Board of Trustees of the Automobile Mechanics' Local 701 Union and Industry Welfare Fund et al v. Beland & Wiegers Enterprises, Inc.
Filing
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MEMORANDUM Opinion and Order Signed by the Honorable Joan B. Gottschall on 10/29/2014. Mailed notice(ef, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BOARD OF TRUSTEES OF THE AUTOMOBILE )
MECHANICS’ LOCAL NO. 701 UNION AND
)
INDUSTRY WELFARE FUND; and
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BOARD OF TRUSTEES OF THE AUTOMOBILE )
MECHANICS’ LOCAL NO. 701 UNION AND
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INDUSTRY PENSION FUND,
)
)
Plaintiffs,
)
)
v.
)
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BELAND & WIEGERS ENTERPRISES, INC.,
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an Illinois Corporation,
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DANIEL J. BELAND, an individual, and
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BERNARD WIEGERS, an individual,
)
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Defendants.
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Judge Joan B. Gottschall
No. 13 CV 1611
MEMORANDUM OPINION & ORDER
On June 3, 2013, Plaintiffs Board of Trustees of the Automobile Mechanics’ Local
No. 701 Union and Welfare Fund and Board of Trustees of the Automobile Mechanics’
Local No. 701 Union and Industry Pension Fund (collectively, “Plaintiffs”) sued
Defendants Beland & Wiegers Enterprises, Inc. (“B&W”), Daniel J. Beland (“Beland”),
and Bernard Wiegers (“Wiegers”). Plaintiffs alleged that B&W breached its collective
bargaining agreement (“CBA”) in violation of ERISA and that all Defendants were
responsible for the full amount of withdrawal liability as a result of B&W’s complete
withdrawal from the pension funds. After discovery, Plaintiffs moved for summary
judgment. On August 21, 2014, this court entered summary judgment against B&W and
denied summary judgment against Beland.
Now before the court is Plaintiffs’ motion for reconsideration of the court’s order
denying summary judgment as to Beland as an individual. For the reasons detailed below,
the court grants Plaintiffs’ motion for reconsideration and vacates its August 21, 2014
Order.
I. FACTS1
Beland is the sole owner of B&W, an Illinois corporation. He became the sole
owner in 2005 when his partner, Wiegers, retired and Beland instituted a buyout. In 2010,
B&W entered into a CBA with the Automobile Mechanics’ Local Union No. 701. As part
of the CBA, B&W agreed to be bound by the provisions of the Agreements and
Declarations of Trust (“Trust Agreements”), which in turn created a pension fund and a
welfare fund (“Funds”)2: the Automobile Mechanics’ Local Union No. 701 and Industry
Pension Fund and the Automobile Mechanics’ Local No. 701 Union and Industry
Welfare Fund.
The CBA and Trust Agreements required B&W to contribute monthly to the Funds
for each week that a covered employee performed any work at the negotiated rate. If
B&W failed to submit a timely monthly payment, the Trust Agreements required B&W
to pay the contribution, liquidated damages (10 percent of the unpaid amount), and
reasonable attorney’s fees and costs.
On or about September 19th or 20th, 2012 – approximately two years into B&W’s
collective bargaining agreement with Plaintiffs – B&W ceased all covered work and
1
Northern District of Illinois Local Rule 56.1(a) requires parties moving for summary
judgment to submit a statement of material facts. Local Rule 56.1(b)(3)(C) states: “[a]ll
materials set forth in the statement required of the moving party will be deemed to be
admitted unless controverted by the statement of the opposing party.” Plaintiffs filed a
Local Rule 56.1 Statement of Material Facts (ECF No. 24). Defendants failed to file a
response. Thus, the court deems Plaintiffs’ facts admitted, and the facts that follow are
taken primarily from Plaintiffs’ statement and its supporting materials.
2
The Funds are synonymous with the Plaintiffs in this case.
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ceased making contributions to Plaintiffs. As a result, B&W owed Plaintiffs $5,020.50
(plus liquidated damages) for the unpaid contributions in September and October 2012.
As a result, Plaintiffs notified Defendants that this constituted a complete withdrawal that
triggered withdrawal liability under ERISA. In March 2013, Plaintiffs sent B&W a notice
and demand for payment of withdrawal liability in the amount of $261,052.00, along with
a quarterly payment schedule. B&W failed to make its first quarterly payment, prompting
this suit.
