Mass. State Carpenters Pension v. Atlantic Diving Co.

• Decision Date: 12 October 1984
• Docket Number: Civ. A. No. 83-2872-MA.
• Parties: MASSACHUSETTS STATE CARPENTERS PENSION FUND, Plaintiff, v. ATLANTIC DIVING COMPANY, INC., Defendant.
• Court: U.S. District Court — District of Massachusetts

635 F. Supp. 9

MASSACHUSETTS STATE CARPENTERS PENSION FUND, Plaintiff, v. ATLANTIC DIVING COMPANY, INC., Defendant.

Civ. A. No. 83-2872-MA.

United States District Court, D. Massachusetts.

October 12, 1984.

Robert O. Berger, Flamm & Birmingham, Boston, Mass., for plaintiff.

Keith Long, Herrick & Smith, Boston, Mass., for defendant.

MEMORANDUM AND ORDER

MAZZONE, District Judge.

The plaintiff, Massachusetts State Carpenters Pension Fund (the Fund), has brought an action to collect delinquent contributions from the defendant, Atlantic Diving Company, Inc. (Atlantic). First, the Fund seeks to enforce Atlantic's obligation to contribute to the Fund under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1132(a)(3)(B)(ii), (d)(1) and (f). Second, the Fund maintains Atlantic has breached its contractual obligation to pay into the Fund under a collective bargaining agreement. Therefore, the Fund seeks arrearages under section 301 of the Labor Management Relations Act of 1947 (LMRA), 29 U.S.C. § 185.

The plaintiff has filed a motion requesting leave to amend its complaint pursuant to Fed.R.Civ.P. 15. The plaintiff wishes to add "new indispensable parties" as defendants, specifically, the three individual officers of Atlantic. In support of its motion the Fund cites decision in Ronald Alman, Trustee v. Servall Mfg. Co. and Herman Bank, No. 82-0746-MA, slip op. (D.Mass April 9, 1984) (Alman).

Atlantic opposes leave to amend. Specifically, Atlantic believes the Fund's proposed amendment fails to state a claim upon which relief may be granted. Atlantic argues the Alman decision was incorrect in holding a dominant corporate officer-shareholder jointly and severally liable under ERISA for his corporation's delinquent pension fund contributions. In addition, because Atlantic and its parent company have filed a petition under Chapter 11 of the United States Bankruptcy Code, Atlantic seeks to stay this action pending the Bankruptcy Court's disposition.

I. The Motion to Amend

As a general principle, leave to amend a complaint should be "freely given." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). Atlantic, however, asks this Court to deny leave to amend because the plaintiff's proposed amendment states a claim which is "legally insufficient on its face," citing C. Wright & A. Miller, 6 Federal Practice & Procedure § 1487 (1971). In particular, Atlantic contends the Alman decision was "incorrect as a matter of law."

At Atlantic's request, I have reviewed the Alman opinion. I have also examined in more detail the issue of individual liability for corporate pension fund contributions. I have had the benefit of extensive memoranda from both sides. After a thorough review, I see no reason to alter the result or reasoning of Alman. In my judgment, an individual may be personally liable for pension fund obligations as an "employer" under ERISA.

In Alman a trustee fiduciary of two union pension plans brought an action to enforce the employer's contractual obligation to contribute to the plans. The plaintiff moved for summary judgment on two issues. First, the plaintiff argued Servall Manufacturing Company violated its contractual and ERISA obligations to contribute to the pension plans pursuant to a collective bargaining agreement. Second, according to the plaintiff, Herman Bank, corporate officer and principal shareholder of Servall, was an "employer" within the meaning of section 3(5) of ERISA, 29 U.S.C. § 1002(5) and, therefore, jointly and severally liable for the corporation's delinquent payments. Plaintiff's motion for summary judgment prompted no response and no opposition from the defendants. This Court granted summary judgment on both issues.

In holding Herman Bank an "employer" under section 3(5) of ERISA, 29 U.S.C. § 1002(5), this Court relied primarily on ERISA's definition of "employer" and the facts presented. Bank was the president, chief executive officer, and principal shareholder of Servall. He controlled Servall's entire financial operations as well as other activities. "He acted on behalf of Servall in all matters having to do with benefit plans, including audits, ascertaining contributions and collection arrangement." Alman at 2. Consequently, he satisfied ERISA's definition of an "employer" by "acting as an employer, or directly in the interest of an employer, in relation to an employee benefit plan...." As an "employer" under ERISA, therefore, Bank was held liable for unpaid contributions.¹

In the instant case, the action brought by the Fund is also one to collect an employer's outstanding pension fund payments. The suit is authorized under ERISA, 29 U.S.C. § 1132(a)(3)(B)(ii).² Furthermore, because Atlantic allegedly breached a collective bargaining agreement, the action to collect delinquent fund payments is also authorized under section 301 of the LMRA, 29 U.S.C. § 185. If funds are in fact owing, the Fund is entitled to bring an action under both statutes because "trustees have a fiduciary obligation to collect the funds owed in order to pay pensions and other related benefits due employees." Carpenter's Health & Welfare Fund v. Ambrose, 727 F.2d 279, 286 (3d Cir.1983).

