Michigan Carpenters Council Health and Welfare Fund v. C.J. Rogers, Inc.

• Decision Date: 10 May 1991
• Docket Number: 89-1412,Nos. 89-1411,s. 89-1411
• Citation: 933 F.2d 376
• Parties: , 119 Lab.Cas. P 10,854, 19 Fed.R.Serv.3d 554, 13 Employee Benefits Ca 2700 In re MICHIGAN CARPENTERS COUNCIL HEALTH AND WELFARE FUND, et al., Plaintiffs, Trustees for Michigan Carpenters Council Health and Welfare Fund, Plaintiff-Appellee, Cross-Appellant (89-1412), v. C.J. ROGERS, INC., a Michigan corporation, et al., Defendants, Charles J. Rogers Construction, a Michigan corporation, Defendant-Appellant, Cross-Appellee (89-1411).
• Court: U.S. Court of Appeals — Sixth Circuit

Page 376

933 F.2d 376

60 USLW 2060, 119 Lab.Cas. P 10,854,

19 Fed.R.Serv.3d 554,

13 Employee Benefits Ca 2700

In re MICHIGAN CARPENTERS COUNCIL HEALTH AND WELFARE FUND,

et al., Plaintiffs,

Trustees for Michigan Carpenters Council Health and Welfare

Fund, Plaintiff-Appellee, Cross-Appellant (89-1412), v. C.J. ROGERS, INC., a Michigan corporation, et al., Defendants, Charles J. Rogers Construction, a Michigan corporation,

Defendant-Appellant, Cross-Appellee (89-1411).

Nos. 89-1411, 89-1412.

United States Court of Appeals, Sixth Circuit.

Argued July 31, 1990.

Decided May 10, 1991.

Edward R. Freeberg (argued), Durant, Freeberg, Schanz & Connelly, Kalamazoo, Mich., for plaintiffs-appellees.

George R. Hamo, Flint, Mich., Kathleen Solner Pearce, Robert J. Solner (argued), Birmingham, Mich., for defendants-appellants.

Before KENNEDY, BOGGS and SUHRHEINRICH, Circuit Judges.

SUHRHEINRICH, Circuit Judge.

This case involves an appeal and cross-appeal from a final judgment that the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001-1461, preempted state corporate reorganization law and that various defendants were liable to the plaintiffs below on an "alter ego" theory of liability for contributions owed to the plaintiff trust funds. For the reasons stated below, we AFFIRM in part and with respect to the district court's finding as to liquidated damages, VACATE and REMAND in part.

I. FACTS

Plaintiffs are ten voluntary unincorporated trust funds established pursuant to Section 302 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. Sec. 186, and ERISA. The funds provide health, retirement, and education benefits for employee beneficiaries of the defendant corporations. Plaintiffs brought this action to collect $500,000 in alleged arrearages and penalties, and to compel defendants to keep current on their contributions, under collective bargaining agreements which obligated defendants to make periodic contributions for the benefit of their employees. Defendants, who are or were all generally in the construction business, include Charles J. Rogers Construction Company ("Construction"), C.J. Rogers, Inc. ("Inc."), Chas. J. Rogers Excavating, Inc. ("Excavating"), and W.P.M., Inc., all corporations organized under Michigan law; C.J. Rogers- Both Excavating and Construction were incorporated by Charles J. Rogers as small, family-owned and operated corporations. Before 1975, controlling interests in Excavating were held by Charles J. Rogers's two sons, Charles K. Rogers and Lawrence P. Rogers, although other family members held lesser amounts of stock. William H. Leoni had been an employee of Construction since 1952, and, until 1975, held a small block of stock in Excavating. ¹

Cooper, a joint venture which operated in Michigan in the mid-1970's; and William H. Leoni, a building contractor who is the president of Inc., Construction, and Excavating; and is also the sole shareholder of LERO Corporation, a holding corporation which owns a majority of the shares of stock of Construction and Excavating.

In 1974, Excavating found itself in financial straits and without operating funds. Charles K. and Lawrence P. each agreed to loan Excavating $100,000 in return for promissory notes with face values of the same amount and secured by Excavating's accounts receivable. In addition, Leoni assumed the role of active manager. Difficulties continued and Leoni agreed to buy out the positions of the other shareholders in both Construction and Excavating. It was at this time that LERO Industries, Inc. was incorporated to be a holding company for the stock of the two Rogers' companies. According to the terms of the agreement executed on May 20, 1975, Excavating and Construction agreed to redeem all outstanding shares of their stock for $646,000, and Leoni personally guaranteed the companies' obligations. The agreement further provided that at the closing of the deal, the debts to Charles K. and Lawrence P. would be discharged by payment to them of $50,000 each.

