Court Opinion

ID: 8938333
Source: CourtListenerOpinion
Date Created: 2022-11-27 07:41:48.408746+00
Date Added: 2024-06-11T17:09:40.481090
License: Public Domain

FLAUM, Circuit Judge.
The issue presented in this case is whether the district court erred in enforcing an arbitrator’s award requiring the defendant employer to make annual contributions to a pension plan even though the employer had obtained an ex parte waiver of the plan’s annual minimum funding requirement pursuant to section 303 of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1083 (1982). We reverse.
I.
The International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (the “Union”) and the National Lock Division of Keystone Consolidated Industries, Inc. (“Keystone”) have been parties to a series of pension agreements since 1955. Beginning in 1968 and continuing to the present, these pension agreements have provided that Keystone shall make contributions to the pension’s trust fund on an annual basis. The amount that Keystone must contribute each year is calculated according to the language of the agreement.
In June 1981, Keystone issued a summary annual report to the pension plan’s participants, the members of the Union, as required by ERISA. In this report, Keystone revealed that it had sought a waiver of its 1979-1980 pension plan contribution in December 1980 on the advice of its accountants pursuant to section 303 of ERISA, 29 U.S.C. § 1083 (1982). This provision empowers the Secretary of the Treasury to waive ERISA’s statutory minimum funding requirement for a given plan year after the Secretary considers the financial condition of the employer and the effect of such a waiver on the employees. 29 U.S.C. § 1083(a). The amount that is waived pursuant to section 303 is then paid back into the plan over a fifteen-year period. § 1082(b)(2)(C). The report issued by Keystone revealed that the Internal Revenue Service (“IRS”), acting on behalf of the Secretary of the Treasury, had granted Keystone’s request for a waiver of its annual contribution based on evidence that Keystone was experiencing severe financial difficulties in 1979 and 1980. At that time, Keystone had suffered a net loss of almost $3.5 million for the fiscal year beginning on July 1, 1979, and a net loss of over $2.5 million in the following year due to serious downturns in the industries to which it sold its products. The IRS found that Keystone was experiencing great difficulty in maintaining a sufficient amount of working capital to prevent a technical default under its prime loan obligations to the Continental Illinois National Bank. However, the IRS concluded that Keystone would probably be able to recover from its temporary financial difficulties as a result of its modernization efforts and its program to reduce costs.
In September 1981, the Union filed grievances with an arbitrator pursuant to the Union’s collective bargaining agreement with Keystone, alleging that Keystone had violated the annual funding provision of the pension agreement by failing to make its contribution to the plan for the 1979-1980 plan year. After the arbitrator held an evidentiary hearing and reviewed the *1402briefs submitted by the parties, he issued an award in favor of the Union and ordered Keystone to pay $2,147,932 to the pension fund with interest at %lk% per year from July 1,1980, until paid. After the issuance of the arbitrator's decision, the parties became involved in a dispute as to when the award was to be paid. The Union claimed that the award required the immediate payment of the full amount, while Keystone claimed that the award required payment of the full amount, but in conformity with the fifteen-year equal installment payment schedule as provided for in ERISA. As a result of this dispute over the construction of the arbitrator’s award, the Union filed suit under section 301 of the Labor Management Relations Act, 29 U.S.C. § 185 (1982), to have the district court enforce the award.
On June 16, 1983, the district court denied both the Union’s and Keystone’s motions for summary judgment without prejudice and remanded the case to the arbitrator for clarification of the award. However, the district court did state that while ERISA sets minimum standards for contributions to pension plans, it does not prohibit an employer from undertaking greater contractual obligations in a pension agreement. On July 5, 1983, the arbitrator explained that Keystone was to pay the 1979-1980 plan year contribution immediately because Article VI, section 2 of the pension agreement specifically provided that: “The Company agrees to make contributions to the trust fund on an annual basis----” Both parties then renewed their motions for summary judgment before the district court. The Union requested that the district court enforce the arbitrator’s decision. Keystone argued that the court should not enforce the arbitrator’s award because the award directly conflicted with and nullified the waiver provision of ERISA. On February 27, 1984, the district court granted the Union’s motion for summary judgment in a minute order, relying on the reasons that it had specified in its June 16, 1983 order.
