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What can a Federal Arbitration Act Practitioner Learn from an ERISA MPPAA Pension Plan Arbitration Case?

May 5th, 2015 Appellate Practice, Arbitration Practice and Procedure, Arbitration Risks, Awards, ERISA, Federal Arbitration Act Enforcement Litigation Procedure, Federal Courts, Federal Rules of Civil Procedure, Judicial Review of Arbitration Awards, Labor Arbitration, Managing Dispute Risks, MPPAA Arbitration, Practice and Procedure, United States Court of Appeals for the Fourth Circuit Comments Off on What can a Federal Arbitration Act Practitioner Learn from an ERISA MPPAA Pension Plan Arbitration Case? By Philip J. Loree Jr.

 Fourth Circuit Says Proceeding to Overturn ERISA MPPAA Pension Plan Dispute Arbitration Award is Commenced by Filing a Complaint—not a Federal Arbitration Act Application, Petition or Motion

Introduction

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“Sorry, I’m a bit of a stickler for paperwork. Where would we be if we didn’t follow the correct procedures?”

Sam Lowry (played by Jonathan Pryce ), Brazil (1985)

Dystopian-future bureaucratic procedure may be one thing, but federal court litigation procedure is quite another—not because of where we might or might not be if we don’t follow it—but simply because not following it can have disastrous consequences. That is true in spades in Federal Arbitration Act enforcement litigation, where proceedings to enforce arbitration agreements and awards are governed by a strange amalgam of procedural rules derived from the Federal Arbitration Act, the Federal Rules of Civil Procedure and district court local rules. See Fed. R. Civ. P. 1, 2, 3, 6(c), 7, 8, 9, 10, 12, 15, 43(c) & 81(a)(6)(B); 9 U.S.C. §§ 6, 9, 10, 11, 12 & 13; see, e.g., IFC Interconsult v. Safeguard Int’l Partners, 438 F.3d 298, 308-09 (3rd Cir. 2006); Productos Mercantiles Industriales, S.A.  v. Faberge USA, Inc., 23 F.3d 41, 46 (2d Cir. 1994).

On April 21, 2015 the U.S. Court of Appeals for the Fourth Circuit decided Freight Drivers and Helpers Local Union No. 557 Pension Fund v. Penske Logistics LLC,  ___ F.3d ___, No. 14-1464, slip op. (4th Cir. April 21, 2015), a case that helps illustrate the risks associated with assuming that the Federal Rules of Civil Procedure’s liberal pleading and amendment rules apply to applications for relief under the Federal Arbitration Act. As it turns out, the appellant did nothing wrong by assuming that the Federal Arbitration Act’s procedural rules did not trump Federal Rules of Civil Procedure, because the case fell under the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), and the district court erred by interpreting the MPPAA to require compliance with Federal Arbitration Act litigation procedure rules.

The MPPAA was enacted to strengthen the Employee Retirement Income Security Act (“ERISA”)’s provisions designed to protect multi-employer pension plans (i.e., collectively bargained pension plans funded by multiple employers, which are generally participants in the same industry).  It features a mandatory arbitration requirement applicable to disputes about collectively bargained pension plans funded by multiple employers, including disputes about an employer’s withdrawal liability—that is the amount an employer must contribute to  the fund when it stops participating in it.

It requires a party seeking judicial review of an award to do so in 30-days and, as we’ll see, it contains a provision that at first glance appears to make the Federal Arbitration Act’s litigation procedure rules applicable to judicial review of an MPPAA arbitration award. The Court held that under the MPPAA, the Federal Arbitration Act governed only arbitration procedure, not litigation procedure, and that accordingly, the award challenger’s amended complaint related back to the timely-filed original one.

yay-608942-digitalEndingFreight Drivers illustrates how important compliance with Federal Arbitration Act procedures can be, especially given the short limitation periods applicable to motions to confirm, vacate, modify and correct awards.  Had the Federal Arbitration Act’s litigation procedures applied, then the plaintiff’s “amended complaint” might have been deemed time-barred on the ground that Fed. R. Civ. P. 15(c)’s relation-back provisions apply to pleadings only, and under the Federal Rules of Civil Procedure, and the Federal Arbitration Act, the amended complaint had to be deemed to be a motion, not a pleading. As we’ll see, that’s what the district court concluded, and the Fourth Circuit decided the case on the sole ground that the Federal Arbitration Act did not apply to MPPAA litigation procedure.

