Trustees of the Plumbers and Gasfitters Local 5 Retirement Savings Fund et al v. Conditioned Air Systems, Inc. et al
Filing
39
MEMORANDUM. Signed by Judge Catherine C. Blake on 3/28/14. (jnls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
TRUSTEES OF THE PLUMBERS AND
GASFITTERS LOCAL 5 RETIREMENT,
SAVINGS FUND, ET AL.
v.
CONDITIONED AIR SYSTEMS, INC.,
ET AL.
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Civil No. CCB-12-730
MEMORANDUM
Plaintiffs (collectively, “the Local 5 Funds”) brought suit under the Employee Retirement
Income Security Act of 1974 (“ERISA”) to recover delinquent contributions to various employee
benefits funds from defendants Conditioned Air Systems, Inc. (“Systems”) and Complete Air
Solutions, Inc. (“Solutions”). The Local 5 Funds’ motion for summary judgment is currently
pending before the court. The parties have fully briefed the issues, and no hearing is necessary.
See Local Rule 105.6. The motion will be granted in part and denied in part.
BACKGROUND
Plaintiffs are a union, Plumbers Local Union No. 5 (“Local 5”), and the trustees of
various employee benefit funds covered by ERISA that are associated with Local 5. On
September 28, 2008, Systems signed a Letter of Assent, (Killeen Decl. Ex. 1, ECF No. 28-23),
agreeing to be bound by the collective bargaining agreement (“CBA”) between Local 5 and the
Mechanical Contractors Association of Metropolitan Washington, Inc. (“the Association”),
(CBA, Killeen Decl. Ex. 2, ECF No. 28-24). By the Letter of Assent, Systems also agreed to be
bound by the Restated Agreements and Declarations of Trust (“Trust Agreements”) governing
1
each of the funds on behalf of which suit was brought here. (Letter of Assent.)
Under the CBA and Trust Agreements, Systems was required to make monthly
contributions to the Local 5 Funds at a rate prescribed by the CBA for each hour worked by a
covered employee. (See, e.g., Trust Agreements, Killeen Decl. Ex. 4, ECF No. 28-26, at 4; CBA
at 23 (¶ 166).) In addition, Systems was obligated to submit monthly reports to the Association,
Local 5, and the trustees of the Local 5 Funds that contained the names of each employee whose
wages were covered by the CBA that had been employed during the preceding calendar month
and the number of hours each had worked. (Trust Agreements at 4; CBA at 23 (¶ 169).)
In December 2010 Systems entered into a consent judgment (“the Settlement Agreement”
or “the Agreement”) with the Local 5 Funds under which it acknowledged that it owed
$88,041.89 in delinquent contributions, interest, liquidated damages, costs, and attorneys’ fees
for the period of February 2009, June through August 2009, and October 2009 through August
2010. (Settlement Agreement, Killeen Decl. Ex. 9, ECF No. 28-31, ¶ 2.) It agreed to pay
$63,273.66 with interest assessed on that amount at a rate of ten percent per annum. (Id. ¶ 3.)
The Local 5 Funds agreed to waive the remaining $24,768.23 in liquidated damages as long as
Systems made every scheduled payment under the Settlement Agreement and submitted all
future remittance reports and contributions as required by the CBA and Trust Agreements. (Id. ¶
4.) The parties agreed that if Systems failed to comply with any part of the Agreement the entire
amount of waived liquidated damages would be reassessed and the entire amount still due under
the Agreement would be declared immediately due and payable. (Id.) Systems failed to comply
with the terms of the Agreement by failing to submit remittance reports and make contributions
for each succeeding month. (Def.’s Opp’n Ex. 1, ECF No. 35-2.)
2
When the parties entered into the Settlement Agreement, an audit was ongoing to review
Systems’ payroll records. (Settlement Agreement ¶ 10.) The audit reviewed Systems’ records
for the period between and including January 2008 and July 2011. (Coyle Decl., ECF No. 28-32,
¶ 3.) It ultimately revealed $168,790.76 in unpaid contributions to the Local 5 Funds for that
period of time. (Coyle Decl. ¶ 4; Audit Report, Coyle Decl. Ex. A, ECF No. 28-33.) In addition
to the unpaid contributions revealed by the audit, Systems also failed to meet its obligations
accruing in the months after the audit period. (Killeen Decl., ECF No. 28-22, ¶¶ 11, 13, 17, 24.)
The Local 5 Funds filed this action in March 2012 seeking delinquent contributions that
accrued from January 2008 through the date of judgment, liquidated damages and interest for the
same period through the date of payment, an order that the defendants submit payroll records for
an audit of the period from August 1, 2011, through the present, unpaid dues and work
assessments, and injunctive relief requiring the defendants to comply with their obligations in the
future. (Compl., ECF No. 1, at 12.) The Local 5 Funds now ask this court to enter summary
judgment in their favor for $821,955.46 in unpaid contributions, liquidated damages, and interest
covering the period from January 2008 through May 2013. They also request that the court grant
summary judgment as to Solutions’ liability as Systems’ alter ego and as to Solutions owner
Richard Putnam’s individual liability.
ANALYSIS
Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted
“if the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a) (emphasis added). Whether a fact
is material depends upon the substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
3
247–48 (1986). Accordingly, “the mere existence of some alleged factual dispute between the
parties will not defeat an otherwise properly supported motion for summary judgment.” Id. “A
party opposing a properly supported motion for summary judgment ‘may not rest upon the mere
allegations or denials of [his] pleadings,’ but rather must ‘set forth specific facts showing that
there is a genuine issue for trial.’” Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d
514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed. R. Civ. P. 56(e)). The court must
view the evidence in the light most favorable to the nonmovant and draw all justifiable
inferences in his favor. Scott v. Harris, 550 U.S. 372, 378 (2007) (citation omitted); see also
Greater Baltimore Ctr. for Pregnancy Concerns, Inc. v. Mayor and City Council of Baltimore,
721 F.3d 264, 283 (4th Cir. 2013) (citation omitted). At the same time, the court must not yield
its obligation “to prevent factually unsupported claims and defenses from proceeding to trial.”
