Central Laborers' Pension Fund et al v. Demolition Excavating Group, Inc. et al
Filing
37
OPINION BY RICHARD MILLS, U.S. District Judge: The Motion of the Plaintiffs' for Summary Judgment (d/e 19 ) is DENIED. The Final Pretrial Conference is hereby set for April 28, 2014 at 2:00 PM. SEE WRITTEN OPINION. Entered on 3/31/2014. (MJ, ilcd)
E-FILED
Tuesday, 01 April, 2014 05:46:17 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
CENTRAL LABORERS’ PENSION
FUND, et al.,
Plaintiffs,
v.
DEMOLITION EXCAVATING
GROUP, INC.,
Defendant.
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NO. 11-3327
OPINION
RICHARD MILLS, U.S. District Judge:
Pending before the Court is the Plaintiffs’ Motion for Summary
Judgment.
I. INTRODUCTION
Plaintiffs Central Laborers’ Pension Fund, et al., seek summary
judgment against Defendant Demolition Excavating Group, Inc. (“the
Defendant” or “DEG”) on Counts I and II of the Complaint. Count One
seeks liability against DEG as the alter ego of Dem/Ex Group, Inc.
(“Demex”), the judgment debtor in Case Number 08-3069. Count II seeks
judgment against DEG as the successor of Demex for contributions owed
by Demex.
DEG contends that genuine issues of material fact preclude the entry
of summary judgment in favor of the Plaintiffs on Counts I and II. The
Defendant claims it is entitled to summary judgment.
II. FACTUAL BACKGROUND
(A)
Demex is an active Illinois corporation that was incorporated on
March 9, 2004. Edward Fisher is the President and Secretary of Demex.
He owns 62.5% of the stock in Demex. Demex has been a demolition and
excavating contractor which also sells scrap metal. The business address of
Demex is 805 Adams Street in Manito, Illinois.
Demex signed several labor agreements that bound the company to
pay fringe benefit contributions for employees performing covered work
under the agreements.
Since June 2005, Demex had submitted
contribution report forms, for covered work performed by its employees, to
Central Laborers’ and a contribution report for May 2011 received by
2
Central Laborers’ indicated that Demex was no longer operating. The
agreements signed by Demex also bound the company to the terms and
provisions of the Restated Trust Agreements of Central Laborers’ Pension,
Welfare and Annuity Funds, as well as the Trust Agreements of the other
Plaintiffs in Case Number 08-3069.
On March 13, 2008, the Plaintiffs filed suit against Demex and
Edward Fisher, Individually, for delinquent contributions and to conduct
a payroll examination for unknown contributions.
On August 18, 2008, DEG was formed as an Illinois corporation.
Illinois Secretary of State records show Rhonda Fisher as the President of
DEG. Edward Fisher is married to Rhonda Fisher. Rhonda Fisher is the
principal owner of DEG.
The Defendant alleges Rhonda Fisher formed DEG because she
desired to own her own company and have authority over its operations.
She also hoped to take advantage of incentives for woman-owned
businesses. The Plaintiffs dispute the allegations regarding Fisher’s reasons
for starting DEG. They state she had no previous experience owning or
3
managing a demolition company. Rhonda Fisher had worked as a security
officer, bank teller, managing a water and fire restoration company, a
cleaning business and had done office work for Demex.
On November 10, 2010, Demex and DEG entered into an Asset
Purchase Agreement whereby Demex transferred possession and control of
its construction equipment, vehicles and other assets to DEG. At the time
of the Asset Purchase Agreement, Rhonda Fisher, as President and
Secretary of DEG, signed a Non-Negotiable Promissory Note in which DEG
promised to pay Demex $1,455,347.00. The Non-Negotiable Promissory
Note requires DEG to pay Demex $1,455,347.00 on demand, but demand
may not be made until or after November 10, 2022. It does not require
DEG to pay any interest to Demex. The Non-Negotiable Promissory Note
provided that DEG would assume certain debts of Demex including
equipment loans, a line of credit, certain accounts payable, and certain
other obligations of Demex.
On June 27, 2011, Demex and the Plaintiffs entered into a stipulated
judgment in the amount of $330,816.31 against Demex for past due fringe
4
benefit contributions, liquidated damages, audit costs and attorney’s fees.
Judgment was entered more than ten months after the formation of DEG.
