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Berwind Corp. v. Apfel
Citations: 94 F. Supp. 2d 597; 24 Employee Benefits Cas. (BNA) 1193; 2000 U.S. Dist. LEXIS 4023; 2000 WL 341567Docket: CIV.A. 98-5985
Court: District Court, E.D. Pennsylvania; March 31, 2000; Federal District Court
Berwind Corporation, a former coal mining company, is involved in a legal dispute concerning its obligations under the Coal Industry Retiree Health Benefit Act of 1992 (the "Coal Act"). The plaintiff asserts that its assignment of responsibility to fund lifetime health benefits for retired United Mine Workers of America (UMWA) members is unconstitutional, claiming violations of the Due Process and Takings Clauses of the Fifth Amendment. Specifically, Berwind challenges the Commissioner of Social Security's assignments of beneficiaries under Section 9706(a)(3) of the Coal Act, arguing that this provision is inherently unconstitutional and that the entire Coal Act should be invalidated, although a formal declaration of unconstitutionality is not requested. Additionally, Berwind seeks a refund of premiums paid for assigned beneficiaries to the Combined Benefit Fund and 1992 Benefit Plan, claiming that the Commissioner acted arbitrarily by refusing to withdraw these assignments, despite doing so for similar entities following a Supreme Court ruling that deemed the Act's application unconstitutional. Berwind's claims include a request for an order to overturn the Commissioner's decision under the Administrative Procedure Act (APA), along with alternative claims for restitution, ERISA refunds, and refunds for premiums from the United States under 26 U.S.C. 7422. Plaintiff seeks to prevent the Commissioner and the United States from enforcing the Coal Act against Berwind, as well as to stop the Funds from collecting unpaid premiums. In response, the Funds and their trustees have filed counterclaims: Count I requests a declaration affirming the constitutionality of the Coal Act regarding Berwind; Counts II and III seek recovery of unpaid premiums under ERISA for Combined Fund beneficiaries and the 1992 Plan, respectively; Count IV demands payment of current premiums and an injunction to prevent Berwind from disposing of assets until all obligations are met or future Coal Act obligations are complied with. Defendants argue that plaintiff's claims are barred by res judicata and collateral estoppel due to a prior judgment from April 4, 1995, concerning a similar challenge to the Coal Act's constitutionality. Plaintiff has moved for summary judgment on its Fifth Amendment claims in Counts I and II, while federal defendants and the Trustees have also filed motions for summary judgment on plaintiff's claims and their counterclaims, respectively. The legal standard for summary judgment requires the court to determine if there are any genuine issues of material fact, with all reasonable inferences drawn in favor of the non-moving party. The burden initially lies with the movant to demonstrate the absence of such issues, after which the non-movant must prove each element they bear the burden of proof for. Summary judgment cannot be avoided merely by relying on pleadings; competent evidence must be presented. The relevant facts include the historical context of the Coal Act, initiated after a nationwide strike in 1946, leading to the establishment of the National Bituminous Coal Wage Agreement (NBCWA), which provided health and pension benefits to miners. Subsequent agreements led to the formation of a welfare and retirement fund financed by coal production levies, designed to support miners and their families. The fund underwent restructuring in 1974 following ERISA's enactment. The 1974 NBCWA established four multiemployer plans, including two for pension and two for non-pension benefits. The non-pension plans were the 1950 Benefit Plan for retirees before 1976 and the 1974 Benefit Plan for those retiring on or after January 1, 1976, both guaranteeing lifelong health benefits. The 1978 NBCWA added provisions for "orphaned" miners and included "guarantee" and "evergreen" clauses to maintain benefits and ensure contributions from signatories. It transferred responsibility for retirees leaving covered service after January 1, 1976 from the UMWA multiemployer system to individual coal companies, designating the 1974 Plan as an "orphan" plan. By 1990, the plans faced a $110 million deficit, prompting the Secretary of Labor to form the Coal Commission, which led to the enactment of the Coal Act on July 20, 1992. This Act merged the 1950 and 1974 Plans into the United Mine Workers of America Combined Benefit Fund, ensuring health benefits for eligible retirees. It also created the United Mine Workers of America 1992 Benefit Plan for retirees not covered by the Combined Fund, applicable to those who retired by September 30, 1994. The Coal Act mandates that the Commissioner assign each coal retiree to a signatory operator or related person, with premium liabilities extending to signatory operators involved in any business activity. Assignments are made based on the retiree's employment history and adjusted annually on October 1, with monthly premium payments