Court Says Pension Withdrawal Liability Can’t Be Decelerated

Ruling likely to make trustees shy away from payment plans for defaulted employers.

The US Court of Appeals for the Seventh Circuit has ruled that the trustees of a multiemployer pension plan must agree to either an installment payment plan or a full repayment of a defaulted withdrawal liability but they can’t switch claims midstream.

In Bauwnes v. Revcon Technology Group, Inc., the Seventh Circuit held that a multiemployer pension fund’s withdrawal liability was barred by a six-year statute of limitations because the pension had voluntarily dismissed two suits one that would have allowed Revcon to pay in installments and another that demanded the full sum. By switching between the two options over multiple lawsuits, the pensioners effectively nullified their claim to the full amount by running out the clock on the statute of limitations.

The case centers on two employers with common ownership – Revcon Technology Group and S&P Electric. The companies established a multiemployer pension plan, which they both eventually withdrew from.

In 2006, the plan’s trustees alerted the companies that they owed nearly $400,000 in withdrawal liability and demanded that they pay up.

Two years later, after several missed payments, the trustees notified the companiesof their defaults and insisted on their immediate repayment.  Revcon failed to rectify its non-payment within 60 days, triggering an acceleration on the part of the trustees who filed a lawsuit in the Northern District of Illinois. Before the case could be heard, Revcon offered to pay the default and resume making quarterly payments in exchange for the dismissal of the lawsuit, which the trustees granted.

Although Revcon paid up its defaults, and made three more payments, it defaulted again in April 2009, which resulted in a second lawsuit being filed by the trustees. Revcon again promised to make the payments, and the trustees again voluntarily dropped the lawsuit. But the pattern of default, lawsuit, promise, and dismissal did not end there. The same events reoccurred in 2011, 2013, and 2015.  Each complaint referred to the debt acceleration in 2008 and made no claim that the acceleration was ever revoked.

When Revcon defaulted yet again last year, the trustees filed another lawsuit and the case ended up in the Seventh Circuit court. In this instance, Revcon moved to dismiss the case under the “two dismissal rule,” a federal rule that states that a notice of voluntary dismissal functions as an adjudication on the merits when it is filed by a plaintiff who has already dismissed the same claim in another court.

The trustees argued that when they voluntarily dismissed the 2008 complaint they had revoked the 2008 acceleration of the withdrawal liability, and that each of the following dismissals had the same decelerating result.  The trustees asked the court to create a federal common law mechanism that would allow them to decelerate the withdrawal liability they previously accelerated. The courtdeclined to do so, upholding the district court’s decision to dismiss the case because of the statute of limitations. .

The case could have significant implications for other multiemployer plans. Sarah Bryan Fask, an attorney for San Francisco-based law firm Littler Mendelson,  says that the ruling will likely make trustees much less willing to agree to payment plans after finding an employer in default.  

“Employers that withdraw from multiemployer plans and are faced with default and acceleration should take note of this holding prohibiting any subsequent deceleration of the withdrawal liability,” wrote Fask in an analysis on Littler Mendelson’s website.

“Employers should be careful to avoid circumstances that would trigger an acceleration in the first instance,” she added. “If an employer wishes to decelerate liability after a default, the employer should be sure to enter into a separate binding contract or settlement agreement with the plan sponsor.”

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