Defendants did not request a review of the withdrawal liability assessment or
initiate arbitration to challenge Plaintiffs’ assessment. Calculations for money owed
based on the terms of the agreement include $5,522.55 to Plaintiffs for the breach of
contract claim,3 $292,867.13 for the withdrawal-liability claim,4 and attorney’s fees and
costs.
At the time of B&W’s withdrawal, Beland was the sole owner of both B&W and of
property located at 11625 South Ridgeland, Alsip, Illinois. B&W operated out of the
South Ridgeland property. According to Beland’s deposition testimony, B&W paid
Beland monthly rent to use the property for its business.
II. LEGAL STANDARD
Motions to reconsider serve the limited function of allowing the court to correct
manifest errors of law or fact or to consider newly discovered material evidence. SengTiong Ho v. Taflove, 648 F.3d 489, 505 (7th Cir. 2011). A “manifest error” occurs when
“the [c]ourt has patently misunderstood a party, or has made a decision outside the
3
This amount consists of $5,020.50 in contributions and $502.50 in liquidated damages.
4
This amount consists of $261,052.50 for withdrawal liability, $26,105.20 for liquidated
damages, and $5,709.93 in interest.
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adversarial issues presented to the [c]ourt by the parties, or has made an error not of
reasoning but of apprehension.” Bank of Waunakee v. Rochester Cheese Sales, Inc., 906
F.2d 1185, 1191 (7th Cir. 1990).
III. ANALYSIS
The following statutory regime lays out the pertinent rules governing employer
liability under ERISA. A complete withdrawal from a multiemployer plan occurs when
an employer permanently ceases to have an obligation to contribute under the plan or
permanently ceases all covered operations. 29 U.S.C. § 1383(a). Once complete
withdrawal occurs, the plan sponsor must notify the employer of the amount of liability,
submit a payment schedule, and make a demand for payment in accordance with the
schedule. 29 U.S.C. § 1399. If an employer defaults by failing to make timely payments,
the plan sponsor:
[m]ay require immediate payment of the outstanding amount of an
employer’s withdrawal liability, plus accrued interest on the total outstanding
liability from the due date of the first payment which was not timely
made . . . if the failure is not cured within 60 days after the employer receives
written notification from the plan sponsor of such failure . . . .
29 U.S.C. § 1399(c)(5). The employer may initiate arbitration to dispute a withdrawal
liability assessment. See 29 U.S.C. § 1401(a)(1). If no arbitration proceeding is initiated,
the plan sponsor may bring suit to enforce collection. See 29 U.S.C. § 1401(b)(1).
Withdrawal liability may also be imputed to individuals. Central States, Se. & Sw.
Pension Fund v. Personnel, Inc., 974 F.2d 789, 792 (7th Cir. 1992). To determine
whether withdrawal liability may be imputed to an individual, the court must determine
whether the individual qualifies as a “single employer.” Id. A “single employer” exists
under § 1301(b)(1) when “all employees of trades or businesses (whether or not
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incorporated) . . . are under common control [of an individual or entity].” Id. All trades or
businesses that meet this definition are treated as a “single employer.” Id.
To determine whether a “trade or business” exists, the Seventh Circuit traditionally
applies the standard announced in Comm’r v. Groetzinger, 480 U.S. 23 (1987). See Cent.
States, Se. & Sw. Areas Pension Fund v. SCOFBP, LLC, 668 F.3d 873, 878 (7th Cir.
2011). Under Groetzinger, a “trade or business” exists when an entity or individual has
“engaged in an activity (1) with continuity and regularity (2) for the primary purpose of
income or profit.” Groetzinger, 480 U.S. at 35.
In recent years, the Seventh Circuit has applied the “Leasing Property Rule” in
addition to the Groetzinger standard. SCOFBP, 668 F.3d at 873 (7th Cir. 2011). The
Leasing Property Rule provides that “leasing property to a withdrawing employer itself is
categorically a trade or business.” Id.