required. If a coal industry retiree is not assigned to a signatory operator under specific paragraphs, they are assigned to the operator that employed them the longest prior to the 1978 coal wage agreement, as per 26 U.S.C. 9706(a). Eligible beneficiaries, who cannot be assigned under the Act, receive benefits from reserved funds or, if necessary, from premiums assessed on all assigned operators, although such assessments have not yet been required. Berwind is currently responsible for over $295,000 in monthly premium payments for 1,209 Combined Fund beneficiaries and an additional $567 for several beneficiaries under the 1992 Plan, primarily based on their prior employment with Berwind-White Coal Company, which changed its name to Berwind Corporation in 1967 and ceased coal operations in 1962. Berwind-White was a signatory to multiple National Bituminous Coal Wage Agreements (NBCWAs) between 1950 and 1958. Berwind acquired Reitz Coal Company in 1963, which was also a signatory to NBCWAs but closed its mines in 1984. In prior litigation, Berwind and co-plaintiffs challenged the constitutionality of their liability assignment for Combined Fund beneficiaries under the Coal Act, leading to the case Berwind I. The District Court upheld the Act's constitutionality, and the Seventh Circuit affirmed this decision, with the Supreme Court subsequently denying certiorari. Two years later, in Eastern Enterprises v. Apfel, the Supreme Court reviewed the Coal Act's application to another petitioner, Eastern Enterprises, which had transferred its coal operations in 1965 but retained liability for beneficiaries employed prior to that transfer. Eastern's liability under the Coal Act was determined by the Court to be unrelated to its ownership of EACC, as Eastern was responsible for benefits related only to its own employees, not those of EACC. A majority of the Court found the law unconstitutional as applied to Eastern, with the plurality asserting that Eastern could not be held liable for funding lifetime health benefits it did not promise nor could have anticipated based on past activities. Justice Kennedy, providing the decisive vote, emphasized the retroactive application of the Coal Act was impermissible since Eastern bore no responsibility for the beneficiaries' expectations or the conditions of the 1950 and 1974 Plans. This ruling was issued on June 25, 1998. Subsequently, on September 24, 1998, the Commissioner voided assignments of beneficiaries to 113 operators similarly situated to Eastern, including Berwind's co-plaintiffs in Berwind I, and determined no beneficiaries would be assigned to eleven other companies that had not received assignments. These companies had discontinued their UMWA agreement prior to the 1974 NBCWA. Berwind requested the voiding of its assignments after ceasing premium payments in June 1998, but the Commissioner declined to grant this request. In considering Berwind's declaratory judgment claims, it must be established that Berwind is in a "substantially identical position" to Eastern for the Coal Act to be deemed unconstitutional as applied to it. The Supreme Court noted that Eastern had exited the coal business long before the Coal Act's enactment and was not liable for the beneficiaries' expectations of lifetime benefits. The Third Circuit cases of Unity Real Estate and Anker Energy differentiated these companies from Eastern, as they were assigned liabilities based on the employment of beneficiaries by related companies that had committed to fund such benefits. Unity was distinguished due to its assignments stemming from companies that had signed NBCWAs, while Anker was held liable through agreements made by its related company, King Knob Coal Company, during the 1970s. Anker was assigned liability for King Knob's retirees due to its relationship with King Knob, which was a signatory to the 1974 National Bituminous Coal Wage Agreement (NBCWA). The court ruled that Anker's situation was not comparable to Eastern Enterprises, which had not signed the 1974 NBCWA and ceased coal operations in 1965. Eastern retained interest in its subsidiary, EACC, until 1987, and only retirees who worked directly for Eastern before 1966 were assigned to it; this assignment was later deemed unconstitutional by the Supreme Court. Unlike Eastern, both Unity and Anker were assigned beneficiaries from related companies that signed the 1974 NBCWAs and were responsible for funding their benefits, establishing their distinct position. Berwind similarly contests beneficiary assignments based on its own historical operations, having ceased coal mining in 1962 without signing the 1974 NBCWA. Like Eastern, Berwind is not accountable for its workers’ expectations of lifetime benefits and had an interest in a subsidiary that signed the NBCWAs. The primary difference between Eastern and Berwind is that Eastern lost its interest in its subsidiary by 1992, making it a non-related person under the Act, while Berwind remains a related person to Reitz. The court noted that the Supreme Court majority did not allow for the imputation of benefit promises made by EACC to Eastern. Defendants argue that Berwind could assume related person