Trustees, Nat. Elevator Industry Pension v. Lutyk, 01-2394.

• Citation: 332 F.3d 188
• Decision Date: 11 June 2003
• Docket Number: No. 01-2394.,01-2394.
• Parties: TRUSTEES OF THE NATIONAL ELEVATOR INDUSTRY PENSION, HEALTH BENEFIT AND EDUCATIONAL FUNDS v. Andrew LUTYK, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

332 F.3d 188

TRUSTEES OF THE NATIONAL ELEVATOR INDUSTRY PENSION, HEALTH BENEFIT AND EDUCATIONAL FUNDS v. Andrew LUTYK, Appellant.

No. 01-2394.

United States Court of Appeals, Third Circuit.

Argued December 2, 2002.

June 11, 2003.

Frank Breitman, Andre C. Dasent, (argued), Philadelphia, for Appellant.

Robert P. Curley, Sally M. Tedrow, (argued), David D. Capuano, O'Donoghue & O'Donoghue, Philadelphia, for Appellee.

Before ROTH, SMITH, and CUDAHY,^* Circuit Judges.

OPINION OF THE COURT

SMITH, Circuit Judge.

On this appeal, the sole issue raised by defendant Andrew Lutyk is whether the record of a non-jury trial justified piercing the corporate veil of the American Elevator Company to impose personal liability on him as its sole shareholder for unpaid contributions the corporation owed to health, benefit, and pension funds established by a collective bargaining agreement. Because we believe that the District Court did not base its decision on clearly erroneous factual findings, we will affirm.

I.

Defendant Andrew Lutyk was the president, sole director, and sole shareholder of the American Elevator Company ("American"), a small, closely-held corporation which performed elevator service and repair. Lutyk incorporated American in late 1992. Pursuant to various agreements between American and the International Union of Elevator Constructors, AFL-CIO, in addition to the regular wages paid to its employees, American was obligated to make monthly contributions to various benefit and pension funds. American was also required to make certain wage deductions from the employees' salaries, then remit those deductions to the pension fund.

The benefit and pension funds — the National Elevator Industry Pension Fund, the National Elevator Industry Health Benefit Fund, and the National Elevator Industry Educational Fund (collectively, the "NEI Funds") — were created and maintained pursuant to § 302(c)(5) of the Labor Management Relations Act, 29 U.S.C. § 186(c)(5), and administered by a Board of Trustees, the plaintiff in this action. The Pension Fund is an employee pension benefit plan as defined by § 3(2) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1002(2). The Health Fund and Educational Fund are employee welfare benefit plans as defined in § 3(1) of ERISA, 29 U.S.C. § 1002(1). All the NEI Funds are also multiemployer plans as defined in § 3(37)(A) of ERISA, 29 U.S.C. § 1002(37)(A).

In 1996, American began to experience financial difficulties due to an unrelated lawsuit and misconduct by the company's former controller. While corporate equity nominally included $25,000 in "Common Stock" and $141,000 in "Additional Paid In Capital" at the end of 1995, American's 1996 tax return listed negative retained earnings of $373,420, which rose to negative $433,051 by the end of 1996. In short, by at least December 31, 1995, no equity remained in the company. Nonetheless, American was carrying $133,268 in supposed "Loans from shareholders" in 1995. The available corporate records showed that these loans rose to at least $174,881.00 at the end of 1996 and remained there at least until December 31, 1997, but dropped to a mere $24,356.00 by the end of 1998. The District Court found that, beginning at least in 1996 and continuing until American ceased operations in late 1999, the corporation was insolvent.

At this time, American fell behind in meeting its contractual obligations to contribute to the NEI Funds. In 1998, the Board of Trustees sued American to recover these unpaid benefit contributions. That civil action culminated in a consent judgment whereby American agreed to pay the NEI Funds a total of $280,284.60. However, in 1999, American ceased business operations. Although subsequent payments were made to the NEI Funds, American paid only $40,000 pursuant to the consent judgment, along with $2,524.74 that had been deducted from the employees' paychecks after the consent judgment, but not immediately paid to the NEI Funds.

