Teamsters Joint Council No. 83 v. Weidner Realty Associates

Filing 920100527

Filed: UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

May 27, 2010

No. 09-1776 (3:08-cv-00340-HEH)

TEAMSTERS JOINT COUNCIL NO. 83 OF THE VIRGINIA PENSION FUND; W. ROBERT DAVIDSON, Trustee of the Fund; ANTHONY NATIONS, Trustee of the Fund; LINDSAY MARSHALL, Trustee of the Fund; JOSEPH AYERS, Trustee of the Fund; MICHAEL HUGHES, Trustee of the Fund; JOHN FARRISH, Trustee of the Fund, Plaintiffs ­ Appellants, and RONALD JENKINS, Plaintiff, v. WEIDNER REALTY INCORPORATED, ASSOCIATES; EMPIRE BEEF COMPANY,

Defendants ­ Appellees.

O R D E R

The court amends its opinion filed April 30, 2010, as follows: On the cover sheet caption, the party designation of "EMPIRE BEEF COMPANY, INCORPORATED," is corrected from

"Defendant" to "Defendant ­ Appellee."

On page 2, attorney information section, lines 3 and 5, "for Appellee" is corrected to read "for Appellees."

For the Court ­ By Direction

/s/ Patricia S. Connor Clerk

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 09-1776

TEAMSTERS JOINT COUNCIL NO. 83 OF THE VIRGINIA PENSION FUND; W. ROBERT DAVIDSON, Trustee of the Fund; ANTHONY NATIONS, Trustee of the Fund; LINDSAY MARSHALL, Trustee of the Fund; JOSEPH AYERS, Trustee of the Fund; MICHAEL HUGHES, Trustee of the Fund; JOHN FARRISH, Trustee of the Fund, Plaintiffs ­ Appellants, and RONALD JENKINS, Plaintiff, v. WEIDNER REALTY INCORPORATED, ASSOCIATES; EMPIRE BEEF COMPANY,

Defendants ­ Appellees.

Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. Henry E. Hudson, District Judge. (3:08-cv-00340-HEH)

Argued:

March 24, 2010

Decided:

April 30, 2010

Before TRAXLER, Chief Judge, DUNCAN, Circuit Judge, and Jackson L. KISER, Senior United States District Judge for the Western District of Virginia, sitting by designation.

Affirmed in part, vacated in part, and remanded by unpublished per curiam opinion.

ARGUED: Jonathan G. Axelrod, BEINS & AXELROD, PC, Washington, D.C., for Appellants. Glenn Edward Pezzulo, CULLEY MARKS TANENBAUM & PEZZULO, LLP, Rochester, New York, for Appellees. ON BRIEF: Richard F. Hawkins, III, HAWKINS LAW FIRM, PC, Richmond, Virginia, for Appellees.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM: The Teamsters Joint Council No. 83 of Virginia Pension Fund ("the appeal Weidner Fund") a and its court trustees order (collectively, judgment in "Appellants") in favor of

district Realty

granting

Associates

("Weidner")

Appellants'

action

seeking to hold Weidner and Empire Beef Co., Inc. ("Empire") jointly and severally responsible for a liability that Empire incurred Appellants by failing to a meet its by pension-fund the district obligations. court that

also

appeal

ruling

circuit precedent precluded the court from addressing whether Appellants could avoid a transfer of Empire's assets in

collecting on their judgment against Empire.

We affirm in part,

vacate in part, and remand for further proceedings.

I. Weidner is a general partnership that was formed in the 1930s to purchase a parcel of land in Rochester, New York. Soon

after the purchase, the parcel became home to a slaughterhouse, which Empire, a New York corporation, was formed to operate. In

1993, Weidner's then-current partners, who were Empire; Empire's sole shareholder, Steven Levine ("Steven"); and Steven's father, Sidney Levine ("Sidney"), formalized their arrangement by

entering into an agreement ("the Partnership Agreement").

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In

approximately south Soon and

2002,

Empire

expanded a

its

distribution in Richmond, drivers to

territory Virginia.

established

terminal hired

thereafter,

Empire

union

distribute its product from the new terminal. became a party Empire to to a collective bargaining to the

In so doing, it agreement Fund. that Empire however, Empire

obligated ceased

make

contributions Richmond in

its

operations

in

in to

late-2005, the Fund.

incurring

nearly

$500,000

liability

began to satisfy this liability in monthly installments that it paid until September 2007, when it filed a voluntary Chapter 11 bankruptcy. remained Then, on January 5, 2008, into as an the bankruptcy ("the

pending,

Steven

entered

agreement

Composition Agreement") with Sidney transferring all of Empire's assets, except its receivables, to Sidney, in exchange for a release of a secured debt of approximately $1.4 million that Empire owed Sidney. Empire's bankruptcy The bankruptcy court subsequently dismissed proceeding five days later without

discharging Empire's debts. The jointly next and month, severally the Fund notified with Weidner for that the it was

liable

Empire

assessed

withdrawal liability because Weidner was a member of Empire's "control group" under the rules and regulations of the

Employment Retirement Income Security Act of 1974 ("ERISA"), see 29 U.S.C.A. § 1001 et seq. (West 2008 & Supp. 2009). 4 Appellants

later filed this ERISA action against Empire and Weidner seeking to recover Empire's summary unpaid withdrawal against liability. Empire, Appellants had not

were

granted

judgment

which

contested its liability.