liability for its employees, but this argument fails. The Social Security Administration clarified that the Coal Act does not permit the signatory status of one company to be transferred to another. Employees of Berwind do not automatically become employees of Reitz under the relevant provisions, as those provisions only aggregate different employment periods for assignment purposes. A beneficiary's assignment to an eligible assignee based on employment with a related person does not equate to that beneficiary being an employee of the assignee during the related employment period. Consequently, the Commissioner could not assign beneficiaries to the plaintiff, who is a non-1978 signatory, based on their employment with the plaintiff or the plaintiff's relationship to Reitz, which did not employ them. The Commissioner did not assign beneficiaries in this manner; instead, beneficiaries were directly assigned under section 9706(a)(3) for their work with the plaintiff. The court finds that the plaintiff and a similarly situated entity, Eastern, cannot be differentiated on this basis. The only way the plaintiff could incur liability for premiums for its own former employees is through assignments under section 9706(a)(3), placing Berwind in a comparable position to Eastern. Defendants argue that even if Berwind and Eastern are similar, Berwind is barred from pursuing its claims due to claim preclusion principles. Res judicata prevents the relitigation of claims already decided in prior suits, promoting finality and judicial efficiency. For claim preclusion to apply, there must be a final judgment on the merits concerning the same parties or their privies in a subsequent suit based on the same cause of action. This principle holds even if the prior judgment was incorrect or based on an overruled legal principle. The prior summary judgment in Berwind I constitutes a final judgment on the merits. Privity exists when one party adequately represented the interests of others in the earlier proceeding, allowing for the potential binding of nonparties if represented adequately. Thus, res judicata bars Berwind from reasserting claims against closely related parties or substituting defendants in a similar cause of action. In Berwind I, the plaintiff initiated a lawsuit against Secretary Shalala regarding the assignment of beneficiaries under the Coal Act, with the Combined Benefit Fund and its trustees intervening as defendants. The current suit is against Kenneth Apfel, the current official overseeing beneficiary assignments, alongside the Combined Benefit Fund, its trustees, the 1992 Plan, and the United States. The United States, Commissioner Apfel, and Secretary Shalala share a legal privity, represented by the U.S. Department of Justice, and have a mutual interest in both enforcing the statute and maximizing contributions. The Combined Benefit Fund has a heightened interest in defending against Berwind’s assessed liabilities, which are significantly larger than those associated with the 1992 Plan. The actions in Berwind I and the current case share an "essential similarity" in their underlying events, as courts generally consider two actions to be the same if they arise from a common nucleus of operative facts. Both cases involve challenges under the Takings and Due Process Clauses concerning the assignment of beneficiaries to mitigate liability for assessed premiums. Although Berwind only contested the assignment of Combined Fund beneficiaries in Berwind I, the identity of causes of action encompasses all claims that could have been raised in the earlier case. Claim preclusion bars any cause of action that was or could have been asserted in the prior action. Berwind was aware of its liability for at least one 1992 Plan beneficiary before the Berwind I suit and could have challenged the constitutionality of those assignments then. The claim for a declaration of the Act's unconstitutionality, particularly regarding the specific assignment provisions, could also have been raised in Berwind I. Ultimately, the plaintiff's declaratory judgment claims in both cases are considered the same causes of action as they seek redress for liability imposed under the Coal Act in violation of the Due Process and Takings Clauses, with the core wrong being the same despite the different specific assignments challenged. Berwind's potential victory would have granted it the relief sought in this case; however, the preclusion of the plaintiff's declaratory judgment claims does not bar relitigation of the constitutionality of assignments to the plaintiff following the Eastern Enterprises decision. This is assessed under issue preclusion principles, which allow for new causes of action, such as the plaintiff's APA and recoupment claims. The APA claim, based on an agency action from September 24, 1998, was not litigated in Berwind I, and the assessment of premiums for each plan year creates a separate cause of action regarding their propriety. The doctrine of collateral estoppel prevents the relitigation of previously adjudicated issues of law or fact, regardless of whether the subsequent suit arises from the same cause of action. For issue preclusion to apply