Old Blast, Inc., et al v. Operating Engineers Local 324

Filing

OPINION filed : This district court's judgment is AFFIRMED, decision not for publication. Eric L. Clay (concurring), Raymond M. Kethledge (authoring), and Bernice Bouie Donald, Circuit Judges.

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 16a0584n.06
No. 16-1260
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
)
)
Plaintiffs-Appellants,
)
)
v.
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)
OPERATING ENGINEERS LOCAL 324 PENSION )
FUND,
)
)
Defendant-Appellee.
)
)

FILED

OLD BLAST, INC., et al.,

Oct 31, 2016
DEBORAH S. HUNT, Clerk
ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF MICHIGAN

Before: CLAY, KETHLEDGE, and DONALD, Circuit Judges.
KETHLEDGE, Circuit Judge. Old Blast, Inc. and Joyce Denonville sued the Operating
Engineers Local 324 Pension Fund, arguing that ERISA’s imposition upon Old Blast of
withdrawal liability to the Fund was unconstitutional. The district court granted the Fund’s
motion to dismiss. We affirm.
I.
Old Blast was a Michigan corporation that employed members of the Operating
Engineers Local 324 Union. Old Blast and the Union entered into a collective bargaining
agreement that required Old Blast to contribute money to the Fund, a multi-employer pension
plan, on behalf of Old Blast’s employees.

The Fund is administered under the Employee

Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. [R. 12, PageID 116.]

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No. 16-1260, Old Blast, Inc., et al. v. Operating Eng’rs Local 324 Pension Fund
In 2010, Power Vac of Michigan, Inc. purchased Old Blast’s assets, agreeing to pay Old
Blast in installments over the next several years. Old Blast then dissolved and withdrew from
the Fund. But ERISA requires an employer that withdraws from a multi-employer pension plan
to pay the plan the amount of any “unfunded vested benefits” owed to its workers. 29 U.S.C.
§ 1381(b). The Fund gave Old Blast written notice that Old Blast owed $204,665 in withdrawal
liability under § U.S.C. 1381(b). [Case No. 11-13921, DE 1, PageID 3.] When Old Blast failed
to pay, the Fund sued Old Blast in federal court to recover the withdrawal liability. [Id. at 1-4.]
Old Blast did not challenge the Fund’s assessment of withdrawal liability, and instead entered
into a consent judgment with the Fund that required Old Blast to pay $239,871.28 in withdrawal
liability, costs, and fees. [Id., DE 11.] Joyce Denonville, Old Blast’s sole shareholder, signed
the consent judgment on the corporation’s behalf. [Id.]
To enforce the judgment, the Fund petitioned the same district court to garnish, on behalf
of the Fund, Power Vac’s payments to Old Blast under the sale agreement. Denonville moved to
intervene in the garnishment proceedings in her individual capacity. The district court denied
Denonville’s motion and granted the Fund’s request for garnishment. [Id., DE 35.] The Fund
then began garnishing Power Vac’s payments to Old Blast.
Nearly three years later, Old Blast and Denonville brought this lawsuit against the Fund,
arguing that ERISA’s withdrawal-liability provision, § U.S.C. 1381(b), is unconstitutional as
applied to Old Blast. [R. 1.] The Fund moved to dismiss, arguing among other things that
Denonville lacked standing to challenge the withdrawal liability, that Old Blast’s claims were
barred by res judicata, and that the plaintiffs’ claims were meritless. [R. 4.] The district court
granted the motion for failure to state a claim, holding that § U.S.C. 1381(b) was constitutional
as applied to Old Blast. [R. 12.] Denonville and Old Blast then moved to amend the judgment

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No. 16-1260, Old Blast, Inc., et al. v. Operating Eng’rs Local 324 Pension Fund
and to file an amended complaint. [R. 14; R. 15.] The district court denied those motions. This
appeal followed.
II.
We review the district court’s decision de novo. Booth Family Trust v. Jeffries, 640 F.3d
134, 139 (6th Cir. 2011). We may “affirm on any grounds supported by the record even if
different from the reasons of the district court.” Abercrombie & Fitch Stores, Inc. v. Am. Eagle
Outfitters, Inc., 280 F.3d 619, 629 (6th Cir. 2002).
As a threshold matter, the Fund argues that Denonville lacks standing to challenge the
imposition of withdrawal liability upon Old Blast. To establish Article III standing at the
pleading stage of a case, a plaintiff must allege a personal injury. Lujan v. Defenders of Wildlife,
504 U.S. 555, 560 (1992). Meanwhile, “a shareholder of a corporation does not have a personal
or individual right of action based solely on an injury to the corporation.” Gaff v. Fed. Deposit
Ins. Corp., 814 F.2d 311, 315 (6th Cir. 1987), modified at 933 F.2d 400 (6th Cir. 1991). Instead,
only the corporation, or a shareholder acting derivatively, can sue to recover damages for a
corporate injury. Id. This rule applies even in cases where the person seeking redress is the
corporation’s sole shareholder. Conderm Pharmacal, Ltd. v. Elder Pharm., Inc., 862 F.2d 597,
602-03 (6th Cir. 1988). Of course, a shareholder may sue in an individual capacity if she suffers
an injury that is “separate and distinct” from the corporation’s injury. Gaff, 814 F.2d at 315. But
depreciation in the value of a shareholder’s stock in a corporation does not establish “the type of
direct, personal injury which is necessary to sustain a direct cause of action.” Id.
Here, the Fund has not taken any action against Denonville directly. Instead, the Fund
garnished Power Vac’s payments to Old Blast, which in turn made Denonville’s interest in Old
Blast valueless.

