Opinion ID: 421651
Heading Depth: 1
Heading Rank: 2

Heading: Reduction of Liability for Benefits Accrued Before Avon's Membership in the Ouimet Group

Text: 8 The Ouimet Group's first argument is that the joint and several liability of its members should be reduced by $92,000, the unfunded liability for vested benefits which had accrued under the pension plan before Avon became a member of the Group. This contention stems from our earlier holding that ERISA's retroactive imposition of joint and several liability on Group members other than Avon was justified by virtue of their membership in the Group. The Group maintains that it follows from this that ERISA could constitutionally impose retroactive liability on other members only for the unfunded benefits attributable to the period during which Avon was a member. 9 PBGC responds to this argument primarily by stressing that the issue has already been litigated by the parties and decided by this court when we upheld the retroactive application of ERISA's termination liability provisions based upon the reasoning of Nachman Corp. v. Pension Benefit Guaranty Corp., 592 F.2d 947 (7th Cir.1979) (retroactively upheld on statutory and constitutional grounds), aff'd, 446 U.S. 359, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980) (addressing the statutory question only). Indeed, the Ouimet Group's current argument is strikingly familiar and relies on the same cases cited by it earlier-- Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978), and Railroad Retirement Board v. Alton Railroad, 295 U.S. 330, 55 S.Ct. 758, 79 L.Ed. 1468 (1935). We hesitate to dismiss the Group's argument summarily, however, because it does contain some nuance of focusing on the liability accrued prior to Avon's membership in the Ouimet Group. As PBGC acknowledges in its brief, the Ouimet Group did not specifically argue this point earlier. 10 Instead of relying upon cases that we distinguished in our earlier opinion, the Ouimet Group perhaps should have cited Pension Benefit Guaranty Corp. v. Anthony Co., 537 F.Supp. 1048 (N.D.Ill.1982), in advancing its current point. The court in Anthony considered the constitutionality of imposing employer liability on a parent whose subsidiary terminated a pension plan; the parent had acquired the subsidiary after the plan was established and before ERISA's effective date. The court distinguished Nachman as upholding the statute's retroactive application to direct employers. It held that liability could constitutionally be imposed on the direct employer's parent only to a limited extent, concluding that it would be rational in due process terms to hold the acquiring parent accountable for underfunding to the extent of any direct financial benefits it derived from the subsidiary during its affiliation. Anthony, 537 F.Supp. at 1056 (footnote omitted). The court suggested that the parent could be held liable for such items as dividends it received from the subsidiary or income tax savings realized from deductions attributable to the subsidiary. By implication Anthony suggests that it would violate due process to hold the parent liable for unfunded benefits attributable to the period before it acquired the subsidiary because the parent would have received no financial benefits relating to this period. 11 We do not agree that rationality in due process terms requires a dollar by dollar accounting of the financial benefits controlled group members have realized as a result of their affiliation with the terminating employer. The mere fact that such benefits typically accrue in the controlled group setting is sufficient to support a conclusion that Congress acted rationally and not arbitrarily in drafting ERISA to impose retroactive liability on controlled group members. The circumstances surrounding the Ouimet Group amply demonstrate this. As we noted in our first opinion, Ouimet had agreed to benefit increases under the plan which contributed to its underfunding and the Ouimet Group realized tax benefits on the Avon plan contributions. Ouimet, 630 F.2d at 12. The analysis in Anthony ignored the realities of business affiliation, such as that a parent does not have to actually receive dividend payments to benefit from its subsidiary's successful operations. 12 It does not require a quantum leap for us now to hold explicitly that imposing on the entire Group the $92,000 liability relating to the period before Avon was acquired does not violate due process. The Ouimet Group does not have an indefeasible reliance interest here because it acquired Avon with full knowledge of the plan and its funding requirements. Ouimet, 630 F.2d at 12. Presumably the price at which Ouimet acquired Avon reflected the plan's funding inadequacies up to that date--such as for past service costs--and thus Ouimet stepped into the shoes of Avon with respect to the benefits and burdens of the plan; certainly in most business acquisitions involving the purchase of stock this would be the case. More importantly, the Ouimet Group's argument here runs counter to the essence of our first holding, that in enacting ERISA's termination liability provisions Congress treated entities under common control as one employer. The statute places the Ouimet Group in the shoes of Avon regardless of the specifics of Ouimet's acquisition of that company. This approach is rationally related to ERISA's objectives of protecting employees' retirement benefits while not creating disincentives to the adoption or liberalization of retirement plans. See Comment, Extending Liability for Pension Plan Terminations to Controlled Group Members: Pension Benefit Guaranty Corp. v. Ouimet Corp., 61 B.U.L.Rev. 447, 489-502 (1981). Much of the analysis in Nachman Corp. v. Pension Benefit Guaranty Corp., 592 F.2d 947, concerning direct employers is pertinent here and supports the conclusion that due process does not require reducing the Ouimet Group's liability by the amount of vested benefits accrued before Avon became a member. 13