AMERICAN ARBITRATION ASSOCIATION Multiemployer Pension Plan Withdrawal Liability Arbitration Tribunal

In the Matter of the Arbitration between AAA No. 51-621-0010-88V HOFFMAN MANAGEMENT CORPORATION, formerly d/b/a CHICAGO KANSAS CITY FREIGHT LINE, INC. and CHICAGO TRUCK DRIVERS, HELPERS AND WAREHOUSE WORKERS UNION (INDEPENDENT) PENSION FUND. __________________________________/

FINAL AWARD

June 12, 1989

Following Issuance of the Arbitrator’s Opinion on May 15, 1989 For the Company: GAGE & TUCKER R.F. Beagle Robert J. Harrop 2345 Grand Avenue P.O. Box 418200 Kansas City, Missouri 64141

For the Fund: JACOBS, BURNS, SUGARMAN & ORLOVE Joseph M. Burns 201 North Wells Street Suite 1900 Chicago, Illinois 60606

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In Trustees of the Chicago Truck Drivers, Helpers and Warehouse

Workers Union (Independent) Pension Fund v Chicago Kansas City Freight

Line, Inc, 694 F Supp 469 (ND Ill, 1988),1 the District Court referred this

matter to arbitration, where it was submitted to the arbitrator upon stipulated

facts and exhibits. On May 15, 1989, the arbitrator issued an opinion in

which he concluded that Hoffman (seller) was secondarily liable for

Manley's (purchaser) non-payment of its withdrawal liability, pursuant to the

sale of assets exception of 29 USC §1384. However, the arbitrator declined

to award the Fund the full amount claimed ($380,822), but rather limited

Hoffman's schedule of payments to the number required to pay off Manley's

withdrawal liability of $299,390. Arb Op at 18-24.

The arbitrator left to the parties the task of determining the precise

number of quarterly payments of $13,444, that Hoffman must make.

Specifically, the arbitrator directed the Fund to submit to Hoffman a

proposed schedule of payments, together with supporting worksheets, within

fifteen (15) days of receipt of the Arbitrator's Opinion. The Fund was to

transmit copies of all materials to the arbitrator and also file them with the

American Arbitration Association (“AAA”). Hoffman then was to have a

1 In both the Arbitrator's Opinion dated May 15, 1989 (“Arb Op”), and in his supplemental opinion dated May 24, 1989, disposing of the Fund's motion for reconsideration (“Supp Op”), references to the District Court's Memorandum Opinion and Order of August 5, 1988, were made by “Ex R” or “Slip Op”; see Arb Op at 5.

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like amount of time to accept the Fund's proposal or apply to the arbitrator

for modification. Arb Op at 23.

Instead of following the arbitrator's directive, the Fund, by letter dated

May 19, 1989, moved for reconsideration on the grounds that “[t]he

arbitrator has rendered an award upon a matter not submitted to the

arbitrator and the matter affects the merits of the decision ….” The arbitrator

denied the Fund's motion on both substantive and procedural grounds.

Initially, the arbitrator pointed out that AAA rules, unlike PBGC

Regulations, do not provide for such a motion. Supp Op at 1-2.

Nevertheless, the arbitrator addressed the substance of the Fund's arguments

and found them to be without merit. Supp Op at 2-10.

When the Fund's materials were not forthcoming, the arbitrator

requested that AAA inquire into their status and received a message that

they would be put in the mail that very day. Instead of the Fund's

calculations, the arbitrator received a copy of the following letter of

complaint:

JACOBS, BURNS, SUGARMAN & ORLOVE 201 NORTH WELLS STREET, SUITE 1900

CHIGAGO, ILLINOIS 60606-1364

June 6, 1989

Ms. Patricia Velasco American Arbitration Association

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205 West Wacker, Suite 1100 Chicago, Illinois 60606 Re: Case No. 51 621 0010 88V Dear Ms. Velasco: This is in reference to Arbitrator Cornelius's recent supplemental statement for services. As you know, the Fund's motion for reconsideration was denied. The initial basis for the denial of the motion was that there was no basis in the AAA rules for a motion for reconsideration. Because Arbitrator Cornelius believed this was a valid reason, there was no reason for him to discuss, over nine additional pages, other reasons for denying the motion. If the Arbitrator is without jurisdiction, there is no reason for additional comment on the merits. Thus, I consider the assessment against either party of any fees and expenses over the amount necessary to prepare an opinion denying jurisdiction to be unreasonable. I would appreciate whatever guidance you can provide as to how this matter might be resolved under AAA procedures. Sincerely yours, Joseph M. Burns JMB/ie cc: E. Frank Cornelius Robert Harrop

