UFCW Local One Pension Fund v. Enivel Props., LLC

• Decision Date: 01 July 2015
• Docket Number: Docket No. 14–2487.
• Citation: 791 F.3d 369
• Parties: UFCW LOCAL ONE PENSION FUND, and its Trustees: Frank C. Deriso, John P. Barrett, Eric Glathar, Raymond Wardynski, Robert Boehlert, and Kristine Wydro, Plaintiffs–Appellants, v. ENIVEL PROPERTIES, LLC, Defendant–Appellee.
• Court: U.S. Court of Appeals — Second Circuit

791 F.3d 369

UFCW LOCAL ONE PENSION FUND, and its Trustees: Frank C. Deriso, John P. Barrett, Eric Glathar, Raymond Wardynski, Robert Boehlert, and Kristine Wydro, Plaintiffs–Appellants

v.ENIVEL PROPERTIES, LLC, Defendant–Appellee.^*

Docket No. 14–2487.

United States Court of Appeals, Second Circuit.

Submitted: April 24, 2015.

Decided: July 1, 2015.

Jeffrey S. Swyers, Barry S. Slevin, Paul E. Knupp, III, Slevin & Hart, P.C., Washington, D.C., for Plaintiffs–Appellants.

Glenn E. Pezzulo, William S. Levinson, Culley, Marks, Tanenbaum & Pezzulo, LLP, Rochester, NY, for Defendant–Appellee.

Before: WESLEY, LIVINGSTON, and CHIN, Circuit Judges.

Opinion

WESLEY, Circuit Judge:

The issue in this appeal is whether a separate business organization can be held responsible for the liabilities of another commonly controlled entity under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), 29 U.S.C. §§ 1381 –1453.

Steven Levine was the sole shareholder of Empire Beef Co., Inc. (“Empire”), a food-processing company. Empire was party to a collective bargaining agreement that required it to contribute to the United Food and Commercial Workers Local One Pension Fund (the “Fund”) for retirement and related benefits for its employees. In November 2007, Empire effected a “complete withdrawal” from the Fund pursuant to 29 U.S.C. § 1383(a) and incurred a withdrawal liability assessment to the Fund of $1,235,644.00. The Fund sued Empire under the MPPAA for the assessment, as well as liquidated damages, interest, costs, and attorneys' fees, and secured a judgment against Empire for $1,790,343.90. Empire has not paid any portion of the judgment.

In addition to Empire, Steven and his wife, Lori, owned an investment company, Enivel Properties, LLC (“Enivel”).¹ Steven held forty percent of Enivel's stock; Lori owned the remainder and was solely responsible for Enivel's business operations.² The Fund sued Enivel to recover on its judgment against Empire, alleging that Enivel is a trade or business under common control with Empire such that it is jointly and severally liable for Empire's withdrawal liability.

To ensure the viability of multiemployer pension plans against the failure of a contributing employer, the MPPAA has broad provisions that disregard the usual legal barriers between affiliated, but legally distinct, businesses. All “trades or businesses” under “common control” are treated as a single employer for the purpose of collecting withdrawal liability, and each is jointly and severally liable for the withdrawal liability of another. See 29 U.S.C. § 1301(b)(1) ; Corbett v. MacDonald Moving Servs., Inc., 124 F.3d 82, 86 (2d Cir.1997) (citing 29 U.S.C. § 1301(b)(1) and 26 C.F.R. §§ 1.414(c)–1 to –5 ).

Enivel was formed as a limited liability company, had an Employer Identification Number and a business checking account, and filed New York State tax returns. In its 2007 New York State tax return, Enivel reported a net loss in the amount of $2,275.00. Enivel owned three investment properties. The district court (Glenn T. Suddaby, Judge) found that Enivel was formed for the purpose of shielding the Levines from liability in case someone was injured on one of their properties. In addition, the court found it likely that Lori did not spend more than a few hours per year attempting to sell these properties or managing their leasing. There is no evidence in the record that any other individuals spent more than a negligible amount of time acting on behalf of Enivel.

In May 2007, Enivel purchased a residential condominium unit in Rochester, New York (the “Rochester Condo”). The unit was originally purchased for the Levines' daughter. After the Levines' daughter moved out of New York, Enivel held the unit from 2007 to 2010 as an investment, leasing it periodically to tenants who responded to advertisements Lori posted on Craigslist. Lori testified that her purpose in leasing the property was to offset its carrying costs (including condominium association fees, property taxes, and insurance premiums) and that her hope was to “get rid of it” after it became clear that her daughter was not going to move in. J.A. 103. Enivel sold the Rochester Condo at a loss in 2010.

Enivel purchased a 5.2–acre parcel of unimproved land in Walworth, New York in 2004 (the “Walworth Property”). Enivel attempted to sell the Walworth Property by erecting a “For Sale” sign on the property, listing it with various brokers and websites, and cold-calling developers. The Walworth Property has not been leased or sold.

The third Enivel property is a 42–acre parcel of unimproved land in Ogden, New York (the “Ogden Property”). Enivel listed the Ogden Property for sale on LoopNet.com, a web-based commercial real estate marketplace, and leased it to a farmer to preserve the land against erosion and to offset its tax burden.

