 7, 1992, Littlejohn applied for and
was denied a pension by the Pension Fund because it had
not received any contributions in his behalf. Littlejohn
appealed the Fund's decision. The Fund held a hearing, but
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did not render a decision on the appeal. Having never
received contributions on Littlejohn's behalf, the Pension
Fund requested past contributions from Local 115. Local
115 denied liability for Local 513's failure to pay the
pension contributions. Local 115 took the position that it
had never employed Littlejohn, had no knowledge of Local
513's failure to make the pension contributions, and,
therefore, Local 115 should not be liable for the
contributions that Local 513 was required to make to the
Pension Fund.
Instead of rendering a decision on Littlejohn's appeal, in
December 1995, the Pension Fund and the Fund's
administrator, William Einhorn, filed a complaint in the
United States District Court for the Eastern District of
Pennsylvania against Local 115 and Littlejohn. In its
complaint, the Pension Fund sought a declaration either
that Littlejohn did not participate in the pension plan and,
thus, was not eligible for pension benefits, or that Local 115
was responsible for delinquent contributions that should
have been paid to the Pension Fund on Littlejohn's behalf
by Local 513. The Pension Fund also requested, contingent
on a finding that Local 115 was responsible for the
delinquent contributions, a determination that Local 115
was liable for interest, attorneys' fees, liquidated damages,
and costs.
The parties filed cross-motions for summary judgment.
The district court granted the Pension Fund's motion
finding that Littlejohn was entitled to pension benefits and
that Local 115 was required to pay the contributions to the
Pension Fund that were improperly unpaid by Local 513.
II.
The Pension Fund is governed by the federal Employee
Retirement Income Security Act of 1974 ("ERISA"), 29
U.S.C. SS 1001-1461. ERISA covers the Fund because it is
a private pension Fund established by both employers
engaged in commerce and employee organizations
representing employees engaged in commerce. See 29
U.S.C. SS 1002(2)(A)(I), 1003(a)(3). Pursuant to ERISA, a
claim like the one in this case--essentially to recover
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employer contributions owed to an employee pension plan--
must be brought in a federal district court. See 29 U.S.C.
S 1132(e)(1); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54
(1987). Hence, the district court had subject-matter
jurisdiction of the Fund's lawsuit pursuant to 29 U.S.C.
S 1132(e)(1) and 28 U.S.C. S 1331. In light of this
independent basis for federal jurisdiction, the Pension
Fund's invocation of the Declaratory Judgment Act, see 28
U.S.C. S 2201, is proper. See Skelly Oil Co. v. Phillips
Petroleum Co., 339 U.S. 667, 671 (1950); Terra Nova Ins.
Co., Ltd. v. 900 Bar, Inc., 857 F.2d 1213, 1217 n.2 (3d Cir.
1989).
This court has appellate jurisdiction, pursuant to 28
U.S.C. S 1291, because the district court entered final
judgment against Local 115. We exercise plenary review of
the district court's resolution of the parties' cross-motions
for summary judgment. See Fornarotto v. American
Waterworks Co., Inc., 144 F.3d 276, 278 n.3 (3d Cir. 1998).
III.
Local 115 argues that it is not liable for the unpaid
pension contributions because it did not have notice of the
existence of the delinquency at the time that it merged with
Local 513. Local 115 relies primarily on Golden State
Bottling Co., Inc. v. National Labor Rel. Bd., 414 U.S. 68
(1973), which stands for the proposition that a purchaser of
a business, which continues the operations of that
business with notice that the predecessor has committed an
unfair labor practice, is liable for the damages caused by
the unfair labor practice. See also Upholster's Union Pension
Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323, 1329
(7th Cir. 1990). The Pension Fund counters that, under
well-settled and long-standing principles of corporate
liability, the surviving entity of a merger is liable for all of
the debts of the predecessor entity regardless of whether
the survivor had pre-merger notice of the debt. See John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 550 n.3
(1964); 15 William M. Fletcher et al., Fletcher Cyclopedia of
the Law of Private Corporations S 7121, at 226-27 (rev. ed.
1990).
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It is well established that ERISA displaces all state law
purporting to relate to private pension plans. See McGurl v.