Facts

yay-1164678-digitalFreight Drivers and Helpers Local Union No. 557 Pension Fund (the “Pension Fund”) is a multiemployer pension plan governed by ERISA, including the MPPAA. Penske Truck Leasing Co., L.P. (“Penske”) was a participant in the plan as was its subsidiary, Leaseway Motorcar Transport Company (“Leaseway”).

During the period 2001 to 2004 Penske engaged  in a number of transactions that ultimately transferred to another company its ownership of Leaseway. Penske apparently retained an ownership interest in that other company.

Once the transfer had been made Penske asserted Leaseway and it were no longer under “common control” within the meaning of ERISA, 29 U.S.C. § 1301(b)(1).  Leaseway stopped contributing to the Pension Fund, which prompted the Pension Fund to assess withdrawal liability against Penske and an affiliated company, Penske Logistics Group (collectively the “Penske Companies”). The Penske Companies refused to pay the withdrawal liability assessments, which resulted in the parties submitting the dispute to arbitration as required by Section 1401(a)(1) of the MPPAA.

The parties to the arbitration were the Penske Companies and the Pension Fund and the Arbitrator did not suggest that they were not the proper parties to the proceeding.

yay-15819416-digitalOn July 13, 2012 the Arbitrator made an award, which concluded that the Penske companies were not liable for withdrawal liability. The Arbitrator reasoned that they were exempt from withdrawal liability because the Pension Fund was “a trucking industry fund as that term is described in [29 U.S.C. § 1383(d)].” Slip op. at 5.

On August 9, 2012 the Pension Fund filed in the United States District Court for the District of Maryland an action to vacate or modify the award, contending the “arbitrator erred as a matter of law in applying the trucking industry exemption.” Slip op. at 5. Unlike the Federal Arbitration Act, the MPPAA’s mandatory arbitration scheme authorizes courts to review arbitration awards for legal error. See slip op. at 15.

According to the Complaint, the plaintiff was “Freight Drivers and Helpers Local Union No. 557 Pension Fund, by its Trustee, William Alexander,” and the defendants were  “Penske Logistics LLC [and] Penske Truck Leasing Co., L.P.” The Pension Fund, however, is a trust and under the laws of many (if not all) states a trust is not a legal entity, and thus must sue or be sued in the name of its trustee or trustees, who have legal title to the trust’s property. Pension Fund sued in the name of trustee William Alexander, but, like other multiemployer pension plan funds, it had a Joint Board of Trustees, consisting of representatives of both labor and management.

The Penske Companies thus moved to dismiss the complaint, arguing that plaintiff had no standing to sue under 29 U.S.C. § 1401(b)(2) because it was not represented by its Joint Board of Trustees.  The district court dismissed the action, giving the Pension Fund 21 days to file an amended complaint.

yay-677327-digitalThe Fourth Circuit found it “significant that in reaching its decision, the district court analyzed the MPPAA’s procedures for judicial review of an arbitration award as requiring the commencement of a civil action.” Slip op. at 6.  To that end, the Fourth Circuit quoted extensively from the district court’s decision, which explained that: (a) “Judicial review of the arbitrator’s decision is available to ‘any party thereto,'” via a “‘civil action subsequent to arbitration award[]'” (quoting § 1401(b)(2)); (b) “[a]s indicated, an action under 29 U.S.C. § 1401(b)(2) must be brought ‘in accordance with’ 29 U.S.C. § 1451, titled ‘Civil actions[;]'” (c) the court may “consider documents attached to the complaint, as well as those attached to the motion to dismiss, so long as they are integral to the complaint and authentic[;]” and (d) “[29 U.S.C. § 1451] pertains to the manner in which the § 1401(b)(2) action is initiated, i.e., the how. In other words, § 1401(b)(2) incorporates the procedural requirements set forth in § 1451, such as the provisions governing venue and service of process. See id. § 1451(d), (g).” Slip op. at 6-7.

The Pension Fund amended its complaint within the 21 day period the district court allowed. But an action to challenge an arbitration award under the MPPAA must be brought within 30 days. And by the time the district court issued its decision, more than 30 days had passed since the arbitrator made and delivered the award.

The Penske Companies thus filed a motion to dismiss the amended complaint, arguing (a) a party challenging an MPPAA arbitration award must do so by motion, as required by Section 6 of the Federal Arbitration Act; and (b) were the district court to deem the amended complaint a motion, then it would be time barred because it was not made within the 30-day deadline, and would in any event not comply with the district court Local Rule 105, which requires the submission with a motion of a memorandum of law featuring “reasoning and authorities.”

