00-3648, 00-3870 Operating Engineers Local 139 Health Benefit Fund, et al. v. Gustafson Construction Corporation.

Listen to this article

“As for the district court’s action in reducing the interest rate from 1.5 to 1 percent, there was no basis in law for that ruling. … The court may have been influenced by Wisconsin’s usury law, which fixes 12 percent as the maximum interest rate with various exceptions … ERISA … is a statute that … clearly authorizes a higher rate, namely the rate that the parties agree to … So the Wisconsin usury law is inapplicable by its own terms, and we therefore needn’t decide whether, if applicable, it would be preempted by ERISA. It might not be if – but probably only if – the phrase ‘maximum rate permitted by law’ in the plan was intended to incorporate the state’s usury limit, as presumably the parties would be free to do. That is not argued.

“The federal common law of ERISA may include a concept of unconscionability that would entitle an employer to complain if a fund’s trustees used the power delegated to it by the plan to establish a completely exorbitant interest rate on delinquent contributions. No case says that, but it may be encompassed by the principle that the trustees are not to act in an arbitrary and capricious manner. However that may be, 1.5 percent a month (or 18 percent a year) is not unconscionable – or at least the defendant made no effort to show that it was so exorbitant as to be unconscionable in the circumstances, and it is too late now for it to attempt to do so.”

“And while the ban on contractual penalties remains an established principle of the law of contracts, it is antiquated and should not be extended into ERISA-land. …”

Reversed and remanded.

Appeals from the United States District Court for the Eastern District of Wisconsin, Curran, J., Posner, J.