On appeal, Keystone argues that the district court erred as a matter of law in enforcing the arbitrator’s award because the award conflicts with the public policies embodied in ERISA. Keystone claims that the safeguards embodied in the waiver provision of ERISA cannot be overridden by a pension agreement because these safeguards were enacted for the benefit of pension plan participants.
II.
Since arbitration has been generally favored by the courts as a means of resolving labor disputes, this circuit has held that a court’s review of an arbitration award is extremely limited. Ethyl Corp. v. United Steelworkers, 768 F.2d 180, 183 (7th Cir. 1985); Amalgamated Meat Cutters & Butcher Workmen v. Jones Dairy Farm, 680 F.2d ll42, 1144 (7th Cir.1982). Accord Amalgamated Meat Cutters & Butcher Workmen v. Great Western Food Co., 712 F.2d 122, 124 (5th Cir.1983). The Supreme Court has emphasized that under the well-established standards for the review of labor arbitration awards, a court must not refuse to enforce such an award merely because the court believes that its own interpretation of the collective bargaining agreement at issue would be preferable to that of the arbitrator. W.R. Grace & Co. v. Local Union 759, International Union of the United Rubber, Cork, Linoleum & Plastic Workers, 461 U.S. 757, 764, 103 S.Ct. 2177, 2182, 76 L.Ed.2d 298 (1983). The Court has noted that the federal policy of settling labor disputes by arbitration would be undermined if courts could finally determine the merits of arbitration awards. United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 596, 80 S.Ct. 1358, 1360, 4 L.Ed.2d 1424 (1960). Thus, the Court has concluded that even if the arbitral award is ambiguous, a court must enforce the award without reviewing the merits of the dispute unless the award does not draw its essence from the collective bargaining agreement. W.R. Grace v. Local Union, 461 U.S. at 764, 103 S.Ct. at 2182 (citing United Steelworkers v. Enterprise Wheel, 363 U.S. at 597, 80 S.Ct. at 1361).
*1403Even though courts have acknowledged that their role in reviewing arbitration awards is limited, they have also noted that their role is not a meaningless part of the arbitral process. See, e.g., Sea-Land Services, Inc. v. International Longshoremen’s Ass’n, 625 F.2d 38, 42 (5th Cir.1980). The Supreme Court has held that one of the bases that a court can rely on in declining to enforce an arbitration award is that the award is contrary to public policy. W.R. Grace v. Local Union, 461 U.S. at 766, 103 S.Ct. at 2183. See Amalgamated Meat Cutters v. Great Western, 712 F.2d at 124-26 (arbitrator’s award directing employer to reinstate a truck driver caught drinking liquor on duty violates public policy and should not be enforced); Amalgamated Meat Cutters v. Jones Dairy, 680 F.2d at 1144-45 (court declined to enforce on public policy grounds an arbitrator’s award approving of a company’s work rule that prohibited employees from reporting unsanitary working conditions directly to inspectors for the United States Department of Agriculture). However, the Court has stressed that such a public policy must be well-defined and dominant before a court can decline to enforce an award on public policy grounds. W.R. Grace v. Local Union, 461 U.S. at 766, 103 S.Ct. at 2183. See also Amalgamated Meat Cutters v. Jones Dairy, 680 F.2d at 1145. The Court has noted that public policy can be ascertained by reference to the Constitution, treaties, federal statutes, and applicable legal precedents rather than by reference to general considerations of supposed public interests. W.R. Grace v. Local Union, 461 U.S. at 766, 103 S.Ct. at 2183; Hurd v. Hodge, 334 U.S. 24, 34-35, 68 S.Ct. 847, 852-53, 92 L.Ed. 1187 (1948); Muschany v. United States, 324 U.S. 49, 66, 65 S.Ct. 442, 451, 89 L.Ed. 744 (1945). Before declaring that an arbitral award violates public policy, however, courts have noted that extreme caution should be exercised in determining what that public policy is. Amalgamated Meat Cutters v. Great Western, 712 F.2d at 124; Union of Transportation Employees v. Oil Transport Co., 591 F.Supp. 439, 443 (N.D.Tex.1984). We hold that the arbitrator’s refusal in the present case to apply the waiver provision of ERISA when interpreting the annual funding requirement of the pension agreement violated the clearly defined public policy behind the enactment of ERISA.