Bouchat, 346 F.3d at 526 (citation and internal quotation marks omitted).
I.
Defendants’ Liability under ERISA
A. Conditioned Air Systems, Inc.’s Liability
ERISA mandates that employers obligated to make contributions to multiemployer
benefit plans under the terms of such plans or a collective bargaining agreement “shall, to the
extent not inconsistent with law, make such contributions in accordance with the terms and
conditions of such plan or such agreement.” 29 U.S.C. § 1145. When employers fail to make
required contributions, ERISA empowers beneficiaries, such as the plaintiffs in this case, to
bring civil actions to recover benefits, enforce rights under the relevant plan or agreement, or
clarify future benefits. Id. § 1132(a)(1)(B). Where a plan prevails in enforcing its rights to
4
contributions, it can recover not only unpaid contributions, but also interest, liquidated damages,
and attorneys’ fees.1 Id. § 1132(g)(2).
It is undisputed that Systems was under an obligation to submit monthly remittance
reports and make contributions to the Local 5 Funds by virtue of its assent to be bound by the
CBA and the Trust Agreements. (See, e.g., Letter of Assent.) ERISA mandates that it comply
with those obligations. 29 U.S.C. § 1145. Where Systems has failed to meet its obligations,
therefore, plaintiffs are entitled to recover damages as set forth under ERISA. 29 U.S.C.
1132(g)(2); see also Int’l Painters and Allied Trades Indus. Pension Fund v. Capital Restoration
& Painting, Co., 919 F. Supp. 2d 680, 685-86 (D. Md. 2013) (noting that “[t]he Supreme Court
has found that these sections [§§ 1132(g) and 1145] ‘provide trustees of multiemployer benefit
plans with an effective federal remedy to collect delinquent contributions.’” (quoting Laborers
Health & Welfare Trust Fund for N. Cal. v. Advanced Lightweight Concrete Co., 484 U.S. 539,
541 (1988))).
B. Complete Air Solutions, Inc.’s Liability
According to Richard Putnam, Systems ceased operations in mid-March 2012. (Putnam
Aff. ¶ 25.) Putnam registered Solutions, however, in December 2011. (Solutions Articles of
Incorporation, ECF No. 28-4, at 4.) Plaintiffs claim that even if Systems nominally ceased
operating by April 2012, it was actually continuing operations as Solutions. Thus, although
Solutions never assented to be bound by the CBA or Trust Agreements, the Local 5 Funds seek
to hold it jointly and severally liable with Systems for delinquent contributions and related
damages under the theory that the two entities are “alter egos” or “single employers.”
1
Plaintiffs state in their memorandum that they will seek attorneys’ fees and costs at a later time. (Pl.’s Mem. at 12
n.2.)
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The “alter ego” doctrine prevents an employer from avoiding his labor obligations simply
by altering his corporate form but with no substantial change in ownership and management.2
See Alkire v. Nat’l Labor Relations Bd., 716 F.2d 1014, 1018 (4th Cir. 1983); Maryland Elec.
Indus. Health Fund v. Kodiak Util. Constr., Inc., 289 F. Supp. 2d 698, 702 (D. Md. 2003). If two
entities are alter egos, they are each liable for the labor obligations of the other. Alkire, 716 F.2d
at 1018. The Fourth Circuit has set out a two-part test to determine whether an entity is the alter
ego of the original employer. First, the court must determine “whether substantially the same
entity controls both the old and new employer.” Id. at 1020; see also Maryland Elec. Ind. Health
Fund, 289 F. Supp. 2d at 702. In making this inquiry, courts have looked at a variety of factors,
including: “continuity of ownership, similarity of the two companies in relation to management,
business purpose, operation, equipment, customers, supervision, and anti-union animus.” Id.
(quoting Massachusetts Carpenters Central Collection Agency v. Belmont Concrete Corp., 139
F.3d 304, 308 (1st Cir. 1998) (internal quotation marks omitted)); Trustees of the Heating,
Piping and Refrigeration Pension Fund v. Engineering Contractors, Inc., 2011 WL 4711925, at
*2 (D. Md. 2011).3 If the two entities are substantially the same, the court must then determine
whether changing the corporate form would provide an “expected or reasonably foreseeable
benefit to the old employer related to the elimination of its labor obligations.” Alkire, 716 F.2d
at 1020. Similarly, two entities are considered a “single employer” where they have common
ownership, interrelation of operations, common management, and centralized control of labor
relations. Vance v. Nat’l Labor Relations Bd., 71 F.3d 486, 490 (4th Cir. 1995). The ultimate
2
Defendants claim this court should apply Maryland law to decide alter ego liability. (Def.’s Opp’n at 20-22.)
There is no support for applying state law in the cases the defendants cite or in any other cases proffered by the
parties.
3
Unpublished cases are cited only for the soundness of their reasoning not for any precedential value.
6
question in determining alter ego status is “whether a successor corporation is really the
predecessor corporation by another name,” Maryland Elec. Indus. Health Fund, 289 F. Supp. 2d
at 702, and the ultimate question in determining single employer status is whether the two
entities are in an “arm’s length” relationship, Vance, 71 F.3d at 490. Under either analysis,
Systems and Solutions are jointly and severally liable for Systems’ labor obligations.
