Opinion ID: 467556
Heading Depth: 1
Heading Rank: 6

Heading: the procedural due process challenge

Text: A. Background; Keith Fulton Case 39 The constitutional question before us is whether the MPPAA denies procedural due process to withdrawing employers; more specifically, whether the determination of liability by trustees who owe a fiduciary duty to the plan and thus are putatively predisposed to impose excessive liability on withdrawing employers, coupled with the presumption in favor of that determination in arbitration and the further deference given the arbitrator's decision in district court, 9 results in the denial of due process to withdrawing employers. 40 The provisions of MPPAA have given rise to many other constitutional challenges, which the Supreme Court and this court have resolved in favor of constitutionality. 10 Neither this court nor the Supreme Court, however, has addressed the procedural due process rights of withdrawing employers, the question with which we are squarely confronted here. 41 This question has been considered by five circuits, all of which have upheld the constitutionality of MPPAA. Textile Workers Pension Fund v. Standard Dye & Finishing Co., 725 F.2d 843, 854-55 (2d Cir.1984); Washington Star Co. v. Int'l Typographical Union Negotiated Pension Plan, 729 F.2d 1502, 1511 (D.C.Cir.1984); Republic Industries, Inc. v. Teamsters Joint Council No. 83, 718 F.2d 628, 639-42 (4th Cir.1983); Board of Trustees of the Western Conference of Teamsters Pension Trust Fund v. Thompson Building Materials, Inc., 749 F.2d 1396, 1403-04 (9th Cir.1984); Keith Fulton & Sons, Inc. v. New England Teamsters and Trucking Industry Pension Fund, 762 F.2d 1137 (1st Cir.1985) (en banc ). 11 We do not lightly find a constitutional deficiency in a statutory scheme that has been upheld by five circuits. Our difference is diminished, however, by the fact that all but one of these cases have dealt with the procedural due process challenge to MPPAA only in passing, in cases dominated by other claims. The important exception is the First Circuit's Keith Fulton, in which Judge Coffin's majority opinion and Judge Aldrich's dissent thoughtfully and comprehensively set forth the opposing positions. 12 It is useful to commence our analysis with a summary of their respective arguments. 42 Judge Coffin began his analysis by invoking the doctrine of Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 96 S.Ct. 2882, 49 L.Ed.2d 752 (1976), that legislative acts adjusting the burdens and benefits of economic life survive constitutional scrutiny unless they are arbitrary or irrational. Keith Fulton, 762 F.2d at 1140. He proceeded to explain why the procedures established for determining withdrawal liability are not unreasonable. First, he argued that because Congress has set forth the actuarial methods to be used by plan trustees, and because the method adopted must be uniformly applied to withdrawing employers, the trustees' discretion is significantly cabined. Id. at 1141. Second, he disputed that the trustees are unduly biased against withdrawing employers. Id. at 1142-43. He noted first that half of the trustees are selected by contributing employers and would thus be sympathetic to withdrawing employers. He argued further that trustees will recognize that excessive assessments of withdrawal liability would discourage employers from joining the plan in the future. He argued, too, that because Congress indisputably could have mandated that the harshest method for computing liability be used for all withdrawing employers, permitting the trustees to choose among that alternative and less harsh methods cannot violate due process. Id. at 1144. 43 Judge Coffin viewed the presumptions in favor of the trustees' determination as reasonably calculated to discourage litigation and produce uniformity. Id. at 1143-44. He implicitly argued that Congress had made a legitimate tradeoff between efficiency and fairness, promoting the former at the expense of the latter. Judge Coffin concluded that Congress took measures to address a growing problem, that these measures were reasonably related to Congress' important goals, and that while some unfairness may have resulted, it did not rise to the level of a constitutional violation. Id. at 1146. 