Local 144 Nursing Home Pension Fund v. Demisay

PETITIONER:Local 144 Nursing Home Pension Fund et al.
RESPONDENT:Demisay et al.
LOCATION:Austin’s Auto Body Shop and mobile home

DOCKET NO.: 91-610
DECIDED BY: Rehnquist Court (1991-1993)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 508 US 581 (1993)
ARGUED: Jan 11, 1993
DECIDED: Jun 14, 1993

ADVOCATES:
Henry Rose – on behalf of the Petitioners
Ronald E. Richman – on behalf of the Respondents

Facts of the case

Question

Audio Transcription for Oral Argument – January 11, 1993 in Local 144 Nursing Home Pension Fund v. Demisay

William H. Rehnquist:

We’ll hear argument first this morning in Number 91-610, Local 144 Nursing Home Pension Fund v. Nicholas Demisay.

Mr. Rose.

Henry Rose:

Mr. Chief Justice, and may it please the Court:

The genesis of this action occurred when the respondent employers withdrew from the petitioner multiemployer pension and welfare benefit plans.

In this action, those withdrawing employers seek to require the petitioner benefit funds to transfer a portion of their plan assets to new benefit plans which are not parties to this action which were established after the withdrawal of those withdrawing employers.

The district court granted petitioners’ motion for summary judgment.

However, the Second Circuit reversed and held that a fair portion of the reserves reflecting contributions made to the Greater Funds on behalf of the Southern Employees should be reallocated to the Southern Funds.

What is extraordinary and erroneous is that the court below held that section 302(c)(5) of the Labor Management Relations Act, 1947, was the controlling law and that it required the transfer of assets.

302(c)(5) says nothing about transfers of assets, nor does its legislative history even mention such transfers.

The court below has not only misread section 302(c)(5) but has misread and misapplied… failed to apply… this Court’s decision in United Mineworkers v. Robinson.

The focus of 302(c)(5) is specific.

In the words of this Court in Robinson, 302(c)(5) was meant to protect employees from the risk that funds contributed by their employers for the benefit of the employees and their families might be diverted to union purposes, or even to the private benefit of faithless union leaders.

There’s no such allegation in this case.

With particular reference to the requirement in 302(c)(5) that a benefit plan be maintained for the sole and exclusive benefit of employees, this Court stated that its plain meaning is simply that employer contributions to employee benefit trust funds must accrue to the benefit of employees and their families and dependents to the exclusion of all others, and especially pertinent for the instant action, this Court specifically concluded in Robinson that nothing in 302(c)(5), quote, places any restriction on the allocation of the funds among the persons protected by 302(c)(5).

Even the narrow holding in Robinson is applicable here.

That is, that the Federal courts have no authority under section 302 to review for reasonableness a collectively bargained term of an employee benefit plan.

That describes the present case.

The collective bargaining agreements to which the respondent employers were parties are clear that the terms of the trust agreements are incorporated by reference, and those trust agreements prohibit the payments that the Second Circuit has ordered.

It is submitted that the trustees in this case certainly breached no fiduciary duties in administering the trust in accordance with their trust agreements.

Antonin Scalia:

Mr. Rose, if they had done so, would there have been a remedy against them under 302… under 302(e)?

Henry Rose:

If the trustees had transferred assets?

Antonin Scalia:

Yes.

If they had transferred… not just transferred it, but had transferred assets to a union official.

Henry Rose:

To a union official–

Right.

Henry Rose:

–Yes.

Antonin Scalia:

So you… it’s your–

Henry Rose:

To a union official, that would have–

Antonin Scalia:

–You see, I’m not sure what your theory of the operation of 302(c) and 302(e)… what you theory is.

Does it not operate at all, once the trust is established… so long as you establish a trust which on its face meets the requirements, that’s the end of the application of 302, or does it continue to have some application, at least if you violate the term of the trust by turning over the money to union officials?

Antonin Scalia:

What’s your theory?

Henry Rose:

–Justice Scalia, our position is that section 302(c)(5) does not regulate the transfer of plan assets whatsoever.

Antonin Scalia:

Whatsoever, so long as the trust is… complies with the statute on its face.

I mean, on its face the trust has to comply with the statute.

Henry Rose:

That is correct.

Antonin Scalia:

But so long as it does on its face, if the officer… if the trustee violates the trust, and surreptitiously conveys money to union officials, you think you can only get at that under ERISA.

Henry Rose:

There… it might constitute criminal activity, also.

It might constitute a criminal violation either under State law or under Federal law independently, but you’re right, I would relegate that to a regulation under ERISA, clearly.

David H. Souter:

So the subsection 302 regulates solely the conduct of the employer in making the payment in the first place.

Henry Rose:

That is its focus, absolutely.

As we’ve noted, the section 302(c)(5) requires employer contributions to be for the sole and exclusive benefit of employees, but those are for the employees of all of the contributing employers, and that is precisely what the petitioner funds have done.

