Pension & Benefits News Failure to arbitrate withdrawal liability subjects company to liability for assessment imposed on related employer
Tuesday, August 20, 2019

Failure to arbitrate withdrawal liability subjects company to liability for assessment imposed on related employer

By Pension and Benefits Editorial Staff

An employer was subject to a withdrawal liability assessment that included liability for a separate, but related employer, because it failed to arbitrate the assessment, as required under the Multiemployer Pension Plan Amendments Act (MPPAA), according to a federal trial court in New York. While there was a genuine issue of material fact as to whether the related employer was subject to withdrawal liability as an employer under the MPPAA prior to withdrawal from the plan, the imposition of full liability on the other company was not procedurally or substantially unconscionable.

Withdrawal liability assessed related but separate employers. The National Retirement Fund sponsors a multiemployer pension plan that provides pension benefits to members of a union. Fireservice Management LLC, a company that cleans and repairs clothing for firefighters, entered into a collective bargaining agreement with the union under which it contributed to the retirement fund for certain employees. Fireservice was 100 percent owned by Martin Smeltzer, until he sold 49 percent of his interest in 2007. Smeltzer was also the sole owner of Smeltzer Enterprises, a separate company from Fireservice, that provided cleaning services to the automotive industry. Smeltzer Enterprises was dissolved in July 2009.

In May 2011, the retirement fund notified both companies that it had determined that Fireservice, doing business as Smeltzer, had withdrawn from the plan as of December 31, 2009, incurring withdrawal liability of over $220,000. In assessing liability, the fund maintained that both companies entered into a series of bargaining agreements and “collectively identified themselves as the employer obligated to make contributions to the Fund.”

Fireservice, contending that it was separate and distinct from Smeltzer, made written requests to the fund in June and July of 2011 to review the withdrawal liability determination. However, Fireservice did not initiate arbitration of the withdrawal liability assessment.

The fund brought suit in May 2017, alleging that Fireservice was in default and was required to immediately pay more than $220,000 owed along with interest and damages. The suit also asserted that Smeltzer was jointly and severally liable as an employer of Fireservice’s employees because it had an alter ego, single employer, or joint employer relationship with the company. The fund, in October 2018, moved for summary judgment against both companies.

MPPAA arbitration requirement. Initially, the trial court explained that, under the MPPAA, parties must arbitrate withdrawal liability within 60 days of notification or 180 days if the employer requested review of the fund’s determination. The general rule, the court advised is that an employer that fails to arbitrate a dispute over withdrawal liability waives the right to contest the propriety and amount of the assessment.

Fireservice did not dispute that it received notice of withdrawal liability or that it failed to initiate arbitration of the assessment. However, averring that it was different entity from Smeltzer, made separate contributions to the fund from its own account, employed only three union members, and separately withdrew from the plan, Fireservice argued that it could not be held responsible for the withdrawal liability of the related, but separate company.

The court dismissed Fireservice’s argument, stressing that the failure to dispute the withdrawal liability assessment by initiating arbitration estopped it from contesting the assessment. Citing a Second Circuit opinion (ILGWU Nat’l Ret. Fund v. Levy Bros. Frocks, CA-2 (1998), 846 F. 2d 879), the court noted that, while the failure to seek the statutorily specified remedy may lead to a harsh result, the harshness of the default is largely a “self-inflicted wound.”

Imposition of withdrawal liability not unconscionable. The court further rejected Fireservice’s contention that subjecting it to liability for Smeltzer’s withdrawal would be procedurally and substantially unconscionable. While questioning whether common law unconscionability could be a defense to withdrawal liability, the court stressed that Fireservice made no showing that it lacked a meaningful choice when entering the collective bargaining agreements that supported its employer status. Moreover, the court reiterated that any unfairness arising from the withdrawal liability assessment was a “self-inflicted wound” because of Fireservice’s failure to arbitrate the assessment.

Related company may not have been a MPPAA employer before withdrawal

Smeltzer was larger company than Fireservice, with a decades-long history of contributing to the fund. However, in denying the fund summary judgment with respect to Smeltzer, the court found that there was a genuine issue of material fact as to whether the company was an employer under the MPPAA before its withdrawal from the plan.

SOURCE: Trustees of the National Retirement Fund v. Fireservice Management, LLC (DC NY).

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