The Plaintiffs allege that on March 16, 2012, Demex executed notes
and loans with Heartland Bank and Trust Company amounting to
$352,382.80. DEG disputes the allegation and states that Plaintiffs offer
only three unsigned promissory notes in support of the assertion.
Like Demex, DEG is a contractor whose primary source of revenue is
the demolition of buildings and the sale of scrap materials extracted from
the demolition sites. DEG’s business address is also 805 S. Adams Street,
Manito, Illinois 61546. DEG uses, or has used, many of the same workers
who had previously been employed by Demex, including: Rhonda Fisher,
Edward Fisher, Jeffrey Conklin, Daniel Dawe, Tyler Dawe, Shawn Morris,
Seth Rice and Larry Saal. Citing Rhonda Fisher’s Affidavit, DEG alleges
that some of its employees were formerly employed by Demex but many of
DEG’s employees were not employed by Demex.
The Plaintiffs allege DEG acquired its equipment, vehicles, and tools
of the trade by entering into the Asset Purchase Agreement with Demex.
5
DEG disputes the allegation to the extent that although some of the
equipment, vehicles and tools were purchased from Demex, many of DEG’s
assets are not former Demex assets.
The Plaintiffs allege that, until the related loans are paid, the titles to
the equipment, vehicles and tools of the trade that were transferred to DEG
pursuant to the Asset Purchase Agreement remain in Demex’s name. DEG
disputes the allegation and states that title to the equipment and tools sold
to DEG by Demex were transferred pursuant to a Bill of Sale executed
concurrently with the Asset Purchase Agreement.
The Plaintiffs allege at the time that DEG executed the Asset Purchase
Agreement with Demex, DEG’s officers knew that Demex owed fringe
benefit contributions to the Plaintiffs. Moreover, DEG incorporated for the
purpose of avoiding the collective bargaining agreements executed by
Demex.
DEG disputes the foregoing assertions and states that the only
support offered by the Plaintiffs is DEG’s alleged untimely response to their
Requests for Admission, which was the subject of DEG’s Motion to
6
Withdraw Admissions which the Court allowed.1 Moreover, Rhonda Fisher
claims she had no knowledge of any claim by the Plaintiffs against Demex
at the time the Asset Purchase Agreement was executed. Additionally, DEG
claims it was incorporated for a number of reasons, none of which were to
avoid the collective bargaining agreements involved in this case. In fact, the
Defendant contends Rhonda Fisher was not aware of any collective
bargaining agreement to which Demex was a signatory at the time she
formed DEG. The Plaintiffs dispute this allegation.
(B)
Edward Fisher has represented DEG at pre-job meetings and receives
contract proposals from prospective customers. Rhonda Fisher had no prior
experience as an owner of a demolition company/contractor. Edward Fisher
has received checks from DEG totaling $29,582.64 from January 7, 2011
through March 9, 2012.
DEG contends that none of its shareholders, directors, or officers are
In an Order entered on December 11, 2013, the Court found that the
interests of justice weighed in favor of allowing the Defendants withdraw
certain admissions that otherwise would have been deemed admitted because
they were not served in a timely fashion. See Doc. No. 34.
1
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shareholders, directors or officers of Demex. The Plaintiffs dispute the
allegation and suggest that Edward Fisher, the President of Demex, is an
officer of DEG based on the posting of a $15,000 payment to Edward
Fisher categorized as an “Officer Payable.”
Moreover, the major
shareholder and President of Demex is married to the majority shareholder
and sole officer of DEG.
DEG asserts Edward Fisher has no authority to act on its behalf. He
has no authority to sign checks or any other document on behalf of DEG
and DEG does not hold out Edward Fisher as its agent or as a manager.
The Plaintiffs dispute the allegation, pointing to an exhibit which shows
Edward Fisher was sent a contract proposal for work to be performed at the
Decatur Firestone plant.
Moreover, they cite an exhibit which is a
memorandum to DEG employees under the names of Edward Fisher and
Rhonda Fisher.
Edward Fisher is skilled at estimating and bidding on jobs. DEG
claims he provides consulting duties in that capacity and provides general
advice regarding job-site coordination, but is not an employee.
8
DEG
contends any payments it made to Edward Fisher were reimbursements for
business expenses he incurred performing consulting duties on behalf of
DEG. The Plaintiffs dispute the allegation and claim that DEG’s own
accounting records classify payments to Edward Fisher as “employee
advances” and “officer’s payable.”
