Nestle Holdings Inc v. Central States Areas ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-2604
NESTLE HOLDINGS, INC. and
NESTLE TRANSPORTATION COMPANY,
Plaintiffs-Appellants,
v.
CENTRAL STATES, SOUTHEAST AND
SOUTHWEST AREAS PENSION FUND,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 5081—Elaine E. Bucklo, Judge.
____________
ARGUED APRIL 3, 2003—DECIDED SEPTEMBER 5, 2003
____________
Before CUDAHY, MANION, and KANNE, Circuit Judges.
MANION, Circuit Judge. Nestle Holdings, Inc. and Nestle
Transportation Company brought a motion to modify and
partially vacate an arbitration award entered against it in
favor of Central States, Southeast and Southwest Areas
Pension Fund, stemming from the company’s alleged failure
to make required contributions to the Fund. The district
court held that the company transferred union work to
non-union employees and therefore incurred partial
withdrawal liability under the Multi-Employer Pension Plan
Amendment Act. Nestle appeals and we affirm.
2 No.02-2604
I.
Nestle S.A., though its subsidiaries Nestle Holdings, Inc.
and Nestle Transportation Company (collectively “Nestle”),
transports its products throughout the country via a vast
transportation network. That network is composed of
independent common carrier truckers, owner-operator
drivers and employee drivers. In mid-1995 Nestle utilized
approximately 275 owner-operator drivers to transport
goods. All of these drivers were independent contractors. In
addition, it employed approximately 215 drivers, some of
whom were represented by various local unions (also
referred to as Fund drivers). Of the drivers relevant to this
case, eight of the employee drivers were represented by
Teamsters Local Union No. 460, and worked out of the
Nestle shipping terminal in St. Joseph, Missouri, and three
of the employee drivers were represented by Teamsters
Local Union No. 695, and worked out of the Nestle terminal
in Oconomowoc, Wisconsin. The collective bargaining
agreements (CBAs) with both local unions required Nestle
to make contributions to a multi-employer pension plan, the
Central States, Southeast and Southwest Areas Pension
Fund (the “Fund”).
The Nestle transportation network was split into local
lanes and over-the-road lanes. Three of the St. Joseph ter-
minal Fund drivers drove local lanes as did one of the
Oconomowoc drivers. These local lanes were in practice
operated exclusively by the Fund drivers, although the
CBAs in effect at either terminal did not specifically describe
the work required of the union members. The over-the-road
lanes were routes over which trucks would transport Nestle
products between two or more geographic locations. The
other seven Fund drivers drove over-the-road lanes, along
with non-union employee drivers (or non-Fund employee
No. 02-2604 3
drivers), owner-operator drivers and common carriers. All
classes of drivers drove over-the-road lanes on an essen-
tially randomly selected basis depending on factors such as
the availability or location of the driver or his hours driven
under government regulations. In the fall of 1995, Nestle
reached an agreement with the local unions to close the two
trucking terminals in Oconomowoc and St. Joseph for
business reasons. The Fund drivers at those locations were
let go, even though Nestle’s need for truckers who were
located near those terminals did not end entirely. The
arbitrator specifically noted that Nestle continued to assign
work originating in the St. Joseph area after the closures to
at least one non-Fund employee driver who resided in the
St. Joseph area, and therefore was near the same location as
the terminated Fund drivers.
After the terminal closures, the local runs in St. Joseph and
Oconomowoc were performed exclusively by independent
common carriers. The over-the-road lanes that originated at
those locales, however, were distributed amongst all
remaining classes of drivers. Nestle continued to assign the
over-the-road trucking lanes in the same manner it had
before and using the same criteria of driver availability,
driver location, and number of hours driven to determine
particular long-distance lane assignments. The only differ-
ence is that after the terminal closure, the seven Fund
drivers who previously drove the over-the-road lanes were
not in the available pool from which a driver would be
selected. For example, Nestle’s records showed that Fund
drivers drove the Oconomowoc to Waverly, Iowa, lane in
the second quarter of 1995, but non-Fund employee drivers
drove this lane during the first quarter of 1996. Similarly,
Fund drivers drove the St. Joseph to DeKalb, Illinois, route
in the second quarter of 1995. However, after September
1995, of course, no Fund drivers made these runs. Neverthe-
less, despite this reduction in the available workforce, the
4 No.02-2604
non-Fund employee drivers did not increase their workload
through 1996, primarily because Nestle lost a shipping
contract in the region.