Applying the standard articulated in Commissioner v. Groetzinger, 480 U.S. 23, 35, 107 S.Ct. 980, 94 L.Ed.2d 25 (1987), the district court determined that for an entity to be a “trade or business,” it must operate “(1) for the primary purpose of income or profit, and (2) with continuity and regularity.” UFCW Local One Pension Fund v. Enivel Props., LLC (Enivel ), No. 6:11–CV–1144 (GTS/ATB), 2014 WL 2711660, at *5 (N.D.N.Y. June 16, 2014). Enivel failed both prongs of the “trade or business” definition, the district court concluded, first, because “while the secondary purpose of Enivel was for income or profit, the primary purpose of Enivel was personal.” Id. at *8. In the alternative, the court concluded “that any income or profit activities engaged in by Enivel were not continuous and regular, but were interrupted and/or sporadic.” Id. at *9. The Fund appealed.

DISCUSSION

We will not disturb findings of fact made by the district court unless they are clearly erroneous. Fed.R.Civ.P. 52(a) ; Puma Indus. Consulting, Inc. v. Daal Assocs., Inc., 808 F.2d 982, 985–86 (2d Cir.1987). “Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.” Banker v. Nighswander, Martin & Mitchell, 37 F.3d 866, 870 (2d Cir.1994) (internal quotation marks omitted). “However, the district court's application of those facts to draw conclusions of law ... is subject to de novo review.” Travellers Int'l, A.G. v. Trans World Airlines, Inc., 41 F.3d 1570, 1575 (2d Cir.1994).

Under the MPPAA, an employer incurs withdrawal liability when it withdraws from a multiemployer pension plan. See 29 U.S.C. § 1381(a). “The purpose of withdrawal liability ‘is to relieve the funding burden on remaining employers and to eliminate the incentive to pull out of a plan which would result if liability were imposed only on a mass withdrawal by all employers.’ ” ILGWU Nat'l Ret. Fund v. Levy Bros. Frocks, Inc., 846 F.2d 879, 881 (2d Cir.1988) (quoting H.R.Rep. No. 96–869, pt. 1, at 67 (1980), as reprinted in 1980 U.S.C.C.A.N. 2918, 2935). The MPPAA thus “protect[s] the interests of participants and beneficiaries in financially distressed multiemployer plans and ... encourage[s] the growth and maintenance of multiemployer plans.” T.I.M.E.–DC, Inc. v. Mgmt.–Labor Welfare & Pension Funds, of Local 1730 Int'l Longshoremen's Ass'n, 756 F.2d 939, 943 (2d Cir.1985). Withdrawal liability discourages employers from evading their obligations to pension funds by fractionalizing or balkanizing their operations. See Bd. of Trs. of the W. Conf. of Teamsters Pension Tr. Fund v. H.F. Johnson, Inc., 830 F.2d 1009, 1013 (9th Cir.1987).

In order to impose withdrawal liability on an organization other than the one obligated to the pension fund, two conditions must be satisfied: the second organization must be (1) under common control with the obligated entity; and (2) a “trade or business.” See 29 U.S.C. § 1301(b)(1). Enivel does not dispute that Steven Levine controlled both Empire and Enivel. The only question in this appeal is whether Enivel is a “trade or business.”

The district court correctly noted that section 1301(b)(1) does not define “trade or business.” In light of the interpretive difficulties that arise with that phrase in cases such as this, several of our sister circuits, and the district court, have seen fit to employ the Supreme Court's reasoning in a tax case, Groetzinger, 480 U.S. at 35, 107 S.Ct. 980, for guidance in determining the types of conduct that constitute engaging in a “trade or business.” See Connors v. Incoal, Inc., 995 F.2d 245, 250–51 (D.C.Cir.1993) ; Cent. States, Se. & Sw. Pension Fund v. Personnel, Inc. (Personnel ), 974 F.2d 789, 794 (7th Cir.1992) ; Enivel, 2014 WL 2711660, at *5.

In Groetzinger, the Court considered the meaning of the phrase “trade or business” as it appears in section 162(a) of the Internal Revenue Code. 480 U.S. at 33–35, 107 S.Ct. 980 ; see 26 U.S.C. § 162(a) (1988) (providing for income tax deductions for “ordinary and necessary expenses paid or incurred ... in carrying on any trade or business”). Groetzinger explained that, “to be engaged in a trade or business, ... the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.” 480 U.S. at 35, 107 S.Ct. 980. The Court in Groetzinger confined its construction of the term “trade or business” to the tax statute at issue in that case and the Court “[did] not purport to construe the phrase where it appears in other places.” Id. at 27 n. 8, 107 S.Ct. 980. However, Groetzinger is useful to “distinguish trades or business from investments, which are not trades or business and thus cannot form a basis for imputing withdrawal liability under § 1301(b)(1).” Cent. States, Se. & Sw. Areas Pension Fund v. Fulkerson (Fulkerson ), 238 F.3d 891, 895 (7th Cir.2001) ; see also Personnel, 974 F.2d at 794. Groetzinger's construction of “trade or business” is the most helpful authoritative...