Most indicative of Solutions’ alter ego or single employer status are the emails Systems
sent, in January 2012, informing two of its customers that it was “changing its name to Complete
Air Solution Inc.” and that Systems was “now doing business as of 1-1-2012 as Complete Air
Solutions, Inc.” (Email to Flower Hill Community Center (“FHCC”), ECF No. 28-5, at 1; Letter
to Maryland Stadium Authority, ECF No. 28-6.). Defendants attempt to characterize these
emails as informing customers that Systems was ceasing operations, but there is nothing in the
record to support such a reading and such an inference would be unwarranted. Instead, they
demonstrate that Systems was only undergoing a name change. This understanding is further
supported by a later email in which Richard Putnam, the owner of both entities, asked a client to
make a check out to “our new name Complete Air Solutions Inc.” (FHCC Emails, May 21,
2012, ECF No. 28-10, at 1 (emphasis added).)
In addition, the record demonstrates that Solutions and Systems had common ownership
and similar management, and shared a physical address and email addresses. (Putnam Aff., ECF
No. 35-1, ¶¶ 4-5, 94; Solutions Articles of Incorporation; Solutions’ Resp. to Pl.’s First Request
for Admis., ECF No. 28-8, at Request Nos. 4, 5; Systems’ Supp. Resp. to Pl.’s First Set of
Interrog., ECF No. 28-9, at Interrog. No. 3; compare DiFranco Email to FHCC, November 3,
4
The plaintiffs challenge the admissibility of several statements included in Mr. Putnam’s affidavit. (Reply, ECF
No. 39, at 3-6.) The court will assume, without deciding, that the entire affidavit is admissible because its
acceptance does not prejudice the plaintiffs’ position.
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2011, ECF No. 28-14, with DiFranco Email to FHCC, May 4, 2012, ECF No. 28-15 (using the
same email addresses for both Systems and Solutions correspondence).) As of at least May
2012, Solutions was invoicing for work that was still under contract to Systems. (Maryland
Stadium Authority Email Regarding Systems Invoices, ECF No. 28-7; FHCC Emails, ECF No.
28-10, at 2; see also Putnam Aff. ¶ 30.) In addition, Solutions used documents in its invoicing
still labeled with Systems’ name. (Time Sheet, October 3, 2012, ECF No. 28-12.) Plaintiffs also
have provided documents demonstrating that at least two individuals employed by Systems were
performing work after the date the defendants claim Systems ceased operations, suggesting they
worked for Solutions. (Systems’ Supp. Resp. to Pl.’s First Set of Interrog. at Interrog. No. 8
(listing Michalena DiFranco and Dwayne Myer as employees of Systems); Time Sheet, October
3, 2012, ECF No. 28-12 (listing hours worked by Dwayne Myer in October 2012); DiFranco
Email to FHCC, May 4, 2012, ECF No. 28-15 (indicating DiFranco sent an email on behalf of
Solutions in May 2012).) Putnam admits in his affidavit that the two employees worked for
Solutions, but claims it was only temporary. (Putnam Aff. ¶ 28.) The record demonstrates,
however, that at least one of the employees worked for Solutions well after it began operations.
(Time Sheet, October 3, 2012.)
The intermingling of operations and work in the manner evidenced by the record
demonstrates that the two entities were not operating in an arm’s-length relationship and that
Solutions was nothing more than Systems by another name. See Nat’l Labor Relations Bd. v.
Kodiak Elec. Co., 70 F. App’x 664, 667-68 (4th Cir. 2003) (finding evidence of alter ego status
where one entity performed work obtained by the other and shared employees, common space,
ownership, and management); Maryland Elec. Indus. Health Fund, 289 F. Supp. 2d at 702-03
8
(finding evidence of alter ego status where two entities shared common owners, management,
equipment, and employees, and had “considerable intermingling of the two companies’ intraoffice affairs” (internal quotation marks and citation omitted)); Trustees of Nat’l Automatic
Sprinkler Indus. Pension Fund v. Budget Plumbing Corp., 111 F. Supp. 2d 716, 720-21 (D. Md.
2000) (finding evidence of single employer status where two entities shared employees, owners,
offices, work, and communications systems).
Most of the defendants’ attempts to dispute alter ego or single employer status constitute
nothing more than mischaracterizations of the law or the record. Defendants claim Systems and
Solutions cannot be said to have common ownership because Putnam is the sole owner of
Solutions, while both he and Virginia Merrigan owned Systems. (Def.’s Opp’n at 25.) First, this
claim in defendants’ pleadings is belied by the record, which demonstrates that both were owners
of both Systems and Solutions until March 2012 when Merrigan left both companies. (See
Putnam Aff. ¶¶ 4-5; Putnam Aff. Ex. A.) Second, different ownership shares—in this case,
Putnam’s 80 percent share in Systems and now 100 percent share in Solutions—does not defeat a
finding of alter ego status. See Kodiak Elec. Co., 70 F. App’x at 667 (finding the first step of the
Fourth Circuit’s alter ego test satisfied where overlapping control of both entities existed despite
different ownership); Trustees of Nat’l Automatic Sprinkler Indus. Pension Fund, 111 F. Supp.
2d at 720 (finding indicia of common ownership where an individual had ownership shares,
although of different amounts, in two companies). Defendants also claim the two entities did not
share the same management because Virginia Merrigan was an officer of Solutions but not of
Systems. The law only requires similarity in management, Maryland Elec. Ind. Health Fund,
289 F. Supp. 2d at 702, and it is undisputed that Putnam is an officer of and controls both
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entities, and has been the sole officer of Solutions since only four months after it was
incorporated. Defendants also claim that Solutions contracted with Systems’ customers for new
work. (Def.’s Opp’n at 26.) There is nothing in the record indicating that the contracts were for
new work. All Putnam states in his affidavit is that Solutions negotiated new contracts with
existing customers, not new work. (See Putnam Aff. ¶ 13.) In fact, as discussed above, the
record indicates that new contracts Solutions attempted to negotiate were only for work Systems
had been performing, and often Solutions performed work with no new contract at all. (Email to
FHCC, and attached contract, ECF No. 28-5; Maryland Stadium Authority Email Regarding
Systems Invoices, ECF No. 28-7; FHCC Emails, ECF No. 28-10, at 2; see also Putnam Aff. ¶
30.) That Solutions eventually may have obtained new work, (see Putnam Aff. ¶ 34 (indicating
Solutions bid on and was awarded new contracts in December 2012)), is not sufficient to
overcome its alter ego status. An entity continuing under a new name cannot be rendered an
entirely new and independent company simply because it later obtains new work in addition to
the old.