under federal law, the issue must be identical to a prior judgment, have been actually litigated, be essential to a valid judgment, and the party against whom it is invoked must have had a fair opportunity to litigate it previously. A significant change in law or controlling legal principles can negate issue preclusion, allowing Berwind to contest the constitutionality of the assignments if Eastern Enterprises represents such a change. Courts recognize various significant changes that can affect preclusion, including intervening judicial declarations, modifications of legal principles, and changes in statutory interpretation. A notable alteration in the legal environment, such as new legislation or court decisions, may warrant a refusal to apply collateral estoppel from an earlier case. In Chicago and Illinois Midland Railway Co. v. Marsh, the court addressed the implications of an intervening Supreme Court decision and noted that Eastern Enterprises did not alter existing Takings or Due Process jurisprudence. The plurality acknowledged reliance on traditional regulatory takings analysis, while Justice Kennedy emphasized adherence to settled due process principles. Despite no formal change in constitutional law, the "legal atmosphere" for companies like Eastern has shifted significantly, affecting the applicability of collateral estoppel in Berwind's case. The plaintiff's claim under the Administrative Procedure Act (APA) hinges on the Commissioner's decision to vacate the assignment of Combined Fund beneficiaries, which requires rational individual decision-making. The Commissioner’s refusal to grant relief to Berwind and subsequent assignment of additional beneficiaries is classified as a final agency action subject to judicial review under the APA. Such decisions can be overturned if deemed "arbitrary and capricious" or an abuse of discretion. The court must evaluate whether the agency provided a satisfactory explanation connecting the facts to its decision. The federal defendants argued that Berwind's association with a related person justified the assignment of beneficiaries. However, the court found this distinction lacked a rational basis, as it did not adequately link to Berwind's obligation to provide benefits for employees prior to 1962, when it ceased coal operations. This failure to establish a rational connection undermines the Commissioner’s justification for the assignment of beneficiaries. Imputing a signature or promise by Reitz to Berwind, twelve years after Berwind stopped its coal operations, contradicts the reasoning established in Eastern Enterprises. The promises made by Reitz after 1974 were directed at its employees, not at those employed by Berwind before 1963. There is no logical link between the related person provision and the assignment of beneficiaries who worked for Berwind prior to its cessation of operations in 1962. Berwind's status as a related person to Reitz does not justify a finding that Eastern and Berwind are in different positions regarding beneficiary assignments. The denial of relief to Berwind based on its related person status was deemed arbitrary, capricious, and an abuse of discretion. Regarding the Coal Act claim, Berwind cannot claim a refund under 26 U.S.C. § 9706(f)(3) because there is no assertion that the Commissioner identified an error in the assignments contested by Berwind. Any determination made by the Commissioner under § 9706(f)(2) or (f)(3) is final, and challenges must be filed under the Administrative Procedure Act (APA). The provision allowing civil actions under § 9706(f)(6) is limited to indemnification disputes or to enforce contracts between operators. For the ERISA claim, the Coal Act stipulates that § 4301 of ERISA applies to claims related to payments required by the Act. This section allows certain parties adversely affected by actions under Subtitle E of ERISA to seek legal relief. However, Berwind's request for a refund under § 4221(d) of ERISA is invalid because there is no evidence that the dispute was submitted to arbitration. Additionally, under § 1451, there is no provision allowing employers to recover overcontributions, nor does any ERISA section imply such a cause of action, as established in relevant case law. In Kwatcher v. Massachusetts Service Employees Pension Fund, 879 F.2d 957 (1st Cir. 1989), it is established that under ERISA, an employer may recover contributions mistakenly paid to a multiemployer plan, but the statute neither mandates such refunds nor grants a right of action if they are not made. Courts have recognized an equitable cause of action for restitution to recover mistakenly paid funds, influenced by federal common law, requiring considerations of equity and the financial implications for the plan. The assessment of equity is complicated in this case due to insufficient record evidence from the parties. Regarding tax refunds, the U.S. has waived sovereign immunity for actions to recover erroneously assessed internal revenue taxes, as stated in 28 U.S.C. 1346(a)(1). However, a taxpayer must file a claim for refund with the Secretary before initiating a lawsuit, and no suit can commence until six months post-claim filing