On February 14, the district court granted the motion to dismiss, finding that 29 U.S.C. § 1401(b)(3) “plainly provides that arbitration proceedings under ERISA should be conducted in accordance with the procedures set forth in the FAA, and the FAA plainly provides that a party seeking to vacate an arbitration award must proceed by motion.” Slip op. at 8. The Amended Complaint, reasoned the district court, was “improper,” but treated it as a motion to avoid “elevating form over substance.” Slip op. at 8. The district court held that deeming the complaint a motion did not help the Pension Fund because the district court held that “a motion, unlike a complaint, could not relate back under Federal Rule of Civil Procedure 15(c), therefore rendering the motion untimely.” Slip op. at 8. The district court also concluded that the Pension Fund violated Local Rule 105 by not supporting its “motion” with a memorandum of law. Slip op. at 8-9.

yay-11606504-digitalThe district court denied the Pension Fund’s motion for reconsideration and the Pension Fund appealed to the Fourth Circuit. The Fourth Circuit reversed, “conclud[ing] that commencing an action by filing a complaint is the appropriate procedure for seeking review of an arbitration award entered pursuant to § 1401(a) and that the amended complaint in this case related back to the filing date of the original complaint, thus rendering it timely.” Slip op. at 3.

The Fourth Circuit’s Decision

The Court characterized the appeal as “present[ing] the narrow procedural question of whether a party who seeks to vacate or modify an arbitration award under the MPPAA (1) must commence an action by filing a complaint or (2) must file an application by motion under the FAA.” Slip op. at 10. The resolution of that question required the Fourth Circuit to interpret the pertinent provisions of the MPPAA, which we summarize below.

Pertinent MPPAA Provisions

yay-11088060-digitalIISection 1401(a) of the MPPAA provides that “Any dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under sections 1381 through 1399 of this title shall be resolved through arbitration.” Section 1401(b)(2) provides that, “no later than 30 days after the issuance of an arbitrator’s award,” any party.  .  . may bring an action.  .  .  in an appropriate United States district court in accordance with Section 1451 of this title to enforce, vacate, or modify the arbitrator’s award.” 29 U.S.C. § 1401(b)(2).

Section 1401(b)(3) provides that “Any arbitration proceedings under this section shall, to the extent consistent with this subchapter, be conducted in the same manner, subject to the same limitations, carried out with the same powers (including subpoena power), and enforced in United States courts as an arbitration proceeding carried out under title 9 [i.e., the Federal Arbitration Act].” 29 U.S.C. § 1401(b)(3).

yay-11088060-digitalSection 1451, entitled “Civil Actions,” provides, among other things, that “[a]n action under this section may be brought  in the district where the plan is administered or where a defendant resides or does business, and process may be served in any district where a defendant resides, does business, or may be found.” 29 U.S.C. § 1451(d) (emphasis added). Section 1451(g) provides that: “[a] copy of the complaint in any action under this section or section 1401 of this title shall be served upon the [Pension Benefit Guaranty Corporation (“PBGC”)] by certified mail.”  29 U.S.C. § 1451(g) (emphasis added).

Textual Analysis of MPPAA Provisions

The Court concluded that “the plain meaning” of the above “provisions can only lead to the conclusion that a party seeking review of an MPPAA arbitration award must do so by commencing a civil action in a district court by filing a complaint to vacate or modify the award.” Slip op. at 10. Even though the references to “civil actions” in the titles of each of the provisions is not part of the “substantive text,” the text of each provision “refers to a civil action, using the terms ‘an action’ in a ‘district court’ with respect to which the ‘complaint’ must be served on the [PBGC].” Slip op. at 10-11.

yay-10343746-digitalThe Court found further support for its conclusion by comparing Section 1401(b)(1) with Section 1401(b)(2). Section 1401(b) provides that, in the event an ‘arbitration proceeding” concerning withdrawal liability has not “been initiated[,]” a Plan sponsor “may bring an action.  .  .  for collection.” The parties agreed that Section 1401(b)(1) “authorizes collection by means of a civil action commenced by the filing of a complaint in court.” Slip op. at 11. “They can hardly deny,” said the Court, “that the exact same language used in § 1401(b)(2) likewise authorizes review of an arbitration award by means of a civil action commenced by the filing of a complaint in court.” Slip op. at 11 (citing and quoting United States v. Cleveland Indians Baseball Co., 532 U.S. 200, 213 (2001) & Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932)).