The Fund’s garnishment of Power Vac’s payments to Old Blast affects

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Denonville only indirectly, and thus she suffered no harm “separate and distinct” from that of
Old Blast. See Gaff, 814 F.2d at 315. She therefore lacks standing to bring individual claims
against the Fund, and we affirm the dismissal of her claims.
The Fund argues that Old Blast’s claims, in turn, are barred by the doctrine of res
judicata. Under that doctrine, “a final judgment on the merits of an action precludes the parties
or their privies from relitigating issues that were or could have been raised in a prior action.”
In re Alfes, 709 F.3d 631, 638 (6th Cir. 2013) (internal quotation marks omitted). “Issues,” for
the purposes of this rule, include defenses to recovery. See Brown v. Felsen, 442 U.S. 127, 131
(1979).
Res judicata has four elements:
(1) a final decision on the merits by a court of competent jurisdiction; (2) a
subsequent action between the same parties or their privies; (3) an issue in the
subsequent action which was litigated or which should have been litigated in the
prior action; and (4) an identity of the causes of action.
Kane v. Magna Mixer Co., 71 F.3d 555, 560 (6th Cir. 1995).
As to the first element, the consent judgment is a final decision on the merits of the prior
litigation regarding Old Blast’s withdrawal liability.

The plaintiffs respond that “consent

settlements” are not final decisions for the purposes of res judicata. Reply Br. at 3. But here the
parties entered a consent judgment; and “[a] consent judgment, which has been freely negotiated
by the parties and has been approved by the court, has the full effect of final judgment for
purposes of [res judicata].”

Blakely v. United States, 276 F.3d 853, 866 (6th Cir. 2002).

Moreover, that judgment was signed by Old Blast (with Denonville wielding the pen) and by the
Fund. The first and second elements of res judicata are therefore met.
As to the third element, in the prior case Old Blast could have challenged the
constitutionality of the withdrawal liability but did not. And the defense that Old Blast seeks to
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raise now pertains to the very same “transaction”—the imposition of withdrawal liability upon
Old Blast under § U.S.C. 1381(b)—as the prior lawsuit. See Rawe v. Liberty Mut. Fire Ins. Co.,
462 F.3d 521, 529 (6th Cir. 2006). Old Blast therefore should have raised the defense in the
prior litigation, and hence this element too is met.
Finally, the fourth element requires an “identity” of claims. Kane, 71 F.3d at 560.
Causes of action share an identity “if they are based on substantially the same operative facts,
regardless of the relief sought in each suit.” United States v. Tohono, 563 U.S. 307, 317 (2011).
The Fund’s claims for withdrawal liability in the earlier action, and Old Blast’s defense to that
same liability now, are based on the same operative facts. The parties merely draw different
legal conclusions from them. The fourth element is therefore met, and Old Blast’s claims are
barred.
The plaintiffs also appeal the district court’s denial of the motions to amend the judgment
and file an amended complaint. These arguments go to the merits of the plaintiffs’ constitutional
challenge, which as shown above make no different to the outcome of this case. The district
court therefore did not abuse its discretion by denying the motions.
The district court’s judgment is affirmed.