John Paul Stevens:

I don’t understand why it wouldn’t violate subsection… Justice Scalia’s hypothetical wouldn’t violate 302(c)(5).

Because the funds were not held in trust for the purposes specified in the statute, but were given to the union official as a bribe, they wouldn’t comply with the statute.

Henry Rose:

Oh, I think that… I’m sorry, I think that would violate it.

The money would have to be used for the benefits of contributing employers.

John Paul Stevens:

The statutory restrictions, and if it goes beyond that and it’s a payoff to the union leader, why then, it would violate the statute.

Henry Rose:

Yes, I think that is correct.

That would be a criminal violation under 302, yes.

Sandra Day O’Connor:

Mr. Rose, there is a mechanism, is there not, whereby plan assets and corresponding liabilities could be transferred to a new plan, is there not?

Henry Rose:

There is under ERISA, yes, Your Honor.

Yes.

Sandra Day O’Connor:

But the procedures for that were not followed here, I take it.

Henry Rose:

They clearly were not followed.

With regard to the pension plan here, the ERISA provisions are very clear.

The ERISA provisions bar a transfer unless certain statutory conditions are met.

One of them is review by the Pension Benefit Guarantee Corporation.

This was not done.

Furthermore, such a transfer is at the discretion of the transferor plan, and clearly the petitioners did not initiate the proposed transfer, and third, the… any such transfer would have to be a transfer not only of benefits or of assets, but of liabilities, and there is and there was proposed no transfer of liabilities.

There is no contention in this case that the contributions were used for purposes other than benefits or employees of contributing employers.

The Second Circuit–

Antonin Scalia:

Are you done answering that question?

Henry Rose:

–Yes.

Antonin Scalia:

Can I jump in there?

Henry Rose:

Yes.

Antonin Scalia:

I’m back to the same problem that you gave one answer to and then took it back.

Are you sure you want to stick with your second answer?

I don’t see how the statute requires anything except that the money be placed by the employer in trust for that purpose.

Henry Rose:

Well–

Antonin Scalia:

If there’s a violation by the trustee later, does that necessarily violate the statute?

Henry Rose:

–Well, Your Honor, I think a strict reading of the statute would come to the conclusion that you are implying.

However, this Court has stated in Arroyo and in Robinson that the specific provisions in section 302(c)(5) are enforceable under 302(e).

Antonin Scalia:

Enforceable against the trustee.

Henry Rose:

Yes, and although I think there’s some difficulty, logically, coming to it, I don’t think that’s a difficulty that needs to be reached in this case.

Antonin Scalia:

Well, except it makes a nice division between this provision of the Labor Relations Act and ERISA a little less neat.

Henry Rose:

Yes.

Yes, I think that is right.

David H. Souter:

Are they… criminally, or simply in equity, to enforce the trust?

Henry Rose:

Well, section 302 is a criminal statute.

However, section 302(e) allows injunctive relief to enjoin a violation of section 302.

David H. Souter:

So it’s just equitable enforcement.

Henry Rose:

Yes.

The Second Circuit has interpreted the solely exclusive language so expansively as to judicially legislate that there must be a reallocation of money in the petitioner funds.

Neither the Second Circuit nor the respondents explained how such a mandated reallocation is to be reconciled with this Court’s conclusion in Robinson that nothing in section 302(c)(5) places any restriction on the allocation of the funds among the persons protected by section 302(c)(5).

Byron R. White:

Under ERISA, would the trustees… if they had wanted to, could they have consistently with ERISA transferred some funds and liabilities in this case, this particular case?

Henry Rose:

If they had decided that they want to do it, and there was a transfer of liabilities together with the transfer of assets, yes, it may have been possible.

Byron R. White:

You say may.

Would it have been consistent with ERISA?

Henry Rose:

It would have been clearly consistent with ERISA had they wanted to do it with regard to the pension plan.

There’s some doubt as to whether that is true with regard to the welfare plan.

In the Multiemployer Pension Plan Amendments Act, there is a specific procedure for doing so, and so it clearly could have been done if in their discretion they had wanted to make the transfer of both liabilities and assets.

Henry Rose:

There… it’s not so clear that they can do it in… without violating the prohibited transactions of section 406 of ERISA with regard to the welfare plan.

Byron R. White:

Thank you.

Henry Rose:

There is a specific exception, you see, to 40… to the prohibited transaction with regard to the pension plan, but there is none with regard to the welfare plan.

It is submitted that attributing to the Congress an intention in 302(c)(5) to regulate the use of benefit plan assets among plan participants is without basis.

The best evidence, of course is the language of the statute.

As we’ve noted already in answer to Judge Scalia… Justice Scalia’s question, 302(c)(5) is an exception to a criminal statute.

It is not a regulatory statute.

It says nothing about the transferring of plan assets, and as we’ve noted, the legislative history doesn’t even mention it.