In view of the Fund's failure and refusal to comply with the arbitrator's

directive, I proceed to calculate Hoffman's payment schedule, to issue a final

award including fees for preparation of the award, and to address the threat

to the MPPAA arbitration process that the Fund's contumacy poses.

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In calculating Hoffman's payment schedule, I am at a distinct

disadvantage, because I do not know the interest rate the Fund used in

calculating Manley's schedule or even the methodology it employed; these

were some of the very reasons I directed the Fund to make the initial

calculation and to submit its worksheets, which would reveal both

methodology and rate. Arb Op at 21-23. Although Hoffman inquired about

the rate as long ago as November 2, 1987 (Ex N, ¶6), the Fund consistently

has failed and refused to reveal it (e.g., Ex Y, ¶6), in violation of 29 USC

1401(e).

Manley's rate (possibly on the order of 8-1/2%, depending upon

methodology) would be the better rate to use (Arb Op at 21-23), but the

Fund's recalcitrance forces me to use the only rate of which I am reasonably

certain, 6%. See Arb Op at 22, citing Ex Y, ¶6 (6%). With a 6% rate and

what I assume to be the Fund's methodology (Arb Op at 22-23), payment by

Hoffman of 27 quarterly installments of $13,444 and a final payment of

$4,116 will amortize Manley's withdrawal liability of $299,390.2 Hoffman,

of course, already has made seven (7) of its twenty-seven (27) regular

payments; see Arb Op at 24.

2 Although we do not know the interest rate utilized to compute Manley's schedule, at 8-1/2%, Hoffman would owe 29 quarterly payments plus a final payment of $2,927. The number 27, Arb Op at 23, is a typographical error.

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We now turn to the truly serious threat to the withdrawal liability

arbitration process which the Fund's actions pose. First, let us note the

singular impropriety of interjecting a fee dispute into an ongoing arbitration

proceeding. Such a move is almost calculated to sabotage the proceedings

and set the arbitrator up for a charge of bias. Indeed, few acts would more

naturally raise an arbitrator's ire than the threat of non-payment of fees.

Thus, the Fund was wholly out of order in raising fee issues before

completion of the arbitration.

The appropriate place and time to challenge a MPPAA arbitrator's

fees is in federal district court, when the award is challenged pursuant to 29

USC 1401(b)(2). The statute itself makes the fee assessment part and parcel

of the overall award, which may included attorney's fees as well [29 USC

1401(a)(2)]. Both PBGC Regulations [29 CFR 2641.7(a)(3)] and AAA

Rules [Section 37] confirm this interpretation of the statute.3 If the Fund is

3 If the parties have not provided for the costs of the arbitration, including arbitrator's fees, by agreement, the arbitrator shall assess such fees. The arbitrator may also award reasonable attorney's fees. 29 USC §1401(a)(2); emphasis supplied. In the instant matter, the parties had no fee agreement. 29 CFR §2641.7(a)(3) provides in pertinent part that

The arbitrator shall render a written award that … Provides for an allocation of costs in accordance with §2641.9.

29 CFR §2641.9 covers all costs, including the arbitrator's fees and attorney's fees, except the cost of the hearing transcript. AAA Section 37 provides:

The award shall be in writing and shall state the basis for the award … and shall provide for an allocation of costs in accordance with 29 CFR §2641.9.

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dissatisfied with the arbitrator's fee award, the Fund can challenge it in

federal district court, along with other aspects of the arbitration award, and

the Fund most certainly should have taken that route, rather than raising

objections with AAA before completion of the arbitration proceedings.

In point of fact, AAA has no authority to intervene in a MPPAA fee

dispute. AAA Rules provide only that

Unless mutually agreed otherwise, the Arbitrator shall be compensated according to the fee structure disclosed in the Arbitrator's biographical profile submitted to the parties. Any other arrangements for the compensation of the Arbitrator shall be made through the AAA and not directly by the Arbitrator.