44 Judge Aldrich took issue with each of these points. He disagreed with the claim that the trustees do not have significant discretion, emphasizing their freedom to choose the discount rate (for determining future values) with which each withdrawing employer's liability is calculated. Id. at 1149. The discount rate, of course, has serious financial ramifications. Judge Aldrich noted that, in the case before them, the trustees had selected a discount rate of 7.5 per cent while the fund's actuary admitted that 14.5 per cent would have been equally reasonable. Id. at 1150. 45 He also strongly disputed the notion that the trustees are not overly biased, pointing out that all of the trustees, including those selected by employers, legally owe a fiduciary duty to the fund. Id. at 1148. Whereas Judge Coffin viewed the presumption of correctness accorded the trustees' determination as a legitimate, efficiency-promoting device, Judge Aldrich viewed it as perpetuating the problem of bias by insulating the trustees' tainted finding from necessary scrutiny. Id. at 1151. 46 Judge Aldrich dismissed as irrelevant the fact that Congress could have chosen to apply the harshest method to all withdrawing employers, because the issue is the fairness of the process, not the reasonableness of the result. Id. He concluded with a flourish that the withdrawing employers participate in an event where the referee has been fixed. Id. 47 While we believe that some of the Keith Fulton majority's arguments are strong, for the reasons that follow we are persuaded that Judge Aldrich's analysis is closer to the mark. B. The Appropriate Inquiry 48 We note at the outset our view that the majority in Keith Fulton blurred the critical distinction between substantive due process and procedural due process. It repeatedly invoked Turner Elkhorn in support of some variation on the theme that as long as Congress acts reasonably, the due process requirement is met. Turner Elkhorn and its progeny, however, deal with substantive due process challenges, not procedural due process. They stand for the proposition that Congress cannot irrationally or arbitrarily rearrange economic benefits and costs. A procedural due process challenge, however, concerns the adequacy and fairness of the mandated procedures. Schweiker v. McClure, 456 U.S. 188, 102 S.Ct. 1665, 72 L.Ed.2d 1 (1982); Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). 49 The district court in the case at bar did not confuse substantive and procedural due process but made an equally significant error by failing to distinguish between two kinds of procedural due process violations: those that arise from insufficient procedural safeguards and those that arise from decisionmaker bias. It is well established that procedures that insufficiently protect against error may violate due process. See Mathews, supra. In addition, it is well-settled that due process demands impartiality on the part of those who function in judicial or quasi-judicial capacities. McClure, 456 U.S. at 195, 102 S.Ct. at 1669. 50 These two sources of procedural due process violations have given rise to two separate branches of jurisprudence. The appropriate analysis for cases involving allegations of procedures that inadequately guard against error is the balancing test set forth in Mathews. This test requires the court to balance the risk of an erroneous deprivation, the weight of the individual's interest, and the burden on the state of imposing additional safeguards. 424 U.S. at 335, 96 S.Ct. at 903. 51 A Mathews balancing test, however, is not the appropriate inquiry when the due process claim involves an allegation of biased decisionmakers. Mathews involved only allegations of insufficient procedural safeguards, not allegations of a biased decisionmaker. The Mathews Court made no comment on the line of cases that indisputably establish the right to an impartial tribunal. See Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973) (optometrist disciplined by Alabama Board of Optometrists was denied right to an impartial hearing when members of Board had pecuniary interest in outcome); Ward v. Village of Monroeville, 409 U.S. 57, 93 S.Ct. 80, 34 L.Ed.2d 267 (1972) (individual convicted of traffic violation was denied impartial hearing when Mayor sat as judge); See also Withrow v. Larkin, 421 U.S. 35, 95 S.Ct. 1456, 43 L.Ed.2d 712 (1975); In Re Murchison, 349 U.S. 133, 75 S.Ct. 623, 99 L.Ed. 942 (1955); Tumey v. State Of Ohio, 273 U.S. 510, 47 S.Ct. 437, 71 L.Ed. 749 (1927). Indeed, since Mathews, the Supreme Court has had several occasions to consider claims of due process violations based on allegations of a biased decisionmaker; in none of these cases has the Court resorted to the Mathews balancing test to resolve that issue. Schweiker v. McClure, 456 U.S. 188, 102 S.Ct. 1665, 72 L.Ed.2d 1 (1982); Marshall v. Jerrico, 446 U.S. 238, 100 S.Ct. 1610, 64 L.Ed.2d 182 (1980); Friedman v. Rogers, 440 U.S. 1, 99 S.Ct. 887, 59 L.Ed.2d 100 (1979). 