Keeping Tabs on the Ninth Circuit
November 04, 2022 - This Week at the Ninth

This Week At The Ninth: Declaratory Judgments and Pension Plans

This Week at The Ninth: Money, Money, Money, Money

This week, the Court explains the limits of the Declaratory Judgment Act and employers’ liability for withdrawal from multiemployer pension plans.

The Court holds that the Declaratory Judgment Act does not authorize a plaintiff to obtain affirmative relief when no cause of action otherwise exists.

The panel: Judges Graber, Friedland, and Koh, all joining a per curiam opinion.

Key highlight: “A plaintiff’s inability to rely on the Declaratory Judgment Act to obtain affirmative relief where no cause of action otherwise exists contrasts with the well-established availability of the Act for defensive use against anticipated claims. A potential defendant may preempt a suit by a potential plaintiff―the latter of whom could sue pursuant to an independent cause of action―and seek a declaration that the potential plaintiff’s claim would fail. . . . The potential defendant in effect borrows the underlying cause of action that would be available to the potential plaintiff.” (Citations omitted).

Background: Nevada’s Video Service Law (VSL) authorizes local governments to “manage the use of any public right-of-way or highway by video service providers,” such as cable companies, and charge them franchise fees. The law also authorizes either the Nevada Attorney General or an agent of the state’s Bureau of Consumer Protection to prosecute any claim for the payment of franchise fees on behalf of the local government.

Reno filed a declaratory judgment action against Netflix and Hulu, claiming they were video service providers required to pay franchise fees. The district court dismissed the complaint, concluding both that Hulu and Netflix did not provide video services within the meaning of the statute and that Reno had no private right of action.

Result: The Ninth Circuit affirmed on the second ground, holding “it is clear that Reno lacks a cause of action under both the VSL and the Declaratory Judgment Act.” As the Court explained, the VSL did not expressly provide a private right of action. Nor, the Court continued, should it be construed under Nevada law to create an implied right of action: the statute’s express provisions for enforcement by specified state actors “strongly suggest that the legislative scheme does not include other rights of action.” Moreover, neither the text of the statute nor the legislative history suggested any intent to confer a special right on local governments or to grant them a cause of action.

For that reason, the Court held, Reno also could not invoke the Declaratory Judgment Act. The Court held that the Declaratory Judgment Act “does not provide a cause of action when a party, such as Reno, lacks a cause of action under a separate statute and seeks to use the Act to obtain affirmative relief.” Rather than authorize such affirmative relief, the Court explained, the Declaratory Judgment Act provides a plaintiff with the opportunity to bring a defensive suit against anticipated claims. In those circumstances, “[t]he potential defendant in effect borrows the underlying cause of action that would be available to the potential plaintiff.” But here, because “Reno’s suit is offensive, not defensive,” the Declaratory Judgment Act was unavailable.

The Court holds that an employer cannot partially withdraw from a multiemployer pension plan after it has completely withdrawn and that the interest rate used to calculate withdrawal liability cannot be divorced from the plan’s anticipated investment returns.

The panel: Judges M. Smith, Jr., R. Nelson, and Drain (E.D. Mich.), with Judge Nelson writing the opinion.

Key Highlight: “While actuaries may reasonably disagree as to the exact interest rate that best accounts for the plan’s experience and anticipated returns, ‘the discount rate assumption cannot be divorced from the plan’s anticipated investment returns.’”

Background: MNG controls two groups, Media News Group and California Newspaper Partnership Controlled Group that withdrew from GCIU-Employer Retirement Fund, a multiemployer retirement fund, in 2013 and 2014 respectively. Under the Multiemployer Pension Plan Amendments Act of 1980, when an employer withdraws—partially or completely—from multiemployer pension funds liability is imposed on it in an amount based on “the actuary’s best estimate of anticipated experience under the plan.” 29 U.S.C. s. 1393(a)(1). GCIU assessed withdrawal liability against MNG and MNG challenged the assessment in arbitration. The arbitrator concluded that GCIU had wrongly assessed MNG for partial withdrawal liability against Media News Group after Media News Group’s complete withdrawal from the fund, that GCIU’s actuary used the wrong interest rate to calculate MNG’s liability, but that GCIU properly took into account the contribution histories of two newspapers that MediaNews and California Newspaper had acquired the assets of when assessing MNG’s liability. The district court affirmed, but changed the arbitrator’s interest rate from 7% to 8% on the ground that the former was a typo.

GCIU appealed challenging the district court’s affirmance of the arbitrator’s award as to partial-withdrawal liability and the interest rate. MNG appealed challenging the district court’s decision affirming the arbitrator’s conclusion with respect to the newspapers’ contribution histories.

Result: The Ninth Circuit affirmed in part, vacated in part, and remanded in part. The Ninth Circuit agreed with MNG that a partial withdrawal cannot occur after a complete withdrawal from a multiemployer pension fund. Congress expressly distinguished between complete withdrawals and partial withdrawals and meant for them to be different. One cannot partially cease something after completely ceasing it. The Court also agreed that that GCIU’s actuary used the wrong interest rate to calculate MNG’s withdrawal liability. Withdrawal liability is supposed to be based on actuarial assumptions and methods which, in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary’s best estimate of anticipated experience under the plan. Interest rate is arguably the most important assumption because a higher rate will mean fewer assets are needed today to pay liabilities in the future. Although the statute appears to build in some leeway for the actuary, the actuary must make assumptions based on the plan’s particular characteristics when calculating withdrawal liability. Because the actuary’s interest rate did not take into account expected returns of the plan’s assets and experience, the actuary’s estimate fell short of the statutory “best estimate” standard because it was not tailored to the features of the plan.

The Court vacated, however, the district court’s decision with respect to the newspapers’ contribution histories. Usually, the court explained, an employer that sells its assets retains its own withdrawal liability. If, however, the purchaser is a successor and has notice of the withdrawal liability, a court can use its equitable discretion to hold the purchaser liable for the seller’s withdrawal liability. The district court should have, but did not, consider whether MNG was a successor of those newspapers as of the dates of the asset sales in 2006 and 2007 and whether it is fair to impose this liability a decade later.