Apparently, Atlantic recognizes the legitimacy of the Fund's action against the corporation under ERISA and section 301 of the LMRA. Atlantic's opposition is aimed at the extension of this collection action to individual corporate officers. In other words, Atlantic seeks to restrict any possible recovery of delinquent pension fund payments under ERISA and section 301 solely to the corporate defendant: Atlantic Diving Company, Inc. This position does not comport with the view of numerous federal courts, and fails to recognize ERISA's role in the federal statutory scheme governing employment. I turn first to a discussion of the federal courts' pronouncements on corporate and individual liability for pension fund payments.

A. Corporate and Individual Liability for Pension Fund Payments

Alman is hardly the first federal court decision to look beyond a defendant's corporate form in an action to collect delinquent pension fund payments under ERISA or section 301. Several courts have displayed a willingness to disregard corporate form and consider imposing liability on "alter ego" corporations as well as individuals. For example, in Carpenters Local Union No. 1846 v. Pratt-Farnsworth, 690 F.2d 489 (5th Cir.1982), a union brought an action for pension fund payments against two corporations under section 301 of the LMRA, 29 U.S.C. § 185 and ERISA, 29 U.S.C. § 1132. The Fifth Circuit reversed the district court's dismissal of both claims. 690 F.2d at 537. The appeals court remanded the case for a determination of whether one of the corporations — a nonsignatory to the collective bargaining agreement with the union — was the "alter ego" of the signatory corporation. Id. at 524-525. If so, the district court was instructed to impose liability under section 301. The court also specifically reinstated the union's ERISA claim against the corporations. According to the Fifth Circuit's summary of the ERISA issue:

We are here concerned with the question whether there has been a breach of contractual duty to provide benefits to Farnsworth's employees. In our view, if the plaintiffs can show that Halmar is a sham, a disguised continuance used by Farnsworth to escape its obligations under the collective bargaining agreement and ERISA, they can succeed in their claims against Halmar.

690 F.2d 489 at 526.

The Fifth Circuit's willingness to extend contractual and ERISA liability beyond a signatory corporation was echoed by the Ninth Circuit in Operating Engineers Pension Trust v. Reed, 726 F.2d 513 (9th Cir. 1984). In Reed, the district court had held an individual and his newly formed corporation were jointly and severally liable under ERISA, 29 U.S.C. § 1132, for delinquent payments to a union pension fund. The appeals court reviewed the lower court's holding under the established Ninth Circuit standard. According to the circuit court, "the proper standard for determining when an individual will be held personally liable for the trust fund obligations of a corporation controlled by that individual is set forth in Audit Services, Inc. v. Rolfson, 641 F.2d 757, 764 (9th Cir.1981)." 726 F.2d at 515. The Ninth Circuit then reiterated the applicable standard:

An owner of a corportion will be held personally liable for trust fund contributions if (1) there is little or no respect shown to the separate identity of the corporation; (2) recognition of the corporation would result in injustice to the litigants; and (3) there was a fraudulent intent behind the corporation.

Id. citing Seymour v. Hull & Moreland Eng., 605 F.2d 1105, 1111 (9th Cir.1979).

Under the facts presented in Reed, however, the appeals court reversed the district court's imposition of joint and several liability on the individual. 726 F.2d at 513, 515. Nevertheless, in the appropriate circumstances, the Ninth Circuit appears willing to impose personal liability under ERISA despite the corporate form of a defendant. See also Carpenter's Health & Welfare Fund v. Ambrose, supra (Two individual corporate officers personally liable for corporation's delinquent pension fund contributions under state law, liable for plaintiff's attorneys fees, but not personally liable under section 301) and Trustees of Retirement Fund v. Kahn Bros., 550 F.Supp. 35 (S.D.N.Y.1982) (Because the plaintiff seeks personal liability of the defendant corporate officers for delinquent pension funds under a contract theory, court need not reach defendant's argument that there is no basis for personal liability under ERISA).

Most recently in Greater Kansas City Laborers Pension Fund v. Thummel, 738 F.2d 926 (8th Cir.1984), the Eighth Circuit upheld a district court's imposition of joint and several liability upon an individual for his corporation's...