Board of Trustees of the Sound Retirement Trust v. Summit Trading Co Inc et al

Filing 19

ORDER denying defendant Marilyn Carlson's 16 Motion to Dismiss by Judge Richard A Jones.(RS)

HONORABLE RICHARD A. JONES

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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BOARD OF TRUSTEES OF THE SOUND
RETIREMENT TRUST,

ORDER

v.

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CASE NO. C15-361RAJ

Plaintiff,

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SUMMIT TRADING COMPANY, INC.
UBI No. 275005170, et al.,

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Defendants.

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I. INTRODUCTION

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This matter comes before the Court on Defendant Marilyn J. Carlson’s

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(“Marilyn”) Motion to Dismiss. Dkt. # 16. For the reasons set forth below, the Court

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DENIES Marilyn’s Motion.
II. BACKGROUND

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Plaintiff is the Board of Trustees of the Sound Retirement Trust (the “Sound

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Trust”) and brings claims under the Employee Retirement Income Security Act

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(“ERISA”), 29 U.S.C. § 1001 et seq. The Sound Trust is an employee pension benefit

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plan and multiemployer plan. See Compl. ¶ 1. Plaintiff is the plan sponsor of the Trust.

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Id.

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Defendant Summit Trading Company, Inc. (“Summit Trading”) is a Washington

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corporation and an employer. See id. ¶ 4. Defendant Carlson Diversified, G.P. (“Carlson

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Diversified”) is a Washington general partnership owned by Defendants Gary Carlson

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ORDER – 1

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(“Gary”), Greg B. Carlson (“Greg”), and Marilyn, each of whom are also principals of

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Summit Trading. See id. ¶¶ 6-9.
Plaintiff alleges that prior to September 2013, Summit Trading was required to

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make employer contributions to both the Sound Trust and the Washington Meat Industry

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Pension Trust 1 (the “Meat Trust”) on behalf of some of its employees pursuant to

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collective bargaining agreements. See id. ¶¶ 15, 28. Although Summit Trading

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permanently ceased to have an obligation to contribute to either trust in September 2013,

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it also had a complete withdrawal from the trusts at that time. See id. ¶¶ 16-17, 29-30.

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The Sound Trust determined that Summit Trading owed $1,879,704 for its withdrawal

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from the Trust and $549,708 for its withdrawal from the Meat Trust. Since September

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2013, the Sound Trust has notified Summit Trading of its withdrawal liability

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assessments for both trusts and demanded payment. See id. ¶¶ 18-23, 32-36.

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Furthermore, Plaintiff alleges that Carlson Diversified, Gary, Greg, and Marilyn are also

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jointly and severally liable for this withdrawal liability because they are in the same

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control group as Summit Trading. See id. ¶¶ 40-43.
III. LEGAL STANDARD

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Fed. R. Civ. P. 12(b)(6) permits a court to dismiss a complaint for failure to state a

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claim. The rule requires the court to assume the truth of the complaint’s factual

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allegations and credit all reasonable inferences arising from those allegations. Sanders v.

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Brown, 504 F.3d 903, 910 (9th Cir. 2007). A court “need not accept as true conclusory

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allegations that are contradicted by documents referred to in the complaint.” Manzarek v.

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St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). The plaintiff must

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point to factual allegations that “state a claim to relief that is plausible on its face.” Bell

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Atl. Corp. v. Twombly, 550 U.S. 544, 568 (2007). If the plaintiff succeeds, the complaint

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avoids dismissal if there is “any set of facts consistent with the allegations in the

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The Meat Trust was a separate trust fund until July 1, 2014 when it was merged into the Sound
Trust. See Compl. ¶¶ 2-3.

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ORDER – 2

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complaint” that would entitle the plaintiff to relief. Id. at 563; Ashcroft v. Iqbal, 556 U.S.

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662, 679 (2009).

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The court typically cannot consider evidence beyond the four corners of the

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complaint, although it may rely on a document to which the complaint refers if the

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document is central to the party’s claims and its authenticity is not in question. Marder v.

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Lopez, 450 F.3d 445, 448 (9th Cir. 2006). The court may also consider evidence subject

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to judicial notice. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).
IV. ANALYSIS

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Marilyn argues that the Complaint does not allege sufficient facts to support a

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control group theory against her. See Dkt. # 16 at 4-6. Essentially, Marilyn argues that

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because Plaintiff does not allege that she provided personal services to Carlson

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Diversified, Plaintiff’s claims against Marilyn must be dismissed.

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ERISA permits “plans to impose proportional liability on withdrawing employers

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for the unfunded vested benefit obligations of multiemployer plans.” Carpenters Pension

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Trust Fund for N. Cal. v. Underground Constr. Co., Inc., 31 F.3d 776, 778 (9th Cir.

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1994). ERISA’s definition of “employer” includes other “trades and businesses” that are

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under “common control” along with the entity making contributions to the pension plan.

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See 29 U.S.C. § 1301(b)(1); Brentwood Fin. Corp. v. W. Conference of Teamsters

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Pension Trust Fund, 902 F.2d 1456, 1458 n.2 (9th Cir. 1990). Generally speaking, each

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member of a control group is jointly and severally liable for withdrawal liability

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generated by any member’s activities. See Bd. of Trustees of W. Conference of Teamsters

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Pension Trust Fund v. Lafrenz, 837 F.2d 892, 893 (9th Cir. 1988); see also I.A.M. Nat’l

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Pension Fund v. TMR Realty Co., Inc., 431 F. Supp. 2d 1, 11 (D.D.C. 2006) (noting that

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“[e]ach member of the control group is joint and severally liable for the purposes of

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withdrawal liability pursuant to [29 U.S.C. § 1301(b)(1)]”).