Strongly mitigating against the Second Circuit’s expansive interpretation of 302(c)(5) are the dire consequences that would follow.

The uncontroverted expert testimony in this record is that the construction of the Second Circuit would undermine the viability of multiemployer plans generally.

Contrast such a result with the congressional intention to preserve the financial integrity of multiemployer plans not only by the enactment of 302 but of ERISA and the Multiemployer Pension Plans Amendments Act of 1980.

Congress was well aware of the importance of multiemployer plans as a delivery system of employee benefits to some 9 million workers and their families.

Further indicating that 302 is not a regulatory act is the fact that from the mid-fifties to the early seventies the Congress and the executive branch became increasingly concerned about the lack of regulation of employee benefit plans, and this concern culminated in the enactment of ERISA in 1974.

In the words of this Court in Teamsters v. Daniel, quote, Congress believed that it was filling a regulatory void when it enacted ERISA.

ERISA extensively regulates the use of plan assets, including transfers of assets.

This is to be expected from a statute which this Court has described as comprehensive and reticulated.

ERISA includes at least five provisions that bear on the transfer of assets ordered by the Second Circuit, and each one of them would prohibit the transfer.

Thus, we have the anomaly of the court below ordering the trustees of the petitioner funds to violate ERISA and the Court’s order would not be a defense to the violation of the prohibited transaction.

It is submitted that this result cannot be attributed to congressional intent.

The judgment below calls into question basic principles underpinning multiemployer benefit plans.

The essence of multiemployer plans is the pooling of risks among many employers and employees.

In typical multiemployer plans, employer contributions do not reflect the differences in work force demographics of contributing employers.

For example, one employer may have a work force with an average age of 50, and another contributing employer may have a work force with an average age of 30, yet they pay contributions at the same rate.

Contributions may be based on hours of service, or ton of coal produced, or percentage of payroll, as in the case of the petitioner funds.

Therefore, for example, in a multiemployer health benefit plan, it is inevitable that the value of the health benefits needed by the employees of some contributing employers will exceed the contributions made by their employers.

This is made possible because other contributing employers will pay contributions in excess of the value of the benefits received by their employees.

But the court below says that when an employer withdraws from the plan, section 302(c)(5) requires that if the assets of the plan have increased during the period of the withdrawal… withdrawing employer contributing… contributed to the plan, a proportionate share of that increase in assets must be transferred to the plan… by the plan.

According to the court below, the proportion to be paid is the ratio of the contributions of the withdrawing employer to the total contributions.

The Second Circuit’s mandate could, if taken literally, require that the petitioner funds pay out substantial moneys even if the benefits received by the employees of the withdrawing employers exceeded their contributions.

As a plan’s obligations grow, normally its assets also grow.

Henry Rose:

Thus, the proportionate share of the plan’s assets which the court below would require the plan to pay upon the withdrawal of the withdrawing employer would also grow, and thereby encourage withdrawals and the ultimate demise of the plan.

The court below thereby would impose a new obligation which the actuaries and trustees did not and could not take into account when they were projecting the cost of benefits to be provided and other costs in determining the level of contributions needed to cover those benefits.

If the plan’s assets can be invaded in such a major way as the court below has mandated, where will the money come from to pay for the benefits the plan is obligated to pay in the future?

It is to be noted that the Second Circuit’s holding is a one-way street.

If the plan’s assets rise during the participation of the group of withdrawing employers, the petitioner funds must pay out plan assets, but if the plan’s assets diminish, apparently no payment to the petitioner funds would be required.

No insurance arrangement can survive under a system which requires paying out of gains and absorbing all the losses.

It is instructive that the single circumstance where Congress has mandated a transfer of assets from one multiemployer plan to another, that Congress does not define the appropriate amount of assets to be transferred with reference to contributions or reserves.

The only situation where Congress has mandated transfer of assets is where employees move from one multiemployer plan to another multiemployer plan as a result of a certified change of collective bargaining representative.

In that instance, ERISA requires a transfer of an appropriate amount of assets, and that term is statutorily defined in section 4235(g) of ERISA, which appears in the appendix to the petition at page 48(a) to mean the value of the nonforfeitable benefits to be transferred minus any employer withdrawal liability to the transferor plan.

I might add that when it is the transfer of nonforfeitable benefits, which is the same as vested benefits, it is the transfer of the obligation to pay those benefits and therefore it’s the same as the transfer of liabilities.

In the present case, no vested benefits have been transferred to the respondent’s new benefit plans, therefore, even if there had been a certified change of collective bargaining representative in this case, which there was not, since it’s the same union representing both… in both plans, the amount of assets required to be transferred would be zero.

The expansive interpretation of 302(c)(5) and the failure of some lower Federal courts to apply this Court’s Robinson decision has resulted in unnecessary litigation and uncertainty among plan sponsors.

Some Federal courts even assert authority to rewrite the terms of benefit plans when they deem them to be unreasonable.