On May 4, 2000, the Board of Trustees initiated the present lawsuit against defendant Lutyk personally, alleging that he was also liable to the NEI Funds as a fiduciary under § 409 of ERISA, § 29 U.S.C. § 1109(a). Plaintiff sought to recover from Lutyk the full amount of what it had been unable to collect from American, as well as additional contributions accrued but never paid by American after the consent judgment. The District Court denied plaintiff's motion for summary judgment on the ERISA claims, concluding that there were material issues of fact in dispute concerning whether the unpaid contributions to the benefit funds were plan "assets." Tr. of the Nat'l Elevator Indus. Pension v. Lutyk, 140 F.Supp.2d 407, 412 (E.D.Pa.2001) ("Lutyk I"). While reasoning that this potentially prohibited Lutyk from having any direct liability under ERISA, the District Court sua sponte read our opinion in Solomon v. Klein, 770 F.2d 352 (3d Cir.1985), to provide that by "piercing the corporate veil," the claims against Lutyk might be sustained. Lutyk I, 140 F.Supp.2d at 412-13. Although also declining to grant summary judgment on that ground, the District Court established piercing the corporate veil as an issue for trial. Id. at 413-14.¹

After a non-jury trial, the District Court concluded that, under the terms of the parties' agreements, the unpaid contributions in this case were not plan "assets" within the meaning of 29 U.S.C. § 1002(21)(A)(i). Tr. of the Nat'l Elevator Indus. Pension v. Lutyk, 140 F.Supp.2d 447, 456 (E.D.Pa.2001) ("Lutyk II"). Therefore, Lutyk was not a "fiduciary" of those funds under § 409 of ERISA, 29 U.S.C. § 1109(a), and was not directly liable for all but $332.54 of the debt that American owed to the NEI Funds.² Nonetheless, because the District Court concluded that the circumstances of the case justified piercing the corporate veil of American, the District Court found Lutyk personally liable for the remainder of the $287,627.43 that American then owed the NEI Funds. Id. at 460.

The District Court asserted jurisdiction over this case pursuant to 28 U.S.C. § 1331. We have jurisdiction over the appeal pursuant to 28 U.S.C. § 1291.³ When a district court conducts a non-jury trial, we "review the District Court's findings of facts for clear error. Application of legal precepts to historical facts receives plenary review." In re Unisys Sav. Plan Litig., 173 F.3d 145, 149 (3d Cir.1999). "It is not for us to pass upon the numerous factual and legal issues as though we were trying the cases [d]e novo. `It is not enough to reverse the District Court that we might have appraised the facts somewhat differently. If there is warrant for the action of the District Court, our task on review is at an end.'" Matter of Penn Cent. Transp. Co., 596 F.2d 1127, 1140 (3d Cir.1979) (quoting Group of Inst'l Inv. v. Chicago, M., St. P. & P.R. Co., 318 U.S. 523, 564, 63 S.Ct. 727, 87 L.Ed. 959 (1943)).

II.

At summary judgment, the District Court sua sponte invoked the "alter ego doctrine" and questioned whether, pursuant to Solomon, 770 F.2d at 353, it might be appropriate for the plaintiff to fix liability upon Lutyk by piercing the corporate veil. "Piercing the corporate veil is not itself an independent ERISA cause of action, but rather is a means of imposing liability on an underlying cause of action." Peacock v. Thomas, 516 U.S. 349, 354, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996) (quotation omitted); see also 1 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 41.10 (2002). "The `classical' piercing of the corporate veil is an equitable remedy whereby a court disregards the existence of the corporation to make the corporation's individual principals and their personal assets liable for the debts of the corporation." In re Blatstein, 192 F.3d 88, 100 (3d Cir.1999) (citation omitted); see also Bd. of Tr. of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164, 171 (3d Cir.2002); Publicker Indus., Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1069 (3d Cir.1979). If applicable, the doctrine permits a "charge[][of] derivative ... liability" against the person or entity controlling the corporation. United States v. Bestfoods, 524 U.S. 51, 64, 118 S.Ct. 1876, 141 L.Ed.2d 43 (1998) (noting that piercing the corporate veil gives rise to derivative liability, though direct liability was appropriate on those facts because of the peculiar nature of CERCLA "operator" liability). "Because alter ego is akin to and has elements of fraud theory, we think it too must be shown by clear and convincing evidence." Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1522 (3d Cir.1994).

In his brief to this Court on appeal, Lutyk's entire summary of argument is as follows:

The district court erred and abused its discretion in the determination to pierce the corporate veil and impose personal liability under ERISA without sufficient record support.

We read Lutyk to be challenging only the District Court's application of the legal test for piercing the corporate veil set forth in United States v. Pisani, 646 F.2d 83, 87-88 (3d Cir.1981) and the related factual findings. Our review of the proceedings below indicates that Lutyk made no objection, as he did not raise the issue to us in his briefs, with respect to the District Court's authority to pierce the corporate veil and impose liability on a third-party not directly liable under ERISA.⁴ While our reading of the District Court's order indicates that the District Court purported to pierce the corporate veil pursuant to ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), and we have some doubts regarding the District Court's authority to do so,⁵ "[i]t is well established that failure to raise an issue in the district court constitutes a waiver of the argument" in the Court of Appeals. Brenner v. Local 514, United Bhd. of Carpenters & Joiners of Am., 927 F.2d 1283, 1298 (3d Cir.1991); see also Medical Protective Co....