Trucking Employees Welfare Fund, 124 F.3d 471, 476 (3d
Cir. 1997). The statute, however, does not address many of
the issues which arise in the normal course of the
administration of such plans. Relevant to this case, it does
not set forth principles governing successor liability. In a
situation where the statute does not provide explicit
instructions, it is well settled that Congress intended that
the federal courts would fill in the gaps by developing, in
light of reason, experience, and common sense, a federal
common law of rights and obligations imposed by the
statute. See, e.g., Varity Corp. v. Howe, 516 U.S. 489, 497
(1996); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,
110-11 (1989); Franchise Tax Bd. Of California v.
Construction Laborers Vacation Trust for Southern
California, 463 U.S. 10, 24 n.26 (1983).
Of course, the federal common law must be developed
with ERISA's policy goals in mind. One of the reasons
Congress enacted ERISA was to protect plan participants
and their beneficiaries. See 29 U.S.C.S 1001(b) (declaration
of policies); see also Matinchek v. John Alden Life Ins. Co.,
93 F.3d 96, 99 (3d Cir. 1996). In developing the federal
common law, the federal courts have properly looked to
state law for guidance. See McGurl, 124 F.3d at 481.
Nonetheless, it is important that the federal courts, in
formulating the common-law rules, do not strictly adhere to
a single state's law at the expense of reason, experience, or
common sense, or of furthering the policies of ERISA. Cf.
Ream v. Frey, 107 F.3d 147, 154 (3d Cir. 1997) (while state
trust law provides source of rules for ERISA, it is no more
than a guide or starting point for developing common law
rules for welfare plans).
The parties spend much time arguing over the
application of several cases which describe the development
and construction of corporate successorship in the federal
labor law context. Specifically, the United States Supreme
Court has considered whether an employer's purchase of a
business binds the purchaser to abide by a collective
bargaining agreement between a union and the
predecessor. See, e.g., Golden State Bottling Co., 414 U.S. at
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180, 185. In that case, the Court has held that successor
liability is broader when the obligation involved is a
collective bargaining agreement than it would be when an
ordinary debt is involved. Id. at 182-83 n.5. In other cases,
the Court has stated that an employer may be bound by
the collective bargaining agreement of the predecessor as
long as it had notice of the obligation and continued the
operations of the predecessor even if the succeeding
corporation purchased the assets of the old company and
did not actually merge with it. Id. at 180-85; see also
Howard Johnson Co., Inc. v. Detroit Local Jt. Exec. Bd., 417
U.S. 249, 257 (1974); Livingston, 376 U.S. at 349-51
(surviving company in merger bound to arbitrate grievance
with union under terms of collective bargaining agreement
signed by predecessor). Those cases are somewhat
distinguishable because they dealt with the application of
labor law concepts and the terms of a collective bargaining
agreement to a corporation other than the signatory to the
agreement. Here, the parties agree that only the transfer of
a valid and ordinary debt is at issue which just happens to
have its genesis in the terms of a collective bargaining
agreement. The issue distinctly is not whether the terms of
the collective bargaining agreement signed by Local 513 will
be enforced against Local 115.
We agree with the district court and reject Local 115's
argument that the surviving entity in a merger must have
notice of a predecessor's debt in order to be liable for it.
Reason, common sense, and experience--as well as the
overwhelming weight of authority--persuade us that we
should adopt the general rule that the surviving entity in a
merger is liable for the constituents' debts even when the
survivor does not have notice of the debt.
Many courts, including this one, have stated that when
an obligation imposed by federal labor or environmental law
is involved, merger or consolidation automatically operates
to transfer the debts of the predecessor to the surviving
entity. See, e.g., Aluminum Co. of America v. Beazer East,
Inc., 124 F.3d 551, 565 (3d Cir. 1997); Southward v. South
Central Ready Mix Supply Corp., 7 F.3d 487, 495 (6th Cir.
1993) (dicta); Artistic Furniture, 920 F.2d at 1325; Anspec
Co., Inc. v. Johnson Controls, Inc., 922 F.2d 1240, 1245 (6th
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Cir. 1991). In addition, two district courts have considered
a question quite similar to the one raised here. Both district
courts held that the merger of two local unions, in most
circumstances, makes the survivor liable for the
constituents' debts. See EEOC v. Local 638, 700 F. Supp.
739 (S.D.N.Y. 1988); Local No. 1, Broadcast Employees v.
International Bhd. of Teamsters, 461 F. Supp. 961 (E.D. Pa.