Weidner, on the other hand, denied

that it was jointly and severally liable, maintaining that it was not a "trade[] or business[]" and that it and Empire were not "under common control." Prior to trial, 29 U.S.C.A. § 1301(b)(1). filed a motion in limine

Appellants

announcing that they would argue that they were entitled under 29 U.S.C.A. § 1392(c) to collect a judgment against Empire and to disregard the Composition Agreement (which they had come to learn about during discovery). bench trial began that they Appellants reiterated as the would be making this argument.

Indeed, during the trial, both parties examined Steven regarding his motivation for entering into the Composition Agreement, a pivotal issue in Appellants' attempt to reach the assets

transferred to Sidney under that agreement.

And, in their post-

trial brief, Appellants argued once more that the Composition Agreement should be set aside. In the end, the district court ruled that Weidner was not jointly and severally liable for Empire's withdrawal obligations because Appellants failed to prove that Empire and Weidner were under common control. Pension Fund v. See Teamsters Joint Council No. 83 of Va. Beef Co., 5 No. 3:08CV340-HEH, 2009 WL

Empire

1764554 (E.D. Va. June 18, 2009).

The district court declined

to address the validity of the Composition Agreement, however, concluding considering that an circuit agreement precedent that was precluded entered the court after from Empire

into

withdrew from the Fund.

See id. at *2 n.3.

II. Appellants first argue that the district court erred in concluding control. that Empire and Weidner were not under common

We disagree. found employers in 1980 from a that the "withdrawals pension of plan

Congress contributing

multiemployer

frequently result in substantially increased funding obligations for employers who continue to contribute to the plan, adversely affecting the plan, its participants and beneficiaries, and To

labor-management relations."

29 U.S.C.A. § 1001a(a)(4)(A).

address this problem, Congress enacted the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), see 29 U.S.C.A. § 1381, et seq., which amended ERISA. See SUPERVALU, Inc. v. Board of

Trs. of the Sw. Pa. and W. Md. Area Teamsters and Employers Pension Fund, 500 F.3d 334, 336-37 (3d Cir. 2007). MPPAA

provides that when an employer withdraws from an ongoing multiemployer pension plan, of the the employer plan's 6 becomes liable for a

proportionate

share

unfunded

vested

liability.

See

29

U.S.C.A.

§ 1381.

Under

ERISA,

the

term

"employer"

includes "trades or businesses . . . which are under common control" at the time of the withdrawal, which in this case was September 30, 2005. 29 U.S.C.A. § 1301(b)(1); see Teamsters

Joint Council No. 83 v. Centra, Inc., 947 F.2d 115, 121 (4th Cir. 1991). Thus, to establish Weidner's liability, Appellants

had to show that on that date the same five or fewer persons owned a "controlling interest" in both Weidner and Empire and that those people were in "effective control" of each

organization.

26 C.F.R. § 1.414(c)-2(c) (2009).

As Empire's

sole shareholder, Steven clearly had a controlling interest and effective control of Empire. Consequently, the sole issue

before the district court related to common control concerned whether Steven also owned a controlling interest and had

effective control of Widener. The applicable regulation defines "controlling interest" in a partnership as "ownership of at least 80 percent of the 26

profits interest or capital interest of such partnership." C.F.R. § 1.414(c)-2(b)(2)(i)(C) (2009).

"Effective control" of

a partnership is defined as ownership of "an aggregate of more than 50 percent of the profits interest or capital interest of such partnership." 26 C.F.R. § 1.414(c)-2(c)(2)(iii). "Capital

interest in a partnership," in turn, is defined, as is relevant here, as "an interest in [the 7 partnership's] assets that is

distributable

to

the

owner

of

the

interest"

upon

the

partnership's liquidation.

Internal Revenue Service Publication

No. 541, Partnerships (2008). In finding that Steven had only 50% of the capital interest in Weidner, the district court relied on Articles XII and IV of the Partnership Agreement. and Liquidation," provides Article XII, entitled "Termination that at the termination of the

Partnership, the assets of the Partnership shall be sold and the proceeds of the sale shall be applied or distributed in the following order of priority: (a) (b) (c) (d) J.A. 169-70 To pay or provide for the payment of all liabilities of the Partnership; To pay all expenses of liquidation; To return to the Partners any credit balance in their capital accounts; and To the Partners in proportion to their percentage interest in the Partnership. (emphasis added). The court noted that the

partners' percentage interests in the partnership were set forth in Article IV of the agreement: 4.1 Percentage Interest in the Partnership. Each of the partners shall have a percentage interest in the Partnership as follows: Sidney E. Levine Steven H. Levine Empire Beef Co., Inc. 50% 12½% 37½%