Moreover, during Rhonda Fisher’s
deposition, she was asked why a $5,000 payment was made to Edward
Fisher and she responded, “You’ll have to ask him that.”
The Defendant alleges DEG is owned by the following three
individuals: Rhonda Fisher (76.9%), Steven Fisher (11.55%), and Tyler
Dawe (11.55%).
The Plaintiffs dispute the allegation and note that
Defendant’s Answers to Interrogatories initially stated that Rhonda Fisher
owned 100% of the stock in DEG.
DEG claims to currently own the assets listed on the Bill of Sale.
Several such assets are subject to various bank liens but Demex no longer
owns any of the assets. The Plaintiffs dispute the assertion and allege
Rhonda Fisher testified that title to vehicles or equipment remains in
Demex’s name. In addition, the Defendant’s Responses to Requests to
9
Produce provides DEG holds no titles to vehicles or equipment.
The Defendant asserts that although some of DEG’s equipment and
other assets were purchased from Demex, numerous other assets were
obtained via means other than the Asset Purchase Agreement with Demex.
The Plaintiffs dispute the allegation on the basis that Rhonda Fisher
testified that titles to vehicles or equipment remain in Demex’s name. In
addition, the Defendant’s Responses to Request to Produce provided DEG
holds no titles to vehicles or equipment.
DEG alleges the Asset Purchase Agreement requires it to pay certain
of Demex’s obligations, which DEG assumed under that agreement. DEG
has made such payments in accordance with those terms. The Plaintiffs
dispute that DEG has any legal obligation to Demex’s creditors.
The Defendant alleges Demex’s equity in the assets transferred to
DEG was approximately $851,038.00. The Plaintiffs dispute the allegation,
based on a document provided by DEG. The Plaintiffs allege the document
shows an equity of $991,038. Additionally, the Plaintiffs dispute whether
the office and shop buildings could be transferred from Demex to DEG
10
since Edward Fisher and Rhonda Fisher personally own the property and
buildings where Demex and DEG conduct their businesses.
DEG contends it assumed Demex’s liabilities in the amount of no less
than $1,155,604.77. The Plaintiffs dispute the amount alleged and claim
that the numbers are inconsistent with the Asset Purchase Agreement and
the exhibit provided by DEG.
The Defendant contends no payments have been made to Demex
under the Asset Purchase Agreement and associated Promissory Note
because both documents grant DEG the right to make payments directly to
those of Demex’s creditors whose obligations DEG assumed instead of
making the payments to Demex. The Plaintiffs dispute that DEG legally
assumed Demex’s obligations with Demex’s creditors.
The Defendant asserts the total amount of payments for the
obligations assumed by DEG under the Asset Purchase Agreement and
Note are uncertain, which is why no payments are required under the Note
for several years. DEG will not be able to accurately calculate the amount
of obligations assumed for quite some time, and only after such calculation
11
will DEG be able to determine how much, if any, is owed directly to
Demex. The Plaintiffs dispute the assertion that no payments are required
until 2022 because the amounts of the obligations are uncertain. Neither
the Asset Purchase Agreement, nor the Promissory Note, mention any
uncertainty about the amount owed by DEG. Moreover, the Plaintiffs
claim if there is uncertainty as to the total amount to be paid by DEG, that
would be further proof of a sham transfer of assets on the part of the
Defendant and Demex.
DEG has made payments for certain unpaid taxes owed by Demex
because DEG believes that the IRS has the authority to levy the building
DEG uses for its operations, as well as Rhonda Fisher’s personal residence,
if the taxes remain unpaid. Thus, DEG claims to directly benefit from the
payment of such taxes, an allegation which the Plaintiffs dispute.
DEG contends it has deducted the amount of taxes it has paid on
behalf of Demex from the future amount due under the Promissory Note
it gave to Demex. The Plaintiffs dispute the allegation because it is based
on the “self-serving” affidavit of Rhonda Fisher instead of documentary
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evidence such as DEG’s financial or accounting records.
No real property was transferred to DEG. The Defendant claims
DEG does not co-mingle funds with Demex. The Plaintiffs dispute the
assertion as to co-mingling because DEG accounting records show transfers
to and from Demex bank accounts. DEG alleges it maintains separate bank
accounts from Demex. Moreover, all DEG employees are paid from DEG’s
own bank accounts.