After the Fund drivers were terminated, the Fund as-
sessed Nestle almost $1.3 million in Employee Retirement
Income Security Act (“ERISA”) partial withdrawal liability
pursuant to the Multi-Employer Pension Plan Amendment
Act (“MPPAA”), 29 U.S.C. § 1385(b)(2)(A)(i). The Fund
assessed this fee because it determined that Nestle was still
liable for contributions to the Fund on behalf of these
drivers because it transferred their work to non-Fund
employee drivers. Nestle subsequently submitted a request
for review to the Fund, asserting that it did not transfer the
Fund drivers’ work and therefore was not liable for partial
withdrawal liability because the Fund-covered operations
out of Oconomowoc and St. Joseph effectively ceased upon
the terminals’ closings, as evinced by the reduction in
workload. Nestle also asserted that the work which was
continued from the St. Joseph and Oconomowoc locales was
not the same work formerly performed by the Fund drivers.
The Fund upheld the withdrawal liability assessment, and
Nestle submitted its demand for arbitration in November
1
1997. On June 1, 2001, the arbitrator issued his opinion,
1
The Fund notes that on at least two occasions in its communica-
tions with the Fund, Nestle stated it had “transferred” work
formerly performed by drivers covered by collective bargaining
agreements requiring contributions to the Fund. In 1996, for
example, Nestle’s in-house counsel checked the “yes” box in
answer to the question whether the work had been transferred in
its Statements of Business Affairs sent to the Fund. However, as
the district court correctly noted, these admissions were not the
basis of the arbitrator’s decision. Nor are the admissions necessar-
ily dispositive of the legal issue of liability. More importantly,
(continued...)
No. 02-2604 5
finding that Nestle had effected a partial withdrawal from
the plan by transferring work to non-Fund employee
drivers. Nestle appealed the decision to the district court
which affirmed the arbitrator’s decision. Nestle Holdings Inc.
v. Central States, Southeast and Southwest Pension Fund, 204 F.
Supp. 2d 1113 (N.D. Ill. 2002). The district court held that
Nestle “transferred” union transportation work to non-Fund
drivers when the work was reassigned after closure of the
company’s transportation terminals, and thus partial
withdrawal liability for contributions to a union pension
fund was properly imposed upon the company. The district
court reasoned that the work was assigned in the same way
before and after the closures, and was not essentially
different in character. Nestle appeals.
II.
The question in this case is whether the covered unionized
work that Teamster drivers formerly did for Nestle out of St.
Joseph and Oconomowoc has been “transferred” within the
meaning of ERISA as amended by the MPPAA. See 29 U.S.C.
§ 1385(b)(2)(A)(i). This was the sole provision relied on by
the Fund in assessing a partial withdrawal liability on
Nestle. The MPPAA requires a company that withdraws
from a multi-employer pension plan covered by ERISA to
pay “withdrawal liability,” which is intended to cover that
company’s share of the unfunded vested benefits that exist
when the company withdraws. 29 U.S.C. §§ 1381, 1385,
1391. Withdrawal liability may be assessed if the employer
1
(...continued)
because we find that Nestle did transfer such work so as to incur
liability for other reasons, we need not address the issue on this
appeal.
6 No.02-2604
makes a complete withdrawal from an ERISA plan, 29
U.S.C. § 1383, or, as in this case, if there is a partial with-
2
drawal under § 1385. In defining partial withdrawal
liability, § 1385(b)(2)(A)(i) states:
(2)(A) There is a partial cessation of the employer’s
contribution obligation for the plan year if, during such
year—
(i) the employer permanently ceases to have an obliga-
tion to contribute under one or more but fewer than all
collective bargaining agreements under which the em-
ployer has been obligated to contribute under the plan
but continues to perform work in the jurisdiction of
the collective bargaining agreement (CBA) of the type
3
for which contributions were previously required or
transfers such work to another location . . . . (Emphasis
added.)
This is a case of first impression as no federal court has
before addressed the meaning of “transfers” as used in
2
Even though Nestle terminated all union drivers associated
with Locals 460 and 695, this case involves only partial with-
drawal liability because Nestle, to this day, still makes contribu-
tions to the Fund on behalf of other employees not involved in
this appeal.
3
Both the arbitrator and the district court concluded that there
was no question that Nestle did not “continue” to perform work
in the jurisdictions of the Local 460 and Local 695 CBAs because
Nestle closed the St. Joseph and Oconomowoc terminals and the
CBAs defined their jurisdictions as work performed by drivers
domiciled at those terminals. This conclusion necessarily implies
that any work done on the same lanes as previously used by the
Fund drivers occurred from a different location, because termi-
nals which previously defined the location of the work were
closed.