Section 49; emphasis supplied. The fees assessed for the Supplemental

Opinion were strictly in accordance with the arbitrator's announced fee

structure and no other fee arrangement is in force.4 Not only were the Fund's

objections inappropriately timed, they were directed to the wrong tribunal.

4 Compare the following Arbitrator's Consent, utilized in the commercial arbitration matter of Patrick Daily & James Murphy and Joseph & Georgia Hancock , AAA No 52-199-0214-84 (Arb, 1985): The undersigned arbitrator, duly appointed in the above captioned matter, hereby expressly agrees with and authorizes the American Arbitration Association, as follows: 1. Any agreement for compensation to be paid in connection with this case is the obligation of the parties thereto in accordance with its terms, and it is understood that the American Arbitration Association has no liability, direct or indirect, for such payment. 2. The American Arbitration Association, as Administrator, shall take the appropriate steps necessary, in accordance with Section 51 of the AAA's Rules, to obtain payment from the parties as the Association deems reasonable. Any funds obtained by the Association shall be transmitted to me pursuant to the terms of the Compensation Stipulation. 3. In the event that the Award is delivered prior to payment by the parties of the agreed upon compensation the Association is authorized to collect these monies on my behalf by all lawful means and to represent me in any action or proceeding for such recovery and to file a claim in any bankruptcy or insolvency proceeding for such monies. The Association may prosecute and receive any recovery on behalf of the undersigned and has full authority to compromise or settle such claims as may be, in its discretion, necessary. The Association is authorized to subtract a reasonable amount for collection and attorney's fees.

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Besides being ill-timed and misplaced, the Fund's complaints are so

unfounded and illogical as to evidence bad faith. The Fund requested

reconsideration and received it in full. Acting upon the Fund's request, the

arbitrator conscientiously double-checked his extensive research and

reviewed numerous practical examples to assure the reasonableness of his

conclusions. He then meticulously rendered to each and every argument

raised by the Fund and decided the motion on the merits. Incredibly, the

Fund complains that, because there was a procedural basis for denial, of

which the Fund was completely unaware, the arbitrator ought not to have

considered the motion on the merits. Apparently, if the arbitrator had

decided the motion on the merits, but refrained from pointing out its

procedural deficiencies, the Fund would have no complaint, due to its

ignorance of AAA Rules. For the Fund to offer its ignorance of arbitration

procedures as a basis for denying the arbitrator his fees, after the arbitrator

granted the very hearing the Fund sought, is truly reprehensible and smacks

of petty vindictiveness.

The Fund's motion for reconsideration was based upon assertions

lying somewhere in the spectrum between the merely mistaken and the

In a MPPAA arbitration, no such agreement is in effect; in fact, no agreement at all is in effect beyond the provisions of the AAA Rules.

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patently disingenuous:

The Fund, and the Employer, did not submit the issue of the [sic] “The Amount Owed” to the Arbitrator. (Award, p.18). The parties accepted the statutory language that the “seller is secondarily liable for any withdrawal liability it would have had to the plan … but for this section …”. (Section 4204(a)(1)(C)). The parties accepted that if Manley did not “make any withdrawal liability payment when due, the seller shall pay to the plan an amount equal to the payment that would have been due from the seller but for this section.”

As the arbitrator pointed out (Supp Op at 3-4), nowhere in the parties’ 36

numbered stipulations did they agree as to the amount Hoffman owed; rather

they stipulated only as to what the Fund claimed. See Arb Op at 1-5.

Needless to say, Hoffman did not concur in the Fund's motion.

In Ludington News Co. and Michigan UFCW/Drug Employers

Pension Fund, 9 EBC 1913 (Arb, 1988), the parties entered into a

comprehensive stipulation that provided for the precise outcome, depending

upon the arbitrator's resolution of the underlying legal issues:

Ludington asserts that the Trustees’ assessment and collection of withdrawal liability is barred by the six-year statute of limitations found in 29 USC Sec. 1451(f), ERISA Sec. 4301(f), or alternatively by the six-year statute of limitations found in MCLA Sec. 600.5813. The Trustees assert that these limitation periods do not apply to its November 7, 1986 notice and demand for payment of Ludington's alleged withdrawal liability. As of December 1, 1987, Ludington has made the following payments on account to the Pension Fund: $3,626.00 received January 5, 1987; $3,626.00 (plus $7.45 interest) received April 16, 1987;

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$3,626.00 received July 6, 1987; $3,626.00 received September 30, 1987.

