Bd. of Trs. v. Del. Valley Sign Corp.

• Decision Date: 10 May 2013
• Docket Number: Case No. 1:12CV555.
• Citation: 945 F.Supp.2d 649
• Court: U.S. District Court — Eastern District of Virginia
• Parties: BOARD OF TRUSTEES, SHEET METAL WORKERS' NATIONAL PENSION FUND, Plaintiff, v. DELAWARE VALLEY SIGN CORPORATION, et al., Defendants.

945 F.Supp.2d 649

BOARD OF TRUSTEES, SHEET METAL WORKERS' NATIONAL PENSION FUND, Plaintiff,
v.
DELAWARE VALLEY SIGN CORPORATION, et al., Defendants.

Case No. 1:12CV555.

United States District Court,
E.D. Virginia,
Alexandria Division.

May 10, 2013.

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Sarah Ghani Naji, Slevin & Hart, P.C., Washington, DC, for Plaintiff.

Anthony Hotchkiss Anikeeff, Williams Mullen, McLean, VA, for Defendants.

MEMORANDUM OPINION
T.S. ELLIS, III, District Judge.

In this suit, a multiemployer pension plan seeks withdrawal liability payments from the owner of a withdrawing employer pursuant to the Multiemployer Pension Plan Amendments Act of 1980 ¹ (“MPPAA”), on the ground that the owner had owned and leased a building to the withdrawing employer. The owner opposes this effort on the ground that his ownership and leasing of the building to the withdrawing employer was merely a passive activity and not a ‘trade or business' under the MPPAA. The owner also asserts a fraud claim against the multiemployer pension plan on the ground that a representative of the plan told him that “if your company has no assets, how can you get blood from a stone,” implying that the plan would not sue the owner. At issue, therefore, on cross-motions for summary judgment, are the following questions:

(i) Whether the owner of a withdrawing employer is liable for the withdrawing employer's withdrawal liability under the MPPAA as a commonly controlled ‘trade or business,’ where, as here, the owner also engages in unincorporated leasing activity by owning and leasing property to the withdrawing employer; and,

(ii) Whether the plan representative's statement to the owner of the withdrawing employer to the effect that “if your company has no assets, how can you get blood from a stone” can serve as the basis for a common law fraud claim.

For the reasons that follow, the first question must be answered in the affirmative and the second in the negative. An individual who owns a closely held corporation may be held liable for the closely held corporation's withdrawal liability under the MPPAA where that individual leases property to the closely held corporation. In addition, the statement by the plan representative cannot serve as the basis for a common law fraud claim.

I.

Plaintiff Board of Trustees, Sheet Metal Workers' National Pension Fund (the “Fund”) is a multiemployer pension plan headquartered in Fairfax, Virginia. The Fund is comprised of the individuals who are fiduciaries with respect to the Fund and collectively sponsor the plan. The Fund brings this suit pursuant to the MPPAA for delinquent withdrawal liability payments that were incurred when defendant Delaware Valley Sign Corporation d/b/a DVS Industries (“DVS”), a New Jersey corporation with a principal place of business in Burlington, New Jersey, ceased operations. Defendant George Kennedy (“Kennedy”), a New Jersey citizen, owned 100% of DVS' stock, as well as all of the stock of defendant corporations Kennedy Holding Corporation, a Delaware corporation with a principal place of business in Burlington, New Jersey, and DVS Industries Kentucky Corporation, also a

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Delaware Corporation with a principal place of business in Burlington, New Jersey.² Kennedy also owned the property located at 112 Connecticut Drive, Burlington, NJ 08016 (the “Property”), which served as DVS' principal place of business. The parties stipulated that Kennedy leased the Property to DVS beginning in 1994 and continuing until 2007. Thereafter, from 2007 until August 28, 2008, Kennedy leased the Property to Kennedy Holding Corporation, d/b/a Nova Sign. In 1996, 1998, and 2000 through 2008, Kennedy took deductions on his federal income tax returns for mortgage interest, repairs, real estate taxes, and utilities relating to the Property.

Pursuant to collective bargaining agreements with Sheet Metal Workers' International Association Local Union Nos. 27 and 194, DVS agreed to make contributions to the Fund on behalf of the employees covered by the collective bargaining agreements. Until 2008, DVS made all contractually required contributions to the Fund. In the summer of 2008, Kennedy ceased DVS' operations. Kennedy sold the Property to an unrelated corporation, Eastern Properties, LLC, which continued to operate a sign company on the Property and employed DVS' former employees in doing so.

