Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
In Bauwnes v. Revcon Technology Group, Inc., the U.S. Court of Appeals for the Seventh Circuit held that the trustees of a multiemployer pension plan could not agree to an employer’s installment payment plan of its withdrawal liability after the trustees had demanded full payment following the employer’s default. This “no good deed goes unpunished” decision will likely make trustees much less likely to agree to subsequent payment plans after finding an employer in default.
Under the Employee Retirement Income Security Act, once a multiemployer plan determines that an employer has withdrawn from the plan, the plan sponsor must “as soon as practicable” provide the withdrawing employer with the total amount of the withdrawal liability and a schedule of payments.1 If an employer fails to cure the non-payment of withdrawal liability within 60 days of receiving notice from the plan sponsor of the failure to make payment, the plan sponsor may deem the employer to be in default.2 ERISA provides that, if an employer is in default, the plan sponsor may accelerate the total outstanding liability of the employer, thus requiring payment of the entire amount of withdrawal liability at one time, as opposed to the payment schedule established by the statute.3 Thus, in the event of a default and acceleration, the employer owes the total outstanding sum plus accrued interest, with interest commencing as of the due date of the first missed payment.4
In Bauwnes, two employers under common ownership, Revcon Technology Group and S&P Electric, set up a multiemployer pension plan. In 2003, Revcon withdrew from the plan. S&P withdrew a year later. In 2006, the plan’s trustees notified the companies that they owed $394,788 in withdrawal liability and demanded payment.
In 2008, after the defendants missed several payments, the trustees informed them of their defaults and demanded immediate payment. When Revcon failed to cure its non-payment within 60 days, the trustees accelerated the outstanding liability and filed suit in the Northern District of Illinois. But, before appearing in the case, Revcon offered to cure the default and resume making quarterly payments in exchange for the trustees’ dismissal of the lawsuit. The trustees voluntarily dismissed the suit.
Revcon cured its defaults, made three more payments, then defaulted again in April 2009. The trustees filed a second lawsuit. As in 2008, and relying on the Revcon’s promises to pay, the trustees voluntarily dismissed the matter. This cycle of default, lawsuit, promise to cure, and voluntary dismissal occurred again in 2011, 2013, and 2015. Each complaint referred to the debt acceleration in 2008, making no claim that the acceleration was ever revoked.
Seventh Circuit Decision
In 2018, after yet another default by Revcon, the trustees filed the case that ended up before the Seventh Circuit. Rather than repeating the cycle, Revcon moved to dismiss the case under the “two dismissal rule” set by Federal Rule of Civil Procedure 41(a)(1)(B) (“if the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.”). Revcon also argued that because the trustees first sought to collect the entire debt in 2008, the applicable six-year statute of limitations expired in 2014.
Meanwhile, the trustees argued that they had revoked the 2008 acceleration of the withdrawal liability when they voluntarily dismissed the 2008 complaint and that each of the subsequent dismissals had the same decelerating effect. The trustees also claimed that the two-dismissal rule did not apply because all parties consented to the previous dismissals by stipulation in spirit (thought, admittedly, they were dismissal by notice in form).
The Seventh Circuit upheld the district court’s decision dismissing the case based on the statute of limitations.
The Seventh Circuit reasoned that ERISA, as amended by the Multiemployer Pension Plan Amendments Act, is silent on whether or not trustees can decelerate the previously accelerated debt if the parties agree that they want to return to the installment payment plan. Despite that many courts have created a federal ERISA common law, the Seventh Circuit declined to do so here. According to the Seventh Circuit, “[a]bsent some contractual or statutory foundation, there is no free-floating general principle of contract law that allows any accelerated debt to be decelerated.”
Because the deceleration cannot have happened, the trustees’ claim was time-barred.5 The Seventh Circuit reasoned that the statute of limitations for the entire liability began to run on the date of the acceleration, as at that time, the plan had the right to sue for the entire accelerated amount.
Takeaways for Employers
Although the facts of Bauwnes are unlikely to be repeated, 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. Employers should be careful to avoid circumstances that would trigger acceleration in the first instance. 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.
1 29 U.S.C. § 1399(b)(1).
2 29 U.S.C. § 1399(c)(5)(A).
3 29 U.S.C. § 1399(c)(3).
4 29 U.S.C. § 1399(c)(5).
5 MPPAA mandates that claims for unpaid withdrawal liability “may not be brought after the later of (1) 6 years after the date on which the cause of action arose, or (2) 3 years after the earliest date on which the plaintiff acquired or should have acquired actual knowledge of the existence of such cause of action. . . .” 29 U.S.C. § 1451(f).