The remaining facts on which defendants rely are insufficient to provide a reasonable
trier of fact with any basis to conclude that Systems and Solutions are not alter egos. First,
defendants claim the two companies had different business purposes because Systems focused on
plumbing and pipefitting work in building projects, while Solutions focused on plumbing and
pipefitting work on service and repair projects. (Def.’s Opp’n at 25-26; Putnam Aff. ¶¶ 11-12.)
To be considered alter egos, two entities do not have to have identical business purposes, only
substantially the same, or similar, business purposes. Maryland Elec. Indus. Health Fund, 289 F.
Supp. 2d at 702-03. It is undisputed that Systems and Solutions both performed work in the
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same industry, for the same customers, and with at least some of the same employees. Further,
Putnam explains in his affidavit that Solutions’ focus on service work is actually the result of
wanting more government contracts. (Putnam Aff. ¶¶ 6, 11.) Courts have found that where two
entities perform work in the same field, the fact that they have different types of customers does
not defeat a finding of alter ego status. Maryland Elec. Indus. Health Fund, 289 F. Supp. 2d at
701 n.9 (citing Maryland Elec. Indus. Health Fund v. Kodiak Elec. Co., Civ. No. 99-790, at *8
(D. Md. May 29, 2001)); see also Carpenters’ Pension Fund of Balt., Maryland v. Tao Constr.
Co., Inc., 2010 WL 3733949, at *2 (D. Md. 2010) (finding that two corporations working in the
same industry was indicative of alter ego status). Even accepting that the differences claimed by
defendants exist, they are insufficient to provide a basis for finding different business purposes.
Second, defendants claim that Solutions has neither the same equipment5 nor the same
supervisors as Systems, and that the two entities are in fact operated differently because
Solutions only performs work through subcontractors while Systems hired employees to do its
work. (Def.’s Opp’n at 26-28.) Not only does the record demonstrate that Solutions did in fact
have employees, (Putnam Aff. ¶ 28; Whiting-Turner Daily Field Report, ECF No 28-20 (listing
that CAS had one employee on the worksite on June 1, 2012); Time Sheet, October 3, 2012;
DiFranco Email to FHCC, May 4, 2012), but these facts are not enough to overcome the
extensive evidence that Systems simply changed its name to Solutions and that Solutions then
took on Systems’ work and replicated its operations in other ways—sharing the same owners,
officers, email addresses, physical address, paperwork, and contracts.6 One of the “focal
criteria” for finding alter ego status is “the ensuing degree of control that the employer exerts
5
Richard Putnam claims in his affidavit that he learned in April 2012 that union members took Systems’ tools and
never returned them, damaged company equipment, and took trucks for personal use. (Putnam Aff. ¶ 25.)
6
The court also notes that if all employees were removed from Systems’ worksites due to a strike, it would seem to
make sense that Systems/Solutions would have to hire subcontractors.
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over the operations of the new employing entity.” Nat’l Labor Relations Bd. v. McAllister Bros.,
Inc., 819 F.2d 439, 444 (4th Cir. 1987). The facts demonstrate a sufficient degree of control to
establish alter ego status, even with the use of subcontractors or the other minor differences
defendants claim.
Finally, as required by the Fourth Circuit’s alter ego test, shifting its corporate form
provided Systems with a clear, reasonably foreseeable, and perhaps expected, benefit related to
eliminating its labor obligations. See Alkire, 716 F.2d at 1020. Defendants admit that, at the
time Solutions was incorporated, Systems was behind on its contribution payments to the Local 5
Funds and was facing an ongoing breach of the Settlement Agreement it had previously entered
with the plaintiffs to pay delinquent contributions. (Putnam Aff. ¶¶ 20-21; Def.’s Opp’n Ex. 1.)
By creating a new corporate entity, Putnam and Merrigan, as common owners, would have a
means of continuing their work while evading their obligations under the CBA. The creation of
a new entity just as Systems was facing increasing liability with respect to its contributions to the
Local 5 Funds indicates alter ego status. See Carpenters’ Pension Fund, 2010 WL 2010 WL
3733949 at *2 (finding the “expected or reasonably foreseeable benefit” test was satisfied where
both entities were controlled by the same person and the new entity was incorporated while a
lawsuit to recover contributions was pending); Maryland Elec. Indus. Health Fund, 289 F. Supp.
2d at 703 (finding the test was satisfied where the same individuals controlled both entities and
the new entity was formed during pending litigation to collect delinquent contributions).
Defendants attempt to counter this finding by pointing to Putnam’s statement that “[w]hen
[Solutions] was formed, the intention was . . . that it would qualify as a Minority Business
Enterprise (MBE) and bid specifically on government contracts.” (Putnam Aff. ¶ 5.) Even if
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this was one of Putnam and Merrigan’s intentions in creating Solutions, it remains reasonably
foreseeable that they also could evade their labor obligations.7 See McAllister Bros., Inc., 819
F.2d at 445 n.14 (“The imposition of alter-ego status under Alkire does not hinge on proof that
the employer intended to evade the labor laws.”).
For all the foregoing reasons, Solutions and Systems are alter egos and single employers
and Solutions is jointly and severally liable for Systems’ labor obligations. The court will
therefore enter summary judgment on this issue in favor of plaintiffs.