As a result of DVS shutting down its operations, the Fund determined that on August 1, 2008, DVS effected a complete withdrawal from the Fund. The Fund then determined that, under the MPPAA and the terms of the Fund, DVS' withdrawal liability was $1,200,444.82. Accordingly, the Fund notified DVS by letter dated February 10, 2009 that DVS was delinquent in making its first quarterly withdrawal liability payment and that it had 60 days from receipt of the letter to cure the delinquency.

After receiving the February 10, 2009 letter, Kennedy contacted the Fund's counsel, Mark Rifkind. In declarations provided in connection with the cross-motions for summary judgment, Kennedy states that he explained to Rifkind that he was closing DVS, and that he had sold the business to another Union company. Further, Kennedy, in his declaration, states that when asked by Rifkind whether he “had any other business or rental properties ... I told him that I did not.” Kennedy states that he then asked Rifkind “where this was going?” Rifkind answered “if your company has no assets, how can you get blood from a stone?” According to Kennedy, he understood that “as meaning that, because the business had no remaining assets, the Fund would not pursue me or my companies for withdrawal liability.”

Neither DVS nor Kennedy has made any withdrawal liability payment to the Fund pursuant to the withdrawal liability payment schedule. Nor did DVS, pursuant to the MPPAA, 29 U.S.C. § 1401(a)(1), initiate an arbitration to challenge the Fund's withdrawal liability assessment. Accordingly, the Fund brought this suit seeking payment of the sums due pursuant to the withdrawal liability payment schedule, as well as interest on the sums due, and the Fund's attorneys' fees and costs associated with collecting the delinquent amounts.

II.

Summary judgment “is appropriate when ‘the pleadings, depositions, answers to interrogatories, and admissions on file,

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together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.’ ” Holland v. Washington Homes, Inc., 487 F.3d 208, 213 (4th Cir.2007) (quoting Rule 56(c), Fed.R.Civ.P.). The facts must be construed “in the light most favorable to [the non-movant], and [the court] may not make credibility determinations or weigh the evidence.” Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). There must “be sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Id. (quoting Anderson, 477 U.S. at 249–50, 106 S.Ct. 2505).

III.

The MPPAA amended the Employee Retirement Income Security Act (“ERISA”) to provide special protections for multiemployer pension plans. A multiemployer plan is a plan to “which more than one employer is required to contribute” and “which is maintained pursuant to one or more collective bargaining agreements between ... employee organizations and more than one employer[.]” 29 U.S.C. § 1002(37)(A). The MPPAA provides that an employer has completely withdrawn from a multiemployer pension plan if the employer either (i) permanently ceases to have an obligation to contribute to a multiemployer plan or (ii) permanently ceases all covered operations under the plan. 29 U.S.C. § 1383(a). Upon an employer's complete withdrawal, the “employer is liable to the plan in the amount determined under [the MPPAA] to be the withdrawal liability.” 29 U.S.C. § 1381(a). In other words, the MPPAA “provides that when an employer withdraws from an ongoing multi-employer pension plan, the employer becomes liable for a proportionate share of the plan's unfunded vested liability.” Teamsters Joint Council No. 83 v. Weidner Realty Assocs., 377 Fed.Appx. 339, 342 (4th Cir.2010).

Under the MPPAA, “all trades or businesses (whether or not incorporated) which are under common control within the meaning of section 1301(b)(1) ... are considered a single employer.” 29 U.S.C. § 1002(37)(B). At issue here is whether an individual who leases property, owned by the individual, to the withdrawing employer, also owned by the individual, is a “trade or business” under 29 U.S.C. § 1301(b)(1). Although the Fourth Circuit has not yet addressed this issue, those circuit and district courts that have done so are in accord that “renting property to a withdrawing employer is ‘categorically’ a trade or business[.]” Cen. States, Se. & Sw. Areas Pension Fund v. Messina Products, LLC, 706 F.3d 874, 881 (7th Cir.2013). ³ The categorical approach in

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this context is both sound and firmly supported by the MPPAA's purpose, which, simply put, is “to prevent dissipation of assets required to secure vested pension benefits.” Cen. States, Se. & Sw. Areas Pension Fund v. Ditello, 974 F.2d 887, 890 (7th Cir.1992) (internal citations omitted). Congress explained that the MPPAA was necessary because

withdrawals of contributing employers from a multiemployer pension plan frequently result in substantially increased funding obligations for employers who continue to contribute to the plan, adversely affecting the plan, its participants and beneficiaries, and labor-management relations[.]
29 U.S.C. § 1001a(4)(A). Thus, the categorical approach furthers the MPPAA's purpose because “leasing property to a withdrawing employer is an economic relationship that could be used to so dissipate or fractionalize assets[.]” Ditello, 974 F.2d at...