In effect, the Second Circuit has stricken the provisions of the trust agreements barring transfers of assets in this case.

In Mahoney v. Board of Trustees, just less than 6 months ago, the First Circuit held that a decision by a plan sponsor to increase retirement benefits of retired participants in a lesser amount than the increase for active participants was subject to review by the Federal courts as to whether the decision was arbitrary and capricious.

The Robinson decision was not discussed, or even cited.

William H. Rehnquist:

Would that sort of decision be reviewable somewhere under the law of trusts?

Would it be reviewable in State court?

Henry Rose:

Your Honor, no, I don’t believe it would be.

Under ERISA, the State law is preempted, and so it would be under ERISA if there was any remedy whatsoever.

William H. Rehnquist:

Well then, you’re saying that Congress intended that these trusts be not subject to any of the sort of supervision that other trusts are in court… you know, the usual arbitrary and capricious standard for trustees.

Henry Rose:

Well, Your Honor, I think they are subject to the ordinary trust law, and more.

In fact, ERISA is much stricter than traditional trust law.

Even under traditional trust law, the courts did not take it upon them… did not assert the authority to rewrite the basic terms of trust instruments on the basis of a reasonableness test.

William H. Rehnquist:

What entity is it that applies ERISA in reviewing these decisions?

Henry Rose:

Well, lawsuits are brought by either the Department of Labor for a fiduciary breach or by private parties.

William H. Rehnquist:

And they’re adjudicated in court, but you say pursuant to the provisions of ERISA.

Henry Rose:

Under ERISA, absolutely, yes, in the Federal courts.

William H. Rehnquist:

In your view, then, ERISA has superseded traditional common law trusts.

Henry Rose:

Yes, Your Honor, it has.

Sandra Day O’Connor:

Mr. Rose, if we were to decide that section 302(c)(5) did not mandate the transfer of assets, is there any reason why we have to go ahead and decide the ERISA issues or the breach of fiduciary duty question?

Henry Rose:

Well, I would suggest, Your Honor, that the… it would expedite not only the conclusion of this case, because it is so clear that ERISA–

Sandra Day O’Connor:

Oh, but the courts below didn’t grapple with that at all.

I mean, it seems to me if you’re correct on the interpretation of 302(c)(5), that’s enough up here.

Henry Rose:

–I think technically that is correct.

I would hope that the Court would give some guidance beyond that.

In… in Phillips v. Alaska Hotel & Restaurant Employees Pension Fund, the Ninth Circuit recently asserted that even if a pension plan complies with ERISA’s minimum vesting standards, the Federal courts have the power to rewrite the terms of the benefit plan to require the plan to adopt a shorter period.

I… Mr. Chief Justice, I would like to reserve the remainder of my time for rebuttal.

William H. Rehnquist:

Very well, Mr. Rose.

Mr. Richman, we’ll hear now from you.

Ronald E. Richman:

Mr. Chief Justice, may it please the Court:

Our position is that the plain language of section 302(c)(5) of the LMRA requires that contributions made by an employer benefit that employer’s employees either alone or jointly with, in a pool, as most multiemployer plans are set up, with contributions of other contributing employers.

In the language of the syllogism that we used in our brief, A must benefit, or A and B must benefit.

Each of the Greater Funds, both the pension and the welfare fund, will violate 302(c)(5) unless there is a transfer because some of the contributions paid by the Southern Employers helped create a pool surplus in each of the Greater Funds.

A surplus existed in each of the funds at the time all of the employees of the Southern Employers withdrew from each fund.

Anthony M. Kennedy:

But all of the Southern Employees didn’t in one sense.

Those whose pensions had vested and were receiving payments I take it remained with the plan, did they not?

Ronald E. Richman:

Yes, they did.

They–

Anthony M. Kennedy:

So I don’t see how, in light of that, your syllogism works.

Ronald E. Richman:

–Those employees have withdrawn from the plans, but they are entitled to benefit payments that have been earned by them prior to the date of their withdrawal.

In other words, they have vested in pension benefits.

They have a nonforfeitable right to receive pensions prior to the time that the withdrawal occurred.

They will not accrue any additional benefits subsequent to the withdrawal.

They will not have the opportunity to receive any benefit from the surplus that has been created by the employer’s contributions.

Instead, what will happen is they will have their benefits paid out of the liabilities of the plan, those liabilities being calculated as of the date of the withdrawal.

Anthony M. Kennedy:

But the point is, is that under the statute… under the statute as you read it, these are still employees of the withdrawing employer.

Ronald E. Richman:

They are employees of the withdrawing employer, but as we read the statute, all of the contributions that go into these funds must be used for the benefit of the contributing employer either alone or jointly with.

Some of these–

Anthony M. Kennedy:

Well, if that’s the way you interpret it, then it seems to me that the extension of your argument is that even if some employees of a particular employer leave, the result would still be to transfer the assets.

