Court Opinion

ID: 2980846
Source: CourtListenerOpinion
Date Created: 2015-09-22 19:17:26.190027+00
Date Added: 2024-06-11T08:11:13.487767
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                           Pursuant to Sixth Circuit Rule 206
                                  File Name: 12a0075p.06

               UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT
                                _________________

                                               X
                          Plaintiff-Appellee, -
 SHELTER DISTRIBUTION, INC.,
                                                -
                                                -
                                                -
                                                    No. 11-5450
          v.
                                                ,
                                                 >
                                                -
                                                -
 GENERAL DRIVERS, WAREHOUSEMEN &

                       Defendant-Appellant. -
 HELPERS LOCAL UNION NO. 89,
                                               N
                  Appeal from the United States District Court
               for the Western District of Kentucky at Louisville.
              No. 05-00138—James D. Moyer, Magistrate Judge.
                         Decided and Filed: March 16, 2012
             Before: KEITH, MARTIN, and GIBBONS, Circuit Judges.

                                 _________________

                                      COUNSEL
ON BRIEF: Scott D. Soldon, Kyle A. McCoy, SOLDON LAW FIRM, LLC,
Shorewood, Wisconsin, for Appellant. Griffin Terry Sumner, C. Laurence Woods,
FROST BROWN TODD LLC, Louisville, Kentucky, for Appellee.
                                 _________________

                                       OPINION
                                 _________________

       BOYCE F. MARTIN, JR., Circuit Judge. Shelter Distribution, Inc. filed this
action with the district court seeking to enforce a provision of the collective bargaining
agreement between Shelter and General Drivers, Warehousemen and Helpers Local
Union No. 89. The provision in question obligates the Union to indemnify Shelter for
any contingent liability Shelter may incur as a result of its participation in the pension
plan. Under this provision, Shelter claims that the Union is obligated to indemnify
Shelter for “withdrawal liability,” a liability imposed upon Shelter by 29 U.S.C.

                                            1
No. 11-5450        Shelter Distrib., Inc. v. Gen’l Drivers, Warehousemen           Page 2
                   & Helpers Local Union No. 89

§ 1399(b). The Union argues that it is a violation of public policy for a union to
indemnify an employer for any contingent liability to a pension plan established under
the Employee Retirement Income Security Act of 1974, commonly referred to as ERISA,
as amended by the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C.
§§ 1381-1461. The district court determined that the provision did not violate public
policy and enforced the provision. This is an issue of first impression. We hold that
such a provision does not violate public policy and we AFFIRM the decision of the
district court.

                                            I.

        The facts are undisputed. The collective bargaining agreement between Shelter
and the Union was scheduled to expire in November 2001. Pursuant to the agreement,
the Union notified Shelter that it intended to negotiate the agreement.           During
negotiations, and prior to agreeing to a new contract, the Union disclaimed its
representation of Shelter’s employees and terminated the collective bargaining process
with Shelter.

        Because of the termination of the collective bargaining process, Shelter withdrew
from the multiemployer plan. The Central States, Southeast and Southwest Areas Health
and Welfare and Pension Fund imposed withdrawal liability against Shelter, and
assessed Shelter $57,291.50 for withdrawing from the plan. See 29 U.S.C. §§ 1383,
1399(b). Shelter demanded indemnification for this amount from the Union pursuant to
Section 8(m) of the collective bargaining agreement. The Union refused and Shelter
filed this action in the district court seeking to enforce the indemnification provision.

        Section 8(m) of the agreement provides:

               The Employer shall continue to contribute to the Central States,
        Southeast and Southwest Areas Teamsters Pension Fund, the sum of
        $49.00 per week per covered employee for the year beginning December
        1, 1998, $55.00 per week for the year beginning December 1, 1999, and
        $61.00 per week for the year beginning December 1, 2000. The Union
        and the members of the Bargaining Unit have agreed that only the
No. 11-5450         Shelter Distrib., Inc. v. Gen’l Drivers, Warehousemen            Page 3
                    & Helpers Local Union No. 89

       liability of the Company to the Pension Benefit Plan of the Central
       States, Southeast and Southwest areas [sic] Pension Fund are, have been
       and shall be limited to the actual contributions it makes during the course
       of the past, present and future Contracts, and the Company shall not be
       liable for any other obligation or contingent obligation of any kind or
       nature whatsoever. The Union shall indemnify the Company for any
       contingent liability which may be imposed under the Multi-Employer
       Pension Plan Amendments Act of 1980.

(emphasis added).

