Connors v. Incoal, Inc., 92-7023

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Citation995 F.2d 245
Docket NumberNo. 92-7023,92-7023
Parties, 61 USLW 2755, 16 Employee Benefits Cas. 2553, Pens. Plan Guide P 23879S Joseph P. CONNORS, Sr., et al., Appellants, v. INCOAL, INC., a/k/a Incoal Coal Co., et al., Appellees.
Decision Date04 June 1993

Page 245

995 F.2d 245
301 U.S.App.D.C. 345, 61 USLW 2755,
16 Employee Benefits Cas. 2553,
Pens. Plan Guide P 23879S
Joseph P. CONNORS, Sr., et al., Appellants,
INCOAL, INC., a/k/a Incoal Coal Co., et al., Appellees.
No. 92-7023.
United States Court of Appeals,
District of Columbia Circuit.
Argued April 16, 1993.
Decided June 4, 1993.

Page 246

[301 U.S.App.D.C. 346] Appeal from the United States District Court for the District of Columbia (Civil No. 86cv03162).

Kathleen M. Dowd, Washington, DC, argued the cause for appellants. With her on the briefs were David W. Allen, Margaret M. Topps and Corina M. Trainer, Washington, DC.

John R. Woodrum, Washington, DC, argued the cause for appellees. With him on the brief were Lynn M. Rausch and Kenneth G. Robbett, Washington, DC.

Carol Connor Flowe, General Counsel, Pension Benefit Guar. Corp., Jeffrey B. Cohen, Deputy General Counsel and Paula J. Connelly, Senior Counsel, Washington, DC, filed a brief for amicus curiae Pension Benefit Guar. Corp.

Before: EDWARDS, RUTH B. GINSBURG and SILBERMAN, Circuit Judges.

Opinion for the Court filed by Circuit Judge EDWARDS.

Opinion concurring in the judgment filed by Circuit Judge SILBERMAN.

HARRY T. EDWARDS, Circuit Judge:

The issue in this case is whether a partnership known as Double A Farms is liable for payments to pension plans under the Employee Retirement Income Security Act of 1974 ("ERISA"). Specifically, the parties dispute whether Double A Farms, which the appellees own, is a "trade or business" under section 4001(b)(1) of ERISA, 29 U.S.C. § 1301(b)(1) (1988), and is therefore liable for the withdrawal liability of Incoal, Inc. ("Incoal"), also owned by the appellees. Incoal incurred the withdrawal liability when it stopped contributing to two multiemployer pension plans in 1985. Appellants, the trustees of the pension plans, sued Incoal and Double A Farms to collect Incoal's unpaid withdrawal liability. Although finding Incoal liable, the District Court granted summary judgment in favor of Double A Farms. The District Court concluded that Double A Farms was not a "trade or business," on the grounds that its farming operations were minimal, and there was no economic "nexus" between Double A Farms and Incoal. We reverse the decision of the District Court because the so-called "nexus" inquiry the court relied upon is irrelevant to determining whether an enterprise constitutes a "trade or business" under section 1301(b)(1). We decline to decide the case on the merits, however, for we conclude that this case should be reconsidered in the first instance by the trial court. We therefore remand the action to the District Court.

Page 247

[301 U.S.App.D.C. 347] I. BACKGROUND

A. Incoal's Withdrawal Liability

Until 1985, Incoal was a Kentucky coal mining corporation, owned in equal shares by Orville Adkins, his spouse Dixie, their son Adam and his spouse Sally. Incoal was signatory to the National Bituminous Coal Wage Agreements of 1978 and 1981, under which it was required to contribute, on behalf of its employees, to the United Mine Workers of America 1950 Pension Plan and 1974 Pension Plan (the "Plans"). The Plans are multiemployer pension plans within the meaning of sections 3(37) and 4001(a)(3) of ERISA, 29 U.S.C. §§ 1002(37), 1301(a)(3) (1988 & Supp. III 1991).

In February 1985, Incoal ceased operations, and stopped contributing to the Plans. By letters dated July 5, 1985 (the "Letters"), the Plans assessed withdrawal liability against Incoal in the amount of $810,610.41. 1 See 29 U.S.C. § 1382(2) (1988) (when an employer withdraws from a multiemployer plan, the plan sponsor "shall ... notify the employer of the amount of the withdrawal liability"). The Letters advised Incoal of its rights to request that the Plans review Incoal's withdrawal liability pursuant to section 4219(b)(2)(A) of ERISA, 29 U.S.C. § 1399(b)(2)(A) (1988), and to initiate arbitration under section 4221 of ERISA, 29 U.S.C. § 1401 (1988). In addition, the Letters notified Incoal that "all members of a commonly-controlled group of trades and businesses are jointly and severally liable" to the Plans for payment of the withdrawal liability. 2 See 29 U.S.C. § 1301(b)(1) (extending employer's withdrawal liability to all "trades or businesses" that are "under common control" with the employer).