In SCOFBP, the Seventh Circuit applied the Leasing Property Rule in an ERISA
case to determine whether two solvent business entities were liable for an insolvent
affiliate’s withdrawal liability. Id. at 876. A defendant, SCOFBP, LLC (“SCOFBP”) was
part of a complex set of business entities that included two solvent entities:
MCRI/Missouri, LLC (“MCRI”) and MCOF/Illinois, LLC (“MCOF”). Id. A single
individual, Michael Cappy (“Cappy”), controlled all three entities (SCOFBP, MCRI, and
MCOF). Id. In this arrangement, MCOF owned a lumberyard that SCOFBP used and
leased. Id. at 877. After SCOFBP stopped paying into the union’s pension fund, thereby
incurring withdrawal liability, plaintiffs sought to hold MCOF liable for SCOFBP’s
withdrawal liability by arguing that (1) MCOF engaged in a “trade or business” by
leasing property to SCOFBP and (2) SCOFBP and MCOF were under the “common
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control” of the same individual, Cappy. Id. at 877. The plaintiffs argued that these two
factors were sufficient to satisfy Groetzinger. Id.
The Seventh Circuit agreed, finding that MCOF satisfied the Groetzinger standard
because it leased property to the withdrawing employer, SCOFBP. Id. at 878. The court
looked to the purpose of the withdrawal liability statute, which is “to prevent the
dissipation of assets required to secure vested pension benefits.” Id. (citation omitted).
With this purpose in mind, the Seventh Circuit stated that “leasing property to a
withdrawing employer is a ‘trade or business’” because leasing property is ‘an economic
relationship that could be used to . . . dissipate or fractionalize assets.’” Id. (citation
omitted). The Seventh Circuit applied the Leasing Property Rule and found MCOF liable
for the unpaid withdrawal liability. Id. In doing so, the court sought to “protect the
solvency of multiemployer pension plans,” by “pierc[ing] the usual legal barriers between
affiliated but legally distinct businesses.” Id. at 876.
In subsequent years, the Seventh Circuit has repeatedly pierced legal barriers
between affiliated businesses by applying the Leasing Property Rule. In Cent. States, Se.
& Sw. Areas Pension Fund v. Messina, the Seventh Circuit addressed the scope of
liability that could be imposed on a withdrawing employer’s related businesses. Messina,
706 F.3d 874 (7th Cir. 2013). An entity called Messina Trucking (“Messina Trucking”)
was subject to a collective bargaining agreement that required it to contribute to a pension
fund for its employees’ retirement benefits. Id. at 877. After several years of making
contributions, Messina Trucking permanently ceased to have a contribution obligation
and incurred millions of dollars of withdrawal liability. Id. The pension fund sued
Messina Trucking as well as the owners of the trucking business, Stephen and Florence
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Messina (the “Messinas”). The pension fund sought to impose liability on the Messinas
individually based on the fact that the Messinas owned and leased a property to Messina
Trucking. Id. However, the district court rejected the pension fund’s argument and held
that the Messinas were not engaged in a “trade or business” and thus not liable for
Messina Trucking’s withdrawal liability. Id.
The pension fund appealed, and the Seventh Circuit reversed the district court’s
decision that the Messinas were not engaged in a trade or business. Id. The Seventh
Circuit explained that the lower court had reached its decision “without the benefit
of . . . SCOFBP, issued after the court’s decision.” Id. at 881. The Seventh Circuit
explained that it was bound by SCOFBP’s “teaching that renting property to a
withdrawing employer is ‘categorically a trade or business.’” Id at 880. Applying
SCOFBP to the district court ruling, the Seventh Circuit reversed, holding that the
Messinas were engaged in a “trade or business” and were liable for Messina Trucking’s
withdrawal liability. Id. at 882. The court further noted, “where the real estate is rented to
or used by the withdrawing employer and there is common ownership,” it is likely that a
“true purpose and effect of the ‘lease’ is to split up the withdrawing employer’s assets,”
and that liability should thus be imposed on the entity or individuals who lease the
property to the withdrawing employer. Id.
The Messinas attempted to attack SCOFBP by arguing that it is not “good law
because instead of relying on Groetzinger and its two-part test, [SCOFBP] relied instead
on the underlying purpose of the statute – to prevent the fractionalization of assets.” Id.
The Seventh Circuit rejected the argument and made it clear that SCOFBP’s conclusion
that “an owner’s or related entity’s leasing of property to a withdrawing employer” is a
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“trade or business is consistent with both the Groetzinger test and the underlying purpose
of [§] 1301(b)(1).” Id. at 883.
