Central States v. White, 00-2812

• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)
• Citation: 258 F.3d 636
• Docket Number: No. 00-2812,00-2812
• Parties: (7th Cir. 2001) Central States, Southeast and Southwest Areas Pension Fund, a pension trust, and Howard McDougall, trustee, Plaintiffs-Appellees, v. Gary L. White and Inge T. White, Defendants-Appellants
• Decision Date: 20 July 2001

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258 F.3d 636 (7th Cir. 2001) Central States, Southeast and Southwest Areas Pension Fund, a pension trust, and Howard McDougall, trustee, Plaintiffs-Appellees,
v.
Gary L. White and Inge T. White, Defendants-Appellants. No. 00-2812 In the United States Court of Appeals For the Seventh Circuit Argued January 26, 2001
Decided July 20, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 1046--David H. Coar, Judge.

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Before Bauer, Manion, and Rovner, Circuit Judges.

Manion, Circuit Judge.

As part of their residential property, Gary and Inge White owned two small apartments over their garage. Over a period of 32 years they annually rented the apartments to various tenants. During that time Gary White became owner of over 80% of the shares of a trucking company, which, after several years of operation, became bankrupt and ceased doing business. The Central States, Southeast and Southwest Areas Pension Fund ("Central States") assessed substantial withdrawal liability but was able to collect from the company only a fraction of the amount owed. After considerable delay, Central States sued the Whites for the balance owed. The district court concluded that the garage apartment rental activity met the statutory requirements for the Whites' liability as common owners under the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA") and held them liable

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for $16 million. The Whites appeal, and we reverse.

I. BACKGROUND

A. Apartment Rental

In anticipation of his marriage to Inge in June 1969, Gary White purchased a home in downtown Detroit. Inge's name was added to the title in 1973. At the time of the purchase, the home's detached garage had two overhead apartments which the previous owner had rented. Mr. White agreed to honor the lease agreements with the current tenants, and after some discussion with Mrs. White after their marriage, they decided to continue to rent the apartments. At the time Mr. White was self-employed, and because his job required frequent out-of-town travel, they valued the added security of the tenants' presence on the property. Thus, they continued to rent the apartments, primarily to students at nearby Wayne State University, until they sold the property in 1996.

During the time the Whites leased the garage apartments, they deposited rental income into and paid expenses out of joint bank accounts. Typically, Inge showed prospective tenants the apartments and talked to them about rent and availability. Either Inge or Gary handled routine cleaning and maintenance problems, including contacting repair workers and paying the bills.

During the 32 years that they owned the property, the Whites reported income and expenses from the apartment rental on Schedule E, "Supplemental Income and Loss," of their federal income tax return. According to an arrangement with the IRS, common expenses such as mortgage interest, homeowner's insurance, real estate taxes and landscaping, were attributed 5/8 to the Whites' home and 3/8 to the garage apartments. Of particular significance, as will be shown below, the Whites reported rental income from the garage apartments of $4,500 on their 1992 federal income tax return. While this annual income over the years would appear to be a modest financial benefit, in fact it has resulted in an assessment against the Whites in the amount of $16 million. Here's why.

B. Trucking Operation

During the 1970's, Mr. White began working for Ford Motor Company, and in 1986, he served as its Director of Minority Business Development. Seeking to expand Ford's minority supplier program, members of Ford's senior management urged White to purchase a trucking company, Trans Jones, which owned a subsidiary named Jones Transfer (referred to jointly as "Trans Jones Companies"). Mr. White did purchase the company, and became its CEO. At the time he purchased Jones Transfer, it was subject to collective bargaining agreements with various local Teamsters unions which required it to make contributions to the Central States, Southeast and Southwest Areas Pension Fund on behalf of bargaining unit employees. This business venture turned out to be unsuccessful and the Trans Jones Companies filed for bankruptcy, ultimately going out of business in December 1992. As a result, Central States determined that Jones Transfer had completely withdrawn from the Pension Fund as of December 27, 1992 and assessed its withdrawal liability at that time at approximately $7 million.