The Plaintiffs dispute the preceding allegations
because they are based on the “self-serving” affidavit of Rhonda Fisher
rather than documentary evidence such as DEG’s financial or accounting
records.
DEG has always operated using the name “DEG.” DEG does not
routinely use its formal corporate name in its daily operations.
The
Defendant alleges DEG does not serve any of the same customers as
Demex. The Plaintiffs dispute the allegation as to customers and claims
that DEG did work at the Firestone Plant in Decatur, Illinois in 2011 and
2012. Demex also performed work at the Firestone Plaint from 2005
through 2010. In a deposition on March 8, 2010, Edward Fisher testified
13
that Demex’s work at Firestone was ongoing.
DEG currently uses a different accountant/bookkeeper than Demex.
The Plaintiffs note that Marsha Hoelzel performed bookkeeping/accounting
work for both Demex and, until December 2011, DEG.
DEG contends its demolition business is exclusively focused on
structures less than five stories high, whereas Demex specialized in taller
buildings. The Plaintiffs dispute this allegation because it is based on the
“self-serving” affidavit of Rhonda Fisher rather than documentary evidence
such as contracts or project/job reports.
DEG has never held itself out to the public or its customers as a
continuation of Demex.
Since judgment was rendered against Demex on June 27, 2011,
Demex has not paid any money towards the judgment. DEG has not
executed any labor agreements with the Plaintiffs.
III. DISCUSSION
A. Legal standard
Summary judgment is appropriate if the motion is properly supported
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and “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” See Fed. R. Civ. P. 56(a). The
Court construes all inferences in favor of the non-movant. See Siliven v.
Indiana Dept. of Child Services, 635 F.3d 921, 925 (7th Cir. 2011). To
create a genuine factual dispute, however, any such inference must be based
on something more than “speculation or conjecture.” See Harper v. C.R.
England, Inc., 687 F.3d 297, 306 (7th Cir. 2012) (citation omitted).
When a court is considering cross-motions for summary judgment, it
must “construe all inferences in favor of the party against whom the motion
under consideration is made.” Hendricks-Robinson v. Excel Corp., 154
F.3d 685, 692 (7th Cir. 1998).
B. Successor liability
(1)
The Plaintiffs contend that based on a “sufficient indicia of
continuity” between the two entities and the assertion that DEG had
notice of Demex’s liability, DEG is the successor company of Demex.
The United States Court of Appeals for the Seventh Circuit has held
15
that successor entities can be held liable for the fringe benefit contributions
of another company if (1) there is “sufficient indicia of continuity” between
the two companies; and (2) the successor company had notice of the
predecessor’s liability. See Upholsterers International Union Pension Fund
v. Artistic Furniture of Pontiac, 920 F.2d 1323, 1329 (7th Cir. 1990).
There is not a formal definition of a successor. See N.L.R.B. v. Jarm
Enterprises, Inc., 785 F.2d 195, 200 (7th Cir. 1986). However, a number
of factors may be considered: whether the companies employed the same
individuals, including supervisory personnel; whether they produced the
same products; whether the companies used the same plant, machinery and
equipment; whether the second company fulfilled the work obligations or
commitments of the previous entity. See Artistic Furniture, 920 F.2d at
1329.
In Artistic Furniture, there was a complete change of ownership
between the predecessor and successor companies.
See id. at 1325.
However, the successor company essentially employed the same workforce,
including supervisory personnel, of the previous company. See id. at 1329.
16
The successor entity used the same plant location, machinery and
equipment, while producing the same product. See id. The successor
company finished the predecessor’s uncompleted work orders and honored
its warranty claims. See id. The court concluded that the foregoing facts
adequately established that a “sufficient indicia of continuity” existed
between the two companies for the purpose of imposing successor liability.
See id.
The Plaintiffs allege that the “indicia of continuity” between DEG and
Demex is analogous to that which existed in Artistic Furniture.
President of Demex is married to the President of DEG.
The
While
acknowledging that the ownership of the companies is technically different,
the Plaintiffs contend that Rhonda Fisher is merely a figurehead for DEG.
DEG distinguishes this case from Artistic Furniture by noting that
none of its officers were officers of Demex; it did not have any of the same
customers; and DEG did not complete any of Demex’s work orders.