unless a decision is made sooner. Berwind filed claims for refunds from July to November 1998, but the six-month period had not expired at the time of the lawsuit, and only two claims had expired by the time of the amended complaint. However, all claims are now over six months old. A tax refund claim must be filed within two years of payment; thus, claims for premiums paid from April 1995 to July 1996 are time-barred, given the requirement of timely filing per 26 U.S.C. 6511(a). The United States argues that the plaintiff cannot recover any premiums under the tax refund statute because these premiums are not classified as taxes. However, relevant case law, including *Unity* and *Pittston Company*, establishes that Coal Act obligations are indeed considered taxes and are recoverable in tax refund actions. The Combined Fund trustees’ counterclaims for declaratory relief do not face preclusion issues despite their involvement in previous cases. Nonetheless, they are not entitled to a declaration affirming the constitutional application of the Coal Act to the plaintiff, nor to summary judgment on their counterclaims for premium payments, except for potential payments owed for five beneficiaries linked to the plaintiff, if payment cessation post-June 25, 1998 is confirmed. The plaintiff's claims for declaratory relief are barred by claim preclusion, resulting in the denial of the plaintiff's motion for partial summary judgment and the granting of the federal defendants' motion for summary judgment concerning Counts I, II, III, IV, and VII. However, the federal defendants’ motion is denied concerning Counts V, VI, and VIII due to the plaintiff's similar position to that in the *Eastern* case. The Trustees' motion for summary judgment on their counterclaims is also denied but may be renewed regarding Counts II and IV for premiums owed by the plaintiff for assigned beneficiaries previously employed by Reitz Coal Company. An order reflecting these decisions will be issued. The counterclaim seeks a declaration that the Act does not violate the Due Process or Takings Clauses as applied to Counterclaim Defendant Berwind. The Trustees have not sought summary judgment against the plaintiff but request the court to deny Berwind's motion and rule in favor of the Trustees on their counterclaims. The Act defines "related persons" in relation to a signatory operator, encompassing members of a controlled group, businesses under common control, and persons with partnership interests in the coal industry, with specific exclusions. The name "Reitz" was associated with three entities from 1963 to 1999, but its historical significance has not been contested, except for facts presented in Bruce Reed's affidavit. Among the 1,209 beneficiaries assigned to Berwind, only five were employed by Reitz, and Berwind challenges beneficiaries assigned to it prior to its exit from the coal business in 1962, affirming its joint liability for Reitz's premiums. The District and Circuit Courts did not address the related person provision, focusing instead on Berwind's activities to uphold the Act's constitutionality. Following Eastern Enterprises, the Third Circuit suggested that a majority of the Supreme Court would find an unconstitutional application of the Act to a company that did not agree to the 1974 or later NBCWA. A "me too" agreement binds non-signatory employers to NBCWA terms. Since Reitz is no longer in business, assignments back to Berwind are not feasible. The 1992 Plan beneficiaries were not assigned to Eastern, which lacks a specific reference in Eastern Enterprises. The Combined Fund and 1992 Plan share statutory similarities, and substantial identity to Eastern exists when conditions leading to the unconstitutional assignment of retirees are met. Defendants have failed to justify excluding 1992 Plan assignments from the scope of Eastern Enterprises, as the Supreme Court's ruling did not hinge on specifics of the Combined Fund but rather on the principle that an operator cannot be compelled to fulfill benefit promises not made or reasonably anticipated from past activities. The Eastern Enterprises case originated from a single assignment involving a Combined Fund beneficiary. Although the Commissioner's September 24, 1998 action was based on a constitutional ruling, resolving the plaintiff's APA claim does not necessitate revisiting constitutional matters. It requires assessing whether Berwind's situation resembles that of the 124 companies whose assignments were annulled and if the Commissioner's reasoning regarding Berwind's related person liability was unfounded. The Commissioner seems to have acknowledged that Berwind I does not bar post-Eastern Enterprises relief but has not invalidated the assignments of 1992 Plan beneficiaries. The status of Berwind's requests for such action remains ambiguous, as does the effective date of any voided assignments. Moreover, the United States cannot be sued under ERISA due to sovereign immunity, and the statute mandates payments to employers based on determinations until an arbitrator's final decision is rendered. Finally, the plaintiff has not claimed any form of preclusion in its response to Count I.