Ronald E. Richman:

–No, I… we think that’s a different case, because if some of the employees remain in the fund, they will be earning on the pension side benefit credit.

On the welfare side, they will have an opportunity to receive medical and other coverage.

The difference is, in our situation, there is no one left who is available to earn a benefit beyond the benefits that are already calculated in the liabilities of the Greater Funds.

When only half of the employees leave, the half of the employees that remain in the fund, for example, are still entitled to medical coverage, and they may have many catastrophic events that occur which create significant liabilities for the plan.

They are still in the pool, and therefore from our syllogism some of the employees of A are benefiting in the pool with the other contributing employers.

We believe that to be distinctly different from our situation, where all the liabilities are fixed, and there is no opportunity at all for the Southern Employees to receive any benefit from the contributions that made up… that went to make up this surplus.

David H. Souter:

Mr. Richman, doesn’t your theory overlook the fact that subsection (5) is couched in terms of money or other thing of value paid to a trust fund established for these purposes?

Isn’t the reference to paid, as opposed, for example, to money or things of value held… doesn’t that indicate that a violation or not is to be judged with respect to the terms of the fund at the time the money is paid over?

Ronald E. Richman:

If… no, we don’t believe so.

If that were the case, the entire protective value of section 302(c)(5) would be essentially eliminated, because once the money went in on Friday, if on Monday a union official ran away with the money, 302(c)(5) would not apply its protective value, which is reflected in the legislative history.

David H. Souter:

Well, how does 302(c)(5) help you if the union official runs away with the money in any case?

Aren’t we talking about contests about the enforcement of certain terms of trusts, or the enforcement of certain benefits as against trustees and employers, and so long as the terms of the trust and the payments to the trust are made in accordance with trust terms that satisfy the requirements of subsection (5), isn’t that all subsection (5) is really trying to get at?

Ronald E. Richman:

We don’t believe so, and this Court has recognized differently.

As Mr. Rose pointed out in Robinson, this Court said, it is, of course, clear that compliance with specific standards in the administration of these funds are enforceable under–

David H. Souter:

In other words, it will enforce the terms of the trust–

Ronald E. Richman:

–No, I think the–

David H. Souter:

–But you want to do something other than enforce the terms of the trust.

Ronald E. Richman:

–That’s correct.

We want to enforce compliance with the specific standards in 302(c)(5).

One of those–

David H. Souter:

But those standards simply refer to money paid in trust, meeting certain requirements set out in subsection (5), and if the money is in fact paid in accordance with those terms, how does subsection (5) provide any other standard by which a court is supposed to do anything?

Ronald E. Richman:

–If that is the interpretation given to subsection (5), then at least a couple of the structural safeguards don’t make any sense, because one of the structural safeguards is that the money be held in trust.

It doesn’t say it must be received by the trust or paid to a trust, it says that it must be held in trust.

In addition–

David H. Souter:

Well, I mean, I’m not seeing your point.

Let’s assume it’s being held in trust and you can enforce as against the trustees their obligation to hold it in accordance with the terms of the trust.

How is my suggestion subversive of that safeguard?

Ronald E. Richman:

–Because, as I understand your suggestion, once the money is paid in, the trustees no longer have an obligation to follow any of the safeguards of 302(c)(5).

David H. Souter:

Well, the trustees have got an obligation to honor the terms of the trust.

I’m not suggesting otherwise.

Ronald E. Richman:

But they could change the terms of the trust immediately after receipt–

David H. Souter:

How could they do… I mean, how am I suggesting that the trustees can change the terms of the trust?

Ronald E. Richman:

–Well, the trustees in multiemployer plans generally have the right to, and do, change the terms of the trust all the time.

David H. Souter:

In calculating benefits and so on.

Ronald E. Richman:

Well, no, that would be the terms of a plan.

They change the terms of the trust in terms of governance of these plans, in some cases in terms of objectives, the use of benefits for certain purposes.

That happens–

David H. Souter:

Do they have any authority to change the terms with respect to the identification of beneficiaries?

Ronald E. Richman:

–Yes.

Not only–

David H. Souter:

They could say… are you suggesting that they could say well, the employees of the X Corporation will no longer get benefits, even though we received funds expressly for that purpose?

Ronald E. Richman:

–No.

David H. Souter:

They couldn’t do that.

Ronald E. Richman:

No, they couldn’t do that, but they–

David H. Souter:

That’s the kind of change that’s at issue here, isn’t it?

Ronald E. Richman:

–But they could, for example, add a category of employees to receive benefits as long as that is done within the jointly with language.

Our proposed rule here is really based on the statement in Robinson and statements that appear in Amax and also that appear in the legislative history that the purpose of 302(c)(5), while certainly to fight against the possibility of union corruption, but really the overriding goal is to ensure that the money gets used for the participants and beneficiaries for whom it is contributed.

