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D ock e t 97-1856

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. e du/thir dc ir c uit_1998/204Filed 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 State s 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 u nion after merger with it by another unincorporated local unio n for a debt of the latter. The district court held that pr e-merger notice of the debt owed by the non-surviving local was not required and that the surviving local union was lia ble for the debt. The surviving local timely appealed. We a ffirm.

I.

The facts of this case are undisputed. Teamsters Lo cal 513 was a labor union which represented certain emp loyees in the Philadelphia metropolitan area for purposes of collective bargaining. In September 1991, the membe rs 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/Appell ee. All participating local unions were required to make
contributions to the Pension Fund on behalf of thei r own employees. In spite of this obligation, Local 513 d id not make any contributions to the Pension Fund on Littl ejohn'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. Littl ejohn appealed the Fund's decision. The Fund held a heari ng, but

2did not render a decision on the appeal. Having nev er

received contributions on Littlejohn's behalf, the Pension Fund requested past contributions from Local 115. L ocal 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, an d, therefore, Local 115 should not be liable for the contributions that Local 513 was required to make t o the
Pension Fund.

Instead of rendering a decision on Littlejohn's app eal, in December 1995, the Pension Fund and the Fund's administrator, William Einhorn, filed a complaint i n the
United States District Court for the Eastern Distri ct of Pennsylvania against Local 115 and Littlejohn. In i ts complaint, the Pension Fund sought a declaration ei ther that Littlejohn did not participate in the pension plan and, thus, was not eligible for pension benefits, or tha t Local 115 was responsible for delinquent contributions that s hould have been paid to the Pension Fund on Littlejohn's behalf by Local 513. The Pension Fund also requested, cont ingent on a finding that Local 115 was responsible for the delinquent contributions, a determination that Loca l 115 was liable for interest, attorneys' fees, liquidate d damages,

and costs.

The parties filed cross-motions for summary judgmen t. The district court granted the Pension Fund's motio n finding that Littlejohn was entitled to pension ben efits and that Local 115 was required to pay the contribution s to the Pension Fund that were improperly unpaid by Local 5 13.

II.

The Pension Fund is governed by the federal Employe e Retirement Income Security Act of 1974 ("ERISA"), 2 9

U.S.C. SS 1001-1461. ERISA covers the Fund because it is a private pension Fund established by both employer s 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 ER ISA, a claim like the one in this case--essentially to rec over

3employer 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-matte r 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 Pen sion Fund's invocation of the Declaratory Judgment Act, see 28 U.S.C. S 2201, is proper. See Skelly Oil Co. v. Phi llips 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 f inal judgment against Local 115. We exercise plenary rev iew of the district court's resolution of the parties' cro ss-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 unpa id pension contributions because it did not have notic e of the existence of the delinquency at the time that it me rged with Local 513. Local 115 relies primarily on Golden Sta te Bottling Co., Inc. v. National Labor Rel. Bd., 414 U.S. 68 (1973), which stands for the proposition that a pur chaser of a business, which continues the operations of that business with notice that the predecessor has commi tted an unfair labor practice, is liable for the damages ca used by the unfair labor practice. See also Upholster's Uni on Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 132 3, 1329 (7th Cir. 1990). The Pension Fund counters that, un der well-settled and long-standing principles of corpor ate liability, the surviving entity of a merger is liab le for all of the debts of the predecessor entity regardless of w hether 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 Cyc lopedia of the Law of Private Corporations S 7121, at 226-27 ( rev. ed. 1990).

4It is well established that ERISA displaces all sta te 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 liabil ity. In a situation where the statute does not provide explic it instructions, it is well settled that Congress inte nded that the federal courts would fill in the gaps by develo ping, in light of reason, experience, and common sense, a fe deral 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 reaso ns Congress enacted ERISA was to protect plan particip ants and their beneficiaries. See 29 U.S.C.S 1001(b) (de claration of policies); see also Matinchek v. John Alden Life Ins. Co., 93 F.3d 96, 99 (3d Cir. 1996). In developing the fe deral 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 court s, in formulating the common-law rules, do not strictly a dhere to a single state's law at the expense of reason, expe rience, or common sense, or of furthering the policies of ERIS A. Cf. Ream v. Frey, 107 F.3d 147, 154 (3d Cir. 1997) (whi le state trust law provides source of rules for ERISA, it is no more than a guide or starting point for developing commo n law rules for welfare plans).