13 52 If the only problem with biased decisionmakers was the likelihood of error, it would make sense to apply the Mathews balancing test in cases involving allegations of biased decisionmakers and to subsume the problem of bias under the risk of erroneous deprivation prong of the three-part test. However, the requirement of an impartial decisionmaker transcends concern for diminishing the likelihood of error. The unfairness that results from biased decisionmakers strikes so deeply at our sense of justice that it differs qualitatively from the injury that results from insufficient procedures. In Justice Holmes' famous phrase, even a dog distinguishes between being stumbled over and being kicked. O. Holmes, The Common Law 3 (1881). 53 In the case at bar, Yahn challenges primarily the impartiality of the tribunal. Therefore, following Supreme Court jurisprudence, the Mathews balancing test is not the primary inquiry. If someone is deprived of his right to an impartial tribunal, then he is denied his constitutional right to due process, regardless of the magnitude of the individual and state interest at stake, the risk of error and the likely value of additional safeguards (the factors to be balanced under Mathews ). Since the district court erred by dealing with Yahn's due process claim by applying a Mathews test, we turn our attention to Yahn's claim that it was deprived of its right to an impartial decision-maker. C. The Right To An Impartial Decisionmaker 54 Our inquiry is twofold: 1) whether there is a sufficient showing of trustee bias; and 2) whether the fact that the trustees do not have wide discretion and/or the availability of an arbitrator's review suffice to eliminate the bias and thus provide due process even if the trustees are biased. 1. Trustee Bias 55 Although there is a presumption that decisionmakers are unbiased, that presumption can be rebutted by a showing of conflict of interest or some other specific reason. McClure, 456 U.S. at 195, 102 S.Ct. at 1669. There is powerful evidence that the trustees have a significant conflict of interest: as fiduciaries of the plan, trustees have a natural inclination and may even consider it a duty to maximize the fund by extracting as much money as possible from withdrawing employers. Absent countervailing factors, this possible temptation, Ward v. Village of Monroeville, 409 U.S. 57, 60, 93 S.Ct. 80, 83, 34 L.Ed.2d 267 (1972), and incentive to maximize withdrawal liability of employers results in the denial of withdrawing employers' due process right to an impartial decisionmaker. 56 Some courts have countered that while the trustees appointed by the union may be biased against withdrawing employers, the trustees selected by contributing employers will feel an allegiance to withdrawing employers which will counteract the bias of the other trustees. Keith Fulton, 762 F.2d at 1142; Republic Industries, 718 F.2d at 640. 14 We must reject this argument, because all of the trustees, including those selected by employers, are fiduciaries of the fund, 29 U.S.C. Sec. 1002(21)(a), and thus owe an exclusive duty to the fund. 29 U.S.C. Sec. 1104. The Supreme Court has emphatically rejected the suggestion that trustees selected by contributing employers have any loyalty except to the fund: 57 [A]lthough Sec. 302(c)(5)(B) requires an equal balance between trustees appointed by the union and those appointed by the employer, nothing in the language of Sec. 302(c)(5) reveals any congressional intent that a trustee should or may administer a trust fund in the interest of the party that appointed him, or that an employer may direct or supervise the decisions of a trustee he has appointed. 58 NLRB v. Amax Coal, 453 U.S. 322, 330, 101 S.Ct. 2789, 2794, 69 L.Ed.2d 672 (1981). Indeed, under Sec. 1109, the trustees are potentially personally liable to the fund. See Massachusetts Mutual Life Insurance Company v. Russell, --- U.S. ----, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985). Under these circumstances, their conflict of interest is at least as great and arguably greater than the Mayor in the Ward case who was deemed unsuited to preside over a traffic violation case because of his interest in maximizing the municipal budget. 