However, the Plaintiffs claim that the Firestone Plant is a customer of both
entities. Additionally, because DEG has stated that it has no titles to any
17
equipment or vehicles, the Plaintiffs suggest that it must be using
equipment obtained from Demex. DEG further alleges it does not perform
the same type of demolition work as Demex and has never held itself out
as a continuation of Demex. Moreover, both Demex and DEG still exist.
Additionally, although the official names of the entities are somewhat
similar (Demolition Excavating Group, Inc. and Dem/Ex Group, Inc.), the
Defendant has always used the nickname “DEG” in its operations and not
the full corporate name.
The Plaintiffs point to Sullivan v. J.S. Sales Plumbing, Inc., 1994 WL
55658 (N.D. Ill. Feb. 23, 1994), wherein the owner of a plumbing company
ceased to do business soon after judgment was entered against the company
for delinquent pension fund contributions.
See id. at *1-2.
A new
company was thereafter formed by his wife, a former teacher who was
unemployed. See id. at *2. The husband did all of the plumbing work for
the new company while receiving no salary or compensation. See id. Both
husband and wife were authorized to sign checks on behalf of the new
company. See id. The husband purchased a truck for business use for the
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first company, a truck that was also used when he worked for J.S. Sales and
that entity made payments on the truck. See id. The second company paid
bills that the first company owed, used the same telephone number and had
many of the same customers. See id. Additionally, interest on a loan to the
first company was claimed on a tax return filed by the second company.
See id. Based on these facts, the court determined that the wife was an
“apparent figurehead owner” of J.S. Sales, which was thus liable for the
debts of the first company. See id. at *5, 7.
The Plaintiffs contend that the facts of this case are similar to those
in Sullivan. While the owner of the successor company in Sullivan had no
experience in operating a plumbing business, Rhonda Fisher had no
experience managing or operating a demolition and scrap business. They
further contend that Ms. Fisher’s lack of involvement in this litigation,
DEG financial transactions and field operations shows that she is simply a
figurehead.
For example, the Plaintiffs assert that Rhonda Fisher did not know
who represented Demex during the preparation and execution of the Asset
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Purchase Agreement. She made no visits to DEG projects. Ms. Fisher did
not know about notifications to lenders, assignments made by Demex to
DEG for the equipment or bills of sale. She had no knowledge about
certain major transactions.
According to the Plaintiffs, these facts
demonstrate Rhonda Fisher is simply a figurehead.
DEG contends that no courts have ever considered an individual’s
status as a “figurehead owner” to be a significant factor in analyzing
successor liability. To the extent that the district court in Sullivan relied on
the second company owner’s status as a figurehead, DEG notes that there
were many considerations that were much more significant to the court’s
determination that the second company was a successor company.
The Plaintiffs also note that both entities operate out of an office at
the same address. Edward Fisher and Rhonda Fisher own the building used
by DEG and Demex. DEG obtained its tools, vehicles and equipment from
Demex pursuant to the Asset Purchase Agreement. The companies are both
in the business of the demolition of buildings and selling of scrap materials.
Additionally, the Plaintiffs contend that many of the same employees
20
worked for both companies.
The Plaintiffs further claim that DEG has fulfilled many of Demex’s
financial obligations, including tax liability and other payments pursuant
to the Asset Purchase Agreement. DEG disputes the assertion that this was
a gratuitous assumption of liabilities in order to continue Demex’s business.
Rather, DEG assumed certain liabilities as consideration in exchange for
assets it received under the Asset Purchase Agreement.
Based on all of these circumstances, the Plaintiffs contend there is
“sufficient indicia of continuity” between the two entities. DEG contends
that Plaintiffs are unable to show it was a continuation of Demex. Rather,
the facts show that DEG stands alone as its own corporation which is
separate and apart from Demex. Accordingly, DEG claims that Plaintiffs
Motion for Summary Judgment should be denied and summary judgment
should be entered in its favor on Count II of the Complaint.
The Plaintiffs next allege that DEG had notice of the fringe benefit
contributions owed by Demex. They emphasize the relationship between
the owners of the two companies and the fact that Rhonda Fisher had no
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experience in the field. Additionally, they contend that many of the same
factors already discussed demonstrate that DEG had notice of Demex’s
liability to the Plaintiffs. DEG denies having notice of Demex’s liability.