Antonin Scalia:

But Mr. Richman, (a) and (b) establish… of 302 establish the criminal violations.

(a) makes it a violation for the employer to pay over, or to agree to pay over, lend or deliver the money, for the benefit of anyone other than his employees, okay.

That’s (a).

(b) does not make it a violation for the recipient to use it for the benefit of anyone except the employees.

It doesn’t say that at all.

It says, it shall be unlawful for any person to request, demand, receive, or accept or agree to receive or accept for any other purpose than the employees.

In other words, it is the agreement that it’s directed at.

It does not make it criminal to go back on what was originally a valid agreement.

Isn’t that at all significant, that it explicitly criminalizes the agreement but says nothing about violation of the agreement?

Ronald E. Richman:

It is significant, except that when we get to subsection (c), and particularly (c)(5), which is an exception to the general rule, the statute does more than just say that the contributions need to be paid in.

Antonin Scalia:

But (c) is an exception from what has been criminalized in (a) and (b).

If it hasn’t already been criminalized in (a) or (b), you don’t have to come within the exception.

So if it’s not criminal under (b) to go back on what was originally a valid agreement, and although you told the employer you were going to use it for his employees, in fact you use it for something else, you haven’t violated (b).

Antonin Scalia:

You don’t need the exception of (c).

Ronald E. Richman:

If that were the case, then the protective value of all of the provisions in (c), really, they would be eliminated completely.

Antonin Scalia:

No.

Your criticism is not with the protective value of (c).

Your criticism is with (b).

You’re just saying (b) wasn’t drawn broadly enough, but Congress drew it as broadly as it wanted to.

It made the crime accepting it for a purpose other than the benefit of the employees, or agreeing to accept it for such a purpose.

It did not make it a crime to go back on a trust agreement and use it for your own benefit, or for some benefit other than the employees.

Ronald E. Richman:

No, it… the… 302(e), however–

Antonin Scalia:

(e).

Ronald E. Richman:

–Enables the district courts… it provides the district courts with jurisdiction to, in the parlance that’s been used by at least five or six of the circuit courts, correct structural defects.

Antonin Scalia:

Well, it says to restrain violations, but it’s no violation of this section to break a trust agreement.

It’s a violation to make a bad trust agreement, but not to break a good one.

Ronald E. Richman:

Well, in coming back to this Court’s statement in Robinson, when the Court said that compliance with the specific standards in administration… and we believe that that statement was about the specific structural standards in 302(c)(5)… is enforceable under 302(e), and in fact the Robinson case itself, a unanimous decision by this Court, in that case, if the interpretation of the statute had been that the limitations apply only upon receipt of contributions, the Court, instead of being concerned about whether 302(c)(5) created a reasonableness standard to judge whether certain benefits violated 302(c)(5) or not, would have easily said, we don’t have to do that because 302(c)(5) only replies to the receipt of money.

Antonin Scalia:

Once again, (c)(5) is… (c) is entitled, Exceptions.

It is an exception to the criminal provisions of (a) and (b).

Now, if anything here is criminal, it is criminal under (b), and there is no language in (b) which makes it criminal to do anything except to accept the money, or to request the money, or to receive the money, on terms that do not require its use for the employees.

That’s all that (b) criminalizes, so you don’t even have to look to (c), until you first establish that there’s been a violation of (b), and I’m asking how you can establish that.

Ronald E. Richman:

If that were the case, this law was passed more than 25 years prior to ERISA, and we believe that Congress thought that it was creating some safeguards not only with the receipt of money, but that the money would go into these funds, and then it also would be used for the benefit of the employees for whom those contributions were made.

And there are a number of statements, which appear in our brief, in the legislative history from the sponsor of this provision which indicate that Congress really thought that it was creating structural safeguards not only for the receipt of the contributions but for the actual use of the contributions and for the actual administration of the plan, and I understand the concern with the language, but to read the language not to apply beyond–

Antonin Scalia:

Criminal statutes… I mean, normally we interpret criminal statutes strictly, don’t we?

Ronald E. Richman:

–Yes, you do, but this is not being applied in a criminal context, this is applied in a civil context under 302(e).

Antonin Scalia:

Is it one way for civil purposes and another way for criminal purposes?

We don’t do that.

Ronald E. Richman:

No, I… we believe that under 302(e), the Second Circuit correctly remedied this structural defect by ordering a transfer of the fair surplus in the Greater Funds.

William H. Rehnquist:

What, again, is the precise language in (c) that confers the authority on the courts to remedy a structural defect?

Ronald E. Richman:

That appears in 302(e).

William H. Rehnquist:

Well, all it says is jurisdiction of courts–

Ronald E. Richman:

To restrain–

William H. Rehnquist:

–To restrain violations–

Ronald E. Richman:

–Violations.

William H. Rehnquist:

–Of this section.

How does that confer any authority to remedy structural defects?