Leoni became president of both companies upon the sale and his wife, Joanne, became the owner of 100% of Construction's stock and 98% of Excavating's stock. At this time, Joanne and William Leoni paid the Rogers brothers $50,000 each for the promissory notes pursuant to the terms of the May 20, 1975 contract. Although the agreement itself stated that the notes would be discharged at the time of the closing, the notes were actually assigned to the Leonis, and remained outstanding debts of Excavating. The promissory notes had been, and continued to be, secured by Excavating's accounts receivable.

The companies' financial difficulties continued, leading them to petition the Genesee County Circuit Court in Flint, Michigan, in July of 1979 for an arrangement of unsecured creditors pursuant to the Michigan Business Corporation Act, Mich.Comp.Laws Secs. 450.1101-450.2098 ("the Michigan Act"). Under Michigan law, if a three-fourths majority of creditors in value agree to a compromise, and receive the sanction of the court to which application was made, the compromise is binding on all creditors of the corporation. Mich.Comp.Laws Sec. 450.1204. At that time, the state judge enjoined all creditors of Construction and Excavating from filing any suit against the companies to collect debts owed and from enforcing any lien against the defendant companies. Among the numerous unsecured obligations that had become delinquent were contributions owed by defendants to plaintiffs pursuant to collective bargaining agreements between defendants and plaintiff funds.

The plan of arrangement filed with the circuit court proposed to pay off the general unsecured creditors over varying periods of time, with a 100% payoff to be made to electing creditors over ten years. In accordance with the state court's order, the two companies notified all of their creditors, both secured and unsecured, of the reorganization and submitted a list of these creditors to the court. The initial plan of arrangement submitted jointly by Excavating and Construction was approved by the required three-fourths majority of the unsecured creditors, and by the state court on March 22, 1980. Plaintiffs received notice of the plan but did not participate in the arrangement.

Construction and Excavating were unable to perform the planned compromise Inc. was capitalized in the following manner. Both Excavating and Construction sold all of their corporate assets and assigned the accounts receivable, inventory, and uncompleted contracts to Inc. Inc. purchased these assets at their fair market value in consideration for two ten-year secured promissory notes given by Inc. to Excavating and Construction. Construction and Excavating were issued $1 million of preferred stock with an indefinite redemption period as payment for the accounts receivable and inventory. In addition, Joanne Leoni executed a subscription agreement to purchase 200,000 shares of common stock of Inc. for either cash or property. In return, she assigned to Inc. the two promissory notes that she held as assignee of the Rogers brothers. Each of the notes, as previously stated, had a face value of $100,000 and were secured by certain accounts receivable of Excavating. Mrs. Leoni became the sole shareholder of Inc.

and arrangement. A second plan was then proposed in the state court in which the assets of the two companies would be transferred to a new Michigan corporation, C.J. Rogers, Inc. ("Inc."). This new plan was approved by the required three-fourths majority of the unsecured creditors and by the state court. Inc. was incorporated on May 1, 1980. Once again, plaintiffs received notice of the second proposed plan, but did not participate in the arrangement.

Inc. called for payment of the subscription agreement on October 14, 1980, the date upon which the circuit court and majority of the new creditors approved the sale of assets to Inc. By this time, the accounts receivable securing the two promissory notes had been paid, thereby fulfilling the precondition to Inc.'s creation. The new plan was approved by a majority of the new creditors and the state court.

In May 1983, the plaintiffs filed this action in federal district court seeking unpaid contributions and injunctive relief pursuant to collective bargaining agreements with Construction and Excavating and from Inc. and Leoni as alter-egos of these two companies. On November 20, 1985, the district court rendered its findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a), finding that: (1) defendants were liable to plaintiffs for unpaid contributions, interest, liquidated damages, and attorney fees under 29 U.S.C. Sec. 1132(g)(2)(A), (B), (C) and (D); (2) Inc. was the alter-ego of Construction and Excavating; (3) defendant Leoni was not personally liable for the unpaid contributions; and (4) plaintiffs' liquidated damages claims could not exceed the 20% statutory limit of the delinquent contributions of defendants, and that it was irrelevant what type of assessments--penalty or audit--plaintiffs could have levied against defendants. A final judgment was entered in favor of plaintiffs for unpaid contributions in the amount of $100,904.68, interest in the amount of $96,643.56, liquidated damages in an amount equal to the interest, together with attorney fees, costs, and post judgment interest. The district court denied the defendants' motion to alter or amend the judgment on February 22, 1989.

On appeal, the defendants assert that the district court erred in holding that Inc. is liable under an alter-ego theory of liability; in applying ERISA rather than state reorganization provisions; and in refusing to offer equitable relief under 29 U.S.C. Sec. 1132(g)(2)(E). On cross-appeal the plaintiffs allege error in the district court's refusal to find defendant Leoni personally liable. The plaintiffs further allege that the district court erred in holding that...