The parties spend much time arguing over the application of several cases which describe the dev elopment 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 collecti ve bargaining agreement between a union and the predecessor. See, e.g., Golden State Bottling Co., 414 U.S. at

5180, 185. In that case, the Court has held that suc cessor

liability is broader when the obligation involved i s a collective bargaining agreement than it would be wh en an ordinary debt is involved. Id. at 182-83 n.5. In ot her cases, the Court has stated that an employer may be bound by the collective bargaining agreement of the predeces sor as long as it had notice of the obligation and continu ed the operations of the predecessor even if the succeedin g 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 349-5 1 (surviving company in merger bound to arbitrate gri evance with union under terms of collective bargaining agr eement signed by predecessor). Those cases are somewhat distinguishable because they dealt with the applica tion of labor law concepts and the terms of a collective ba rgaining agreement to a corporation other than the signatory to the agreement. Here, the parties agree that only the tr ansfer of a valid and ordinary debt is at issue which just ha ppens to have its genesis in the terms of a collective barga ining 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 1 15's argument that the surviving entity in a merger must have notice of a predecessor's debt in order to be liabl e for it. Reason, common sense, and experience--as well as th e overwhelming weight of authority--persuade us that we should adopt the general rule that the surviving en tity in a merger is liable for the constituents' debts even w hen the
survivor does not have notice of the debt.

Many courts, including this one, have stated that w hen an obligation imposed by federal labor or environme ntal law is involved, merger or consolidation automatically operates to transfer the debts of the predecessor to the sur viving entity. See, e.g., Aluminum Co. of America v. Beaze r East, Inc., 124 F.3d 551, 565 (3d Cir. 1997); Southward v . South Central Ready Mix Supply Corp., 7 F.3d 487, 495 (6t h Cir. 1993) (dicta); Artistic Furniture, 920 F.2d at 1325 ; Anspec Co., Inc. v. Johnson Controls, Inc., 922 F.2d 1240, 1245 (6th

6Cir. 1991). In addition, two district courts have c onsidered

a question quite similar to the one raised here. Bo th 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 Employe es v. International Bhd. of Teamsters, 461 F. Supp. 961 ( E.D. Pa. 1978), aff 'd in part and rev'd in part on other gr ounds, 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 th e extinct corporation. See, e.g., 15 Pa. C.S.A. S 1929(b) (al l 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 sh all be liable for all the obligations and liabilities of e ach of the corporations so merged"); Del. Code Ann. tit. 8, S 259(a) ("all debts due to any of said constituent corporat ions ... shall be vested in the corporation surviving"); 15 Fletcher et al. SS 7117, 7121, at 216-18, 226-230 (collecting c ases and statutes from numerous states). Local 115 does not contend that its merger agreement with Local 513 pr ovided that it only assumed the debts of which it had noti ce. Generally, there is no requirement that the survivi ng 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 t hem. This is especially true when the merger agreement betwee n the locals did not require notice.

The parties do not contend that the local unions, b ecause they are unincorporated associations and not corpor ations, should not be subject to this general rule. We agre e. There is nothing in the record to suggest that the status of the local unions prevented Local 115 from having comple te 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 l ocals with
the International brotherhood of Teamsters Union sh ould

7have facilitated the access of the locals to the pa yroll,

audits and other records of assets and liabilities of each other. Further, we see no reason to believe that th e employees of unincorporated associations are deserv ing of less protection than those of a corporation in this context.

An examination of this general rule demonstrates no t only its basis in reason but also that adopting it in this context will further ERISA's policy goal of protect ing employee pension plan participants and their benefi ciaries. See 29 U.S.C. S 1001(a). First, the two merging ent ities either do have, or can assure that they have, acces s 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 exist ence of the debt is so readily discoverable. In contrast, the p articipants and beneficiaries may have no reason to know that t he
contributions have not been made or that the surviv ing entity does not have notice of the debt. Thus, it i s appropriate to put the burden of ascertaining the l iabilities of merged entities on the surviving entity rather t han on its employees. This will further ERISA's goal of protec ting 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 survivi ng entity before a debt follows a merger would result in perv erse 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 incenti ves. Third, requiring notice as a condition for payment would allow a disappearing constituent to unilaterally ex tinguish a debt--which it may have voluntarily assumed--simp ly by hiding it from the surviving entity before the merg er. See Howard Johnson Co., 417 U.S. at 257. Introducing su ch uncertainty into this area could severely undermine ERISA's goals.

Local 115 is in a particularly unsympathetic positi on in this case. There is no dispute that Local 115 actua lly 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 reali ze that Local 513 had not funded Littlejohn's pension, this is not

8such an unusual liability that it could not have fo reseen its

existence. In short, any reasonable entity would ha ve been
on notice to examine Local 513's records for this t ype of obligation, especially in light of Local 115's simi lar 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 consoli dation of two stranger corporations with little knowledge of each others' operations, but a merger of two sister loca ls, both of which operated in a similar manner and which were offspring of the International Brotherhood of Teams ters.

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-me rger 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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