Ronald E. Richman:

A structural defect that is a violation of one of the specific standards in 302(c)(5), in our case the standard requiring–

William H. Rehnquist:

But I would think a violation of this section would mean something contrary to (a) or (b).

I mean, something that doesn’t conform to an exception would not necessarily be a violation of the exception… be a violation of the statute unless it was… as I think Justice Scalia said, unless it was already illegal under (a) or (b), there would be no violation.

Ronald E. Richman:

–Except that, and again getting back to, really, the same issue that I was talking about a moment ago, if that is the case, then these structural safeguards which we believe that Congress thought it was adopting not only for the receipt of contributions but for the actual administration of the plan and the distribution benefits would be eliminated completely.

William H. Rehnquist:

Well, but really, it would be… it’s quite extraordinary, isn’t it, to say that Congress put all of the things that you want to see, or you say should be put to this use, not in a more general statute regulating these sort of agreements, but in an exception to a criminal provision, a rather narrow criminal provision?

Ronald E. Richman:

I don’t understand the concern with the language.

That is what we’re mostly concerned about here.

[Laughter]

Ronald E. Richman:

This Court, however, did, in the Robinson case, both in… by statement and terms of the analysis done by the Court, indicate that it had really adopted what we had been referring to as the structural defect analysis, again because if the Court was not concerned with the actual enforcement of section 302(c)(5), then the Court in Robinson would have simply said, we don’t need to worry about how benefits are distributed and whether coal miners’ wives receive some type of benefit or a different type or a lesser benefit.

All we’re concerned about is the actual application of this statute to the receipt of the contributions.

Another… if, in fact, the statute is read the way that you’re saying it should be read, then a question arises as to the Greater Funds have received contributions subsequent to the withdrawal of the Southern Employees from the Greater Funds.

They have received those contributions from 1985 right up to the future, and continue to receive those contributions.

The receipt of those contributions would be a violation because they are receiving those contributions without actually using contributions, albeit contributions received earlier for the protective purposes of 302(c)(5).

John Paul Stevens:

I don’t really follow your example, are you saying that after the transfer and after withdrawal that the withdrawing employers continue to contribute to the earlier fund?

Ronald E. Richman:

No.

What we’re saying–

John Paul Stevens:

Then I don’t know what you were saying.

Ronald E. Richman:

–Okay.

The… after the Southern Employers withdrew from the Greater Fund, their contributions stopped to the Greater Funds.

The contributions continued by Greater Employers to the Greater Funds, and those contributions continued from 1985 to the present date.

Those contributions are going into a fund in which contributions which were made previously are not being used for the sole and exclusive benefit of the contributing employees who made those contributions previously… in other words, prior to 1985… and to read the statute strictly, we’d end up in a situation where the funds continued to receive contributions, have done so for a long period of time, when contributions that were received prior were not being used for the sole and exclusive benefit of the employers who contributed those contributions at that time.

John Paul Stevens:

I have to confess I have trouble following your example.

You’d helped me if you used A and B–

Ronald E. Richman:

Okay.

John Paul Stevens:

–As you did in your original… assume A is the employees of the withdrawing employers and B is everybody else in the original fund.

Ronald E. Richman:

Contributions by A stopped.

Contributions by B continues to the fund.

Right.

Ronald E. Richman:

If the statute is read to say that contributions can’t come into these funds unless the contributions are used in accordance with… or the receipt of payment cannot occur unless the–

John Paul Stevens:

Are you saying that B’s contributions are bad because they are used for… pay some benefits for A’s employees even though A is no longer contributing to the same fund, is that what you’re saying?

Ronald E. Richman:

–No, almost… no.

John Paul Stevens:

Just the opposite.

Ronald E. Richman:

What we’re saying is that contributions by B goes in and they benefit B’s employees at a time that contributions by A going in, previous contributions by A, were not used for the benefit of the employees of A, and therefore contributions are coming into a fund, but–

John Paul Stevens:

Yes, but isn’t it true that at the time any one employer made a contribution to either fund, there were employees of that employer who were potential beneficiaries of that fund?

Ronald E. Richman:

–That’s correct.

We don’t believe that ERISA requires a different result here.

A transfer pursuant to 302(c)(5) can be accomplished without violating a single rule under ERISA.

We can meet the requirements of the transfer rules under 1411(b), for example, and that would be an issue that the district court would be able to deal with.

Our interpretation does not make section 1415, which is the section that requires mandatory transfer, superfluous.

Section 1415 does not say that assets or liabilities, or assets and liabilities will be transferred only if there’s a change in collective bargaining representative.

In fact, that would violate the position of the Government that these transfers are, in fact, regulated by fiduciary duty obligations pursuant to ERISA.

In addition, transfers can occur under 1415 that would not occur under the rule that we’re requesting that this Court adopt.

They would occur if there is an underfunded plan, for example.

Under the LMRA… under the rule that we’re proposing, no transfer would be required if the plan does not have excess or surplus reserves.