(2)
The Court agrees with the Plaintiffs that there are a number of
curious circumstances surrounding the formation of DEG. Along with
other factors, the fact that the owner of DEG is married to the owner of
Demex and had no experience in the field before forming DEG is
interesting. Upon examining the evidence in a light most favorable to
DEG, however, the Court is unable to conclude that Plaintiffs are entitled
to summary judgment on Count I.
The Plaintiffs criticize DEG’s reliance on the “self serving affidavit”
of Rhonda Fisher. However, a plaintiff may rely on “self-serving” evidence
to create a genuine issue of material fact. See Hill v. Tangherlini, 724 F.3d
965, 968 n.1 (7th Cir. 2013). Moreover, an affidavit is an acceptable piece
of evidence on which a party attempting to defeat summary judgment may
produce. See Rooni v. Biser, 742 F.3d 737, 740 (7th Cir. 2014). As long
22
as the affidavit contains information that is otherwise admissible, it cannot
be discounted simply because, like most affidavits in support of or
opposition to summary judgment, it is “self serving.”2 See id.
When the evidence is viewed in a light most favorable to DEG, the
Court is unable to conclude the applicable factors establish it is Demex’s
successor. There are legitimate factual disputes regarding Edward Fisher’s
role and degree of authority at DEG. Moreover, the parties dispute the
number of employees who have worked at both entities. DEG claims that
although some of its workers have been employed at Demex, many DEG
employees were not employed there. The parties also dispute the extent to
which DEG has used Demex’s equipment. DEG claims to have purchased
some of the equipment from Demex.
There are legitimate disputes
regarding the number of common customers the two companies have
serviced.
Although both companies engage in demolition work, DEG
distinguishes the work it performs from that of Demex by claiming only to
Of course, other types of evidence–financial or accounting records,
contracts or project reports–might be more probative than a “self-serving”
affidavit.
2
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demolish structures of a certain height.
The aforementioned factual disputes distinguish this case from
Artistic Furniture, wherein the successor company employed the same
workforce of the previous company, used the same machinery and
equipment, completed the predecessor’s work orders and honored its
warranty claims. See Artistic Furniture, 920 F.2d at 1329.
Based on these factual disputes, the Court is also unable to determine
that this case is like the facts in Sullivan.
In that case, the record
established that after judgment was entered against a plumbing company
for delinquent pension fund contributions, the owner of the plumbing
company attempted to engage in the plumbing business by having his wife
start a new company as an “apparent figurehead.” See Sullivan, 1994 WL
55658, at *1-2. For all practical purposes, the new plumbing business was
a continuation of the predecessor company and thus liable as a successor.
See id.
The facts here are not at all analogous to Sullivan.
Moreover,
although it may seem likely that Rhonda Fisher would have known of the
24
claims against her husband’s company, there is a factual dispute as to
whether DEG had notice of Demex’s liability.
Rhonda Fisher claims she
started DEG because she observed some of the struggles her husband had
with Demex and hoped to avoid making similar mistakes. She also said
that she wanted to take advantage of incentives for women-owned
businesses.
Additionally, Rhonda Fisher states that when the Asset
Purchase Agreement was executed, she had no knowledge of the collective
bargaining agreement entered into by Demex or any claims against that
entity by unions.
Because there are factual disputes regarding whether there is a
“sufficient indicia of continuity” between the two companies and regarding
whether DEG had notice of Demex’s liability, the Court concludes that
summary judgment is not warranted in favor of either party on Count II.
C. Alter ego liability
(1)
The Plaintiffs contend that DEG is the alter ego of Demex, stating
that DEG is a disguised continuance of the first company and the transfer
25
of assets was a sham transaction which was designed to avoid the payment
of delinquent fringe benefit contributions. Additionally, the Plaintiffs point
to the close financial ties between the two companies and other factors in
alleging that DEG is Demex’s alter ego.
“The alter ego doctrine focuses on the existence of a disguised
continuance of a former business entity or an attempt to avoid the
obligations of a collective bargaining agreement, such as through a sham
transfer of assets.” International Union of Operating Engineers, Local 150
v. Centor Contractors, Inc., 831 F.2d 1309, 1312 (7th Cir. 1987) (internal
quotation marks and citation omitted). An important inquiry is an entity’s
“unlawful motive or intent.” Id. In Centor Contractors, in determining
that a subsequent partnership was liable under the collective bargaining
agreement as the alter ego of a dissolved corporation, the Seventh Circuit
relied on a letter which stated in part that the first company would be
operating under a new name because of “labor problems.” See id. at 1313.