1978), aff 'd in part and rev'd in part on other grounds, 614
F.2d 846 (3d Cir. 1980).
These cases confirm the almost universally accepted state
law principle that when two corporations merge, the
surviving corporation assumes the liabilities of the extinct
corporation. See, e.g., 15 Pa. C.S.A. S 1929(b) (all debts of
each corporation "shall be deemed to be transferred to and
vested in the surviving or new corporation"); N.J.S.A.
S 14A:10-6(e) ("the surviving or new corporation shall be
liable for all the obligations and liabilities of each of the
corporations so merged"); Del. Code Ann. tit. 8, S 259(a)
("all debts due to any of said constituent corporations ...
shall be vested in the corporation surviving"); 15 Fletcher et
al. SS 7117, 7121, at 216-18, 226-230 (collecting cases and
statutes from numerous states). Local 115 does not
contend that its merger agreement with Local 513 provided
that it only assumed the debts of which it had notice.
Generally, there is no requirement that the surviving entity
have pre-merger notice of the predecessor's debts. Indeed,
we have found no authority--either in the labor law context
or any other for that matter--which stands for the
proposition that a surviving corporation must have notice of
the predecessor's debts in order to be liable for them. This
is especially true when the merger agreement between the
locals did not require notice.
The parties do not contend that the local unions, because
they are unincorporated associations and not corporations,
should not be subject to this general rule. We agree. There
is nothing in the record to suggest that the status of the
local unions prevented Local 115 from having complete
access to the records of Local 513 and, thus, from having
an opportunity to ascertain the nature of Local 513's debts.
As a practical matter, the affiliation of the two locals with
the International brotherhood of Teamsters Union should
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have facilitated the access of the locals to the payroll,
audits and other records of assets and liabilities of each
other. Further, we see no reason to believe that the
employees of unincorporated associations are deserving of
less protection than those of a corporation in this context.
An examination of this general rule demonstrates not
only its basis in reason but also that adopting it in this
context will further ERISA's policy goal of protecting
employee pension plan participants and their beneficiaries.
See 29 U.S.C. S 1001(a). First, the two merging entities
either do have, or can assure that they have, access to all
the information necessary to determine the precise nature
and number of liabilities of the predecessor entity. This is
especially true in a case like this where the existence of the
debt is so readily discoverable. In contrast, the participants
and beneficiaries may have no reason to know that the
contributions have not been made or that the surviving
entity does not have notice of the debt. Thus, it is
appropriate to put the burden of ascertaining the liabilities
of merged entities on the surviving entity rather than on its
employees. This will further ERISA's goal of protecting
participants and beneficiaries in pension plans as the
burden is on the employer to assure itself that it is not
delinquent. Second, requiring notice to the surviving entity
before a debt follows a merger would result in perverse
incentives, encouraging the survivor to not examine records
and hide its head in the sand for fear of receiving notice of
an obligation. We are loathe to create such incentives.
Third, requiring notice as a condition for payment would
allow a disappearing constituent to unilaterally extinguish
a debt--which it may have voluntarily assumed--simply by
hiding it from the surviving entity before the merger. See
Howard Johnson Co., 417 U.S. at 257. Introducing such
uncertainty into this area could severely undermine
ERISA's goals.
Local 115 is in a particularly unsympathetic position in
this case. There is no dispute that Local 115 actually
merged with Local 513. The parties agree that this was not
an asset sale or something short of full fusion of the two
entities. Moreover, even if Local 115 did not realize that
Local 513 had not funded Littlejohn's pension, this is not
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such an unusual liability that it could not have foreseen its
existence. In short, any reasonable entity would have been
on notice to examine Local 513's records for this type of
obligation, especially in light of Local 115's similar
commitment to make contributions for its employees to the
Pension Fund. There is no contention that Local 115 had
anything less than full access to all of Local 513's payroll
and pension records. Indeed, this was not a consolidation
of two stranger corporations with little knowledge of each
others' operations, but a merger of two sister locals, both of
which operated in a similar manner and which were
offspring of the International Brotherhood of Teamsters.
IV.
In sum, we hold that when two unincorporated local
unions merge, the survivor assumes the liabilities of the
extinct constituent even if it does not have pre-merger
notice of the debt. For the foregoing reasons, the district
court's January 10, 1997 judgment will be affirmed. Costs
taxed against Teamsters Local Union 115.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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