2006 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-23-2006

PNC Bank NA v. PPL Elec Util Corp

Precedential or Non-Precedential: Non-Precedential

Docket No. 05-3109

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Recommended Citation

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 05-3109

 

PNC BANK, N.A., as Trustee for the Tunnelton Mining Company

Black Lung Benefit Trust on behalf of and for the benefit of the 

former employees of the Tunnelton Mining Company Marion Mine

v.

PPL ELECTRIC UTILITIES CORPORATION,

f/k/a PENNSYLVANIA POWER & LIGHT COMPANY;

PENNSYLVANIA MINES, LLC, f/k/a

PENNSYLVANIA MINES CORPORATION,

 Appellants

 

Appeal from the United States District Court

for the Western District of Pennsylvania

(D.C. Civil No. 03-cv-01789)

District Judge: Honorable Donetta W. Ambrose

 

Argued May 18, 2006

Before: RENDELL and VAN ANTWERPEN, Circuit Judges,

and ACKERMAN*, District Judge.

(Filed June 23, 2006)

 

 

* Honorable Harold A. Ackerman, Senior District Judge for the District of New Jersey,

sitting by designation.
2

David J. Laurent [ARGUED]

Babst, Calland, Clements & Zomnir

Two Gateway Center, 8 Floor th

Pittsburgh, PA 15222

 Counsel for Appellants

Robert V. Campedel [ARGUED]

Mark A. Willard

Eckert, Seamans, Cherin & Mellott

600 Grant Street, 44 Floor th

Pittsburgh, PA 15219

 Counsel for Appellee

 

OPINION OF THE COURT

 

RENDELL, Circuit Judge.

I.

This appeal arises from a grant of summary judgment against PPL Electric

Utilities Corporation (“PPL”) and Pennsylvania Mines, LLC (“PA Mines”) (collectively

“Appellants”) and in favor of PNC Bank (“PNC”). PNC is Trustee of the Tunnelton

Mining Company Black Lung Benefit Trust (“Tunnelton Trust”). On May 31, 2001, PA

Mines demanded a trust distribution of “excess assets” of the Tunnelton Trust under

section 501(c)(21) of the Internal Revenue Code. PNC filed an action for declaratory

judgment in the Court of Common Pleas for Allegheny County, Pennsylvania, seeking a

declaration that the Tunnelton Trust does not contain “excess assets” that can be used to

pay for retiree health care benefits under 26 U.S.C. § 501(c)(21). PA Mines removed the
After discovery, PA Mines withdrew Count II of the counterclaim with regard to 1

PNC’s fees. 

Though not reaching the issue, the District Court also noted that it was doubtful 2

that federal subject matter jurisdiction existed over the proposed state-law breach of

fiduciary duty claim. 

3

case to federal court and filed a two-count counterclaim for (1) breach of fiduciary duty

for failure to pay the “excess assets” and (2) allegedly taking excessive fees for

administration of the Trust assets. PNC filed a motion for summary judgment, arguing 1

that there were no “excess assets” in the Tunnelton Trust under § 501(c)(21) and, as a

consequence, that PNC had not breached its fiduciary duty by refusing to make

payments. The District Court granted PNC’s motion for summary judgment based upon

its determination that the Tunnelton Trust did not contain excess assets under §

501(c)(21).

After the District Court granted summary judgment, PA Mines and PPL filed a

motion for leave to amend their counterclaim. Specifically, Appellants sought to amend

their counterclaim to add a new claim for breach of fiduciary duty against PNC on behalf

of and for the benefit of the former employees of the Tunnelton Mining Company’s

Marion Mine. The District Court did not exercise its discretion to permit PPL and PA

Mines to amend their complaint, finding that they lacked standing to bring their new

claim.2

II. 

We exercise plenary review over the District Court’s grant of summary judgment,
4

and apply the same standard the District Court was required to apply. Stratton v. E.I.