No. 02-2604 7
4
§ 1385(b)(2)(A)(i). The basic rule in statutory interpretation
is that plain statutory language governs. Olander v.
Bucyrus-Erie Co., 187 F.3d 599, 604 (7th Cir. 1999); see also
Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204,
209 (2002) (stating that courts must interpret ERISA strictly,
according to the plain meaning of the language actually
used in the statute). The verb “transfers” as used in its plain
sense means: “to convey [something] from one person,
place, or situation to another.” Webster’s Ninth New
Collegiate Dictionary 1253 (1990). The statute uses the
phrase “transfers such work to another location” where
“such work applies to ‘work . . . of the type for which con-
5
tributions were previously required.’ ” Therefore, if prior to
4
The Fund maintains that, contrary to Nestle’s representations,
this case is neither a case of first impression, nor a dispute re-
garding the meaning of the word “transfer.” Rather, the Fund
contends, this case presents a factual dispute that the arbitrator
resolved in favor of the Fund. While it is true that the arbitrator
did have to make several findings of fact, it is also true those
findings were only meaningful in the context of ERISA. The dis-
trict court appropriately exercised plenary jurisdiction over the
meaning of the word “transfer” insofar as ERISA is concerned,
and so shall we. Central States, Southeast and Southwest Areas
Pension Fund v. Midwest Motor Exp., Inc., 181 F.3d 799, 804 (7th
Cir. 1999).
5
Nestle incorrectly argues that “such work” refers to “work in
the jurisdiction of the collective bargaining agreement,” as de-
fined by the domicile of the affected drivers. However, this
phrase in the statute specifically modifies the “continues” portion
of the statute. See § 1385(b)(2)(A)(i). The phrase “transfer such
work to another location” implies that work will not be per-
formed out of the same jurisdiction of the collective bargaining
agreement. If the statute were read in accordance with Nestle’s
contention, then the second clause of the statute would be
(continued...)
8 No.02-2604
the closures union employees were performing work for
which contributions were required, and which was then
conveyed to and performed by non-Fund employee drivers
at another location after the closures, then Nestle would be
6
liable under the statute.
Nestle argues that, as a matter of law, the company did
not transfer the work of its Fund drivers domiciled at the St.
Joseph and Oconomowoc terminals to its drivers for whom
it owed no contributions to the Fund domiciled elsewhere.
Primarily the company contends that after the closure of the
St. Joseph and Oconomowoc terminals, its non-Fund
employee drivers did the same work they had been doing
7
before the terminal closures and less of it. Nestle argues that
5
(...continued)
rendered meaningless.
6
Nestle does not contest the amount, $1,257,598.41, assessed for
partial withdrawal liability.
7
Those lanes that were assigned to independent owner/
operators and common carriers after the closures are not the
subject of this appeal. A Pension Benefit Guaranty Corporation
(“PBGC”), the agency delegated the authority to administer the
MPPAA, Opinion Letter 87-17 (Aug. 13, 1986), Def. Ex. 3, states
that work formerly done by pension fund covered employees but
taken up by third parties is not “transfer[red] . . . to another
location within the meaning of [§ 1385(b)(2)(A)(i)],” because the
law covers situations where “work of the same type is continued
by the employer but for which contributions to a plan . . . are no
longer required.” The PBGC understood “work of the same type”
to mean in part work done “at another of its own locations.”
Therefore for the transfer of work to another location or em-
ployee to be a precondition to a partial withdrawal, the transfer
must be to other employees and not to any third parties such as
owner/operator drivers or third-party contractors. For example,
(continued...)
No. 02-2604 9
because the company did not hire more (replacement) non-
Fund employee drivers, and its existing non-Fund employee
drivers actually drove fewer long distance lanes after the
closures than they had before, the company did not transfer
any work to non-Fund employee drivers. As both the
district court and the arbitrator noted, an essential element
to their argument is that the routes previously assigned to
union workers, which were unidentifiable prior to the
terminal closures, simply disappeared when the terminals
were closed.