If the Trustees’ claim is not barred by the statute of limitations found in either ERISA Sec. 4301(f) or MCLA Sec. 600.5813, then the amount of withdrawal liability determined by the Trustees ($24,169) is due and owing by Ludington according to the schedule set forth by the Trustees, less interim payments.

Ludington News, supra, 9 EBC at 1914-1915. Unlike the parties in Ludington News, Hoffman and the Fund did not

stipulate as to the precise amount owed, depending upon the arbitrator's

resolution of the other issues presented. Quite to the contrary, the parties

took extreme positions in their briefs and left to the arbitrator the task of

determining the correct amount owed. Surely the arbitrator cannot be held

responsible for deficiencies in the parties’ stipulation.

Not only was there no stipulation as to the correct interpretation and

application of the sale of assets exception, but nowhere in its brief or motion

for reconsideration did the Fund present even one authority that would

support its interpretation of 29 USC §1384. Furthermore, the Fund did not

engage in any kind of analysis of the statutory language or bother to respond

to the arbitrator's analysis. Arb Op at 18-24. The Fund just complains.

In interpreting the statute, the first point to be noted is that 29 USC

§1384(a)(1)(C), which the Fund emphasizes, is not an operative provision in

the sense of compelling any payment by the seller; rather it merely mandates

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that a promise of secondary liability be contained in the agreement of sale:

the contract for sale provides that, if the purchaser withdraws … during such first 5 plan years, the seller is secondarily liable for any withdrawal liability it would have had to the plan with respect to the operations (but for this section) if the liability of the purchaser with respect to the plan is not paid.

Without more, this provision would be difficult to apply, because under it,

the seller's secondary liability would be purely contractual, and the pension

plan at best would be a third party beneficiary. As such, the plan's rights

would be subject to much debate; in particular, it would be unclear whether

state law should apply (and if so, which state's) or whether courts and

arbitrators would be called upon to develop federal common law principles.

Fortunately, 29 USC §1384(a)(1)(C) does not stand alone, but must be

interpreted and applied in conjunction with 29 USC §1384(a)(2). Unlike the

former provision, the latter is operative in the sense of actually compelling

payment by the seller:

If the purchaser -- (A) withdraws before the last day of the fifth plan year beginning after the sale, and (B) fails to make any withdrawal liability payment when due, then the seller shall pay to the plan an amount equal to the payment that would have been due from the seller but for this section.

Quite plainly, 29 USC §1384(a)(2) makes the seller liable only on a

payment-by-payment basis; it most assuredly does not state that the full

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amount of the seller's withdrawal liability becomes due and owing the

minute the purchaser misses a single payment.

The literal interpretation of this provision can be illustrated nicely

using Hoffman's and Manley's payment schedules. According to the Fund's

calculations, Manley owes 16 quarterly payments of $22,279, beginning July

1, 1987, with a final payment of $1,216; Hoffman owes 37 regular payments

of $13,444 and a final payment of $11,981. Arb Op at 18, 21-22. Each time

Manley misses a quarterly payment (normally $22,279), Hoffman must

respond with one of its payments (normally $13,444). Under a literal

interpretation of 29 USC §1384(a)(2), Hoffman would owe a maximum of

17 payments of $13,444, the maximum number of payments that Manley

could miss. However, such an interpretation yields unsatisfactory results,

because the seller could end up paying even less than either the purchaser's

or the seller's liability, due to disparate payment schedules. Supp Op at 6.

Despite the incompleteness of 29 USC §1384(a)(2), resulting from

failure to address disparate payment schedules, Congress’ unmistakable

payment-by-payment approach strongly suggests that, in many situations,

the seller will not be called upon to pay the full amount of its withdrawal

liability. A good example would be a purchaser's reorganization under

Chapter 11, during which the purchaser might be unable to make its

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payments, requiring the seller to begin making its own installments, but

following emergence from which, the purchaser might resume payment.

