Central States, Southeast and Southwest Pension Fund v. Personnel, Inc., 91-2392

• Decision Date: 20 August 1992
• Docket Number: No. 91-2392,91-2392
• Citation: 974 F.2d 789
• Parties: 15 Employee Benefits Cas. 2184 CENTRAL STATES, SOUTHEAST and SOUTHWEST PENSION FUND, a Pension Trust, and Marion M. Winstead, Robert C. Sansone, Robert J. Baker, Howard McDougall, Arthur H. Bunte, Jr., R. Jerry Cook, R.V. Pulliam, Sr. and Harold D. Leu, the present Trustees, Plaintiffs-Appellants, v. PERSONNEL, INC., a Wisconsin corporation, and Eugene Perrelle, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 789

974 F.2d 789

15 Employee Benefits Cas. 2184

CENTRAL STATES, SOUTHEAST and SOUTHWEST PENSION FUND, a Pension Trust, and Marion M. Winstead, Robert C. Sansone Robert J. Baker, Howard McDougall, Arthur H. Bunte, Jr., R Jerry Cook, R.V. Pulliam, Sr. and Harold D. Leu, the present Trustees, Plaintiffs-Appellants, v. PERSONNEL, INC., a Wisconsin corporation, and Eugene Perrelle, Defendants-Appellees.

No. 91-2392.

United States Court of Appeals Seventh Circuit.

Argued Feb. 18, 1992.

Decided Aug. 20, 1992.

Terence G. Craig, Neal S. Deodhar (argued), Timothy J. Frenzer, Central States, Southeast & Southwest Area Pension Fund, Law Dept., Rosemont, Ill., for plaintiffs-appellants.

Paul V. Esposito, Douglas A. Lindsay, Lewis, Overbeck & Furman, Chicago, Ill., Charles P. Stevens (argued), Lindner & Marsack, Milwaukee, Wis., for defendants-appellees.

Before POSNER and KANNE, Circuit Judges, and VAN SICKLE, Senior District Judge. ^*

KANNE, Circuit Judge.

Under the Multiemployer Pension Plan Amendments Act ("MPPAA"), 29 U.S.C. §§ 1381 et seq., an employer which withdraws from a multi-employer pension plan is liable for its pro rata share of the plan's unfunded vested liability. See 29 U.S.C. § 1381. Central States, Southeast and Southwest Areas Pension Fund ("the Fund") brought this action against Personnel, Inc., a Wisconsin corporation, and Eugene Perrelle, the sole owner and president of Personnel, to collect withdrawal liability owed by Personnel. The Fund seeks to impose withdrawal liability on Perrelle because Personnel has ceased operations and has no assets.

Congress enacted the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq., to protect employees' pension rights. However, ERISA did not include liability provisions which would apply when an employer withdrew from a multi-employer pension plan. This meant that no provision ensured compensation to cover the shortfall in contributions to the fund whenever an employer withdrew. Congress established withdrawal liability in the MPPAA to ensure that when an employer withdraws from a pension plan, the financial burden of its employees' vested pension benefits would not be borne by the other employers in the plan. See Central States, Southeast and Southwest Areas Pension Fund v. Slotky, 956 F.2d 1369, 1371 (7th Cir.1992); Trustees of Chicago Tr. Drivers P.F. v. Central Transp., 888 F.2d 1161, 1165 (7th Cir.1990).

I.

Between 1963 and 1987, Perrelle owned and operated Personnel, which leased truck drivers to other firms. Pursuant to its collective bargaining agreements with Local 43 of the Teamsters Union, Personnel was required to make contributions to the Fund.

While he was president of Personnel, Perrelle invested portions of his savings in real estate. Some of Perrelle's properties were apartment buildings leased to tenants on a month-to-month basis. The investments yielded negligible current profits, and often had negative cash flow. Perrelle also purchased several properties and held them for short periods, and was able to sell some of the properties at a gain.

For the most part, Perrelle's real estate investments were unrelated to Personnel. From 1980 until 1985, however, Personnel's offices were in a building owned by Perrelle, who received rent from Personnel. In 1985, Personnel stopped paying rent to Perrelle when Perrelle moved the company's offices into his own home.

After the deregulation of the trucking industry in the mid-1980s, Personnel found it difficult to compete and began to lose money. Between 1985 and 1987, Personnel had significantly reduced its employees and had reduced its contributions to the Fund. By the summer of 1987, Personnel employed no one and had ceased operations.

On December 31, 1986, the Fund determined that Personnel had effected a "partial withdrawal" within the meaning of 29 U.S.C. § 1385(a)(1). On April 15, 1988, the Fund mailed to Personnel a notice and demand for payment of withdrawal liability in the amount of $283,165.30. The Fund also directed Personnel to send copies of its federal corporate tax returns to the Fund and also requested Perrelle to send copies of his individual income tax returns. Personnel and Perrelle complied with the Fund's requests for copies of the tax returns, but did not pay the withdrawal liability.

