IUE AFL-CIO Pension Fund v. Herrmann

Decision Date19 November 1993
Docket NumberAFL-CIO,No. 360,D,360
Parties17 Employee Benefits Cas. 2010 IUEPENSION FUND; Lloyd J. Hayes; Peter S. DiCicco; Sal T. Ingrassia; John S. Vozella; Clarence Ranallo; Thomas F. Lynch, as Trustees of the IUE Pension Fund, Plaintiffs-Appellants, v. Thomas HERRMANN; Locke Mowers, Incorporated, Defendants-Appellees. ocket 93-7384.
CourtU.S. Court of Appeals — Second Circuit

Thomas M. Kennedy, New York City (Ira Cure, Lewis, Greenwald, Kennedy, Clifton & Schwartz, P.C.; Jonathan Gould, Gould, Livingston, Adler & Pulda, Hartford, CT, of counsel), for plaintiffs-appellants.

William J. Wenzel, Bridgeport, CT (Alice Ann Carey and Pullman & Comley, of counsel), for defendant-appellee Thomas Herrmann.

Alan M. Wolper, Atlanta, GA (Hunton & Williams, William Narwold, David D. Legere, Cummings & Lockwood, Hartford, CT, of counsel), for defendant-appellee Locke Mowers, Inc.

Before: OAKES, Senior Circuit Judge, MAHONEY, Circuit Judge, and MISHLER, Senior District Judge. *

OAKES, Senior Circuit Judge:

Plaintiff/Appellant, IUE AFL-CIO Pension Fund, a multi-employer, union pension fund, and its trustees (collectively the "Fund") appeal an unpublished order of the United States District Court for the District of Connecticut, T.F. Gilroy Daly, Judge, adopting Magistrate Judge Arthur H. Latimer's report and recommendation to dismiss the Fund's second amended complaint ("SAC" or the "Complaint") for failure to plead fraud with particularity, lack of federal jurisdiction, and for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 9(b), 12(b)(1), and (6). 1 Given the procedural context of this case, we are required to address several distinct jurisdictional questions--whether the Fund timely filed objections to the magistrate judge's report and recommendation, whether a final judgment is before this court, whether the district court properly dismissed the Fund's federal claims pursuant to Rules 9(b) and 12(b), and whether the district court had pendent 2 jurisdiction over the state law claims. We are also asked to rule on the Fund's request for injunctive relief pursuant to 29 U.S.C. Sec. 1399(c) (1988). We conclude that timely objections to the magistrate judge's report and recommendation were filed, there is a final judgment before this court, and the district court had jurisdiction over the federal claims and pendent jurisdiction over the state law claims. We therefore reverse the district court's dismissal of the Complaint, affirm the district court's denial of the Fund's request for injunctive relief, and remand for further proceedings.

I. Standard of Review

When an appeal comes before this Court on a motion to dismiss, we accept as true the factual allegations of the Complaint. See, e.g., Square D Co. v. Niagara Frontier Tariff Bureau Inc., 476 U.S. 409, 411, 106 S.Ct. 1922, 1923, 90 L.Ed.2d 413 (1986); Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1098 (2d Cir.1988), cert. denied, 490 U.S. 1007, 109 S.Ct. 1642, 104 L.Ed.2d 158 (1989). In considering such motions, we must read the Complaint liberally, drawing all inferences in favor of the pleader. See, e.g., Scheuer, 416 U.S. at 236, 94 S.Ct. at 1686; Conley, 355 U.S. at 45-46, 78 S.Ct. at 101-102; Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989). Moreover, "[t]he district court should deny the motion [to dismiss] unless it appears to a certainty that a plaintiff can prove no set of facts entitling him to relief." Ryder Energy Distribution Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779 (2d Cir.1984). This general rule applies even when fraud is pleaded. Ross v. Bolton, 904 F.2d 819, 823 (2d Cir.1990) ("[w]hen a fraud is asserted, the general rule is simply applied in light of Rule 9(b)'s particularity requirements.").

II. Factual Allegations

Taking as true the factual allegations specified in the Complaint, the Fund seeks recovery of major Fund debts and obligations owed to it by co-Defendants/Appellees, Locke Manufacturing, Inc. ("Manufacturing"), Thomas Herrmann, and Locke Mowers, Inc. ("Mowers"). Herrmann has been the president and sole shareholder of Manufacturing since 1986 when he purchased all of its stock pursuant to a Stock Purchase Agreement dated October 1, 1986, an agreement "binding upon and inur[ing] to the benefit of the parties hereto and their successors and assigns." See SAC, Exhibit C, Stock Purchase Agreement Among Tippecanoe Management Corp., Michael A. Goodman and Thomas A. Herrmann, dated as of October 1, 1986, Sec. 10.7. Pursuant to a collective agreement, Manufacturing was obliged, but failed, to make contributions to the Fund. At such time, Herrmann was "fully aware of an unfunded accrued liability with respect to the IUE AFL-CIO Pension Plan." Id. at Sec. 3.12(g). "The total estimated amount of unfunded pension liability due to the pension fund at [sic] July 31, 1986 was $476,955." See SAC, Exhibit B at 7.