It is most important to note that, as between 29 USC §§1384(a)(1)(C)

and (a)(2), the latter is by far the more significant, not only because it is the

only operative provision of the statute in the sense of actually requiring

payment by the seller, but also because compliance with the former can be

waived. See 29 USC §1384(c); 29 CFR Part 2643. Although the two

sections need to be read in harmony, emphasis must be placed upon 29 USC

§1384(a)(2) because, in some cases, it will be the sole provision applicable.

In the instant matter, the only waiver obtained pursuant to 29 USC §1384(c)

was of the bond requirement in 29 USC §1384(a)(1)(B). Ex J; Ex A,

§12.1.C.

Further support for the primacy of 29 USC §1384(a)(2) over

§(a)(1)(C) may be found from consideration of first year withdrawals.

Because Congress used “during such first 5 plan years“ in 29 USC

§1384(a)(1)(C) [i.e., “the first 5 plan years beginning after the sale”; see 29

USC §1384(a)(1)(B)] but employed a different phrase, “before the last day

of the fifth plan year beginning after the sale”, in 29 USC §1384(a)(2)(A),

only §1384(a)(2) would apply to a purchaser's withdrawal during the plan

year of sale; 29 USC §1384(a)(1)(C) would be inoperative because it does

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not take effect until the first plan year following the sale. See also Arb Op at

19, observing a deficiency in 29 USC §1384(b)(1), with respect to first year

withdrawals.

In arriving at a balanced interpretation between 29 USC

§1384(a)(1)(C), which at most requires a type of indemnity or guaranty

clause in the sales agreement, and §(a)(2), which calls for payments that

might be greater or less than the plan's actual loss, depending upon the

relative withdrawal liability schedules involved, it must be borne in mind

that the interpretation must be sufficiently flexible to cover all of the

following situations:

(a) The case in which the purchaser has no withdrawal liability ($0) but in which the seller's secondary liability is large (e.g., $10,000,000). It is quite clear in this case that the seller owes nothing. (b) The case in which the purchaser's withdrawal liability is small (say, $1,000) but in which the seller's is large ($10,000,000). Under the Fund's all-or-nothing approach to the statute, upon the purchaser's failure to pay a mere $1,000, the seller would be compelled to pay (in installments) the full amount of its withdrawal liability. The Fund would read the word “secondarily” right out of 29 USC §1384(a)(1)(C), because the result the Fund urges would obtain without it. For the difference in results between cases (a) and (b) to be so dramatic would be unreasonable. (c) The case in which the purchaser pays all but a small portion of its withdrawal liability. Suppose, for example, that Manley had made all of its withdrawal liability payments except the final one of $1,216. The Fund then would demand of Hoffman payments totaling the full $380,822. No arbitrator or court would countenance such an injustice,

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and yet the basis for decision must be a consistent and reasonable interpretation of the statute. (d) The case in which the purchaser's withdrawal liability exceeds the seller's. Both 29 USC §§1384(a)(1)(C) and (a)(2) indicate that the seller's secondary liability is limited to the withdrawal liability it would have had but for the sale of assets exception, the former explicitly and the latter by implication, because once the seller has made the final payment on its schedule, there is no further “payment that would have been due from the seller but for this section.”

In the nearly six years prior to its withdrawal, Manley paid the Fund

over $250,000 in contributions. Arb Op at 17-18. If Hoffman had paid

Manley's withdrawal liability of $299,390 on or before July 1, 1987, or even

begun making Manley's quarterly payments, the Fund would have no

standing to complain. Arb Op at 18-19. The Fund nevertheless demands the

full $380,822 from Hoffman, without regard to these facts. Furthermore,

absent some action by the arbitrator, nothing would prevent the Fund from

pursuing its claim against Manley in Bankruptcy and collecting all or a

portion of Manley's withdrawal liability as well. See Arb Op at 26. The Fund

has suffered a single injury (non-payment of Manley's withdrawal liability)

and is entitled to compensation for one injury only.5

5 If is meaningless to ask that the result might have been if Congress had not enacted the sale of assets exception, because Congress in fact provided the exception. Besides 29 USC §1384, there are other exceptions to withdrawal liability, e.g., 29 USC §§1390 and 1398. The latter section further reflects Congress’ intent, expressed in the sale of assets exception, that transactions which cause no interruption of plan contributions be excepted from withdrawal liability. In Opinion Letter 83-10 involving the sale of assets exception, PBGC commented:

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The purpose of the statutory scheme of withdrawal liability is to

protect pension plans, not to punish withdrawing employers. Plans are

entitled to just compensation, not to windfalls. The only way protection can

be afforded and punishment avoided is to read 29 USC §§1384(a)(1)(C) and

(a)(2) as limiting the seller's secondary liability to the total payments shown

on the seller's schedule. To read them as setting the identical amount for the

seller's liability under all circumstances does violence to the payment-by-

payment language of the latter and leads to unreasonable results. Arb Op at

20-21.