The Seventh Circuit held the same firm line in Cent. States, Se. & Sw. Areas
Pension Fund v. Nagy Ready Mix, Inc. and applied the Leasing Property Rule. 714 F.3d
545 (7th Cir. 2013). In Nagy, the lower court refused to hold “that liability must be
imposed on Nagy solely because he both owned and leased property to a withdrawing
employer.” Cent. States, Se. & Sw. Areas Pension Fund v. Nagy Ready Mix, Inc., 2011
WL 3021524 (N.D. Ill. 2011). The Seventh Circuit rejected this approach. Nagy, 714 F.
3d at 547. Instead, relying on Messina and SCOFBP, it held that “Nagy’s leasing activity
[to a withdrawing employer] is categorically a trade or business for purposes of personal
liability under § 1301(b)(1).” The court thus found that the district court erred when it
concluded that “Nagy’s leasing of property [to the withdrawing employer] did not qualify
as a trade or business.” Id.
With this law in mind, the court now turns to Plaintiffs’ motion for reconsideration.
A. CLARIFICATION OF RULE STATEMENT
Plaintiffs ask the court to reconsider its denial of summary judgment as to Beland in
light of the Seventh Circuit’s decisions in SCOFBP, Messina, and Nagy. Plaintiffs argue
that the court’s inquiry should have turned on whether Beland leased property to B&W.
If he did, Plaintiffs argue that the court should find that Beland is jointly and severally
liable for the withdrawal liability incurred by B&W.
A close review of the Seventh Circuit cases noted above indicates that a more
helpful recitation of the rule would proceed as follows: Where an individual (1) owns the
property on which a withdrawing employer conducts its operations, (2) leases the
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property to the withdrawing employer, and (3) owns the withdrawing employer, then that
individual is personally liable for the payment of withdrawal liability incurred by the
withdrawing employer. In sum, if an individual engages in a trade or business under
common control with the withdrawing employer by leasing his property to the
withdrawing employer, he is personally liable for payment of withdrawal liability.
B. APPLICATION OF RULE STATEMENT
The court now turns to the facts of the case before it. Under Rule 56(c)(3), “[t]he
court need consider only the cited materials, but it may consider other materials in the
record.” Fed. R. Civ. P. 56(c)(3). Although the Rule 56.1 statements could have more
clearly articulated that Beland leased the property to B&W, the court finds that the record
as a whole clarifies any doubts as to whether Beland leased the property to B&W.
It is undisputed that Beland (1) owns the property on which B&W conducted its
operations, (2) leased the property to B&W, and (3) owns B&W. (Pl.’s Local Rule 56.1
Statements, ECF No. 24, ¶¶ 14-16.) In support of these facts, Plaintiffs cite to Beland’s
deposition and responses to interrogatories. In Beland’s deposition, he indicated that
B&W paid rent to him:
Q. [By Plaintiffs’ attorney] Now would Beland & Wiegers Enterprises, Inc. pay the
partnership rent?
A. [By Beland] Beland & Wiegers paid the partnership rent, yes, that’s correct.
Q. Do you know what that rent was?
A. The mortgage payment.
(Beland Deposition at 12:5-13, ECF No. 24-5). Beland also indicated that the mortgage
was “with the partnership” because “the partnership or essentially [Beland] owned the
property. (Id. at 14:16-21.) Additionally, in his answers to interrogatories, Beland
indicated that he had a “100%” interest in the land trust that held title to the South
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Ridgeland property where B&W based its operations and that he owned B&W. (ECF No.
24-6, ¶¶ 4-6.) Plaintiffs argue that the statements in Beland’s deposition and his answers
to interrogatories make it “clear that Beland leased the property where B&W operated to
B&W” and that “Beland’s lease operations and B&W are under common control.” (Pl.’s
Mtn. for Reconsideration, ECF No. 34, 5).
Examining the record as a whole, the court finds that Plaintiffs have sufficiently
established that Beland both leased the property to B&W and had common control over
the property leased to B&W and over B&W itself. It is clear from the record that Beland
owned the land located at South Ridgeland and collected rent from B&W to cover his
mortgage payments on the land. Applying the Groetzinger standard and the holding from
SCOFBP to the undisputed facts of this case, the court thus finds that Plaintiffs have
established facts sufficient to grant summary judgment as against Beland.
V. CONCLUSION
For these reasons, the court grants Plaintiffs’ motion for reconsideration and
vacates the August 21, 2014 order denying summary judgment against Defendant Daniel
J. Beland.
ENTER:
/s/
JOAN B. GOTTSCHALL
United States District Judge
DATED: October 29, 2014
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