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J.A. 164. 1 imputed to

The parties agree that Empire's ownership interest is Steven for purposes of ERISA by virtue of his

ownership of Empire. of September 30,

Therefore, the district court reasoned, as Sidney Weidner. and Steven each Steven owned did he a 50% own not

2005, in

percentage greater

interest 50% of

Because capital

not did

than

Weidner's

interest,

maintain effective control, and Weidner was not part of Empire's control group. Appellants challenged this conclusion at trial, pointing to Article V of the Agreement, which states, in relevant part: 5.1 Capital Accounts. A separate capital account shall be maintained for each Partner. The capital interest of each Partner shall consist of his capital contribution, increased by such Partner's subsequent capital contributions and such Partner's share of net Partnership profits, and decreased by distributions to such Partner by the Partnership and his share of Partnership losses. J.A. 164 (second emphasis added). this section essentially Appellants maintained that "capital interest," For

redefined

superseding the definition provided in IRS Publication 541.
1

That section also provides that

[t]he percentage of interest of each of the Partners in the Partnership, initially as set forth above, and as the same may from time to time change by virtue of transfers of Partnership interests or otherwise, shall be referred to in this Partnership Agreement as the "percentage interest in the Partnership." J.A. 164.

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this reason, Appellants argued that it is the partners' capital accounts rather than their percentage interests that should be used to determine controlling interests and effective control. The district court rejected this argument, and we do as well. 2 As the district court noted, Section 5.1 is titled "Capital Accounts," and nothing in the agreement gives any indication that the words "capital interest" were intended to refer to

anything other than the amount of a capital account.

Indeed, as

we have noted, the amounts due each partner upon liquidation are handled in a completely separate section of the agreement. We

therefore conclude that the district court correctly looked to Article XII rather than Article V of the agreement to determine Steven's capital interest percentage in Weidner.

In rejecting Appellants' interpretation, the district court described the agreement's use of the words "capital interest" as a "scrivener's error." J.A. 426. Appellants take issue with that characterization, but whether that description was correct is immaterial. The critical aspect of the district court's ruling was that the parties did not intend "capital interest" in Article V to supersede the definition in IRS Publication 541, and the district court was on firm ground in drawing this conclusion.

2

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III. Appellants also maintain that the district court erred in declining to address the validity of the Composition Agreement. As to this issue, we agree. 3 MPPAA provides that "[i]f a principal purpose of any

transaction is to evade or avoid liability under this part, this part shall be applied (and liability shall be determined and collected) without regard to such transaction." § 1392(c). This subsection authorizes the 29 U.S.C.A. recovery of

improperly transferred assets from the party to whom they have been illegitimately transferred. See IUE AFL-CIO Pension Fund

v. Herrmann, 9 F.3d 1049, 1056 (2d Cir. 1993).

Initially, we note that Widener maintains that we should not address this issue because Appellants did not raise it in their pleadings. However, the parties certainly tried this issue by consent. See Fed. R. Civ. P. 15(b)(2) ("When an issue not raised by the pleadings is tried by the parties' express or implied consent, it must be treated in all respects as if raised in the pleadings."). Appellants raised the issue in a motion in limine and also reiterated at the start of the trial that it would seek to litigate the avoidability of the Composition Agreement. Both parties examined Steven regarding the purpose behind the Composition Agreement. And, Appellants continued to request the voiding of the agreement in their post-trial brief. Weidner also maintains that Appellants' challenge to the Composition Agreement is moot because the property transferred to Sidney pursuant to the Composite Agreement is encumbered with substantial debt and will likely be foreclosed upon by a secured creditor. Weidner's predictions concerning the possible future fate of this property are not sufficient to moot this case, however.

3

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Citing

our

discussion

in

Centra,

the

district

court

"decline[d] to address the validity of the Composition Agreement because, under Fourth Circuit precedent, the Court's decision must be based on the facts as they existed when Empire withdrew from the Pension Fund on September 30, 2005." 2009 WL 1764554, at *2 n.3. Empire Beef Co.,

This is an erroneous application of

Centra, which holds only that the existence of a control group-- which affects whether a company qualifies as an employer--must be determined as of the time of the withdrawal. F.2d at 121. because employer it See Centra, 947

The correctness of Centra's holding is apparent to reason from a that to incur fund, liability the as an

stands

withdrawing

pension

withdrawing In

company must be an employer at the time of the withdrawal.

contrast, nothing in § 1392(c) suggests that it applies only to pre-withdrawal efforts to evade or avoid liability. In fact,

limiting § 1392(c) in that way would thwart MPPAA's purpose of protecting pension funds from the adverse effects of withdrawing employers. See id. at 123 (explaining that ERISA and MPPAA are

remedial statutes that "should be liberally construed in favor of protecting the participants in employee benefits plans"). therefore remand so that the district court may address We the

merits of Appellants' § 1392(c) claim.

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IV. In sum, we affirm the district court's ruling that Weidner was not jointly and severally liable for Empire's withdrawal liability and we remand for consideration of Appellants' claim that they can collect their judgment against Empire without

regard to the Composition Agreement. AFFIRMED IN PART, VACATED IN PART, AND REMANDED

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