In reaching at my interpretation, I am not unmindful that the District

Court paraphrased and cited with approval Levy, Employer withdrawal

liability in the purchase or sale of a business, 59 Wis Bar Bull 13 (May

1986). See 694 F Supp at 471. The complete quotation is as follows:

Should the purchaser leave the fund in less than five years and fail to pay its entire withdrawal liability at that time, the seller will be obligated to pay the entire liability which would have been assessed if the exemption did not apply, without set-off for any amount paid by the purchase and without consideration for any increase in the purchaser's liability for reasons unrelated to the sale.

The calculations themselves … should reflect as nearly as possible Congress’ intention that where liability may be assessed against a purchaser, it will not also be collected from the seller, giving the plan double recovery for the same contribution base units.

Unless the seller is given credit for the purchaser's payments, there always will be some element of double recovery for the same contribution base units under the sale of assets exception, because part of the seller's contribution history is attributed to the purchaser. See 29 USC §1384(b)(1). See also Du Art Film Labs v Motion Picture Local 702 Pension Fund, 10 EBC 1326 (SD NY, 1988), expressing concern over the possibility of double payment.

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The author makes his assertions without citation to other authority or

explication of statutory provisions. Moreover, the statement quoted clearly is

incorrect, at least insofar as it suggests that the purchaser must “pay its entire

withdrawal liability at that time” (emphasis supplied). See 29 USC

§1384(a)(2)(B) [“any withdrawal liability payment when due”]. The

statement quoted further seems to be incorrect regarding the absence of set-

off due the seller, for the reasons given in note 5, supra.

Although the legislative history generally is unhelpful, the lone quote

worthy of note does not support the bonanza for pension plans espoused by

author Levy.

[A]s a matter of law, the prior employer is liable if any withdrawal liability owed by the successor or purchaser as a result of a withdrawal that occurs within five years after the completion of the change or sale is not paid.

Section III.B.4(d), Senate Labor Committee Summary and Analysis of

Consideration of S 1076 (April 1980), reproduced in 310 Pension Rptr

(BNA) Special Supplement (September 29, 1980), at 83. At the very least,

the Summary and Analysis confirms that the crucial event is non-payment of

the purchaser's liability.

It probably is correct to say that the determination of the precise

amount of a seller's liability under 29 USC §1384 is a matter of first

impression. The statutory provision has been explored primarily with respect

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to the types of transactions covered, e.g., IAM National Pension Fund

Benefit Plan A v Cooper Ind's, 635 F Supp 335 (D DC, 1986), but never in

the computational detail required for resolution of this matter. The parties

have cited no case or arbitration on point, and I know of none.

The District Court's reference to the Levy article was in dicta. See 694

F Supp at 470 (“we engage in a brief overview of ERISA”). Because of this,

there is no inconsistency with the arbitrator's view that the Court's

preliminary findings of facts and conclusions of law should be followed in

arbitration, absent circumstances that would compel the Court to reverse

itself. Arb Op at 5-7. The Court clearly left the task of statutory

interpretation and application to the arbitrator:

The fact that the arbitrator's role includes the application of the statutory provisions to the facts it finds does not render these issues inappropriate for arbitration. … In any event, we decline to differentiate between legal and factual questions in this case, since the Act's statutory framework dictates that arbitration should be the initial forum. In addition, the arbitrator will correct any factual and legal errors made by the Fund. Specifically, the arbitrator here may need to recalculate the alleged withdrawal liability and requested interim payment. In the court's opinion, the judgment of an arbitrator would have special value. … Even if a party appeals the arbitrator's decision, the court will have the benefit of the arbitration's analysis as well as better framed legal arguments.