Although the Whites contend otherwise, see infra n. 7, in January 1993, Central States allegedly made a demand for payment upon Jones Transfer for withdrawal liability in the amount of $7 million. In March 1993, Central States requested certain financial information from Gary White, including copies of his most recent personal income tax returns. Mr. White provided Central States with the requested

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information, including his tax returns which, as we have noted, indicated his receipt of rental income from the garage apartments. Central States then engaged in arbitration with the Trans Jones Companies, ultimately receiving approximately $386,000 from the bankruptcy proceeding and $4,300 from a lawsuit against other corporate affiliates of the Trans Jones Companies.

C. Personal Liability for $16 Million

Almost six years after Central States settled with Jones Transfer for its withdrawal liability, Central States filed suit against the Whites, seeking to hold them personally liable for the company's withdrawal liability. In its complaint, Central States alleged that the Whites' garage apartment rental activities constituted a trade or business which, along with Jones Transfer, was under the Whites' common control. Because each employer of a trade or business under common control is jointly and severally liable for the other's withdrawal liability, Central States contended that the Whites were personally liable for the liability, which had grown to over $16 million.¹ The district court agreed with Central States, granting it summary judgment and holding the Whites personally liable for $16 million of withdrawal liability. The Whites appeal.

II. DISCUSSION

A. Standard of Review

Initially, we consider the applicable standard of review. Generally, this court reviews a grant of summary judgment de novo, viewing all of the facts and drawing all reasonable inferences therefrom in favor of the nonmoving party. Oest v. Illinois Dep't of Corrections, 240 F.3d 605, 610 (7th Cir. 2001). Summary judgment is proper when the "pleadings, depositions, answers to interrogatories, and admissions on file, 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 a judgment as a matter of law." Fed. R. Civ. P. 56(c).

Central States would like us to review the district court's decision for clear error, arguing that where the court is reviewing a set of undisputed facts, and is merely applying settled law to those facts, a lower and less stringent standard applies. In support of this position, Central States cites Central States, Southeast & Southwest Areas Pension Fund v. Personnel, Inc., 974 F.2d 789, 792 (7th Cir. 1992), wherein we stated "where we examine[ ] an assessment of withdrawal liability, we review[ ] the district court's conclusions for clear error because the facts were undisputed and the only factual issue was one of characterization." In response, the Whites contend that the facts are disputed, and, in addition, they argue that clear error review is only available if the party opposing summary judgment did not claim a right to a jury trial, which they claim they did.² They cite Central States, Southeast and Southwest Areas Pension Fund v. Slotky,

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956 F.2d 1369, 1373-74 (7th Cir. 1992), and Jurcev v. Central Community Hosp., 7 F.3d 618, 623 (7th Cir. 1993), to support their position. We need not revisit these cases to determine whether a lower standard of review is appropriate on a review of summary judgment because, as explained below, we conclude that the district court erred on a question of law in interpreting the statute; therefore, our review is necessarily de novo. See Central States, Southeast and Southwest Areas Pension Fund v. Fulkerson, 238 F.3d 891, 894 (7th Cir. 2001).

B. Withdrawal Liability

Under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. secs. 1001-1371, as amended by the MPPAA, 29 U.S.C. secs. 1381-1461, an employer who ceases to contribute to a multi-employer pension fund is liable for withdrawal liability. See Central States, Southeast & Southwest Areas Pension Fund v. Ditello, 974 F.2d 887, 888 (7th Cir. 1992). This liability is the employer's proportionate share of "unfunded vested benefits." Id.; 29 U.S.C. sec. 1381. Section 1301(b)(1) of MPPAA 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." 29 U.S.C. sec. 1301(b)(1). Under this section, each business under common control is jointly and severally liable for the withdrawal liability of the others.³ See Ditello, 974 F.2d at 889. To impose withdrawal liability on an organization other than the one originally obligated to the Pension Fund, two conditions must be satisfied: (1) the organization must be under "common control" with the obligated organization and (2) the organization must be a "trade or business." Fulkerson, 238 F.3d at 895.

1. Common control.

Under the statute, "common control" is defined with relation to Internal Revenue Code Section 414(c). See 29 U.S.C. sec. 1301(b)(1). The parties do not dispute that the Whites' rental activities and Jones Transfer are under common control, as defined by the statute and the regulations.⁴

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Instead, they...