Trustees of the Plumbers and Pipefitters National Pensionfund, Plaintiff-appellee, v. Mar-len, Inc., Defendant-appellant, 30 F.3d 621 (5th Cir. 1994)

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.

* 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 

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 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 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); 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 

* 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. 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 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 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.