DuPont DeNemours & Co., 363 F.3d 250, 253 (3d Cir. 2004). Summary judgment is

appropriate if there are no genuine issues of material fact presented and the moving party

is entitled to judgment as a matter of law. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett,

477 U.S. 317 (1986). We resolve all factual doubts and draw all reasonable inferences in

favor of the nonmoving party. Conoshenti v. Public Serv. Elec. & Gas Co., 364 F.3d

135, 140 (3d Cir. 2004). We review the District Court's denial of leave to amend for

abuse of discretion. Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107, 116 (3d Cir.

2003); Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000).

III.

The Federal Black Lung Benefits Act (“BLBA”), 30 U.S.C. §§ 901, et seq.,

obligates coal mine operators to provide certain benefits to their employees who are

stricken with pneumoconiosis, also known as black lung disease, due to exposure to coal

dust during their employment. PA Mines (an indirect subsidiary of PPL) is subject to the

BLBA. Prior to September 25, 1992, PA Mines owned and operated several mining

companies, one of which was the Tunnelton Mining Company (“TMC”). During the

course of operating its mining companies, PA Mines provided BLBA benefits for its

employees through a Black Lung Benefits Trust entitled PMC Black Lung Benefit Trust

(“PMC Trust”). Creating such a trust is one of several options available to mine

operators under federal regulations which seek to secure the payment of benefits as a
5

result of the long-term nature of black lung disease and the threat of insolvency in the

mining business.

In 1991, PA Mines decided to get out of the mining business and either closed or

sold its mines and mining companies, but remains in existence to satisfy certain postclosing liabilities and obligations. On September 25, 1992, as part of its coal mining

divestiture, PA Mines entered into a Stock Purchase Agreement with Mon Valley Steel

Co., Inc., wherein PA Mines sold and Mon Valley purchased all of the capital stock of

TMC. As part of this transaction, PA Mines agreed to continue to pay health and

accident insurance benefits for retirees of TMC pursuant to the Coal Industry Retiree

Health Benefits Act (commonly known as the Rockefeller Act), 26 U.S.C. §§ 9701, et

seq. As part of the sale of all of the stock of TMC to Mon Valley, TMC established the

Tunnelton Trust for purposes of satisfying its BLBA obligations to miners who were

employees of TMC prior to the sale and either retired or continued on as employees after

the sale and later retired. PNC was made the trustee for the Tunnelton Trust. $8,415,000

was transferred from the PMC Trust to the Tunnelton Trust based upon a liability study

performed by PA Mines’ actuaries, pursuant to the terms of both the Stock Purchase

Agreement and the Tunnelton Trust Agreement. 

After the September 25, 1992 transaction, Congress amended section 501(c)(21)

(effective October 24, 1992) to allow the payment of “excess assets” from the assets of

black lung benefit trusts to employers for the payment of accident or health benefit
6

premiums of retired miners as required by the Rockefeller Act. 

TMC, which was charged with processing the BLBA claims of its employees and

replenishing the funds which comprise the assets of the Tunnelton Trust if necessary,

eventually terminated its mining operations and filed for bankruptcy in 1994. 

On or about May 31, 2001, PA Mines demanded that PNC, as Trustee of the

Tunnelton Trust, pay $3,157,230 of the Tunnelton Trust assets to PA Mines under

section 501(c)(21)(A)(i)(IV) of the Internal Revenue Code for the purpose of

reimbursing PA Mines for payments it had made under the Rockefeller Act, with respect

to non-black lung health benefits for TMC’s and PA Mines’ retired miners. PNC refused

PA Mines’ request on the grounds that IRC section 501(c)(21) only permits “excess”

trust assets to be used for payment of such benefits. PNC contends that there are no

“excess assets” of the Trust available to pay PA Mines’ demand. 