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Marilyn bases her argument on language from 29 U.S.C. § 1301(b)(1), which

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states that “[a]n individual who owns the entire interest in an unincorporated trade or

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ORDER – 3

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business is treated as his own employer, and a partnership is treated as the employer of

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each partner who is an employee within the meaning of section 401(c)(1) of Title 26.” Id.

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(emphasis added). Marilyn reads the second sentence to mean that in order for her to be

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liable for the withdrawal liability of Carlson Diversified, she must be an employee within

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the meaning of 26 U.S.C. § 401(c)(1). Under that provision, partners may be considered

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employees of the partnership if they earn income from “a trade or business in which

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personal services of the taxpayer are a material income-producing factor.” See Raymond

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B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 14 (2004) (quoting 26

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U.S.C. § 401(c)(1) & (2)(A)(i)). In short, Marilyn argues that for her to be jointly and

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severally liable for withdrawal liability incurred by Carlson Diversified, she must have

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been an “active” partner in Carlson Diversified, rather than simply a “passive” general

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partner.

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The Court rejects Marilyn’s argument. Marilyn has not pointed to any authority

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imposing such a requirement that a general partner is individually liable for the

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withdrawal liability of a partnership only if she may also be classified as an employee

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under the Internal Revenue Code. To the contrary, the Ninth Circuit has clearly held that

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individual partner liability for withdrawal liability incurred by the partnership is governed

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by common law concerns. See Bd. of Trustees of W. Conference of Teamsters Pension

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Trust Fund v. H.F. Johnson Inc., 830 F.2d 1009, 1014-15 (9th Cir. 1987). Accordingly,

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“[a]bsent any limitation in the partnership agreement, partners are personally liable for

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obligations of the partnership.” Id. at 1015 (citing Unif. P’ship Act § 17 (Unif. Law

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Comm’n 1914)). This liability extends to individual partners, seemingly regardless of

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whether they are “employees” within the meaning of 26 U.S.C. § 401(c)(1). See id.

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(holding that the individual partners were personally liable for the general partnership’s

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withdrawal liability under 29 U.S.C. § 1301, subject to the exemptions in 29 U.S.C. §

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1405(c)); see also Underground Constr., 31 F.3d at 779 (explaining Johnson’s holding as

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rendering individuals liable under ordinary partnership liability principles for a valid

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withdrawal assessment against a joint venture). The principle that general partners may

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be individually liable for withdrawal liability is well established. See Teamsters Pension

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Trust Fund of Phila. & Vicinity v. Domenic Cristinzio, Inc., 994 F. Supp. 617, 624 (E.D.

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Pa. 1998) (collecting cases); I.L.G.W.U. Nat’l Retirement Fund v. Vaco Holding Co., 950

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F. Supp. 598, 603 (S.D.N.Y. 1997) (“The withdrawal liability imposed on Vaco may

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extend to its general partners, Vitale and Cohen”); see also Trustees of Amalgamated Ins.

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Fund v. Sheldon Hall Clothing, Inc., 862 F.2d 1020, 1024 (3d Cir. 1988) (holding that

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“personal assets of an individual which are not exempt under the Bankruptcy Code may

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be used to satisfy a sole proprietor’s withdrawal liability.”).

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In short, Marilyn’s theory reads too much into the statutory language and ignores

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Plaintiff’s theory of liability. Plaintiff has sufficiently pleaded that Summit Trading and

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Carlson Diversified have common ownership and are in the same controlled group. See

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Compl. ¶¶ 39-43. Furthermore, Plaintiff has alleged that Marilyn is a general partner of

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Carlson Diversified. See id. ¶¶ 6, 9. Consequently, Plaintiff has sufficiently alleged a

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theory of liability against Marilyn. There is no requirement that Marilyn provide

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personal services to Carlson Diversified to be liable as a general partner for its

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withdrawal liability.

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Finally, assuming that Marilyn is arguing that she is not individually liable as an

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“employer” because she is merely a passive investor and not a “trade or business” (an

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argument that ignores the actual basis for her liability), the Ninth Circuit has clearly held

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that “the statute does not distinguish between active and passive investments.” Lafrenz,

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837 F.2d at 894; contra Bd. of Trustees, Sheet Metal Workers’ Nat’l Pension Fund v.

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Palladium Equity Partners, LLC, 722 F. Supp. 2d 854, 868 (E.D. Mich. 2010) (noting

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that “many courts agree that an entity does not normally conduct a trade or business with

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sufficient continuity and regularity . . . if it merely holds a passive investment interest in

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some property.”).

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V. CONCLUSION

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For the reasons stated above, the Court DENIES Defendant Marilyn Carlson’s

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Motion to Dismiss. Dkt. # 16. The basis for Marilyn’s liability, if any, in this case stems

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not just from her alleged membership in the control group, but also from her individual

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liability for Carlson Diversified’s liabilities as a general partner. Those facts are

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sufficiently alleged. Beyond simply misreading the statute, Marilyn has not pointed to

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any authority distinguishing between “passive” and “active” general partners for purposes

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of withdrawal liability. If Marilyn had been concerned about such potential liability, she

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could have structured Carlson Diversified in a different manner.

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DATED this 29th day of February, 2016.

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A

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The Honorable Richard A. Jones
United States District Court

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ORDER – 6