Central States Pension Fund v. Fulkerson

• Citation: 238 F.3d 891
• Decision Date: 29 January 2001
• Docket Number: No. 00-2596,00-2596
• Parties: (7th Cir. 2001) Central States, Southeast and Southwest Areas Pension Fund, and Howard McDougall, trustee, Plaintiffs-Appellees, v. Thomas C. Fulkerson and Dolly S. Fulkerson, Defendants-Appellants
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

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238 F.3d 891 (7th Cir. 2001) Central States, Southeast and Southwest Areas Pension Fund, and Howard McDougall, trustee, Plaintiffs-Appellees,
v.
Thomas C. Fulkerson and Dolly S. Fulkerson, Defendants-Appellants. No. 00-2596 In the United States Court of Appeals For the Seventh Circuit Argued January 9, 2001
Decided January 29, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 0420--James F. Holderman, Judge.

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Copyrighted Material Omitted

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Before Flaum, Chief Judge, and Bauer and Coffey, Circuit Judges.

Flaum, Chief Judge.

Defendants Thomas and Dolly Fulkerson appeal the district court's grant of summary judgment to plaintiff Central States on its claim for withdrawal liability. The Fulkersons argue that the district court erred in determining that their activities met the statutory requirements for liability. For the reasons stated herein, we reverse and remand.

I. Background

Thomas ("Tom") and Dolly are husband and wife. They are the only shareholders of Holmes Freight Lines, Inc. ("Holmes"), a trucking company that is now in bankruptcy. Tom is the President of Holmes and owns 68% of its stock, while Dolly is a 32% owner and is the Vice-President, Secretary, and a member of the Board of Directors, though the defendants claim she has never been active in running Holmes.

In addition to managing Holmes, Tom leased a few properties. At his direction, Holmes purchased three parcels of land between January, 1985 and January, 1987. The properties were located in Portland, Oregon, Salt Lake City, Utah, and Auburn, Washington. Holmes built trucking terminals on the properties and then sold these back to Tom. Tom then leased the properties to Action Express, Inc. ("Action"). Action was another trucking company owned by the Fulkersons' sons, though Holmes and Action were always maintained as separate corporations and Tom and Dolly did not have any interest in or participate in the management of Action. Tom negotiated both the purchases of the property and the leases. These leases were "triple net leases," under which the tenant is responsible for most obligations such as maintenance, operating expenses, real estate taxes, and insurance (though Holmes may have paid the insurance premium on these properties and have been reimbursed by Tom). Thus, Tom had few obligations associated with being a traditional landlord. Tom sold the Auburn property in 1990 and the Portland property in 1995, realizing gains on both sales. The Salt Lake City property is still leased to Action. Tom has not devoted more than five hours in any year in connection with the properties, and claims that he purchased the properties for investment purposes. According to Tom, he does little more than deposit the rent checks and make mortgage payments, and reports the rental income on Schedule E of his federal income tax forms for supplemental income.

Holmes was subject to various collective bargaining agreements that required it to contribute to Central States. After Holmes ceased operations in July, 1998, it began self- liquidating and paid unsecured creditors one- quarter of the amount they were owed. Holmes paid Central States $236,126.45, a fourth of the amount Holmes believed sufficient to cover its pension obligations. Central States, on the other hand, calculated Holmes's withdrawal liability under the Multi employer Pension Plan Amendments Act of 1980 ("MPPAA") to be $1,889,011.61. See generally Central States, Southeast and Southwest Areas Pension Fund v. Midwest Motor Express, Inc., 181 F.3d 799, 803-04 (7th Cir. 1999) (discussing the mechanics of withdrawal liability). The fund decided to sue the Fulkersons to recover the deficiency.

In the district court on a motion for summary judgment, Central States argued that the Fulkersons' leasing activities constituted an unincorporated trade or business under 29 U.S.C. sec. 1301(b)(1), which states that all "trades or businesses," whether or not they are incorporated, shall be treated as a single employer. Under this theory, because both the supposed leasing business and Holmes are under the common control of the Fulkersons, the leasing business was obligated to pay the remainder of Holmes's withdrawal liability. Since the leasing business was unincorporated, the Fulkersons became personally

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liable for these payments to Central States. See Central States, Southeast and Southwest Areas Pension Fund v. Johnson, 991 F.2d 387, 388-89 (7th Cir. 1993) (describing a similar theory of liability).

The Fulkersons responded with a variety of arguments, which primarily center on the claim that they did not spend enough time engaging in leasing activities for these to constitute a "trade or business" as required by the statute. They also offered an expert witness in the real estate market who opined that the triple net leases were economically identical to passive investments such as stocks or bonds. In the alternative, they contended that Dolly had shown that she did not intend to be a partner in the alleged leasing business, and so she should not be personally liable for the withdrawal liability even if Tom is. The district court rejected all of the Fulkersons' arguments, granted summary judgment to the fund, and ordered the Fulkersons to pay Central States the withdrawal liability plus liquidated damages, interest, and attorneys' fees, as provided in 29 U.S.C. sec. 1132(g)(2). The Fulkersons now appeal the district court's determinations that the leasing was a trade or business and that Dolly intended to be a partner with Tom.

II. Discussion

A. Standard of Review

The initial question presented by this case is the standard by which we review the district court's decision. The district court's interpretation of the statutory phrase "trade or business" is, of course, purely a question of law that we review de novo. See Salve Regina College v. Russell, 499 U.S. 225, 231-32 (1991); Eli Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456, 467 (7th Cir. 2000). Summary judgments are reviewed de novo, viewing all of the facts, and drawing all reasonable inferences from those facts, in favor of the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Opp v. Wheaton Van Lines, Inc., 231 F.3d 1060, 1063 (7th Cir. 2000).

However, Central States argues that in the circumstances of this case we review the district court's "characterizations" of undisputed historical facts, which apparently means mixed questions of law and fact, under a clearly erroneous standard of review, citing Central States, Southeast and Southwest Areas Pension Fund v. Slotky, 956 F.2d 1369, 1373-74 (7th Cir. 1992) and Central States, Southeast and Southwest Pension Fund v. Personnel, Inc., 974 F.2d 789, 792 (7th Cir. 1992). Central States claims that for both the trade or business issue and the partnership question the underlying facts are...