       The Union opposed the enforcement of the indemnification provision, arguing
that the expiration of the agreement rendered the provision void. In the alternative, the
Union asserted that the dispute must be submitted to binding arbitration pursuant to a
provision in the collective bargaining agreement providing for arbitration in the event
of a contractual dispute. After reviewing cross-motions for summary judgment, the
district court concluded that the arbitration provision of the agreement was enforceable.
The district court stayed the federal proceedings and ordered the parties into arbitration.

       During arbitration, the Union argued that Section 8(m) was unenforceable
because it violated public policy. The Union asserted that the Multiemployer Pension
Plan Amendments Act established a public policy prohibiting employers and unions
from shifting withdrawal liability through a negotiated collective bargaining agreement
because such a shift defeats the purpose of the statute.

       The arbitrator rejected the Union’s public policy argument. The arbitrator noted
that “there is as of yet no law from the Sixth Circuit” on the issue but the Third Circuit
had ruled on the issue. In Pittsburgh Mack Sales & Services, Inc. v. International Union
of Operating Engineers, Local Union No. 66, 580 F.3d 185 (3d Cir. 2009), the Third
Circuit determined that ERISA and the Multiemployer Pension Plan Amendments Act
did not establish a public policy preventing enforcement of a collectively bargained
indemnity provision between a union and an employer. Based on Pittsburgh Mack, the
arbitrator found Section 8(m) enforceable, required the Union to indemnify Shelter, and
ordered the Union to pay Shelter $57,291.50. Following the arbitrator’s decision,
No. 11-5450        Shelter Distrib., Inc. v. Gen’l Drivers, Warehousemen            Page 4
                   & Helpers Local Union No. 89

Shelter moved to dissolve the district court’s stay and requested that the district court
enforce the arbitrator’s award. The Union opposed Shelter’s motion, seeking to set aside
the arbitrator’s award and again arguing that the indemnity provision violated public
policy. The district court rejected the argument and upheld the arbitrator’s award, also
relying on Pittsburgh Mack. The Union appeals.

                                            II.

       “We review de novo a district court’s grant of summary judgment in an arbitrated
labor dispute.” Int’l Union, United Auto., Aerospace & Agric. Implement Workers v.
Dana Corp., 278 F.3d 548, 554 (6th Cir. 2002) (citation omitted). The scope of that
review is extremely limited. Id. “As long as the arbitrator’s award draws its essence
from the collective bargaining agreement, and is not merely his own brand of industrial
justice, the award is legitimate.” United Paperworkers Int’l Union v. Misco, Inc., 484
U.S. 29, 36 (1987) (citation and internal quotation marks omitted). However, “a court
may not enforce a collective-bargaining agreement that is contrary to public policy, and
. . . the question of public policy is ultimately one for resolution by the courts.” Id. at
43 (quoting W.R. Grace & Co. v. Local Union 759, Int’l Union of United Rubber, Cork,
Linoleum & Plastic Workers, 461 U.S. 757, 766 (1983) (internal quotation marks
omitted)). The public policy must be explicit, well-defined, and dominant. Id. (citing
W.R. Grace & Co., 461 U.S. at 766). The relevant public policy is derived “by reference
to the laws and legal precedents and not from general considerations of supposed public
interests.” MidMichigan Reg’l Med. Ctr. v. Prof’l Emps. Div. of Local 79, 183 F.3d 497,
504 (6th Cir. 1999) (citation and internal quotation marks omitted).

                                           III.

       In 1974, Congress enacted ERISA, which protects the retirement benefits of
employees. Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 213-14 (1986);
Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 374-75 (1980). ERISA
does not address the consequences of an employer’s withdrawal from a multiemployer
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                   & Helpers Local Union No. 89

pension plan. As the Supreme Court noted in Pension Benefit Guar. Corp. v. R.A. Gray
& Co., 467 U.S. 717, 722 n.2 (1984) (citation and internal quotation marks omitted):

       A key problem of ongoing multiemployer plans, especially in declining
       industries, is the problem of employer withdrawal. Employer
       withdrawals reduce a plan’s contribution base. This pushes the
       contribution rate for remaining employers to higher and higher levels in
       order to fund past service liabilities, including liabilities generated by
       employers no longer participating in the plan, so-called inherited
       liabilities. The rising costs may encourage—or force—further
       withdrawals, thereby increasing the inherited liabilities to be funded by
       an ever-decreasing contribution base. This vicious downward spiral may
       continue until it is no longer reasonable or possible for the pension plan
       to continue.

Employer withdrawals also jeopardize the solvency of the Pension Benefit Guaranty
Corporation, which was created to provide benefits to plan participants in the event that
a pension plan was terminated without sufficient assets to support guaranteed benefits.
Id. at 720-21.

