Opinion ID: 523272
Heading Depth: 3
Heading Rank: 3

Heading: Enforceability of the MLA Provision

Text: 18 The parties disagree about the effect of the MPPAA on prior federal substantive law. The trust funds argue that Sec. 1132(g)(2) did not change the common law regarding contractual remedies, such as liquidated damages, and that the court misapplied that law by holding the provision void as a penalty. UMC argues that Sec. 1132(g)(2) provides the only basis to recover liquidated damages for delinquent contributions. This amounts to an argument that Sec. 1132(g)(2) preempts alternative contractual remedies formerly available under federal common law. UMC argues that if the MPPAA does not preempt alternative remedies, then the court correctly held the provision void. 19 We must consider whether Sec. 1132(g)(2) preempts contractual remedies available before the MPPAA. The language of Sec. 1132(g)(2) 3 does not necessarily suggest that Congress intended it to provide the only basis for recovering liquidated damages. We nonetheless investigate legislative history to resolve ambiguities about the effect of Sec. 1132(g)(2) on the common law of liquidated damages. See, e.g., Escobar Ruiz v. INS, 838 F.2d 1020, 1023 (9th Cir.1988) (en banc). This seems particularly important because we have uncovered only three cases reported after the MPPAA with analogous facts and each applies a different approach. See Carpenters & Joiners Welfare Fund v. Gittleman Corp., 857 F.2d 476 (8th Cir.1988); Trustees of The Glaziers Local 963 Pension, Welfare & Apprentice Funds v. Walker & Laberge Co., 619 F.Supp. 1402 (D.Md.1985); Bennett v. Machined Metals Co., 591 F.Supp. 600 (E.D.Pa.1984). 4 Bennett does not apply because the plan provision at issue provided for liquidated damages as under the Act. See id. at 602-03. 20 By contrast with Bennett, Carpenters and Glaziers reach different results regarding whether Sec. 1132(g)(2) of ERISA preempts alternative contractual remedies for delinquent employer contributions. The Fifth Circuit in Carpenters denied liquidated damages under a collective bargaining agreement stating that [t]he detail and comprehensiveness of the section 1132(g)(2) remedy supports the conclusion that it was meant to 'supplant any remedy that otherwise would be available.'  857 F.2d at 479. The court did not discuss legislative history. In Glaziers, the court awarded liquidated damages under the collective bargaining agreement without considering the possibility of preemption. See 619 F.Supp. at 1405. 21 We conclude that federal common law principles apply to determine the enforceability of the MLA liquidated damages provision. The legislative history indicates that Sec. 1132(g)(2) does not preempt alternative contractual remedies. A House Committee Report commenting on H.R. 3904 (the House version of the bill) states: 22 The Committees [sic] amendment provides that in the case of a civil action by any person to collect delinquent multiemployer plan contributions, regardless of applicable law, the court before which the action is brought may award the plaintiff (1) reasonable attorneys fees, (2) court costs, and (3) liquidated damages not to exceed 20 percent of the amount of delinquent contributions as determined by the court ... The bill preempts any State or other law which would prevent the award of reasonable attorneys fees, court costs or liquidated damages or which would limit liquidated damages to an amount below the 20 percent level. However, the bill does not preclude the award of liquidated damages in excess of the 20% level where an award of such a higher level of liquidated damages is permitted under applicable State or other law. The Committee amendment does not change any other type of remedy permitted under State or Federal law with respect to delinquent multi-employer plan contributions. (emphasis supplied). 23 H.R.Rep. No. 869, 96 Cong., 2d Sess. (1980) (Part II), reprinted in 1980 U.S.Code Cong. & Admin.News 2918, 3037-38. See also 126 Cong.Rec. H7899 (daily ed. Aug. 16, 1980) (statement of Representative Thompson) discussed in Central States Southeast and Southwest Areas Pension Fund v. Alco Express Co., 522 F.Supp. 919, 928 (E.D.Mich.1981). 5 This history indicates that Congress intended only to preempt laws limiting liquidated damages to an amount below the 20% level when the terms of Sec. 1132(g)(2) are satisfied. 6 24 Having determined that the MPPAA does not preempt the federal common law of liquidated damages when Sec. 1132(g)(2) does not apply, we resolve whether the liquidated damages provision at issue is void as a penalty. Before the MPPAA, several courts applied federal common law to pension plan liquidated damages provisions to determine whether they were penalties. See United Order of Am. Bricklayers and Stone Masons Union No. 21 v. Thorleif Larsen & Son, Inc., 519 F.2d 331, 337 (7th Cir.1975) (holding 10% liquidated damages provision enforceable and not a penalty even though it failed to make damages proportional to length of delay); Hammond v. James W. Griffin Co., 520 F.Supp. 162, 167-68 (N.D.Ga.1981) (holding 10% interest provision not void as a penalty, but denying interest and liquidated damages); Plumbers Local Union No. 519 v. Service Plumbing Co., 401 F.Supp. 1008, 1014 (S.D.Fla.1975) (holding provision valid); Jensen v. Garvison, 274 F.Supp. 866, 870 (D.Or.1967) (holding liquidated damages provision reasonable). 25 Applying federal common law, we find that the court held correctly the liquidated damages provision void as a penalty. Such a provision must meet two conditions for enforceability. Thorleif, 519 F.2d at 332 (quoting Sec. 339 of Second Restatement of Contracts). First, the harm caused by a breach must be very difficult or impossible to estimate. Id. Second, the amount fixed must be a reasonable forecast of just compensation for the harm caused. Id. The parties' intentions determine whether this second requirement is satisfied. Id. They must make a good faith attempt to set an amount equivalent to the damages they anticipate. Id. at 333. 26 Where the damages stipulated are unreasonable, a court will refuse to enforce the agreement on public policy grounds. Id.; compare Doolan v. Doolan Steel Corp., 591 F.Supp. 1506, 1510-11 (E.D.Pa.1984) (damages clause assessing 60% of the total amount of profit sharing benefits due void as a penalty), aff'd, 772 F.2d 894 (3d Cir.1985), with Thorleif, 519 F.2d at 337 (10% of amount due enforceable). 27 The agreement in question provides for liquidated damages of 20%, or $9,245.23 in this instance. UMC paid the contributions four days late. Even taking account of lost investment interest and increased administrative costs, these damages are not a reasonable forecast of just compensation. The trust funds provide no explanation for the increase from 10% to 20%. They do not suggest that it corresponded to an increase in administrative or other costs. The trustees had the opportunity and authority to establish a schedule of damages, but failed to do so. The provision was not a good faith attempt to estimate the amount of damages flowing from the breach.