On December 1, 1988, the Fund informed Perrelle that it had determined that he was an employer within the meaning of 29 U.S.C. § 1301(b)(1), and that in addition to his business activities with Personnel, Perrelle's real estate activities constituted a trade or business. Accordingly, the Fund found that Perrelle was personally responsible for the withdrawal liability incurred by Personnel. The Fund brought this action to compel payment of the withdrawal liability. ¹

After discovery was completed, both parties moved for summary judgment. In a memorandum opinion, the district judge held that Perrelle's real estate holdings did not rise to the level of a trade or business under § 1301(b)(1), and entered summary judgment in favor of Perrelle and against the Fund. In so ruling, the district court reasoned that because Perrelle's real estate activities were largely unrelated to the activities of Personnel, those activities could not be deemed a trade or business. The district court also found that Perrelle's investments were purely personal, and therefore did not rise to the level of a trade or business. The Fund appeals.

II.

We must first determine the appropriate standard of review. We review de novo a grant or denial of summary judgment. Carston v. The County of Cook, 962 F.2d 749, 751 (7th Cir.1992); Pro-Eco, Inc. v. Board of Commissioners of Jay County, Ind., 956 F.2d 635, 637 (7th Cir.1992). Summary judgment is appropriate if we can determine 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." FED.R.CIV.P. 56(c); Carston, at 751. In reviewing a grant of summary judgment we "view the record and all inferences drawn from it in the light most favorable to the party opposing the motion." Carston, at 751 (quoting Lohorn v. Michal, 913 F.2d 327, 331 (7th Cir.1990)). Nevertheless, in Slotky, where we examined an assessment of withdrawal liability, we reviewed the district court's conclusions for clear error because the facts were undisputed and the only factual issue was one of characterization. 956 F.2d at 1373-74. Because that is also the case here, we will review for clear error.

Personnel and Perrelle have not challenged the Fund's right to assess withdrawal liability, and they do not challenge the amount of liability assessed. The only question remaining is whether withdrawal liability may properly be imputed to Perrelle under § 1301(b)(1). Section 1301(b)(1) provides that "all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer and all such trades and businesses as a single employer." See Western Conference of Teamsters Pension Trust Fund v. Lafrenz, 837 F.2d 892, 893 (9th Cir.1988) (under § 1301(b)(1) each business under common control is jointly and severally liable for the withdrawal of another such business); see also Central States, Southeast and Southwest Areas Pension Fund v. Koder, 969 F.2d 451, 452 (7th Cir.1992) Central States, et al. v. Chatham Properties, 929 F.2d 260, 264 (6th Cir.1991). There are two requirements to establish a "single employer": 1) the entities involved must be "trades or businesses," and 2) they must be under "common control." Lafrenz, 837 F.2d at 893-94.

There is no doubt that Personnel and Perrelle's real estate activities are under Perrelle's "common control." IRS regulations define "trades or businesses under common control" to include "brother-sister" groups. 26 C.F.R. § 1.414(c)-2; see also Lafrenz, 837 F.2d at 893. The regulations define a "brother-sister" group as a group of two or more organizations in which the same five or fewer people have a "controlling interest" and over which those same five people exercise "effective control." See 26 C.F.R. § 1.414(c)-2(c). A "controlling interest" in a corporation is ownership of at least 80% of the voting shares; and, in the case of a sole proprietorship, it is complete ownership of the business. See 26 C.F.R. § 1.414(c)-2(b)(2)(A) and (D). "Effective control" is demonstrated by ownership of at least 50% of the combined voting power of all the voting stock of a corporation, or complete ownership of a sole proprietorship. See 26 C.F.R. § 1.414(c)-2(c)(2)(i) and (iv).

The Fund is correct that the "brother-sister" group of businesses consists of a corporation, Personnel, and a sole proprietorship, Perrelle's real estate activities. We agree with the district court's determination that the "common control" requirements were met in this case because Perrelle owned 100% of Personnel and was the sole proprietor of his real estate activities on the date of withdrawal. ² Therefore, if Perrelle's real estate activities are properly termed a trade or business, they will be deemed under common control and Perrelle will be liable for the withdrawal liability. See Lafrenz, 837 F.2d at 893; Central States, Southeast and Southwest Areas Pension Fund v. Long, 687 F.Supp. 298, 300-01 (E.D.Mich.1987).

Initially, we examine the district court's holding that the Fund failed to prove that Perrelle's real estate investments were economically related to his investment in Personnel. The Fund argues that commonly controlled businesses need not be economically related. The district court correctly stated that the legislative history underlying § 1301(b)(1) demonstrates that Congress included that section to prevent withdrawn employers from avoiding liability by fractionalizing their business operations. See Lafrenz, 837 F.2d at 894; Western Conference of Teamsters Pension Trust Fund v. H.F. Johnson, Inc., 830 F.2d 1009, 1013 ...