The 7th U.S. Circuit Court of Appeals has ruled that multiemployer plan trustees are not able to decelerate payments for withdrawal liability after they accelerate them the first time a member of the plan defaulted on payments.
The lawsuit was filed by trustees of a pension plan for unionized electrical workers governed by the Employment Retirement Income Security Act (ERISA). Revcon Technology Group and S & P Electric, two electrical contractors that share common ownership, withdrew from the plan completely. The appellate court’s opinion notes that the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), requires employers that withdraw from underfunded multiemployer plans to pay a withdrawal liability, either in installments or a lump sum. In 2006, the plan’s trustees notified the companies they owed $394,788 in withdrawal liability and demanded payment in eighty quarterly payments of $3,818, starting in October 2006.
In 2008, after Revcon missed several payments, the trustees informed the defendants in the case of their defaults and demanded immediate payment. When Revcon still failed to pay after 60 days, the trustees accelerated the outstanding liability and filed suit in the U.S. District Court for the Northern District of Illinois for the entire amount plus interest, totaling $521,553. Before appearing in the case, however, Revcon offered to cure its defaults and resume making quarterly payments in exchange for the trustees’ dismissal of the lawsuit. The trustees agreed and voluntarily dismissed the suit.
According to the court document, the parties repeated this cycle of default, lawsuit, promise to cure, and voluntary dismissal four more times in 2009, 2011, 2013, and 2015. Each complaint referred to the debt acceleration in 2008, making no claim the acceleration was ever revoked. In 2018, after yet another default by Revcon, the trustees filed the current case.
Revcon argued, because the trustees first sought to collect the entire debt in 2008, the six-year statute of limitations expired in 2014. The trustees countered that they revoked the 2008 acceleration of the withdrawal liability when they voluntarily dismissed the 2008 complaint. The trustees argued each of the subsequent dismissals had the same decelerating effect. The District Court agreed with Revcon that this case was untimely filed. It noted that the trustees’ 2009, 2011, 2013, and 2015 complaints all stated the withdrawal liability was accelerated in 2008, which belied the trustees’ argument that acceleration had been revoked. Holding the trustees to their earlier pleadings, the district court dismissed the case.
The 5th Circuit explained that the MPPAA expressly permits multiemployer plans to accelerate the entire outstanding withdrawal liability if an employer defaults on an installment payment. Plan trustees send the employer a written notification of default and wait 60 days, during which the employer may cure the default. If the default is not cured, the plan may call the entire amount due.
Questions the case presents are: What if the parties agree they want to return to the installment payment plan; can they decelerate the previously accelerated debt? The appellate court noted that the MPPAA is silent on this question. Revcon argued this silence means accelerated withdrawal liabilities cannot be decelerated under the MPPAA. The trustees construed the MPPAA’s silence as a “gap” the court should fill by creating a deceleration mechanism.
According to the court’s opinion, the Supreme Court has instructed federal courts “to develop a ‘federal common law of rights and obligations under ERISA-regulated plans’” in Firestone Tire & Rubber Co. v. Bruch. Even so, the 5th Circuit said, “this does not mean federal courts may rewrite ERISA wholesale. Our circuit has consistently refused to create federal com-mon law remedies or implied causes of action under ERISA.”
Having said that, the court returned to the issue of deceleration. The Supreme Court instructs that withdrawal liability under the MPPAA is subject to “general principles governing installment obligations.” The trustees insisted that deceleration is one such general principle: that much like equitable estoppel, deceleration is always available when debt is accelerated. As such, they argued that the court should adopt a federal common law mechanism to decelerate withdrawal liability under the MPPAA. “It is true that the most common forms of accelerated debt—foreclosed mortgages and bankruptcy debt—can be decelerated under certain circumstances. Yet the trustees omit a key detail: such debts can be decelerated only when a contract or statute expressly authorizes deceleration,” the appellate court noted.
It said that absent some contractual or statutory foundation, there is no free-floating “general principle of contract law” that allows any accelerated debt to be decelerated. It found that the trustees’ characterization of deceleration as a “general principle governing installment obligations” is without foundation. “Even were we inclined to create an MPPAA deceleration mechanism, we could not define its contours. With no textual anchor, nothing would guide courts in deciding when a deceleration had occurred,” the court wrote in its opinion.
The court also contended that if Congress had wanted to include a right to decelerate in the MPPAA, it could have done so. “The concept of deceleration is not novel to Congress. Just two years before Congress passed the MPPAA, it enacted the original Bankruptcy Code, which included a provision detailing the right to decelerate debt. If Congress wants to amend the MPPAA to add a deceleration mechanism, it is free to do so. But here Congress did not, Congress has not, and we will not step in where Congress has chosen not to act,” the opinion states.
The 5th Circuit ruled that there is no “general principle” that any accelerated debt can be decelerated. Nor is there a statute authorizing deceleration of accelerated withdrawal liability under the MPPAA. So the trustees cannot decelerate Revcon’s withdrawal liability.
Without deceleration, the trustees’ claim is time-barred, it said. The court noted that the MPPAA mandates that claims for unpaid withdrawal liability “may not be brought after the later of (1) 6 years after the date on which the cause of action arose, or (2) 3 years after the earliest date on which the plaintiff acquired or should have acquired actual knowledge of the existence of such cause of action.” It added that, “If the withdrawn employer is on an installment plan, no cause of action arises until the employer defaults on an installment. As the plan has no right to sue to collect installment payments before they are due, a new cause of action arises each time the employer defaults on another installment, and with each default a new statute of limitations clock begins to toll.”
However, the 5th Circuit noted that if the plan accelerates the withdrawal liability, the statute of limitations for the entire liability begins to run on the date of acceleration, as at that time the plan has the right to sue for the entire accelerated amount. “Thus, the trustees’ claim for the accelerated debt expired in 2014. Because Revcon’s statute of limitations defense was established on the face of the trustees’ complaint, the District Court properly dismissed the complaint,” the court concluded.The 5th Circuit noted that the plan’s trustees have another avenue of redress. Each time they filed a claim against Revcon, the company agreed in writing to pay them in exchange for dismissing the suit. These negotiations appear to have given rise to a series of successive settlement agreements. The trustees can plead breach of contract in state court.