The Supreme Court has held that one of Congress’s central purposes in enacting ERISA in 1974 was to prevent the loss of all retirement savings by employees whose vested benefits in a pension plan are not paid when their employer terminates the plan. Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 374, 100 S.Ct. 1723, 1732, 64 L.Ed.2d 354 (1980). In its findings and declaration of policy, Congress noted that the growth in the size, scope, and number of employee benefit plans in recent years had been rapid and substantial, that the operational scope and economic impact of such plans was increasingly interstate, that the continued well-being and security of millions of émployees and their dependents were directly affected by these plans, that these plans had become an important factor affecting the stability of employment and the successful development of industrial relations,' and that these plans had stimulated the interest of the public at large. 29 U.S.C. § 1001 (1982). Congress thus decided that it had to provide minimum standards for such plans in order to assure their equitable character and their financial soundness, to promote the interests of employees and their beneficiaries, to protect the revenue of the United States, and to provide for the free flow of commerce. Id. The Supreme Court concluded from this clear expression of legislative intent that Congress wanted to guarantee that an employee would receive any defined pension benefits to which he was entitled by providing for a minimum funding schedule and by prescribing standards of conduct for plan administrators. Nachman v. Pension Benefit, 446 U.S. at 375, 100 S.Ct. at 1733. See also H.R.Rep. No. 779, 93d Cong., 2d Sess. 80, reprinted in 2 Legislative History of the Employee Retirement Income Security Act of 197It, at 2669 (1976). The Court has stressed *1404that there is no doubt as to what Congress intended in enacting ERISA: to discourage unnecessary termination of pension plans. Nachman v. Pension Benefit, 446 U.S. at 386, 100 S.Ct. at 1738.
Section 302 of ERISA provides that contributions to a pension plan must be made on an annual basis in order to satisfy the minimum funding standards. 29 U.S.C. § 1082. However, section 303 allows an employer to obtain a waiver of the minimum funding standards from the Secretary of the Treasury if the employer is unable to satisfy these standards for a particular plan year “without substantial business hardship and if application of the standard would be adverse to the interests of plan participants in the aggregate.” 29 U.S.C. § 1083(a).1 In deciding whether the employer will suffer a “substantial business hardship” without a waiver, the provision directs the Secretary to consider the following factors: (1) whether the employer is operating at an economic loss, (2) whether there is substantial unemployment or underemployment in the trade or business and in the industry concerned, (3) whether the sales and profits of the industry concerned are depressed or declining, and (4) whether it is reasonable to expect that the plan will be continued only if the waiver is granted. § 1083(b)(l)-(4). If the Secretary grants the waiver, the employer must pay the amount necessary to amortize the waived funding deficiency for each prior plan year in equal annual installments over a period of fifteen plan years. § 1082(b)(2)(C). The employer is also required to pay interest on the outstanding balance of the deferred contributions over the period that the contributions are waived.
In the present case, we believe that enforcement of the arbitrator’s award, which declined to apply ERISA’s waiver provision, would be contrary to the well-defined and dominant public policy embodied in ER-ISA — to protect plan participants from the unnecessary termination of their pension plans. It is clear from the financial difficulties that led Keystone to seek the waiver in the first place that the plan participants very likely faced termination of their benefits if the IRS did not grant Keystone the waiver of contributions for the 1979-*14051980 plan year.2 This is precisely the situation that ERISA’s waiver provision was designed to forestall.