The court also found significant that the former company had transferred
a large amount of cash from the corporation shortly before its dissolution.
26
See id.
The Plaintiffs state that Demex transferred its equipment, vehicles
and tools of the trade to DEG pursuant to the Asset Purchase Agreement
executed on November 10, 2010. The Promissory Note does not require
a payment of principal or interest on the Note until November 10, 2022,
and it requires no interest payments. Moreover, the property transferred
had an estimated value of $1,605,462.00 for the demolition equipment,
transportation equipment, utility equipment, and other assets and property.
The Asset Purchase Agreement provided that DEG would assume Demex’s
obligations totaling $1,115,604.77, or 69% of the value of the assets. The
Plaintiffs claim DEG was able to take possession of equipment and use it
for ten years without making any installment payments, principal or
interest. The Plaintiffs further allege that the legal obligations on the notes
executed by Demex, which DEG agreed to pay under the Asset Purchase
Agreement, remained with Demex.
Because DEG assumed no legal
obligations with respect to creditors, therefore, any creditor would have
recourse only against Demex. The Plaintiffs contend this demonstrates a
27
sham transfer of assets from Demex to DEG which was designed to prevent
the Plaintiffs, as judgment creditors, from obtaining assets of Demex to pay
the delinquent contributions.
DEG alleges the Plaintiffs’ math is erroneous and that it gave more
than adequate consideration in exchange for the assets. The Asset Purchase
Agreement required DEG to assume some of Demex’s liabilities and
payment made to those creditors would be deducted from the amount owed
to Demex under the promissory note executed concurrently with the Asset
Purchase Agreement. DEG disputes the suggestion that the assumption of
Demex’s liabilities demonstrates that the two companies are alter egos and
claims that the assumption of liabilities is a very common form of
consideration used by companies in arms-length transactions on a regular
basis. It is simply one of many different ways in which companies may
structure a transaction. The Court recognizes that the assumption of
liabilities is often a legitimate form of consideration which may also be
used, in certain circumstances, as part of a sham transaction to prevent a
creditor from reaching certain assets.
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DEG further asserts the Plaintiffs’ allegation that Demex transferred
equipment worth $1.6 million is erroneous because that figure also included
the value of the real property out of which Demex’s business operated,
which was not transferred to DEG, resulting in a $225,000 discrepancy.
Moreover, Demex only had equity in the assets it transferred of $851,000.
Accordingly, DEG claims that it assumed liabilities of at least
$1,115,604.77, in exchange for Demex’s equity in the assets, which was
worth approximately $851,000.
By assuming these liabilities, DEG
contends that it paid more than adequate consideration.
In further support of their argument, the Plaintiffs cite the deposition
testimony of Edward Fisher from the previous lawsuit involving Demex.
Mr. Fisher testified that he could not recall to whom he had sold Demex’s
equipment, which had a value of $1.6 million, merely ten months earlier.
DEG contends that Edward Fisher’s testimony is irrelevant because he does
not speak for DEG. Moreover, it alleges that Rhonda Fisher formed DEG
for lawful purposes.
(2)
29
The Plaintiffs also assert the close financial ties between Demex and
DEG support its argument that DEG is the alter ego. The Seventh Circuit
has found this factor to be significant in applying the alter ego analysis to
two businesses. See Central State, Southeast and Southwest Areas Pension
Fund v. Sloan, 902 F.2d 593, 597 (7th Cir. 1990). For a three month
period, the two businesses in Sloan kept funds in the same checking
account and thus employees of one business were paid from the account of
the other. See id. at 595. Additionally, two bank loans were in the names
of the individual owners and the husband’s company while the collateral
was being used by the wife’s company. See id. DEG contends Sloan is
inapposite because DEG and Demex do not commingle funds and its
employees are paid solely from DEG’s accounts.
The Plaintiffs contend that, like the businesses in Sloan, close
financial ties have existed between DEG and Demex. Pursuant to the Asset
Purchase Agreement, DEG is paying the tax liabilities of Demex. Moreover,
DEG is paying the creditors of Demex, on behalf of Demex, for loans in
Demex’s name. Ed and Rhonda Fisher operate the two businesses out of
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the same property, which they jointly own, at 805 S. Adams Street, Manito,
Illinois 61546. Ed Fisher has been paid $29,582.64 by DEG from January
2011 through March 2012. While Rhonda Fisher was employed at Demex,
she was paid $954.35 to perform office work.