       In response to these problems, Congress amended ERISA by enacting the
Multiemployer Pension Plan Amendments Act. The Multiemployer Pension Plan
Amendments Act created withdrawal liability, requiring employers who partially or
completely withdraw from a multiemployer pension plan to contribute to the plan a
proportionate share of the “unfunded vested benefits.” Id. at 725 (citation and internal
quotation marks omitted).

       The Multiemployer Pension Plan Amendments Act provides that once a plan
sponsor determines that an employer has withdrawn from a pension plan, either partially
or completely, the sponsor must notify the employer of the amount of liability due,
prepare a schedule of payments, and demand payment in accordance with that schedule.
29 U.S.C. §§ 1382, 1399(b)(1). The employer may ask the plan sponsor to review
aspects of its liability determination. Id. § 1399(b)(2)(A). After reviewing the concerns
raised by the employer, the plan sponsor must notify the employer of its final decision,
No. 11-5450         Shelter Distrib., Inc. v. Gen’l Drivers, Warehousemen             Page 6
                    & Helpers Local Union No. 89

including the reasons for any changes in the liability determination or schedule of
liability payments. Id. § 1399(b)(2)(B).

        If either the employer or plan sponsor disputes the determination made under
sections 1381 through 1399, the disagreement is to be resolved through arbitration.
29 U.S.C. § 1401(a)(1). When arbitration proceedings are completed in favor of one
party, any party may bring an action in federal court, no later than thirty days after the
issuance of the arbitrator’s award, to “enforce, vacate, or modify the arbitrator’s award.”
Id. § 1401(b)(2).

        Although we have yet to address the public policy concerns of whether a third
party may contractually agree to be held liable for an employer’s monetary
responsibilities under the Multiemployer Pension Plan Amendments Act, our decision
in Pfahler v. National Latex Products Co., 517 F.3d 816 (6th Cir. 2007), is instructive.
In Pfahler, we noted that section 410(a) of ERISA, 29 U.S.C. § 1110(a), provides that
“an agreement or instrument which purports to relieve a fiduciary from responsibility or
liability for any responsibility, obligation, or duty under this part shall be void as against
public policy.” Pfahler, 517 F.3d at 836 (quoting § 1110(a)) (internal quotation marks
omitted). We also noted that this provision only “prohibits agreements that diminish the
statutory obligations of a fiduciary.” Id. at 837 (citation and internal quotation marks
omitted). In Pfahler, we clarified that a fiduciary’s indemnification agreement with a
third party does not prevent the fiduciary from being held liable, but instead only
provides that if the fiduciary is liable, then the third party will compensate the fiduciary
for that liability. Id. We further concluded that because explicit language in section
1110(b) allows a fiduciary to purchase insurance to cover any potential liability, “it
would be illogical to interpret the statute as prohibiting indemnification agreements
which accomplish the same thing.” Id.

        As we have noted, the Multiemployer Pension Plan Amendments Act was
enacted to correct deficiencies in ERISA and to provide even more security to employee
retirement plans. R.A. Gray & Co., 467 U.S. at 723-25. Section 1110(b) has not been
No. 11-5450        Shelter Distrib., Inc. v. Gen’l Drivers, Warehousemen         Page 7
                   & Helpers Local Union No. 89

amended since its enactment. If Congress thought that an employer should not be able
to contractually obligate a third party to indemnify it for any financial responsibility
incurred under ERISA, the enactment of the Multiemployer Pension Plan Amendments
Act would likely have amended section 1110 of ERISA to prohibit the insurance
provisions of section 1110(b).

       There is no logical difference between contracting with an insurance company
under section 1110(b) and negotiating an indemnification provision like the provision
in Shelter’s contract with the Union. Under the agreement, the Union is the entity
analogous to the insurance company described in section 1110(b). Here, as in Pfahler,
there is no violation of section 1110(a) because there was no shifting of the financial
liability under the agreement: Shelter was still financially liable to the Fund and the
company satisfied its financial obligation. Under the indemnification provision, the
Union simply agreed to reimburse Shelter for any financial liability it would incur
should any contingent liability be imposed by the pension plan. Thus, we hold that
Section 8(m) of the collective bargaining agreement between Shelter and the Union is
not a violation of any “well defined and dominant” public policy. Although the
Multiemployer Pension Plan Amendments Act sought to minimize the financial burden
to a retirement plan when an employer withdrew from a multiemployer plan, and ERISA
was designed to protect the pension benefits of employees, these goals still will be
served even if indemnification agreements between employers and third parties are
allowed, as long as the employer remains primarily liable. Accord Pittsburgh Mack, 580
F.3d at 194-95.

                                          IV.

       Because the collective bargaining agreement does not violate public policy, we
AFFIRM the decision of the district court.