Nestle’s argument, however, fails to convince. Prior to the
closures, the work was assigned by Nestle on the basis of
efficiency, driver availability, location, and remaining
regulated hours of the drivers. Thus, the assignments were
not entirely random, but instead predicated on a valuation
linked to overall network efficiency. There was no set num-
ber or type of route that was performed by Fund drivers;
instead drivers were assigned to those routes for which they
were most qualified in terms of network efficiency. There-
7
(...continued)
after the closures, the local lanes were no longer driven by Nestle
employees; that work was being done by third-party outsiders,
and so, under ERISA, it did not create partial withdrawal lia-
bility. Both the arbitrator and district court agreed with this
argument, and appropriately so. See Trustees of Iron Workers Local
473 Pension Trust v. Allied Products Corp., 872 F.2d 208, 210 n. 2
(7th Cir. 1989) (“The PBGC’s views are entitled to deference be-
cause of its responsibility to enforce Title IV of ERISA, 29 U.S.C.
§§ 1301, 1461 (which includes ERISA’s withdrawal liability
provisions)”); see also Penn Central Corp. v. Western Conference of
Teamsters Pension Trust Fund, 75 F.3d 529, 534 (9th Cir. 1996) (“We
are obligated to defer to the PBGC’s interpretation ‘[e]ven if
reasonable minds could differ as to the proper interpretation of
the statute.’ ”) (citation omitted).
10 No.02-2604
fore “such work” as defined by the statute, in this case,
means those routes which on the basis of efficiency, avail-
ability, location and remaining hours, would have been
assigned to a Fund driver. Admittedly this work, along with
the overall workload for the non-Fund employee drivers,
decreased following the closures. However, it cannot be said
that because the “terminals” closed in St. Joseph and
Oconomowoc, the work which would have been previously
assigned to the Fund employees completely disappeared. It
strains credulity to believe that all of the non-Fund employ-
ees at both terminals, who were previously determined to
be less qualified in terms of network efficiency to handle a
certain haul, would immediately become the more efficient
alternative after the terminal closures.
This conclusion still holds true even considering that the
“location” aspect of the efficiency analysis would have
changed after the terminal closures because the Fund
drivers would no longer have been domiciled at the termi-
nals. For example, the arbitrator specifically noted that at
least one non-union driver who lived in or near St. Joseph,
but did not report to the St. Joseph terminal, continued to
drive in the lanes previously assigned to union members
after the closures. Prior to the closures, the arbitrator noted,
this driver shared the out-hauls from St. Joseph and there-
fore must have been periodically determined to be less
appropriate to handle certain loads. After the closures he,
along with all of the other non-Fund employee drivers on
the routes, would be selected to carry a load even if one of
the union members previously domiciled at the St. Joseph
or Oconomowoc terminal could have more efficiently
handled the work. Therefore, the work that would have
previously been handled by a Fund employee was trans-
ferred out of the jurisdiction of the terminated CBAs to the
non-Fund employee because they were performing work
that they would not have been previously assigned.
No. 02-2604 11
Nestle cautions the court against misreading the statute to
include a clause that would impose partial withdrawal
liability on an employer who continues work at another
location, as opposed to transfers work to another location.
See 29 U.S.C. §1385(b)(2)(A)(i). We are mindful of this
caution considering that the non-Fund employees were, in
fact, responsible for the same routes as the Fund employees
prior to, and after the terminal closures. Additionally, the
overall workload of the non-Fund employee drivers did not
increase when they assumed complete responsibility for
those routes. However, after the closures the non-Fund
employees did assume complete responsibility for all of the
hauls on the routes, even those hauls which a Fund driver
would have more appropriately handled. It was these hauls
which were conveyed to the non-Fund employee drivers,
and thus work was transferred to another location pursuant
to 29 U.S.C. §1385(b)(2)(A)(i). Nestle could have taken
several steps to reduce their liability under the statute.
When faced with a reduction in overall workload, Nestle
could have reduced its workforce across the board, includ-
ing both Fund and non-Fund employee drivers, instead of
targeting only the union-represented drivers. This would
have been especially appropriate in this case considering
that Nestle could not identify beforehand which particular
hauls were handled by Fund and non-Fund employee
drivers. Or Nestle could have redefined the Fund drivers’
work responsibilities to identify their particular hauls or
lanes. For example, because four of the released Fund
drivers operated exclusively in local lanes, Nestle avoided
partial withdrawal liability upon their termination by
contracting with third-party common carriers to drive those
lanes. In either scenario, Nestle would not have been
assigning non-Fund employees work which would have
previously been assigned to Fund employees, thereby
incurring liability.
12 No.02-2604
III.
For the foregoing reasons, we AFFIRM the district court.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-5-03