As President of DEG,
Rhonda Fisher is paid $942.20 per week. The Plaintiffs contend that,
based on these facts, it is indisputable that the two entities are financially
intertwined.
DEG relies on Chicago Dist. Council of Carpenters Pension Fund v.
Vacala Masonry, 967 F. Supp. 309 (N.D. Ill. 1997), in alleging it is not a
“disguised continuance” of Demex. In that case, after considering the issue
of intent, the Northern District examined five factors in determining
whether there was such a continuance: (1) common management or
supervision; (2) common ownership; (3) same business purpose; (4)
identical business operations; and (5) shared equipment. See id. at 317
n.6. DEG alleges that the companies are not under common management,
supervision or ownership.
The Plaintiffs contend that the next two factors support the existence
31
of an alter ego relationship. They claim Demex and DEG have “strikingly
similar” business operations in that companies have the same business
purpose, operate out of the same location, use the same equipment and
vehicles and employ many of the same individuals. DEG claims that
although the entities generally operate in the same industry, their
demolition activities do not focus on the same types of structures. DEG
purchased equipment from Demex that would have few uses outside of the
demolition industry. Thus, DEG claims that because they have different
customers and focus on different sized projects, DEG and Demex do not
have the same business purpose.
Although the companies do operate out of the same location, DEG
alleges that it uses some equipment that was not obtained from Demex and
also has employees that have not worked for Demex. Additionally, it has
a separate bank account and uses a different accountant/bookkeeper than
Demex. There was no commingling.
The Court has previously discussed the fifth factor–whether the
companies shared equipment–in considering the parties’ arguments about
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the Asset Purchase Agreement and whether adequate consideration was
exchanged for the equipment.
(3)
Based on the current record, there are a number of curious
circumstances which could lead to the inference that DEG is a disguised
continuance of Demex and was created to avoid the obligation to pay fringe
benefit funds. However, there are factual disputes regarding whether there
was an “unlawful motive or intent” and whether the Asset Purchase
Agreement involved a sham transfer.
It does seem particularly odd that the Promissory Note does not
require a payment of principal or interest on the Note for twelve years.
Upon reviewing the record, however, the Court is unable at this time to
determine whether the Asset Purchase Agreement involved a sham transfer,
given the factual disputes over the effect of DEG’s assumption of Demex’s
liabilities, the inclusion of the value of real property out of which Demex’s
business operated and Demex’s equity in the assets exchanged.
There are a number of facts which could suggest that the companies
33
were financially intertwined. It is certainly noteworthy that Rhonda Fisher
makes almost the exact amount as President of DEG as she did to do office
work for Demex. When the facts are viewed in a light most favorable to
DEG, the Court is unable to conclude that there was commingling of funds
as was the case in Sloan. Moreover, there are factual disputes as to whether
the companies were under common management or supervision.
The payments from DEG to Edward Fisher might be interpreted as
evidence that he was behind both companies.
According to Rhonda
Fisher’s Affidavit, however, the payments were for consulting duties based
on his knowledge of the demolition business. The cited portion of Mr.
Fisher’s testimony from another case, wherein it appeared he could not
recall that he sold Demex’s equipment to DEG months earlier, seems very
odd. Because DEG has produced an affidavit which states that Edward
Fisher is not authorized to speak on its behalf, the Court is unable based on
the correct record to construe that statement from another case as evidence
that he was being evasive about his role in DEG.
Undoubtedly, the businesses are very similar. However, DEG and
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Demex focus on different sized projects. Moreover, there are factual issues
regarding the adequacy of consideration for DEG’s equipment, in addition
to the extent that the two companies had different customers.
Based on the foregoing, the Court concludes there are genuine issues
of material fact which preclude the entry of summary judgment regarding
whether DEG is Demex’s alter ego.
Ergo, the Motion of the Plaintiffs’ for Summary Judgment [d/e 19] is
DENIED.
The final pretrial conference is hereby set for April 28, 2014 at 2:00
p.m.
ENTER: March 31, 2014
FOR THE COURT:
s/Richard Mills
Richard Mills
United States District Judge
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