Antonin Scalia:

Mr. Richman, why don’t you argue… you are arguing that this transfer is in breach of the trust… of the valid trust agreement, right?

Ronald E. Richman:

No.

We are arguing that this transfer is in breach of 302(c)(5).

Antonin Scalia:

Yes, which means that the trust… the trust agreement was valid under 302(c)(5), and this was in breach of it.

Is that right?

Ronald E. Richman:

That’s correct.

Antonin Scalia:

Why don’t you argue the opposite… that it is not in violation of the trust agreement, but to the contrary, it is fully in accord with the trust agreement?

That means that the trust agreement is invalid under (b), and therefore you would have to apply the (c) exception.

Ronald E. Richman:

I’m not sure I understand the–

Antonin Scalia:

In order to get 302 to apply, you have to show that the trust agreement is invalid, so your case ought to be that this payment was perfectly okay under the trust agreement, but that renders the trust agreement invalid under (b), unless the (c) exception applies, which you say it doesn’t.

Never mind.

That’s all right.

[Laughter]

Antonin Scalia:

Well, on the interrelation between (a), (b), and (c), I take it the structure of the statute is that any payment to the trust would be invalid under (a), and that’s why (c) is necessary to save it, isn’t that correct?

Ronald E. Richman:

–That’s correct.

Anthony M. Kennedy:

So (c) then does control those payments that are valid, and those which are invalid.

Ronald E. Richman:

That’s correct.

Anthony M. Kennedy:

Thank you.

Ronald E. Richman:

Thank you.

William H. Rehnquist:

Thank you, Mr. Richman.

Mr. Rose, you have 4 minutes remaining.

Henry Rose:

Mr. Chief Justice, may it please the Court:

My adversary stated to the Court that there was a surplus at the time of the withdrawal of the respondent employers.

There is nothing in the record whatsoever to indicate that.

Byron R. White:

What if there was?

Henry Rose:

I don’t think it would make any difference, Justice White.

The–

Antonin Scalia:

He’s not your adversary, Mr. Rose He’s your friend.

Your clients are adversaries, you and Mr.–

[Laughter]

Henry Rose:

–Not these clients.

The… in answer… in the dialogue just preceding, Justice Scalia suggested that the argument that might be made that the trust might be invalid and thereby bring it within 302.

I would suggest that if, indeed, this trust is invalid, then virtually all multiemployer plan trust agreements are invalid, because the key provisions that we’re talking about are virtually universal, and we have in this case filed the trust agreements not only of the petitioner funds, but of the respondent new funds, and you’ll find similar provisions in there, and you also have in the amicus briefs the trust agreement for the Central States.

Antonin Scalia:

I didn’t say there was no answer to the argument, Mr. Rose.

I just said it was an argument that would get you over the (b) problem, anyway… the subsection (b) problem, which really sticks in my craw.

Henry Rose:

It’s a difficult hurdle to get over, but that won’t do it.

John Paul Stevens:

Mr. Rose, in response to questions by Justice O’Connor earlier today, she suggested that maybe all we have to do is decide there’s… 302(c)(5) doesn’t justify the result below.

You said you wanted us to go on to cite something under ERISA.

Just exactly what are you asking us to decide, perhaps unnecessarily.

[Laughter]

Henry Rose:

Clearly, that ERISA does not require a transfer of assets such as being sought in this case.

That is clear from–

John Paul Stevens:

Because it’s the same union.

Henry Rose:

–For… there are a number of provisions.

It’s a prohibited transaction, to transfer assets to a party in interest.

The respondent employers are parties–

John Paul Stevens:

Well, we don’t have to say it’s a prohibited transaction.

You’re just saying it’s not a mandated transaction under ERISA.

Henry Rose:

–That is correct.

It certainly is not… there’s absolutely clear that it’s not a mandated transaction, but it… in fact, I am arguing that it is a prohibited transaction.

John Paul Stevens:

We surely don’t have to decide that, because if we say 302(c)(5) doesn’t justify it, and it’s not prohibited by ERISA, why do we have to go on and say what might or might not be mandated?

Henry Rose:

You’re quite right, you don’t have to.

I would hope you would.

There was a suggestion by my friend that–

[Laughter]

That the–

Antonin Scalia:

Mr. Rose, excellent.

[Laughter]

Henry Rose:

–That the legislative history somehow did talk about the use of the money in the plan, and I would question that that is so.

I looked at it very carefully, and I recall none.

With regard to the prohibited transaction, though, I would add one point, and that is that this Court has stated in Central States v. Central Transport that the use of plan assets by employers, even temporarily, is a prohibited transaction, and that was in the context of the possibility of a plan not seeking collection of contributions with sufficient expedition, that letting it ride might in fact be a prohibited transaction simply because it is an extension of credit.

William H. Rehnquist:

Thank you, Mr. Rose.

The case is submitted.