59 It is conceivable that despite their exclusive loyalty to the fund, the trustees will be led by self-interest to refrain from unfairly maximizing assessments of withdrawal liability. As the Keith Fulton court suggested, the trustees are aware that excessively high withdrawal liabilities ... would have the effect of discouraging future participation. 762 F.2d at 1142-43. However, this possibility does not mean the trustees are less biased, only that their manifest bias will not always result in gross injustice to employers. We agree with Judge Aldrich: 60 It seems an odd principle to determine the permissibility of manifest bias by weighing the decisionmaker's conflicting interests in the scales of justice and finding which side predominates. 61 Keith Fulton, 762 F.2d at 1149-1150. The due process right to an unbiased decisionmaker is not satisfied by speculation that countervailing concerns may restrain clearly biased parties from excessively harsh judgments. 15 62 Even in cases in which the Supreme Court has rejected allegations of decisionmaker bias, its language strongly suggests that it would regard the Plan trustees as biased. In Friedman v. Rogers, 440 U.S. 1, 99 S.Ct. 887, 59 L.Ed.2d 100 (1979), the Court rejected an optometrist's claim that the Texas Optometry Disciplining Board was biased, because he failed to show the possibility that the members of the regulatory board might have personal interests that precluded a fair and impartial hearing.... Id. at 18, 99 S.Ct. at 898. The Court endorsed the holding in Gibson v. Berryhill, 411 U.S. 564, 578, 93 S.Ct. 1689, 1697, 36 L.Ed.2d 488 (1973) where a conflict of interest had been shown and the Court had found a denial of due process (In Gibson, members of the Alabama Board of Optometrists stood to profit by revoking the licenses of their competitors). Similarly, in McClure, supra, where the impartiality of social security hearing officers was questioned, the Court said that [i]n the absence of proof of financial interest ... there is no basis for assuming a derivative bias among their hearing officers. 456 U.S. at 197, 102 S.Ct. at 1671 (emphasis added). 16 Thus, the Court has not retreated from its holdings in Ward and Gibson, where the showing of conflict of interest was demonstrable. As discussed, the case at bar involves decisionmakers with a manifest and significant bias. 63 Some of the courts that have considered the procedural due process challenge to MPPAA have underestimated the significance of the trustees' fiduciary duty. The Supreme Court's declaration in Amax leaves little doubt as to the question of trustee bias: 64 Under principles of equity, a trustee bears an unwavering duty of complete loyalty to the beneficiary of the trust, to the exclusion of the interests of all other parties. 65 453 U.S. at 329, 101 S.Ct. at 2794. Given the trustees' fiduciary duty to the plan, and their consequent personal liability if the plan is not adequately funded, we again find ourselves in agreement with Judge Aldrich: 66 This is not a mere appearance of bias; it is a real, indeed multiple, bias, rooted both in the trustees' statutory duty and in their personal circumstances. 67 Keith Fulton, 762 F.2d at 1148. 68 In view of the bias of the trustees, MPPAA can pass constitutional muster only if the trustees lack discretion or if arbitration serves as a cleansing device. We take these points up in turn. 2. Trustee Discretion 69 An important element of the First Circuit's holding that MPPAA provided due process was its belief that the trustees' calculation was largely ministerial: 70 The Act specifically requires that a plan's rules for determining withdrawal liability operate and be applied uniformly with respect to each employer. 29 U.S.C. Sec. 1394(b).... Thus, in future years, the trustee's function is likely to become that of simply applying a designated method of computation to all later withdrawals. 71 Keith Fulton, 762 F.2d at 1141. See also Board of Trustees of the Western Conference, 749 F.2d at 1403-04; Republic Industries, 718 F.2d at 640 n. 13. If the trustees had no discretion, their bias would obviously be insignificant. Moreover, if, as the First Circuit believes, they have little discretion, an extra layer of review--arbitration--may ensure due process. However, we disagree with the First Circuit's assessment of the trustees' role, believing instead that the trustees have wide and significant discretion. 