The Court added that “it is no accident that the MPPAA uses the terms of art “an action,” “civil action,” “in a district court,” and “complaint,” which are precisely those used by the Federal Rules of Civil Procedure governing civil actions in district courts” The Court hammered home that point by quoting Rules 2 and 3 of the Federal Rules of Civil Procedure, which provide that there is only one form of “civil action,” and it is “commenced by filing a complaint” in a federal district court. See Fed. R. Civ. P. 2 & 3.

Legislative History Supports Textual Analysis

While the Court’s textual analysis was conclusive, it noted that a House Committee Report “leaves little doubt that judicial review authorized by § 1401(b)(2) refers to review by a civil action commenced by the filing of a complaint.” Slip op. at 11. The Court quoted the following passage from the Report:

In general, the district courts of the United States have exclusive jurisdiction for civil actions under the bill without regard to the amount in controversy. In the case of an action brought by a plan fiduciary to collect withdrawal liability, State courts of competent authority are also to have jurisdiction.
.  .  .  .

In addition, a copy of the complaint in any action brought under the bill is to be served on the PBGC by certified mail. The PBGC may intervene in any action brought under the bill.

In the case of an action under the bill, the court is permitted to award to the prevailing party all or a portion of costs and expenses in connection with the action, including reasonable attorneys fees.

The period of limitations for the commencement of an action under the bill is to expire six years after the date on which the cause of action arose.

Slip op. at 11-12 (quoting H.R. Rep. No. 96869, pt. 2, at 42 (1980), reprinted in 1980 U.S.C.C.A.N. 2993, 3032).

Penske Companies’ Arguments for Affirmance Rejected

The Penske Company’s principal argument was that Section 1401(b(3) required the Pension Fund to follow the Federal Arbitration Act’s litigation procedures to obtain judicial review of the Award.  Section 1401(b)(3) provide that MPPAA “arbitration proceedings.  .  .  shall, to the extent consistent with this subchapter, be conducted in the same manner, subject to the same limitations, carried out with the same powers (including subpoena power), and enforced in United States courts as an arbitration proceeding carried out under title 9 [i.e., the Federal Arbitration Act].”

Construed in isolation from the rest of the statute, Section 1401(b)(3) arguably supports the Penske Companies’ argument, but even then “arguable” is as far as it goes. Construed in its proper context, Section 1401(b)(3) falls short of requiring applications for judicial review of MPPAA awards to comply with Federal Arbitration Act litigation procedures.

First, Section 1401(b)(3) “expressly limits applicability of the FAA ‘to the extent consistent with this subchapter[,]” and thus, said the Court, any “tension between Section 1401(b)(3) (providing for use of FAA procedures for arbitration proceedings) and subsection (b)(2) (providing for civil actions to review arbitration awards)” must be resolved  in favor of subsection (b)(2).  Slip op. at 13.

yay-15406956-digitalSecond, the Court perceived no tension between the to provisions. The Court explained that: (a) “the mechanisms for conducting arbitration proceedings are provided by the FAA[;] and (b) “the mechanisms for review of those proceedings are provided by the MPPAA and the rules governing civil actions in district courts, beginning with the commencement of a civil action by the filing of a complaint.” Slip op. at 13-14. To that end:

  1. Subsection (a)(1) requires that disputes over withdrawal liability be submitted to arbitration;

  2. Subsection (b)(3) requires that the ‘arbitration proceedings’ be conducted in accordance with the procedures set forth in the FAA; and

  3. Subsection (b)(2) and § 1451(g) require that review of arbitration awards be pursued by bringing a civil action in district court by filing a complaint and serving a copy on the Pension Benefit Guaranty Corporation.

Slip op. at 13.

yay-13830006-digitalThe Court found in PBGC-promulgated regulations further support for its distinction between arbitration and litigation procedure. The PBGC’s regulations (29 C.F.R. Part 4221) set forth procedures for MPPAA arbitration proceedings but were silent with respect to judicial review. See Slip op. at 13. “The absence of regulations pertaining to judicial review,” the Court said, “speaks volumes about the scope of § 1401(b)(3)’s reference to the FAA.” Slip op. at 14.

 

yay-4295955---CopyThe Court also found significant the different judicial review standards that apply under the MPPAA and the Federal Arbitration Act. If the Penske Companies were correct, then the Federal Arbitration Act Section 10’s highly-deferential judicial review standard would apply to MPPAA awards. But MPPAA judicial review standards are considerably less deferential than Federal Arbitration Act standards, and are akin to the standard of review applicable to federal agency determinations. See slip op. at 15-16.