C. Richard Putnam’s Individual Liability
Plaintiffs seek to pierce Solutions’ corporate veil and hold its sole owner, Richard
Putnam, individually liable for its obligations. Federal courts typically will disregard the
corporate form where doing so is required for “public convenience, fairness and equity.” 8
Thomas v. Peacock, 39 F.3d 493, 504 (4th Cir. 1994) (quoting Alman v. Danin, 801 F.2d 1, 3-4
(1st Cir. 1986)) (internal quotation marks omitted), rev'd on other grounds, 516 U.S. 349 (1996).
A court can pierce the corporate veil when “(1) the shareholder dominates and controls the
organization and (2) imposing such liability is needed to avoid injustice.” Mayes v. Moore, 419
F. Supp. 2d 775, 781 (M.D.N.C. 2006) (citing Thomas, 39 F.3d at 504). In making the
determination, courts have looked at a number of factors, including “gross undercapitalization,
failure to observe corporate formalities, nonpayment of dividends, siphoning of the corporation’s
funds . . . non-functioning of officers and directors, absence of corporate records, and the fact
that the corporation is merely a façade for the operation of the dominant stockholder.” Keffer v.
7
Merrigan, the owner essential for MBE status, left the company, and apparently gave up her ownership interest in
it, only three months after incorporation. (Putnam Aff. ¶ 8; Putnam Aff. Ex. A.)
8
Defendants claim state law governs the question of whether to pierce the corporate veil. The Fourth Circuit has
indicated, however, that federal law governs the issue in ERISA cases. Thomas, 39 F.3d at 503. In any event,
applying Maryland law would not change the outcome in this case for reasons apparent in the body of this
memorandum. See Ramlall v. MobilePro Corp., 30 A.3d 1003, 1009 (Md. App. 2011) (“[W]e may pierce the
corporate veil . . . only based on fraud or proof that it is necessary to enforce a paramount equity.”)
13
H.K. Porter Co., Inc., 872 F.2d 60, 65 (4th Cir. 1989) (citing DeWitt Truck Brokers, Inc. v. W.
Ray Flemming Fruit Co., 540 F.2d 681, 685-87 (4th Cir. 1976)); Mayes, 419 F. Supp. 2d at 781.
The Fourth Circuit has made clear that courts must be cautious in deciding to pierce the
corporate veil, but not hesitate to do so where justice requires. Keffer, 872 F.2d at 64.
Plaintiffs bear the burden of establishing a basis for disregarding the corporate form,
DeWitt Truck Brokers, 540 F.2d at 683, but have failed to do so here. Most importantly,
plaintiffs have failed to identify any unfairness or injustice that would occur should the court
defer to the corporate entity. Courts typically find unfairness where the dominant shareholder
used the corporation improperly or rendered the corporation unable to pay its obligations. See
Keffer, 872 F.2d at 65 (finding the district court properly found fundamental unfairness where
the shareholder had sold off the insolvent corporation’s assets and kept the proceeds for itself);
cf. Mayes, 419 F. Supp. at 782 (finding no grounds for piercing the corporate veil where there
was no evidence the shareholder had fraudulently or unfairly used the corporate form). Plaintiffs
claim it would be unfair to uphold the corporate form in this case because Solutions has failed to
maintain records demonstrating that it is, in fact, a corporation. Yet, in support of their claim,
the plaintiffs only cite cases in which courts found piercing the veil was required to prevent
injustice because individual shareholders had operated the corporation for their sole benefit and
to the detriment of the corporation’s obligations. See DeWitt, 540 F.2d at 689 (finding equity
and fundamental justice supported individual liability where the shareholder was claiming the
company was making payments it was not making, and in fact could not make, while he was
withdrawing large sums in salary); Trustees of the Nat’l Elevator Indus. Pension v. Lutyk, 140 F.
Supp. 2d 447, 460 (E.D. Pa. 2001) (finding fundamental unfairness where the court also found
14
undercapitalization and a siphoning of funds by the sole shareholder during times of financial
distress). Plaintiffs have provided no evidence to demonstrate Putnam engaged in similar
conduct here.
Although the failure to provide evidence of injustice disposes of the issue, plaintiffs have
also failed to provide any evidence of undercapitalization, siphoning, failure to pay dividends,
non-functioning of officers and directors, or other evidence that Solutions is a sham
corporation—for example, evidence that Putnam holds title to Solutions’ necessary assets or that
Solutions was not performing the work claimed, see Trustees of Nat’l Elevator Industry Pension,
140 F. Supp. 2d at 460. Plaintiffs have only offered evidence that Solutions lacked corporate
records, including records demonstrating that it held liability insurance and records
demonstrating that it had a bank account—although they offer no evidence that Solutions was
using Putnam’s bank account. (See Solutions’ Supp. Doc. Produc. Resp., ECF No. 28-16.) The
mere lack of corporate records alone, only one of the many Keffer factors, cannot provide a basis
for piercing the corporate veil. The court will deny plaintiffs’ request for summary judgment on
this issue.
II.
Unpaid Contributions, Liquidated Damages and Interest
Because plaintiffs have established that Systems—and Solutions as its alter ego—faced
obligations to make benefit fund contributions under the CBA and Trust Agreements, plaintiffs
are entitled to damages as set forth under ERISA, 29 U.S.C. § 1132(g)(2), where the defendants
breached those obligations. Plaintiffs claim unpaid contributions, liquidated damages, and
interest for three distinct time periods. For each time period, defendants raise different
challenges to liability or the accuracy of the calculations. The court will therefore address each
15
time period and the parties’ corresponding claims in turn.
A. Delinquent contributions sought pursuant to the payroll audit, January
2008-July 2011.