In making its decision to grant the waiver, the IRS thus considered both the degree of business hardship that Keystone would have faced without the waiver and the interests of the plan participants in the aggregate. Furthermore, the IRS placed the following restrictions in its grant of the waiver: (1) the waiver would be rendered null and void if the pension plan was terminated before July 1, 1985, (2) the outstanding balance of contributions would become immediately due if Keystone made any changes in the rate of accrual or vesting of the benefits, and (3) Keystone could not be granted a waiver for more than five of any fifteen consecutive plan years. By refusing to permit Keystone to rely on the payment schedule outlined in ERISA’s waiver provision, the arbitrator jeopardized the continued existence of Keystone’s pension plan, to the serious detriment of the plan participants. In view of the clear public policy voiced by Congress in enacting ERISA and reiterated by the courts in interpreting ERISA, we must decline to enforce the arbitrator’s award requiring Keystone to pay the 1979-1980 plan year contribution immediately.3
In conclusion, we reverse the district court’s decision enforcing the arbitrator’s award.

. In its brief before this court, the Union makes a half-hearted attempt to argue that because the IRS granted the section 303 waiver to Keystone without giving the plan participants or the Union any notice or an opportunity to appear at a hearing and without issuing any written findings, the employer’s receipt of an ex parte waiver from the IRS violated the Union's Fifth Amendment right to due process. The Union also makes a vague argument that the IRS had no power to grant the waiver because it is an Article I agency and not an Article III court, and thus that it cannot resolve private contractual disputes affecting private rights.
We decline to review these arguments because the Union failed to raise them before the district court decided the issue to which they were addressed. See Stem v. United States Gypsum, Inc., 547 F.2d 1329, 1333 (7th Cir.), cert. denied, 434 U.S. 975, 98 S.Ct. 533, 54 L.Ed.2d 467 (1977). Prior to the June 16, 1983 decision issued by the district court, the Union submitted the following three memoranda of law: one in support of its motion for summary judgment, one in opposition to defendant’s motion to dismiss and/or for summary judgment, and one in reply to defendant’s opposition to plaintiffs’ motion for summary judgment. Although Keystone focused directly on ERISA’s waiver provision in arguing that public policy would be contravened if the arbitrator’s award was interpreted to require immediate payment, the Union never raised its due process or Article I/Article III arguments in response.
On June 16, 1983, the district court rendered a detailed opinion concluding that enforcement of the arbitrator’s award requiring immediate payment would not violate public policy. The Union did not raise the above-mentioned additional arguments until September 1983. Presumably because it had already decided the issue, the district court did not issue an additional opinion in granting the Union’s motion for summary judgment, but rather cited its June 16, 1983 decision. The Union’s insertion of additional arguments after the district court rendered a decision on the pertinent issue, therefore, amounts to nothing more than an attempt to preserve its post-hoc rationalizations for appeal. Moreover, the posture of this case leads us to emphasize the litigant’s duty to raise its arguments at the first opportunity. While we are not unmindful of the literal reading accorded pleadings under the Federal Rules of Civil Procedure, the limited role of district courts in the arbitration setting contributes to our conclusion that the Union has waived its right to present these arguments to this court.

. Keystone administered a total of twenty pension plans. The grave financial situation facing Keystone when it applied for the waiver on the pension plan at issue here is revealed by the fact that Keystone had already taken steps to terminate three of its nineteen other pension plans. In addition, the waiver that the IRS granted Keystone covered the remaining sixteen pension plans administered by Keystone.

. One could argue that the safeguards embodied in section 303 of ERISA were waived by the parties to the pension plan agreement. We note, however, that the language in the pension agreement in the present case requiring an employer to make annual contributions to the pension plan was first included in the 1968-1971 pension agreement (and has been included in every subsequent pension agreement), which was before ERISA was even enacted. Furthermore, in order for a contract to waive a statutory right, the Supreme Court has held that the general contractual provision must clearly, explicitly, and unmistakably waive the right. Metropolitan Edison Co. v. NLRB, 460 U.S. 693, 708, 103 S.Ct. 1467, 1477, 75 L.Ed.2d 387 (1983). Since ERISA was-not even enacted when the annual contribution provision of the present pension plan was first drafted and since the provision does not explicitly waive Keystone’s right to obtain a variance from the annual contribution requirement, we find that the safeguards embodied in section 303 were not waived and should have been applied. We decline to decide whether an arbitrator's award enforcing a pension agreement that clearly waives an employer’s right under ERISA to obtain a variance from the annual contribution requirement would violate public policy.