72 While the trustees must apply their chosen actuarial method uniformly among withdrawn employers, the statute leaves them free to pick among the four suggested methods or to choose their own. Moreover, as Judge Aldrich emphasized, determinations of appropriate discount rates, a matter that varies in each case, may involve large amounts of money. In Keith Fulton, the trustees had selected a discount rate of 7.5% although expert testimony suggested that a rate of 14.5% would have been reasonable. The difference between the two accounted for a gap of a considerable amount. Additionally, assessments under Secs. 1382-1399 require trustees to determine whether an employer falls under one of several statutory exemptions. This decision involves complex determinations such as whether a sale of assets is a bona fide arm's length deal. 29 U.S.C. Sec. 1384 (1982). 17 73 Not only are these matters in which the exercise of significant discretion is unavoidable, but the trustees' determination can be the difference between a finding of no liability and a finding of liability in a large amount. The need to make such determinations belies the notion that the trustees perform a largely ministerial function. Indeed, the legislative history of MPPAA reveals that Congress expected the trustees to exercise wide discretion. Congress realized that [p]lan fiduciaries are given a great deal of flexibility to strike a balance among the competing considerations of encouraging new entrants, discouraging withdrawals, easing administrative burdens, and protecting the financial soundness of a fund. H.R.Rep No. 869, 96th Cong., 2d Sess. 67, reprinted in 1980 U.S.Code Cong. & Ad.News 2935. 74 We conclude that the due process problem occasioned by the trustees' bias is not eliminated or even much attenuated by the fact that the trustees lack discretion to apply different actuarial methods to different withdrawing employers. 18 The remaining question is whether the availability of arbitration ensures the requisite due process to withdrawing employers. 3. Arbitration 75 While some of the cases holding that particular panels were unconstitutionally biased involved situations where judicial review was available, none involved the extra layer of arbitral review that MPPAA requires. On one occasion we squarely considered the question whether an extra layer of review sufficed to provide a fair hearing despite an initially biased tribunal. In that case, Goodman v. Laborers' Int'l Union of NA, 742 F.2d 780 (3d Cir.1984), we expressed uncertainty as to whether de novo review rescues a tainted hearing, but found that where the tainted decision was reviewed under a deferential standard (under which it was to be affirmed if amply supported by the evidence,) the subsequent hearing did not cure the defect. Id. at 785. 19 We see no reason to depart from the ratio decidendi of Goodman: that where an initial hearing is tainted by bias, arbitration cannot provide the requisite fair hearing if the arbitration proceeding is not de novo. 20 Neither the appearance nor reality of fairness is served when a tainted verdict is presumed correct in subsequent review. 76 We do not deny the Keith Fulton court's view that the presumptions are rational means of promoting uniformity and discouraging litigation. For this reason, they survive a substantive due process analysis and a Mathews test. Similarly, the replacement of contingent withdrawal liability with mandatory liability and the repeal of the 30% maximum, see supra note 1, though harsh, are within Congress' power. As Judge Coffin explained, these provisions were rational responses to a serious problem. As we have noted, however, while a substantive due process analysis and a Mathews test permit the balancing of fairness and efficiency, the right to an impartial decisionmaker permits no such balancing. Regardless of the importance of ensuring the solvency of pension plans, and the reasonable relation between that end and the statutory scheme, one requirement can be clearly deduced from basic principles of judicial fairness and from Supreme Court jurisprudence: the assessment of liability must be made by an unbiased party. In sum, because the trustees are biased and have significant discretion, and because their determination of liability is deferentially reviewed in arbitration and in district court, we believe MPPAA deprives employers of their constitutional right to a fair hearing.