See 694 F Supp at 474; emphasis supplied; citation omitted. As I have

conceded already, if the District Court disagrees with my legal conclusions,

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he will superimpose his own. Supp Op at 11.

From the analysis just completed, it should be clear that the

arbitrator's interpretation and application of the sale of asserts exception has

been achieved only after the research and deliberation a difficult issue of

first impression merits. The Fund simply is dissatisfied with the

interpretation advanced and does not wish to pay for it.

The Founding Fathers, realizing that article III judges would fall

victim to the undue pressure if their compensation were subject to legislative

whim, wisely insulated them from financial reprisals. Without the assistance

of the federal courts, MPPAA arbitrators have no such protection. They are

especially vulnerable because of the nation-wide operation of multiemployer

plans. In this matter, Hoffman is located in Kansas City, Missouri, the Fund

in Chicago, Illinois, and I am in Ann Arbor, Michigan. In other MPPAA

matters, I have been asked to resolve disputes arising in California, Florida

and Wisconsin. Practically speaking, MPPAA arbitrators cannot afford to

pursue fee disputes, especially far-flung ones, and hence, without the firm

backing of federal courts, will fall victim to any disgruntled party that elects

to express its displeasure by non-payment.

If, without constitutional protections, federal judges would be subject

to financial blackmail for rendering unfavorable decisions, a fortiori

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MPPAA arbitrators will be subject to intolerable financial pressure from

disgruntled parties, absent judicial protection. No act is more calculated to

undermine the arbitral process than non-payment of the arbitrator's fees. As

Abraham Lincoln surely would agree, an arbitrator has nothing to sell but his

services, and if parties can engage an arbitrator and then stiff him with

impunity, then the entire process will be undermined.

The MPPAA withdrawal liability process represents an important

experiment in federal dispute resolution. The statute is complex, and many

actuarial issues are deeply technical. If arbitration can work in such a

complicated context, then the process can be utilized successfully in many

other areas, thereby relieving federal courts from the strains of overload.

However, the MPPAA process, and any other arbitration procedure, will be

doomed to failure if disgruntled parties are permitted to vent their

frustrations by attacking the arbitrator's fees. No system of dispute resolution

can tolerate contumacy by non-payment.

In the matter before me, the Fund's contumacy extends beyond

fomentation of an unwarranted fee dispute, for the purpose of expressing its

dissatisfaction with the arbitrator's decision. In addition, we have a willful,

deliberate failure and refusal to follow the arbitrator's directive to recalculate

Hoffman's withdrawal liability payment schedule. Although the Fund's

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immediate ire is directed toward the arbitrator, the Fund's refractory attitude

ultimately is disrespectful of the District Court's stated wishes:

[T]he arbitrator will correct any factual and legal errors made by the Fund. Specifically, the arbitrator here may need to recalculate the alleged withdrawal liability and requested interim payment. In the court's opinion, the judgment of an arbitrator would have special value.

See 694 F Supp at 474. As the District Court suggested I might, I have found

it necessary to recalculate Hoffman's withdrawal liability payment schedule

and have been hindered in the process by the Fund's recalcitrance.

Although the rendition of services and the incurrence of expenses in

this matter began almost a year ago, to date, the Fund has paid no portion of

the arbitrator's fees or expenses, not even those assessed for the Arbitrator's

Opinion. The Fund must, of course, pay in full for preparation of this final

award, just as it must pay in full for the services it requested and received in

conjunction with its motion for reconsideration.6 If the Fund disagrees with

the charges, it can petition the District Court for modification. 29 USC

§1401(b)(2). As will be self-evident to the District Court, the actual work

performed substantially exceeds that for which the parties were charged.

6 Although as yet there is no federal law on point, the usual rule is that the parties’ liability for the arbitrator's fees is joint and several; any allocation as between the parties merely gives them a right of contribution from one another. See 5 Am Jur 2d, Arbitration and Award, §105, at 599; see also Ann, Liability of parties to arbitration for costs, fees and expenses, 57 ALR3d 633. The usual rules would seem especially applicable to the instant matter, in which the parties selected the arbitrator jointly and both have benefited from his services.

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I declare this matter closed. DATED: June 12, 1989 ____________________________ E. Frank Cornelius, Arbitrator