Disposition of the Appeal

yay-774794-digitalSOLHaving resolved the key interpretive question, the Court explained that the district court had dismissed the first complaint because it named only one of the four trustees comprising the Pension Plan’s Board of Trustees. When the Pension Plan filed its amended complaint within the period set forth in the district court’s order, the only material change was the naming of all four trustees.

Treating the amended complaint as if it were a motion, the district court based its decision to dismiss the second complaint on the ground that Fed. R. Civ. P. 15(c)’s relation-back provisions applied only to pleadings, not motions. Fed. R. Civ. P. 15(c) provides that “[a]n amendment to a pleading relates back to the date of the original pleading when . . . the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out —or attempted to be set out — in the original pleading.” Fed. R. Civ. P. 15(c)(1)(B).

The district court did not determine whether under Fed. R. Civ. P. 15(c) the amended complaint—properly treated as a pleading—would relate back to the original complaint for time-bar purposes. The Fourth Circuit determined it was appropriate for it to decide that issue because it  simply required the Court to apply settled law to undisputed facts. It concluded that the amended complaint related back to the date of the original complaint and was thus not time barred. See slip op. at 17-22.

yay-10348120-digitalPleadingThe Court did not address whether the district court properly held that Section 15(c) did not apply to motions, applications or petitions that initiate an independent proceeding under the Federal Arbitration Act. See slip op. at 17-18. What the outcome would (or should) have been had the appeal turned on that issue is a difficult question. Cf. Webster v. Kearney, 507 F.3d 568, 570 (7th Cir. 2007); IFC Interconsult, 438 F.3d at 308-09 (3rd Cir. 2006) with Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378 (11th Cir. 1988).

Take Home Points

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Federal Arbitration Act enforcement litigation is supposed to be simple and straightforward, but it is nevertheless fraught with traps for the unwary. Counsel are well-advised to remember, among other things:

  1. Not to attempt to make, or respond to, applications to confirm, modify or vacate awards by submitting pleadings or making Fed. R. Civ. P. 12 motions.  Applications, petitions and motions under the Federal Arbitration Act should be fully supported with an application, petition or motion; a notice of application, petition or motion (as well as a summons where appropriate); a memorandum of law in support; and affidavits or, where appropriate, certifications under 28 U.S.C. § 1746. The supporting papers must properly put before the Court all the evidence supporting your application, petition or motion, and any other documentation required by the Federal Arbitration Act. See, e.g., 9 U.S.C. § 13.
  2. To respond to the merits of any application, motion, or petition, even if you think you have good grounds on which to challenge on jurisdictional or or other procedural grounds. If you, for example, respond to the application or petition with a motion to dismiss for lack of subject matter jurisdiction, and do not also respond (in the alternative) to the merits of the application, petition or motion, then if your jurisdictional objection fails, the Court may proceed to rule on the merits without giving you an opportunity to present all the evidence and arguments you may have to oppose the requested relief. See, e.g., Productos Mercantiles, 23 F.3d at 46;; IFC Interconsult, 438 F.3d  at 308-09.
  3. Be mindful of the short deadlines applicable to Federal Arbitration Act award enforcement proceedings, including Section 12’s three-month deadline by which an application to vacate, modify or correct an award must be served. See 9 U.S.C. § 12.
  4. Do not assume (in the absence of controlling authority) that Fed. R. Civ. P. 15’s provisions governing amended pleadings must or will be applied to authorize a party to amend an application, motion or petition. If you find yourself facing a bullet like the one the plaintiff trustees were able to dodge in Freight Drivers, then seek relief not solely based on Fed. R. Civ. P. 15 (which may not apply or be held to apply), but on as many other legitimate grounds as you can think up. We think there were at least a few other things the plaintiff trustees could have done in Freight Drivers to hedge their bets, so to speak, but discussion of them is outside of the scope of this already lengthy post.

Clients, of course, should make sure they are represented by counsel with the appropriate level of experience and expertise in Federal Arbitration Act litigation procedure. Particularly in potentially difficult cases, consider retaining an arbitration lawyer to advise and assist your existing counsel.

 

Photo Acknowledgements:

All photos used in the text portion of this post are licensed from Yay Images and are subject to copyright protection under applicable law. Text has been added to images 5 & 7 through 14 (counting from top to bottom). Hover your mouse pointer over any image to view the Yay Images abbreviation of the photographer’s name.

         

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