Plaintiffs claim $118,363.43 in unpaid contributions for the period from January 2008
through July 2011 that were revealed by an audit conducted of Systems’ payroll records.9
(Killeen Decl. ¶ 10; Killeen Decl. Exs. 6, 7, ECF Nos. 28-28, 28-29.) Plaintiffs arrived at this
amount by subtracting payments made pursuant to a previous settlement agreement from the
total amount of delinquent contributions found due by the audit. (Pl.’s Mem., ECF No. 28-1, at
10.) Defendants claim they cannot be held liable for this amount for two reasons: first, because
some employees included in the audit were not covered by the agreement or were not performing
covered work; and second, because the plaintiffs are barred from collecting any amounts for the
time period covered by the previous settlement agreement. (Def.’s Opp’n at 14-15, 18.) Both of
the defendants’ arguments fail.
The Trust Agreements authorized those managing the Local 5 Funds to designate a
qualified representative to conduct an audit of Systems’ payroll and wage records to determine if
Systems was making full contribution payments as required by the CBA. (E.g., Trust
Agreements at 4.) Plaintiffs have provided an audit which demonstrates the amount owed to
each fund, for each employee, for the years 2008 through 2011. (Coyle Decl. Ex. A.) Where an
employer’s obligation to pay delinquent contributions is based on the results of an audit, courts
typically find summary judgment appropriate unless the employer has identified specific errors
or provided documentation to rebut the audit’s conclusions. See, e.g., Maryland Elec. Ind.
9
The audit was conducted of Systems’ records going back to January 2008, but it did not reveal any delinquent
contributions until November 2008. Further, because the Letter of Assent was only effective from September 22,
2008, Systems would not have had any obligations to make contributions under ERISA before then.
16
Health Fund v. MESCO, Inc., 2014 WL 853237, at *14 (D. Md. 2014); Nat’l Elec. Benefit Fund
v. Rabey Elec. Co., Inc., 2012 WL 3854932, at *4 (D. Md. 2012). Defendants’ only claim of
error is that the audit includes employees who were not performing covered work, and the only
factual evidence they provide to support the claim is a statement in Putnam’s affidavit. (Putnam
Aff. ¶ 38.) There, he lists three employees and explains that they were not performing covered
work because one was not a member of Local 5, one was an “office employee” and not a
member of Local 5, and one Putnam recalled was “not a covered employee,” but he could not
confirm what position the employee did hold. (Id.) Mr. Putnam’s statement, however, is not
sufficient to raise a genuine issue of fact as to the accuracy of the audit such that summary
judgment is inappropriate.
In considering whether an employer has identified a specific error in the audit as to which
employees were eligible for contributions, courts have looked to the governing collective
bargaining and trust agreements. See Nat’l Elec. Benefit Fund, 2012 WL 3854932 at *4-5.
“[C]ollective bargaining agreements are not interpreted under traditional rules of contract but
under a federal common law of labor policy.” Keffer, 872 F.2d at 62. As with any contract,
however, courts begin by looking at the language of the agreement for any “clear manifestation
of the parties’ intent.” Id. The CBAs governing the relevant time period in this case include a
“Wages and Fringes” chart listing agreed-upon contributions for journeymen and apprentices.
(CBAs at 7-8, 15-16.) Other sections of the CBAs indicate that employers are obligated to make
contributions “[f]or all hours worked by all employees whose wages are covered by this [CBA]”
or “for each employee in each classification listed in the amount shown in [the Wages and
Fringes table].” (Id. at 11-12.) Defendants point to no evidence that the obligation to make
17
contributions turns on union membership. If anything, it appears from the language of the CBA
that it turns on job classification. See Nat’l Elec. Benefit Fund, 2012 WL 3854932 at *4-5
(finding a similarly worded CBA did not make distinctions based on unionized or non-unionized
employees). Further, defendants point to no evidence that being an “office employee,” whatever
that may entail, bars an employee from also being considered a journeyman or apprentice, or that
such work did not involve covered work that would render the individual a covered employee.10
Finally, Mr. Putnam’s admission that he does not remember what Jeffrey Wink did does not
operate to identify a specific factual error in the audit. For all of these reasons, no genuine
dispute of fact exists as to the accuracy of the audit.
Apart from defendants’ challenge to certain employees included in the audit, they also
claim the Settlement Agreement bars plaintiffs from collecting delinquent contributions
attributed to the time period also covered by the Agreement. (See Settlement Agreement ¶ 2.)
According to the defendants, granting summary judgment would amount to providing plaintiffs
double recovery. (Def.’s Opp’n at 14.) Further, the defendants claim that, even if the Settlement
Agreement does not preclude recovery, the plaintiffs’ calculations do not demonstrate an off-set
for the amounts Systems did pay under the Agreement. (Id. at 15.)
First, the Settlement Agreement does not preclude recovery on the basis of the audit. In
fact, under the Agreement, the parties acknowledged that the audit at issue was taking place and
agreed that nothing in the Agreement was to be construed as preventing the Local 5 Funds from
bringing an action for delinquent contributions for any period of time covered by the Agreement.
(Settlement Agreement ¶ 10.) Defendants appear to admit this. (Opp’n at 3 (“Under the
10
The court notes that it appears Systems included Keith Brunner, the alleged “office employee,” as a covered
employee on remittance reports submitted after the period covered by the audit. (See Killeen Decl. Ex. 3, ECF No.
28-25.)
18
agreement, the parties recognized that the audit for the period of January 2008 through the then
current date was not included in any manner in terms of the Settlement Agreement.”).) In
addition, although Systems agreed to pay a certain amount to satisfy its contribution obligations
for the covered time period, it also agreed that the entire amount would be immediately due and
payable should Systems “fail[ ] to abide by each and every term of [the] Settlement Agreement.”
