A recent opinion from a Nevada federal district court serves as a good reminder to those litigating withdrawal liability assessments of the rather mundane issue of burden of proof. Namely, that an assessment of withdrawal liability is presumed correct unless the employer proves otherwise.
The case, Nevada Resort Association — International Alliance of Theatrical Stage Employees and Moving Picture Machine Operators of the United States and Canada Local 720 Pension Trust v. JB Viva Vegas LP, (D. Nev. 2:19-cv-00499), dealt with the so-called “entertainment industry exception” to withdrawal liability for work performed in the entertainment industry. Section 4203(c)(1) of ERISA provides that in the entertainment industry, a complete withdrawal occurs only if an employer ceases to have an obligation to contribute under a plan, but nevertheless performs previously covered work in the jurisdiction of the plan anytime within five years after its obligation to contribute to the fund ceased.
In September of 2016 the Las Vegas producer of the musical “Jersey Boys” shut down its long-running show. In assessing the producer withdrawal liability, the pension fund determined that the entertainment industry exemption did not apply because, although it had once been, the fund was no longer a fund in the entertainment industry due to the fact that many of the contributing employers’ employees performed work in the convention industry, rather than the entertainment industry. The producer challenged this determination in arbitration.
Ruling for the producer, the arbitrator found unreasonable the fund’s two primary supports for its determination that it was no longer an entertainment industry plan: first, a plan amendment to that effect and second, an audit performed several years prior to the withdrawal at issue. Accordingly, the arbitrator ruled for the producer, negating about $900,000.00 in withdrawal liability.
On appeal, the federal district court reversed, finding that the arbitrator had “applied a legally erroneous burden of proof.” Specifically, the court found that the arbitrator’s ruling improperly shifted the burden of proof such that the fund had to prove it was not an entertainment industry plan rather than the producer having to show that it was. Accordingly, the judge vacated the arbitrator’s decision.
On its face, the ruling appears to be a straightforward application of the proposition that an entity challenging an assessment of withdrawal liability bears the burden of proving the applicability of any exemption. However, ERISA states that a plan’s determination is presumed correct “unless the party contesting the determination shows by a preponderance of the evidence that the determination was unreasonable or clearly erroneous.” This raises an interesting question as to the burden of proof – namely, can a party contesting a withdrawal liability determination meet its burden simply by showing that the reasons underlying the determination were unreasonable, or must it go further and affirmatively prove its entitlement to the exception?
That is, if a plan says it is not an entertainment industry plan, is it enough for an employer to show that determination is unreasonable, or must the employer show that the plan is, in fact, in the entertainment industry. Given that the arbitrator began with the uncontested fact that the plan was an entertainment industry plan prior to the amendment and the audit, and ruled that the amendment and audit were improper, it seems a logical conclusion that the plan thus remained an entertainment industry plan unless it put forth some other reason, which it does not appear to have done. Nonetheless, the district court ruled that the producer had to demonstrate not only that the plan’s determination was unreasonable, but that the plan was in fact in the entertainment industry.
Strangely, the district court did not rule on whether the employer had met its burden as set forth by the court. Instead, the court merely vacated the arbitrator’s decision, with no remand, and no ruling of its own on that issue. While it is unclear whether the employer will have the opportunity to prove that it met its burden of proof, this case serves as a good reminder that this issue can sometimes make all the difference.