Scarbrough v. Perez, Inc.

Decision Date27 March 1987
Docket NumberNo. 85-3033 GB.,85-3033 GB.
Citation683 F. Supp. 659
PartiesCarl SCARBROUGH, Plaintiff, v. PEREZ, INC. and Peter Perez, Defendants.
CourtU.S. District Court — Western District of Tennessee

Andrew Irving, New York City, Lynn Agee, Deborah Godwin, Memphis, Tenn., for plaintiff.

William L. Kohn, South Bend, Ind., for defendants.

ORDER GRANTING PARTIAL SUMMARY JUDGMENT

GIBBONS, District Judge.

Plaintiff is the trustee for both the pension fund and the insurance fund that are the product of a collective bargaining agreement between United Furniture Workers Local 282 and Aeolian Pianos Corporation (Aeolian). Aeolian is a New York corporation which at one point operated a factory in Memphis, Tennessee, for the manufacture of pianos and piano parts; it has now ceased operation, and has filed for Chapter XI bankruptcy in the United States Bankruptcy Court for the Western District of Tennessee.

Plaintiff alleges1 that, prior to going out of business in April of 1985, Aeolian failed to make contributions to the two funds for the months of February and March, as mandated by the collective bargaining agreement, and that Aeolian withdrew from the pension fund by permanently laying off all of its employees in March of 1985. Plaintiff brought suit in this court under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461, alleging violations of section 515, 29 U.S.C. § 1145 (delinquent contributions), and section 4201, 29 U.S.C. § 1381 (withdrawal liability).

However, instead of suing Aeolian, which is apparently insolvent, plaintiff sued Perez, Inc. and Peter Perez. Aeolian is a 100% subsidiary of Perez, Inc., of which Peter Perez is the sole shareholder. Plaintiff alleges that Peter Perez's exercise of control over both Perez, Inc., and Aeolian renders him an "employer" for purposes of ERISA, thus making him liable for the amounts allegedly owed the two funds.2 Defendant Peter Perez has moved for summary judgment, claiming that he cannot be considered an employer for purposes of ERISA liability. For the reasons set forth below, the court grants his motion.

For purposes of Title I of ERISA, under which plaintiff's claim for delinquent contributions rests, an employer is defined as "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan." 29 U.S.C. § 1002(9). There is some confusion, however, as to the definition of an employer for purposes of Title IV, under which plaintiff's claim for withdrawal liability falls. Title IV itself does not define "employer," and the Supreme Court has ruled that Title I definitions do not necessarily apply to Title IV. Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 370, 100 S.Ct. 1723, 1731, 64 L.Ed. 2d 354 (1980) (phrase "For purposes of this title" limits application of Title I definitions). Accordingly, several courts have held that the Title I statutory definition of "employer" does not apply to the withdrawal liability of an "employer" under Title IV. Connors v. P & M Coal Co., 801 F.2d 1373, 1376 (D.C.Cir.1986); Refined Sugars, Inc. v. Local 807 Labor-Management Pension Fund, 632 F.Supp. 630, 632 (S.D.N.Y.1986); In re Seatrain Lines, Inc., 46 B.R. 320, 322 n. 1 (S.D.N.Y.1985).

Moreover, courts have held that corporate directors, officers, and shareholders cannot be held liable either under Title I, Solomon v. Klein, 770 F.2d 352, 353-54 (3d Cir.1985) (definition of term "person" as used in definition of "employer" does not mention corporate officers), or under Title IV, Connors v. P & M Coal Co., 801 F.2d at 1376 (corporate officers and shareholders not mentioned in Title I definition of person even if it were applicable). The same courts, however, would allow corporate officers and shareholders to be held liable under Title I and Title IV if sufficient facts are found to allow the corporate veil to be pierced. Solomon, 770 F.2d at 353-54 (veil will be pierced for Title I where corporation is mere alter ego of officers or large stockholders); Combs v. Indyk, 554 F.Supp. 573, 574 (W.D.Pa.1982) (same, Title I); Connors, 801 F.2d at 1378; (same, Title IV).

Thus, to the extent that plaintiff bases his theory of Peter Perez's liability on the statutory definition of ERISA, his claim must fail. As chairman and chief executive officer of Aeolian, and the sole shareholder of Perez, Inc., Peter Perez cannot be held personally liable under either Title I or Title IV.

As noted earlier, plaintiff also seeks to allege facts sufficient to pierce the corporate veil and hold Peter Perez personally liable along with Aeolian for any sums due the two funds.

Perez, Inc., was organized under Indiana law and the parties agree that Indiana law applies to determine whether the court should disregard its corporate identity. "Indiana courts are relectant to disregard corporate identity and do so only to protect innocent third parties from fraud or injustice when transacting business with a corporate entity." Extra Energy Coal Co. v. Diamond Energy and Resources, Inc., 467 N.E.2d 439, 441-42 (Ind.App.1984). Accordingly, whether the theory be "mere instrumentality" or "alter ego," there must be some allegation of "fraud or wrong by the parent through its subsidiary." Steven v. Roscoe Turner Aeronautical Corp., 324 F.2d 157, 160 (7th Cir.1963) (applying Indiana law). See also Burger Man, Inc. v. Jordan Paper Products, Inc., 170 Ind. App. 295, 352 N.E.2d 821, 834 (1976) (veil piercing limited to prevention of fraud and injustice).

Plaintiff through its allegations and evidence presented in opposition to defendant's motion contends that Peter Perez, as chairman and chief executive officer of Aeolian, was personally responsible for negotiating the collective bargaining agreements with Local 282. His actions and proposals on behalf of Aeolian were at times directed towards the pension and insurance funds, including the rescheduling of Aeolian's contribution obligation when it began to experience financial difficulty.

Further, plaintiff has presented evidence that Peter Perez was the sole shareholder of Perez, Inc., a shell corporation with no business, no employees, and the minimum capital required by Indiana law, whose sole purpose was to acquire a going concern such as Aeolian. Perez, Inc., purchased all of the outstanding stock of Aeolian for $3,000,000.00, which plaintiff alleges was paid for in the following manner:

                  $1,250,000.00   Aeolian's cash assets
                      50,000.00   Cash contributed to Perez
                                  Inc., capital by Peter Perez
                     200,000.00   Loan personally guaranteed
                                  by Peter Perez
                   1,500,000.00   Notes secured by Aeolian's
                                  assets
                  _____________
                  $3,000,000.00   Total
                

In addition, plaintiff has presented evidence that Aeolian's working capital was the result of a $10,000,000.00 line of credit personally guaranteed by Peter Perez. Perez, Inc. never had any assets other than the Aeolian stock.

While the...

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2 cases
  • Scarbrough v. Perez
    • United States
    • United States Courts of Appeals. United States Court of Appeals (6th Circuit)
    • 22 Marzo 1989
    ...incurred by the corporation upon its withdrawal from one of the plans, a multi-employer pension plan. We agree with the district court, 683 F.Supp. 659, that ERISA did not make the individual defendant personally liable for the obligations of his Defendant Peter Perez was the sole owner of ......
  • Glover v. SDR Cartage Co., Inc.
    • United States
    • U.S. District Court — Northern District of Illinois
    • 1 Marzo 1988
    ...the corporate veil" test applies in withdrawal liability cases); P & M Coal, 801 F.2d at 1374 (same). Accord Scarbrough v. Perez, 683 F.Supp. 659, 660-61 (W.D.Tenn. 1987); Canario v. Byrnes Express & Trucking Co., 644 F.Supp. 744, 750-51 (E.D.N.Y.1986), withdrawn due to settlement, 652 F.Su......

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