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No. 16-1260, Old Blast, Inc., et al. v. Operating Eng’rs Local 324 Pension Fund
CLAY, Circuit Judge, concurring. I agree with the majority that the district court’s
judgment must be affirmed. I write separately to discuss an issue that was raised on appeal by
Plaintiff Old Blast, Inc. which was not addressed in the majority’s opinion. The issue concerns
whether the Multi-Employer Pension Plan Amendments Act of 1980 (“MPPAA”), specifically
the application of withdrawal liability under 29 U.S.C. § 1381, is unconstitutional as applied to
Joyce Denonville.
Plaintiff argues that the district court erred in applying a rational basis test to its facial
challenge because Denonville’s shares in Old Blast, in Plaintiff’s view, are similar to the
interests of those individuals receiving welfare assistance. Plaintiff claims that Denonville’s
property rights in these shares are fundamental rights which should garner the protection of the
strict scrutiny standard because she is a widow with children to support.
This argument fails for a variety of reasons, the first being that “[a] facial challenge to a
legislative Act is, of course, the most difficult challenge to mount successfully, since the
challenger must establish that no set of circumstances exists under which the Act would be
valid.” United States v. Salerno, 481 U.S. 739, 745 (1987). Plaintiff incorrectly challenges the
constitutionality of the MPPAA because it argues that only circumstances pertaining to
Denonville exist under the MPPAA which are invalid. It does not even attempt to establish that
“no set of circumstances exists under which the [MPPAA] would be valid.” Id.
Second, the Supreme Court has consistently applied the rational basis test to the
MPPAA’s withdrawal liability section. The Supreme Court held in Pension Benefit Guaranty
Corporation v. R.A. Gray & Co., that the retroactive application of the MPPAA’s withdrawal
liability provisions was justified by a rational legislative purpose, and therefore, did not violate
the Fifth Amendment’s Substantive Due Process Clause. 467 U.S. 717, 730-31 (1984); see also

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No. 16-1260, Old Blast, Inc., et al. v. Operating Eng’rs Local 324 Pension Fund
Concrete Pipe & Products of California, Inc. v. Construction Laborers Pension Trust For
Southern California, 508 U.S. 602 (1993) (holding that withdrawal liability as applied to
Concrete Pipe, the employer, did not violate the Fifth Amendment because the imposition of
withdrawal liability was clearly rational inasmuch as the employer’s liability was based on a
proportion of its contributions during its participation in the plan).
Third, it appears that Old Blast has waived its right to challenge the withdrawal liability
because it did not follow the MPPAA’s mandatory arbitration provision. The MPPAA states that
“[a]ny dispute between an employer and the plan sponsor of a multiemployer plan concerning a
determination made under sections 1381 through 1399 of this title shall be resolved through
arbitration.” 29 U.S.C. § 1401(a)(1). See also Knall Beverage, Inc. v. Teamsters Local Union
No. 293 Pension Plan, 744 F.3d 419, 422 (6th Cir. 2014) (holding that the plaintiffs cannot bring
the action in federal court because they did not comply with the MPPAA’s arbitration
requirement).
Old Blast seems to argue that it did not need to bring this dispute before an arbitrator
because it brought a facial constitutional attack. See Marvin Hayes Lines, Inc. v. Cent. States,
Se. & Sw. Areas Pension Fund, 814 F.2d 297, 300 (6th Cir. 1987) (holding that “[u]nless an
employer is mounting a facial constitutional attack or making a verifiable claim of irreparable
injury, the courts have no jurisdiction to entertain the merits of the dispute prior to arbitration.”).
However, Old Blast’s facial constitutional challenge was meritless, and arguably frivolous.
In accord with the other circuits, “[a]ny objection to an MPPAA withdrawal liability assessment
not raised by the employer in the arbitration is waived.” Cent. States, Se. & Sw. Areas Pension
Fund v. Midwest Motor Exp., Inc., 181 F.3d 799, 806-07 (7th Cir. 1999); Trs. of Colo. Pipe
Indus. Pension Tr. v. Howard Elec. & Mech. Inc., 909 F.2d 1379, 1385-86 (10th Cir. 1990)

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No. 16-1260, Old Blast, Inc., et al. v. Operating Eng’rs Local 324 Pension Fund
(holding that an employer waives any defenses to collection actions that could properly have
been heard before the arbitrator by failing to arbitrate); I.A.M. Nat’l Pension Fund, Plan A, A
Benefits v. Clinton Engines Corp., 825 F.2d 415, 417-18 (D.C. Cir. 1987) (“Congress’ directive
is clear. Any dispute over withdrawal liability as determined under the enumerated statutory
provisions shall be arbitrated” prior to judicial review); Cent. States Se. & Sw. Areas Pension
Fund v. T.I.M.E.-DC, Inc., 826 F.2d 320, 326-28 (5th Cir. 1987) (noting that section 1401(a)(1)’s
arbitration provision indicates that arbitration is compulsory, not a voluntary stage of the
administrative procedure).
Lastly, Old Blast may have been able to reduce the amount of its withdrawal liability if it
had properly challenged the assessment in arbitration. The MPPAA affords relief for insolvent
employers. In the case of an insolvent employer undergoing liquidation or dissolution, the
employer’s withdrawal liability may be reduced. See 29 U.S.C. § 1405(b) (stating that the
unfunded vested benefits allocable to an insolvent employer shall not exceed 50 percent of the
unfunded vested benefits allocable to the employer and that portion of the 50 percent which does
not exceed value of employer). I note this because Old Blast argued in the district court that
Congress failed to consider the possibility that the amount required to pay withdrawal liability
might exceed the ability of the employer to pay.
I therefore agree with the majority that the district court’s judgment must be affirmed.

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