Congress enacted the withdrawal liability provisions of the Multiemployer Pension Plan Amendments Act (MPPAA) with the ultimate goal of protecting participants and beneficiaries entitled to benefits from multiemployer pension plans.  Congress observed that such plans are financially burdened whenever an employer withdraws and permanently ceases to pay contributions and decided that the burden should be borne by the withdrawn employer.  Consistent with this remedial purpose, the statute often produces seemingly harsh and/or unfair results (at least from the employer perspective.)  The Third Circuit’s recent non-precedential decision in Nitterhouse Concrete Products, Inc. v. Glass, Molders, Pottery, Plastics & Allied Workers International Union aptly illustrates this principle.

The employer in Nitterhouse had entered into a series of collective bargaining agreements with the union over a period of forty-four years, during which time it was obligated to contribute to a union-affiliated multiemployer pension plan.  Five days before the expiration of the final CBA in February 2014, the union disclaimed interest in represented the employer’s bargaining unit members and notified the employer it would not be renewing the CBA upon its expiration.  This resulted in the employer permanently ceasing to have an obligation to contribute to the plan, resulting in a withdrawal from the plan and the assessment of withdrawal liability against the employer in excess of $680 thousand dollars.

This alone would seem to be an unfair and inequitable result, with the union’s unilateral actions (in disclaiming interest) directly resulting in imposing significant withdrawal liability.  It gets worse, however.

For much of the parties’ collective bargaining history through its conclusion, the CBA contained the following provision:

Section 17.07 – Company Indemnification. The Company shall have no liability for the payment of benefits other than to make contributions to the Plan as above required. The parties hereto recognize that, as between the Union, and the Company, the operation of the Pension is within the control of the Union. Therefore, the Union specifically agrees that the structure and operation of the Pension Plan shall comply with all laws applicable to it, including by way of example, and not limitation, the Employee Retirement Income Security Act of 1974, as amended from time to time and further agrees to indemnify and save harmless the Company from any claim or liability which may arise by reason of the existence of the Plan.

In reliance on this provision, the employer sued the union, claiming that the indemnification provision covered the withdrawal liability incurred.  The district court first looked at whether withdrawal liability fell within the scope of the union’s indemnification obligation, concluding that “any claim or liability which may arise by reason of the existence of the Plan” is broad enough to include withdrawal liability under the MPPAA.

The district court next considered the duration of the union’s indemnification obligation, specifically whether it survived the expiration of the CBA.  Citing the general principle of contract law regarding a collective bargaining agreement that contractual obligations will generally cease upon termination of the bargaining agreement and the lack of any recognized exception, the district court concluded that the union’s indemnification obligation ended when the contract expired.  Since the withdrawal liability accrued after this (“even if by a mere nano-second”), the district court found for the union.

The sole issue before the Third Circuit on appeal was whether the district court properly held that the union’s indemnification obligation did not cover withdrawal liability imposed after the expiration of the CBA.  The Third Circuit affirmed.  The Court found that the employer could not withdraw and trigger withdrawal liability until it “permanently ceased to have an obligation to contribute,” and that such cessation could not occur until the termination of the CBA.  The Court analogized withdrawal liability to a chain of dominoes, with liability only imposed when the obligation to contribute ceased.  The court also found that the obligation to contribute only ceased when the CBA expired, which only happened if the CBA was not renewed after expiration.  As a result, the chain of dominoes came crashing down on the employer.

What can we learn from Nitterhouse?  It is easy to envision how the case could have been decided differently.  The withdrawal liability incurred by the employer seems to be a “claim or liability which may arise by reason of the existence of the Plan,” and the reference to the plan “being within the control of the union” at least arguably should encompass withdrawal liability triggered by the union’s unilateral conduct in disclaiming interest.  Unfortunately for the employer, the Court did not so find.  In sum, Nitterhouse highlights the pro-fund skew of MPPAA and the seemingly unfair results it often generates.  The case further illustrates the importance of good contract language drafting, since the result almost certainly would have been different had the indemnification provision been better crafted.