164 F.3d 323 (7th Cir. 1998), 98-1849, Moriarty v. Svec

Docket Nº:98-1849.
Citation:164 F.3d 323
Party Name:Thomas J. MORIARTY, Plaintiff-Appellee, v. James F. SVEC, individually, doing business as Svec and Sons Funeral Home and doing business as West Suburban Livery, Defendant-Appellant.
Case Date:December 14, 1998
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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164 F.3d 323 (7th Cir. 1998)

Thomas J. MORIARTY, Plaintiff-Appellee,


James F. SVEC, individually, doing business as Svec and Sons

Funeral Home and doing business as West Suburban

Livery, Defendant-Appellant.

No. 98-1849.

United States Court of Appeals, Seventh Circuit

December 14, 1998

Argued Sept. 25, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied Jan. 14, 1999.

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[Copyrighted Material Omitted]

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David S. Allen (argued), Marisel A. Hernandez, Jacobs, Burns, Sugarman, Orlove & Stanton, Chicago, IL, for Plaintiff-Appellee.

Douglas A. Darch (argued), Joshua M. Henderson, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for Defendant-Appellant.

Before FLAUM, MANION, and EVANS, Circuit Judges.

FLAUM, Circuit Judge.

Under the terms of a series of collective bargaining agreements ("CBAs") with Teamsters Local No. 727 ("Union"), James Svec, the owner and operator of the Svec & Son's Funeral Home ("Funeral Home") and the West Suburban Livery Service ("WSL"), promised to make contributions to multi-employer pension and welfare funds on behalf of his employees. However, James made no contributions on his own behalf, nor on behalf of WSL's employees, claiming that neither were covered by the CBAs. The Trustee of the pension and welfare funds sued to compel payment and the district court granted its motion for summary judgment. James appealed that decision, and we now vacate and remand for further consideration.


James Svec and his sister Sharon own the Funeral Home and WSL together. 1 Since the death of their father, Elmer Svec, James has operated both businesses as sole proprietorships. Until 1995, the Funeral Home belonged to the Funeral Directors Services Association ("FDSA"), an employer organization of approximately 250 licensed funeral businesses providing funeral, livery and funeral

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transportation services. The FDSA entered into a series of CBAs with the Union requiring each of its members to contribute to the Union's Pension Trust and Health & Welfare Fund ("Funds") on behalf of their employees in various work classifications. 2

Elmer Svec died in June 1987. He had been the sole proprietor of the Funeral Home and a part owner of WSL with James for many years. At his death, Elmer's interest in both enterprises passed to his wife Anne. She later divided her interest in the businesses equally between James and Sharon. On February 16, 1988, Anne disclaimed all her rights, title, and interest in the real estate connected with the Funeral Home, and on April 15, 1993 James and Sharon signed documents indicating the receipt of their shares in the businesses. The legal consequences of Anne's disclaimer and the documents signed by James and Sharon are disputed by the parties.

During the period the Funeral Home belonged to the FDSA, Elmer, and later James, never made contributions to the Funds for work performed by James himself, nor did they contribute on behalf of any WSL employees. In 1997, the Trustee of the Funds, Thomas Moriarty, sued under Section 301 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 185 (1997), and Sections 502(a)(3) and 515 of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1132(a)(3) and 1145 (1997), to collect unpaid contributions on behalf of James and the WSL employees.

In the district court, James argued that he had been the "principal owner" of the Funeral Home since his father's death in 1987 and was therefore not an "employee" as defined by the CBAs. He thus claimed not to owe any contributions on his own behalf since 1987. James also argued that when the Funeral Home changed hands Illinois' common law of successor liability cut off any obligation to pay the contributions that his father failed to make. Finally, James maintained that WSL, which had never been a member of the FDSA, was not bound by the CBAs and, therefore, he owed nothing to the Funds on behalf of its employees. The Trustee responded that even if the CBAs excluded "principal owners," James did not become one until 1993, on the day he signed documents acknowledging receipt of his shares in the business. James therefore owed contributions for himself from 1987 to 1993. The Trustee also argued that under ERISA, federal successor liability preempts state law and makes James liable for the contributions his father had failed to pay. Finally, because the Funeral Home and the WSL are in practice a "single employer", the latter is subject to the CBAs to the same extent as the former, so James owed contributions to the Funds on behalf of all WSL employees.