(Id. ¶ 4.) Further, the Local 5 Funds did not release claims arising from Systems’ failure to
satisfy the obligations of the Agreement, which included its responsibility to submit reports and
pay contributions in the future, or where it was discovered Systems submitted inaccurate or
incomplete reports. (Id. ¶ 9.) Defendants admit that Systems did not comply with the terms of
the settlement. (Def.’s Opp’n Ex. 1, ECF No. 35-2, at 1 (listing the ways in which Systems had
not complied with its obligations).) Systems cannot seek the protections of the Agreement while
failing to meet its obligations under it. Under the terms of the Agreement, therefore, the Local 5
Funds are not barred from recovering all delinquent contributions revealed by the audit, even
those that accrued during the period of time covered by the Settlement.
Second, contrary to the defendants’ assertions, the plaintiffs have incorporated an off-set
for collections they made pursuant to the Settlement Agreement, as they are seeking only
$118,363.43 instead of the full $168,790.76 in delinquent contributions revealed by the audit.
(See Pl.’s Mem. at 10; compare Coyle Decl. ¶ 4; with Killeen Decl. Exs. 6, 7.) The defendants
have not offered any facts to demonstrate that the amount discounted does not accurately reflect
the payments Systems made pursuant to the Agreement. Defendants cannot manufacture a
genuine dispute of fact by baldly asserting the amounts claimed from the audit are wrong and
only offering as proof the fact that the time period covered by the audit overlaps with that
19
covered by the Settlement Agreement. Such a fact provides no grounds on which a reasonable
trier of fact could find that the discounts plaintiffs claimed to have applied are not an accurate
reflection of what is due.
Because there is no genuine dispute of material fact as to the amount of unpaid
contributions defendants owe under the audit, summary judgment will be granted in favor of the
plaintiffs for $118,363.43 in unpaid contributions for the period of January 2008 through July
2011.
B. Contributions sought for unfunded reports, August through October 2011.
Plaintiffs claim $87,124.50 in delinquent contributions for the period of August through
October 2011. (Pl.’s Mem. at 10.) The undisputed evidence demonstrates that, for that time
period, Systems did submit remittance reports to the Local 5 Funds delineating the contributions
due, but never actually paid them. (Killeen Decl. ¶ 11; Killeen Decl. Ex. 3.) Defendants in no
way dispute these facts and summary judgment will be granted in favor of plaintiffs for
$87,124.50 in unpaid contributions.
C. Contributions sought pursuant to the Funds’ projections, November 2011
through May 2013.
Plaintiffs claim $441,216.35 in delinquent contributions for the period of November 2011
through May 2013. (Pl.’s Mem. at 11.) The Local 5 Funds claim this amount on the basis of the
estimating provisions in the Trust Agreements. The Trust Agreements authorize the trustees to
project delinquent contributions when an employer fails to make contributions for two or more
months and has not submitted documents showing the employees who worked for the employer
20
and the hours they worked.11 (E.g., Trust Agreements at 6-7.) The Trust Agreements differ
slightly, however, as to how the delinquencies are to be projected. For example, the Medical
Fund allows the trustees to project delinquent contributions as the greater of either 1) “the
average of the monthly payments actually made by the Employer for the last [three] months for
which payments were made and/or unfunded remittance reports received,” or 2) “the average of
the monthly payments made by the Employer for the last [twelve] months for which payments
were made and/or unfunded remittance reports received.” (Id. (emphasis added); see also id. at
31-32 (Retirement Savings Fund); NPF & ITF Trust Agreements, Killeen Decl. Ex. 8, ECF No.
28-30, at 12 (National Pension Fund).) The Apprenticeship Fund, on the other hand, allows the
trustees to project the contributions as the greater of either 1) “the average of the monthly hours
reported by the Employer for the last [three] months for which payments were made and/or
unfunded remittance reports received,” or 2) “the average of the monthly hours reported by the
Employer for the last [twelve] months for which payments were made and/or unfunded
remittance reports received.” (Trust Agreements at 12-13 (emphasis added); see also id. at 18
(Communications and Productivity Fund), 24-25 (Vacation Fund); NPF & ITF Trust Agreements
at 6-7 (International Training Fund).) All of the Trust Agreements provided state that the
projection can be used to determine payments due for each delinquent month in a lawsuit, and
that “no other proof need be furnished by the trustees to any court or arbitrator to compute the
total payments due from the Employer for all delinquent months.” (Id.)
Defendants claim plaintiffs are not entitled to summary judgment because the plaintiffs
have failed to identify which estimating method they used and how they calculated the claimed
amounts, thus creating a genuine dispute as to the accuracy of the estimations. (Def.’s Opp’n at
11
There is no evidence that the Industry Fund allows projections as the Trust Agreement for the fund is not in the
record.
21
16-17.) The court agrees that the defendants have raised a genuine dispute of fact as to the
accuracy of the estimations with respect to all of the funds except for the International Training
Fund. Plaintiffs claim the projected monthly contribution for all funds is the average of the
contributions reported, but never paid, for August through October 2011, which are the last three
months for which Systems submitted remittance reports. (Reply, ECF No. 36, at 12-13.)