On November 10, 1988, Mowers, through its corporate parent Elswick, PLC, offered to acquire the business and certain assets of Manufacturing for a stated consideration of $400,000. See SAC, Exhibit D. On April 10, 1989, Mowers, Manufacturing and Herrmann entered into the acquisition agreement pursuant to which Mowers purchased Manufacturing's assets, but did not assume liability "actual or contingent, whatsoever, including, without limitation, for any withdrawal liability of Seller under any multiemployer pension plan." See SAC, Exhibit E at 5. Moreover, the Fund alleges that the parties dropped the purchase price to $350,000 and gave Herrmann a $50,000 signing bonus instead. It is also alleged that Herrmann received a one year service arrangement for $75,000 and over $370,000 payable over three years for a covenant not to compete. Prior to the asset sale, Herrmann used a Manufacturing line of credit to pay himself an extra bonus of more than $250,000. These transactions allegedly rendered Manufacturing insolvent.

On May 9, 1989, Manufacturing ceased operations and effectuated a complete withdrawal from the Fund. On October 27, 1989, the Fund sent a written demand to Manufacturing for payment of withdrawal liability amounting to $638,098.

III. Dismissal of the Complaint

Herrmann and Mowers moved to dismiss the Complaint. Reading the Complaint liberally, the Complaint states (1) a federal claim as against all defendants under ERISA's Multiemployer Pension Plan Amendments Act ("MPPAA"), 29 U.S.C. Secs. 1381, 1383, 1391 (1988), which imposes "withdrawal liability" when an "employer," in going out of business, effectively "withdraws from a multiemployer plan" like the Fund, see SAC claims 1, 4; and (2) a federal claim as against all defendants under 29 U.S.C. Secs. 1451(a)(1), 1392(c) (1988), which imposes liability on any party who has attempted to "evade or avoid liability" under the MPPAA and whose acts have "adversely affected" a pension fund, see SAC, claims 1, 4 and 5. The Complaint also states (1) a Delaware state law illegal distribution fraud claim against Herrmann, see SAC, claim 2, (2) a Connecticut state fraudulent conveyance claim, see SAC, claim 3 and (3) a Connecticut state law claim for failure to comply with Article 6 of Connecticut's U.C.C., Bulk Transfer Act, Conn.Gen.Stat. Sec. 42a-6-101 et seq., which imposes liability on debtors who fail to give notice to creditors upon a bulk sale of the debtor's assets and, in some instances, ensures that the money paid to the indebted seller is applied to pay the seller's debts, see SAC, claims 6 and 7. These state law claims all derive from the same circumstances that gave rise to the federal claims. In support of all their claims, the Fund attached eight exhibits elaborating the factual allegations of the Complaint.

The magistrate judge recommended dismissal of the Complaint for a variety of reasons. According to the magistrate judge's report: (1) neither Mowers nor Herrmann can be construed to be an employer under the MPPAA; (2) fraud allegations were not pleaded with particularity; (3) the Fund mistakenly invoked the court's diversity jurisdiction for a number of the state law claims; 3 (4) with the dismissal of the federal law claims, discretionary pendent jurisdiction should not be exercised; (5) even if a federal claim is recognized, the pendent state law claims should be dismissed because they are disproportionate in number; and (6) the request for interim quarterly payments of the withdrawal liability is a unique request for which there is no statutory authority.

On appeal, the defendants question the timeliness of the appeal and this court's appellate jurisdiction.

IV. Timeliness of Appeal

Herrmann argues that the Fund's objection to the magistrate judge's report and recommendation was not timely and therefore must not be considered. See Wesolek v. Canadair Ltd., 838 F.2d 55, 58 (2d Cir.1988) (citing McCarthy v. Manson, 714 F.2d 234, 237 & n. 2 (2d Cir.1983); John B. Hull, Inc. v. Waterbury Petroleum Prods., Inc., 588 F.2d 24, 29-30 (2d Cir.1978), cert. denied, 440 U.S. 960, 99 S.Ct. 1502, 59 L.Ed.2d 773 (1979)).

A party may request a judge to reconsider a magistrate judge's report and recommendation within ten days of being served with a copy of the order. 28 U.S.C. Sec. 636(b)(1) (1988). A failure to file timely objections to a magistrate judge's report and recommendation may be fatal. See Thomas v. Arn, 474 U.S. 140, 155, 106 S.Ct. 466, 474, 88 L.Ed.2d 435 (1985) (court of appeals may deny review to a petitioner who "was notified in unambiguous terms of the consequences of a failure to file, and deliberately failed to file nevertheless"); Roldan v. Racette, 984 F.2d 85, 89 (2d Cir.1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir.) (holding that petitioner's failure to file timely objections to...

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