In light of, among other things, the continuing demand of PA Mines for payment,

the bankruptcy of TMC, and the fact that no “Employer” exists to contest PA Mines’

demands or to replenish the assets of the Tunnelton Trust in the event of depletion, PNC,

as Trustee of the Tunnelton Trust, brought an action for declaratory judgment in the

Court of Common Pleas for Allegheny County, Pennsylvania. On November 20, 2003,

PA Mines and PPL removed the action to federal court and filed counterclaims against
We have subject matter jurisdiction over this claim brought under Pennsylvania’s 3

declaratory judgment statute, and originally in Pennsylvania state court, pursuant to 28

U.S.C. § 1331. We conclude that PNC’s state-law action gives rise to federal-question

jurisdiction because “it appears from the complaint that the right to relief depends upon

the construction or application of federal law.” Grable & Sons Metal Prods., Inc. v.

Darue Eng’g & Mfg., 125 S. Ct. 2363, 2367 (2005) (internal brackets and quotation

omitted). We find that PNC’s state-law declaratory judgment act claim raises a

substantial federal question– the interpretation of section 501(c)(21) of the Internal

Revenue Code– over which the District Court properly exercised removal jurisdiction. 

Our jurisdiction is “consistent with congressional judgment about the sound division of

labor between state and federal courts governing the application of § 1331." Id. 

7

PNC.3

On October 15, 2004, PNC moved for summary judgment. On February 22,

2005, the District Court granted summary judgment for PNC, declaring that there are no

excess assets of the Tunnelton Trust under section 501(c)(21) of the IRC and that PNC is

not required to pay any portion of the Trust’s assets to PA Mines or PPL. The District

Court also dismissed the counterclaims against PNC, but afforded PA Mines and PPL

leave to file a motion to amend their counterclaim to add a claim under federal law for

breach of fiduciary duty. On March 22, 2005, PA Mines and PPL moved for leave to file

an amended counterclaim. Specifically, Appellants sought to amend their counterclaim

to add a new claim for breach of fiduciary duty against PNC on behalf of and for the

benefit of the former employees of the TMC Marion Mine. The District Court denied

PA Mines’ and PPL’s motion, finding that they did not have standing to bring this new

claim. 

IV.
The excess asset calculation relies on the following mathematical calculation: 4

(ii) the excess (if any) of –

(I) the sum of a similar excess determined as of the close of

the last taxable year ending before the date of the enactment

of this subparagraph plus earnings thereon as of the close of

the taxable year preceding the taxable year involved, over 

(II) the aggregate payments described in subparagraph

(A)(i)(IV) made from the trust during all taxable years

beginning after the date of the enactment of this

subparagraph.

26 U.S.C. § 501(c)(21)(C)(ii) (emphasis added).

8

In granting summary judgment, the District Court first addressed the narrow issue

of whether there were any “excess assets” in the Tunnelton Trust under section

501(c)(21)(C)(ii) and found that there were not. This was based upon its conclusion that

because the Tunnelton Trust’s first taxable year did not end until March 31, 1993– more

than five months after the enactment of section 501(c)(21)(C)– the calculation of “excess

assets” resulted in a finding of no excess assets. The District Court reasoned that the

Tunnelton Trust did not have any taxable years ending prior to the date of enactment

and, thus, could not have any excess assets under the (C)(ii) calculation. Because the 4

lesser of the section 501(c)(21)(C)(i) and (ii) amounts is zero, there are no excess assets

in the Tunnelton Trust available to PA Mines. The District Court found that PNC was

also entitled to summary judgment on PA Mines’ counterclaim for breach of fiduciary

duty because there could be no breach of fiduciary duty for failure to disburse excess
9

assets since there were no “excess assets” in the Tunnelton Trust for PNC to disburse. 

Appellants do not challenge this calculation, but urge that the Tunnelton Trust is

not a “typical” new trust for purposes of the Act. Unlike typical trusts, the Tunnelton

Trust assumed all of the PMC Trust’s assets and liabilities with respect to Tunnelton’s

former employees and should be held to be a de facto continuation of the PMC Trust. 

So, they contend, the § 501(c)(21)(C)(ii) “excess assets” calculation should be made with

reference to the status of assets and liabilities in the PMC Trust at the close of the last

taxable year that ended before § 501(c)(21)(C) was enacted, 1991.