Although this methodology is authorized by some of the Trust Agreements, (see, e.g., Trust
Agreements at 18 (Communications and Productivity Fund)), it is not authorized by those that
state projections must be based on months in which payments were actually made—Systems
made no payments in August through October 2011. See Trustees of the Nat’l Automatic
Sprinkler Indus. Welfare Fund v. Advanced Safety, Inc., 2011 WL 1557918, at *3 (D. Md. 2011)
(finding a plaintiff benefit fund failed to prove it was entitled to unpaid contributions based on its
provided projections where the projections were based on rates for months in which the
employer made no payments and the relevant trust agreement allowed projections based on “the
average for the monthly payments actually made by the Employer” (emphasis added)). Further,
even if all the Trust Agreements allowed the trustees to project based only on the last three
reports submitted, the court cannot tell from the numbers provided for the funds, other than the
National Pension Fund and the International Training Fund, that it is actually how plaintiffs
arrived at their estimations. The monthly average of the contributions for August through
October 2011, as reported in the remittance reports in Exhibit 7 to Trustee and Local 5 Business
Manager James Killeen’s declaration, for example, is $19,553.63. (See Killeen Decl. Ex. 7; see
also Killeen Decl. Ex. 6 (listing the claimed contributions for the unfunded reports submitted to
the trustees in August through October 2011).) This is different from the monthly average
22
plaintiffs claim, based on their projections, of $16,059.48. (Killeen Decl. Ex. 6.) Summary
judgment will be denied, therefore, for projected contributions the plaintiffs seek for all funds
except the International Training Fund.
Summary judgment also will be denied for the contributions the plaintiffs seek for the
International Training Fund for April 2012 and after. The defendants have raised a genuine issue
of fact as to whether or not the defendants had an obligation to make contributions during that
period. The CBA only requires employers to make contributions for hours worked. (CBA at 23
(¶ 166).) Both parties agree that members of Local 5 were directed to stop working for Systems
beginning in early 2012. (See Putnam Aff. ¶¶ 21-24; Pl.’s Reply at 11.) The parties appear to
disagree, however, as to whether this occurred in March or May. (Compare, Putnam Aff. ¶ 24
(noting all workers had been removed by mid-March),12 with Reply at 11 (noting all workers
were removed in May).) Although the International Training Fund’s Trust Agreement allows the
trustees’ projections to provide the sole proof of delinquent contributions, it does not make such
proof irrefutable. Here, plaintiffs admit that covered employees were not working for the
defendants beginning in May 2012. If no covered employees were performing work, under the
terms of the CBA, the defendants would not have an obligation to make contributions, even if
they still had an obligation to submit reports. Plaintiffs are not entitled, therefore, to summary
judgment for delinquent contributions for the period in which they admit covered employees
were not actually working. Because there is a genuine dispute as to whether employees stopped
working in March or May, the court will deny summary judgment for all times after March 2012.
As to the remaining estimations made for the International Training Fund for November
2011 through March 2012, (see Killeen Decl. Ex. 7 at 3), the plaintiffs are entitled to summary
12
The court notes that the plaintiffs do not challenge the admissibility of this statement in Mr. Putnam’s affidavit.
23
judgment. There is no dispute Systems did not supply reports or payments for that period,
despite its obligation to do so, (see Def.’s Opp’n at 5 (admitting Systems did not provide reports
for November 2011 through March 2012)), and the estimations match the records provided and
the projection procedures authorized by the Trust Agreement. The court will thus grant summary
judgment in favor of the plaintiffs for $849.35, the amount they seek in contributions for the
period of November 2011 through March 2012 for the International Training Fund. (Killeen
Decl. Ex. 7 at 3.)
D. Liquidated Damages and Interest
Plaintiffs seek $89,615.82 in liquidated damages and $85,675.36 in interest on the unpaid
contributions. (Pl.’s Mem. at 11-12.) When courts enter judgment in favor of a benefit plan to
enforce an employer’s obligations to make contribution payments, ERISA provides that courts
must also award interest and the greater of either the interest or liquidated damages, as provided
for in the governing plans. 29 U.S.C. § 1132(g)(2). Defendants do not dispute that the Trust
Agreements for the National Pension Fund and the International Training Fund provide for
interest at a rate of twelve percent per annum and liquidated damages of ten percent and twenty
percent, respectively. (Killeen Decl. ¶¶ 18, 21.) The defendants do not dispute that the
remaining Trust Agreements provide for interest at a rate of ten percent per annum and
liquidated damages of twenty percent. (Id. ¶¶ 12, 15.)
As a preliminary matter, because the court is not granting summary judgment for the
plaintiffs with respect to the contributions they seek for November 2011 through May 2013 for
the Medical Fund, Industry Fund, Vacation Fund, Communications and Productivity Fund,
Apprenticeship Fund, Retirement Savings Fund, and National Pension Fund, or with respect to
24
the contributions they seek for April 2012 through May 2013 for the International Training Fund,
plaintiffs are not at this time entitled to liquidated damages or interest with respect to those
contributions. Only $25,666.56 in liquidated damages and $43,775.66 in interest, therefore,
remain at issue.
As to these remaining amounts, the defendants’ only dispute is that the December 2010
Settlement Agreement bars recovery of any damages related to the period of time covered by the
Agreement. For the same reasons the Settlement Agreement does not bar recovery of unpaid
contributions, however, it does not bar recovery of liquidated damages and interest. See Part
II.A supra. Further, to the extent defendants are relying on the Local 5 Funds’ waiver of
liquidated damages under the terms of the Agreement, that waiver became ineffective as soon as
Systems failed to comply with its obligations under the Agreement. (See Settlement Agreement
¶ 4.) With no genuine dispute as to liquidated damages and interest for January 2008 through
October 2011, and, for the International Training Fund, for November 2011 through March
2012, the court will grant summary judgment in plaintiffs’ favor for $25,666.56 in liquidated
damages and $43,755.66 in interest. Summary judgment will be denied with respect to the
remaining liquidated damages and interest at issue.
CONCLUSION
For the reasons stated above, summary judgment will be granted in part for the plaintiffs,
as to unpaid contributions, liquidated damages, and interest for the period of January 2008
through October 2011, and, for the International Training Fund, for November 2011 through
25
March 2012, and as to Solutions and Systems’ joint and several liability. Summary judgment is
otherwise denied. A separate order follows.
March 28, 2014
Date
/s/
Catherine C. Blake
United States District Judge
26
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