The court agreed with these arguments and found for the Trustee. In addition to granting its motion for summary judgment requiring the payment of back contributions, the court also awarded the Trustee's attorney's fees and costs.

Ten days before the court issued its summary judgment order, the National Labor Relations Board ("NLRB" or "Board") decided a dispute between WSL and the Union. James Svec and Sharon Svec d/b/a West Suburban Livery and Auto Livery Chauffeurs, Embalmers, Funeral Directors, et al., I.B.T. Local 727, AFL-CIO, NLRB Case No. 13-RM1657 (Feb. 9, 1998) (unpublished Decision and Order). The issue before the Board was whether the Union represented WSL's employees for collective bargaining purposes. While it found that the Funeral Home and WSL constituted a "single employer", the Board concluded that the Union did not represent WSL's employees.

Although James failed to inform the court of the Board's proceedings or decision, he filed a motion to re-consider after the summary judgment order claiming the NLRB's decision stripped the court of jurisdiction to declare WSL bound by the CBAs. The court rejected James's motion, explaining that he had waived this argument by not presenting it prior to summary judgment.

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On appeal, James raises three objections to the district court's order. First, he argues that the court's approach to successor liability is impermissible in light of the Supreme Court's recent decision in Atherton v. FDIC, 519 U.S. 213, 117 S.Ct. 666, 136 L.Ed.2d 656 (1997) because it amounts to the creation of unnecessary federal common law. Next, the court erred in holding as a matter of law that the term "employee" in the CBAs unambiguously described James at all relevant times, rendering him liable for contributions on his own behalf. Third, once the NLRB rendered its decision, the court should not have decided whether WSL was a party to the CBAs. Because the Board held that WSL's employees were not represented by the Union, they could not be bound by the CBAs and the court had no jurisdiction to hold otherwise. 3 While we agree with the findings of the district court regarding successor liability and liability for WSL employees, because the question of James's liability for contributions on his own behalf was not fully addressed below, we remand for reconsideration.


Successor Liability

James argued in the district court that, according to Illinois' common law of successor liability, he was not liable for any contributions his father Elmer failed to pay before his death on June 29, 1987. If state law applied, James would be correct. Consistent with its interest in facilitating the market for productive assets, Illinois common law states that a successor entity does not assume the liability of its predecessor. 4 Vernon v. Schuster, 179 Ill.2d 338, 228 Ill.Dec. 195, 688 N.E.2d 1172, 1175 (Ill.1997) (son's inheritance of father's sole proprietorship cuts off liability). Under Illinois law, because the original Funeral Home ended with the death of his father, James should not have to pay any contributions which accrued prior to that date.

The district court did not dispute this interpretation of state law. Instead, it held that Illinois' successor liability rule had been pre-empted in this situation by federal common law. Upholsterers' Int'l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323 (7th Cir.1990). In Artistic Furniture, we stated that in order to further congressional objectives, successor entities can be liable for multiemployer pension contributions if (1) there is sufficient continuity between the two companies and (2) the successor company had notice of the predecessor's liability. Id. at 1329. Because the only change in the Funeral Home since Elmer's death was James's ownership, the district court easily found sufficient continuity between the two entities. The court also held as a matter of law that James had notice of the contribution liability prior to taking control. See EEOC v. Vucitech, 842 F.2d 936, 945 (7th Cir.1988) ("[T]here is no question that the successor knows of any collective bargaining agreements that his predecessor has signed ...").

On appeal James claims the district court's approach is impermissible in light of the Supreme Court's decision in Atherton v. FDIC, 519 U.S. 213, 117 S.Ct. 666, 136 L.Ed.2d 656 (1997). Atherton requires a showing of significant conflict between a specific federal interest and the use of state common law before a court can displace that common law with a federal rule. Id. at ----, 117 S.Ct. at 673. The mere existence of federal regulation in an area does not necessarily create sufficient conflict. Id. at ----, 117 S.Ct. at 670. According to James,

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no conflict exists here because the provision the Trustee is attempting to enforce, Section 515 of ERISA, is meant to supplement, not displace state common law: "[Section 515] only creates a federal ERISA obligation for employers who are obligated to make contributions even absent the statute--in other words, those who are obligated under state law." Sullivan v. Cox, 78 F.3d 322, 325 (7th...

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