In a letter dated July 16, 1985, Incoal advised the Plans that it had depleted its assets and could not pay its withdrawal liability. 3 Incoal did not seek review of the liability determination, nor did Incoal seek arbitration. On January 14, 1986, the Plans declared Incoal in default within the meaning of section 4219(c)(5) of ERISA, 29 U.S.C. § 1399(c)(5) (1988), and demanded immediate payment of the entire amount of withdrawal liability plus interest.

On November 17, 1986, after Incoal had failed to make any payment, the Plans filed this suit to collect withdrawal liability and interest against both Incoal and S & H Manufacturing, Inc. ("S & H"), 4 as a "trade or business" under "common control" with Incoal. Through discovery, the Plans learned of the existence of Double A Farms, a partnership formed by the owners of Incoal. The Plans subsequently filed an amended complaint alleging that Double A Farms was a "trade or business" under "common control" with Incoal, and was therefore jointly and severally liable for Incoal's withdrawal liability.

The Adkinses established the Double A Farms partnership in 1979, after acquiring five tracts of land, totalling several hundred acres, in and around Harrison County, Kentucky. Orville, Dixie, Adam and Sally Adkins, the owners of Incoal, each owned a 25% partnership interest in Double A Farms. The Adkinses allege that they bought the land both for hunting (and other recreational purposes) and because they believed it was a "good investment." Deposition of Orville Adkins at 68, reprinted in A. 157.

In addition to hunting, the Adkinses grew tobacco and raised cattle on the land. They allege that they grew tobacco because they would otherwise lose the tobacco allotments that came with the land, thereby lowering the land's value. See Second Deposition of

Page 248

[301 U.S.App.D.C. 348] Willis D. Newsome at 56-57, reprinted in A. 214-15. The Adkinses hired a sharecropper to grow the tobacco, a task he performed for perhaps a dozen other neighbors as well. See Second Deposition of Adam Adkins at 135, 139, reprinted in A. 245, 249. The Adkinses also raised 25 or 30 head of cattle on their land. See Deposition of Orville Adkins at 70, reprinted in A. 159.

Willis D. Newsome, the accountant for the Double A Farms partnership, confirmed that the partnership was created because the Adkinses "were doing business." First Deposition of Willis D. Newsome at 26-27, reprinted in A. 128-29. In the accountant's view, a partnership was "the proper way to handle" the tax consequences of the business. 5 Second Deposition of Willis D. Newsome at 38, reprinted in A. 196. For eight consecutive years, from 1980 through 1987, Double A Farms sold goods produced on the Adkinses' land, and Double A Farms' tax records reveal that sales during that period totalled $346,444. For the years 1981 through 1987, combined sales of cattle and tobacco reached a high of $69,530 (1987), and a low of $28,754 (1985). Further, from 1980 through 1987, Double A Farms represented to the Internal Revenue Service ("IRS") that its principal business activity was farming and that its principal products were cattle and tobacco.

B. The District Court's Decision

On June 6, 1991, the Plans moved for summary judgment against Incoal, S & H and Double A Farms. Incoal and S & H did not oppose the motion. Double A Farms, however, cross-moved for summary judgment, asserting that it did not qualify as a "trade or business" under 29 U.S.C. § 1301(b)(1) and, thus, was not liable for Incoal's withdrawal liability.

On January 15, 1992, the District Court granted the Plans' motion for summary judgment against Incoal and S & H, on the ground that they had conceded liability by failing to oppose the Plans' motion. Incoal, 781 F.Supp. at 52. The District Court then granted Double A Farms' cross-motion for summary judgment, holding that it was not a "trade or business." Id. at 54-56. In reaching this conclusion, the trial court found that (1) the tobacco farming at Double A Farms was "incident to maintaining the value of the property as an investment," (2) the "cattle grazing" at Double A Farms was too minimal "to raise the operation to a 'trade or business,' " and (3) there was no economic "nexus" between Double A Farms and Incoal. Id. at 56 (emphasis in first quotation omitted).

The Plans appeal the District Court's decision granting summary judgment in favor of Double A Farms.


A. Statutory Background

Congress enacted ERISA, 29 U.S.C. §§ 1001-1368 (1988 & Supp. III 1991), to "guarantee that 'if a worker has been promised a defined pension benefit upon retirement ... he actually will receive it.' " Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 720, 104 S.Ct. 2709, 2713, 81 L.Ed.2d 601 (1984) (quoting Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 375, 100 S.Ct. 1723, 1733, 64 L.Ed.2d 354 (1980)). Under ERISA, as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. §§ 1381-1461 (1988 & Supp. III 1991), an employer who withdraws from a multiemployer pension plan is subject to "withdrawal liability" equal to its proportionate share of the plan's " 'unfunded vested benefits.' " Gray, 467 U.S. at 725, 104 S.Ct. at 2715 (quoting 29 U.S.C. § 1381(b)(1) (1988)). Withdrawal liability is intended to ensure that "the financial burden of [the] employees' vested pension benefits will not be shifted to the other employers in the plan and, ultimately, to the Pension Benefit Guaranty Corporation, which insures such benefits." Central States, S.E. and S.W. Areas Pension Fund v. Slotky, 956 F.2d...

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