The District Court rejected this theory and concluded that the Tunnelton Trust and

PMC Trusts “are, and always have been, separate and distinct entities.” Dist. Ct. Op. at

13, app. 17. “For example,” the District Court noted, “each trust has a different tax

identification number, and thus, each is a separate taxpayer for purposes of federal tax

law. The two trusts also have different taxable years. The Stock Purchase and Trust

Agreements further indicate that Defendants intended the Tunnelton Trust to be a new

and separate entity.” Id. (citations omitted). The District Court concluded, “There is

nothing in section 501(c)(21) or elsewhere that would even remotely suggest that

Congress intended the term “trust” to include any other entity, especially a separate and

distinct taxpayer such as the [PMC] Trust. Thus, under the plain language of the statute,

only the Tunnelton Trust is relevant.” Id.

We adopt the thoughtful analysis of the District Court and its legal conclusion on
10

this issue. We will affirm the District Court’s rulings as to both PNC’s declaratory

judgment action and the original counterclaims.

V.

After the District Court granted PNC’s motion for summary judgment and

simultaneously dismissed Appellants’ original counterclaims, Appellants filed a motion

for leave to file an amended counterclaim. In their original counterclaim, Appellants

alleged breach of fiduciary duty against PNC, as Trustee of the Tunnelton Trust, based

upon PNC’s refusal to hand over Trust assets to Appellants to cover Appellants’

liabilities for non-black lung liabilities. When this counterclaim was rejected, Appellants

sought to amend their counterclaim to allege that PNC breached its fiduciary duty to

beneficiaries of the Trust by making payments for medical treatments to former

Tunnelton miners which Appellants allege were not related to black lung disease. The

District Court denied this motion, finding that Appellants lacked standing to bring the

claim. It reasoned that Appellants failed to allege any actual or threatened injury from

PNC’s alleged breach of fiduciary duty and had not identified any interest they have in

the Trust assets except as potential recipients of “excess assets” for purposes of

reimbursing them for accident or health benefits paid for retired miners. Because the

District Court had concluded that there were not– and could not be– any such excess

assets in the Tunnelton Trust, it found that Appellants had no interest in the Trust assets

and could not be harmed by PNC’s alleged improper payments. Accordingly, the District
The District Court also concluded that Appellants do not have third-party standing 5

to pursue their proposed breach of fiduciary duty claim on behalf of the Trust and/or the

former Tunnelton miners who are beneficiaries of the Trust.

11

Court concluded, Appellants lack Article III standing to bring their proposed amended

counterclaim. 

The District Court also concluded that, even if Appellants could establish an

injury that would satisfy the constitutional standing requirements, they cannot establish

prudential standing. The prudential limitations “ensure that only parties who can best

pursue a particular claim will gain access to the courts.” Oxford Assocs. v. Waste Sys.

Auth. of E. Montgomery County, 271 F.3d 140, 145 (3d Cir. 2001). Here, the District

Court concluded that Appellants were not the best parties to represent the interests of the

former miners who are entitled to Black Lung benefits.5

On appeal, Appellants devote only a single paragraph (two sentences) to this

issue. Appellants essentially concede that, if we find that the Tunnelton Trust has no

“excess assets” then they do not have standing. Appellants argue only “if this Court

reverses the District Court on the Section 501(c)(21)(C)(ii) issue, [Appellants] clearly

will be potential beneficiaries of the Tunnelton Trust and, therefore, will have standing to

complain about PNC’s waste of trust assets.” Appellants’ Br. at 25. 

We find no error in the District Court’s analysis and conclude that Appellants,

indeed, lack standing to bring their proposed amended counterclaim. 

VI. 
12

Accordingly, for the reasons set forth above, we will affirm the District Court’s

grant of summary judgment as to both PNC’s declaratory judgment action and the

original counterclaims. We will also affirm the District Court’s denial of Appellants’

motion to amend their counterclaim for lack of standing.