On August 13, 2019, the United States Court of Appeals for the Seventh Circuit decided that a multiemployer pension plan’s lawsuit against an employer for withdrawal liability was time-barred because it was filed more than six years after the plan accelerated the withdrawal liability. In doing so, the court rejected the plan’s argument that the withdrawal liability had been “decelerated” each time the employer paid back the delinquent quarterly withdrawal liability payments. This case highlights the risks associated with delaying litigation once a pension plan accelerates withdrawal liability.
The case, Bauwens v. RevconTech. Grp., Inc., No. 18-3306, 2019 U.S. App. LEXIS 24066, 2019 WL 3797983 (7th Cir. Aug. 13, 2019), was brought against an employer that completely withdrew from a pension plan pursuant to the Multiemployer Pension Plan Amendments Act of 1980 to ERISA. In 2006, the plan issued a withdrawal liability assessment against the employer payable in eighty quarterly installments. The employer missed several quarterly payments and failed to cure its default within 60 days of receiving notices of default from the plan.
The pension plan accelerated the outstanding withdrawal liability in 2008 and filed a lawsuit for the entire remaining amount of the withdrawal liability assessment. Shortly after the plan filed suit, the employer offered to cure its default by paying the delinquent amount owed and resuming the quarterly payment schedule in exchange for the trustees’ dismissal of the suit. The trustees agreed and voluntarily dismissed the suit. The employer defaulted on its payment schedule four more times, each time culminating in a lawsuit for the outstanding withdrawal liability followed a by a voluntarily dismissal.
When the trustees filed suit for a sixth time in 2018, the employer moved to dismiss the case on the grounds that it was time-barred because the plan had failed to file the lawsuit within six-years from when the withdrawal liability was accelerated in 2008 in accordance with the six-year statute of limitations for withdrawal liability claims. The plan’s trustees argued that each time the plan dismissed the prior lawsuit, the plan decelerated the withdrawal liability assessment. The district court disagreed and dismissed the trustees’ suit as time-barred. The trustees then appealed to the Seventh Circuit.
The critical issue on appeal was whether the withdrawal liability at issue could be decelerated, and the Seventh Circuit held it could not be. The court rejected the trustees’ argument that, as a “general principle,” any accelerated debt can be decelerated. As the court explained, although some forms of accelerated debt such as foreclosed mortgages and bankruptcy debt can be accelerated under certain circumstances, they only can be decelerated when a contract or statute expressly so authorizes. Because ERISA is silent on the issue of deceleration, the court was not willing to create a “deceleration mechanism” to fill in this gap in the statute.
The court concluded that, because the withdrawal liability was accelerated in 2008 and could not be decelerated, the six-year statute of limitations ran in 2014 and the trustees’ lawsuit filed in 2018 was time-barred. Of significance, the court noted that the trustees might still be able to recover from the employer in state court on breach of contract claims based on the settlement agreements that were entered to resolve the five prior lawsuits. But the court did not address the merits of those contract claims because they were not asserted in the trustees’ lawsuit against the employer.
In light of this decision, plan sponsors and fiduciaries of multiemployer plans should consider the potential risk of delaying litigation after accelerating withdrawal liability. Under certain circumstances, it may be appropriate to hold off on litigating after a plan has accelerated an employer’s withdrawal liability. In such cases, plan sponsors and fiduciaries should discuss with plan counsel their options to mitigate such risk, including entering a tolling agreement with the employer to toll the statute of limitations on any accelerated withdrawal liability claims.
Please contact Slevin & Hart for more information about this case and how it could affect your plan’s efforts to collect withdrawal liability.