Pension Fund v. LITGEN CONCRETE CUTTING & CORING

• Decision Date: 22 March 1989
• Docket Number: No. 88 C 8531.,88 C 8531.
• Citation: 709 F. Supp. 140
• Court: U.S. District Court — Northern District of Illinois
• Parties: LABORERS' PENSION FUND and Laborers' Welfare Fund of the Health and Welfare Department of the Construction and General Laborers' District Council of Chicago and Vicinity, and the Laborers' District Council of Chicago and Vicinity, Plaintiffs, v. LITGEN CONCRETE CUTTING & CORING CO., an Illinois corporation, and William R. Litgen, Defendants.

709 F. Supp. 140

LABORERS' PENSION FUND and Laborers' Welfare Fund of the Health and Welfare Department of the Construction and General Laborers' District Council of Chicago and Vicinity, and the Laborers' District Council of Chicago and Vicinity, Plaintiffs, v. LITGEN CONCRETE CUTTING & CORING CO., an Illinois corporation, and William R. Litgen, Defendants.

No. 88 C 8531.

United States District Court, N.D. Illinois, E.D.

March 22, 1989.

Hugh B. Arnold, Jac A. Cotiguala, Arnold & Kadjan, Chicago, Ill., for plaintiffs.

Michael P. Davis, McNeil Stokes, Stokes, Shapiro, Fussell & Wedge, Atlanta, Ga., Arthur B. Smith, Jr., Robert P. Casey, Murphy, Smith & Polk, Chicago, Ill., for defendants.

MEMORANDUM OPINION

BRIAN BARNETT DUFF, District Judge.

Judicial development of the law is usually slow. There are a number of reasons for this: some types of disputes do not arise as frequently as others; similar types of disputes will encompass different facts, allowing for different modes of disposition. A statute of limitations can bar claims raised in one suit, but not the other; parties' differing assessments as to the merits of their case can result in early settlement for one case and trial for the other.

Against this backdrop, the dispute presently before this court affords it a unique opportunity to explain a relatively recent decision of this court, as well as develop the law within it further. In October 1988, two funds, the Laborers' Pension Fund and the Laborers' Welfare Fund of the Health and Welfare Department of the Construction and General Laborers' District Council of Chicago and Vicinity, and the Laborers' District Council filed suit in this court to recover over $2.2 million in delinquent fringe benefit contributions and unpaid wages from Litgen Concrete Cutting and Coring Company. They also sought to recover the money from Litgen's president and 40% shareholder, William R. Litgen. Their complaint consists of six counts. Counts 1, 2, and 6 charge that Litgen Concrete alone is liable for the unpaid amounts. Counts 3, 4, and 5 claim that William is liable.

William has moved for summary judgment on all of the counts pending against him. Under the Federal Rules of Civil Procedure, a court must grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with ... affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law." Rule 56(c), Fed.R.Civ.P. Once a party moves for summary judgment,

an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response ... must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

Rule 56(e).

The uncontested facts are as follows: George and William Litgen incorporated Litgen Concrete on April 6, 1979. George and William are officers and directors of Litgen Concrete, along with Brent Zanini. The Litgen brothers each hold 40% of Litgen Concrete's shares, while Zanini holds the rest. There is no evidence that any of these individuals uses his personal funds to pay corporate expenses, or vice versa. The corporation is in good standing. The officers swear, and there is no evidence to the contrary, that Litgen Concrete properly maintains its corporate records, has adequate capital to operate as a going concern, and can meet its financial obligations.

On February 11, 1983, one of Litgen Concrete's supervisors, Michael O'Hara, signed a "Memorandum of Joint Working Agreement" with the Laborers' District Council. O'Hara signed on behalf of Litgen Concrete, which the Agreement lists as the "Employer." The plaintiffs contend that the Agreement was a collective bargaining agreement that obligated Litgen Concrete and William Litgen to make the payments in dispute in this case. Litgen Concrete and William deny this.

Based on the undisputed facts, William claims that this court cannot hold him liable to the plaintiffs under Count 3, 4, or 5. The court will examine Count 4 first. There the plaintiffs contend that William "is obligated to make contributions pursuant to 29 U.S.C. § 1145 (1982)" to the Welfare and Pension Funds. Additionally, the plaintiffs allege that William is liable for an extension of credit in violation of 28 U.S.C. § 1106(a)(1)(B).

This court discussed the scope of liability under § 1145 just three months ago in Plumbers' Pension Fund, Local 130, U.A. v. Niedrich, 701 F.Supp. 651 (N.D.Ill.1988). In Niedrich, a union pension fund sued the president and secretary of a dissolved corporation for unpaid contributions to various union funds. The union brought suit under both § 1145 and § 301 of the Labor Management Relations Act ("LMRA"), codified at 29 U.S.C. § 185. The union contended that under both statutes the principals of the dissolved corporation were liable for the corporation's contractual obligations to the union's funds.

In considering the union's arguments, this court looked directly at the language of § 1145, which states:

Every employer who is obligated to make contributions to a multi-employer plan ... under the terms of a collective bargaining agreement shall, to the extent not inconsistent with law, make such contributions in accordance with the terms and conditions of such ... agreement.

In light of this language and the legislative history of § 1145, this court rejected the union's claims of broad liability under this provision. Instead, the court held that in cases involving employers who are corporations, "unless there are grounds to pierce the corporate veil or the corporation is the alter ego of the controlling individual, that individual is not liable under § 1145 unless he or she is a party to the plan or collective bargaining agreement." Id. at 655.

Niedrich controls this case. It is undisputed that the parties to the alleged collective bargaining agreement here were the Laborers' District Council and Litgen Concrete. The only person or entity arguably obligated to contribute to the Laborers' funds under the agreement is Litgen Concrete. As this court noted in Niedrich, William Litgen is liable for Litgen Concrete's obligations under the agreement only if the court can pierce Litgen Concrete's corporate veil or Litgen Concrete is the alter ego of William Litgen.

The plaintiffs contend that Niedrich allows this court to hold William Litgen liable even without piercing veils or finding alter egos — that as William is a "party in interest" under 29 U.S.C. § 1002(14) with respect to the Welfare and Pension Funds, he is directly liable in actions brought under § 1145. The plaintiffs misconstrue Niedrich. Section 1145 does not employ § 1002(14)'s definition of a "party in interest." If Congress had wished parties in interest with respect to plans to be liable for unpaid contributions under § 1145, it could have chosen those words. Rather, Congress chose to single out "employers" for liability under § 1145, and even then only particular employers: those "obligated to make contributions ... under the terms of a collective bargaining agreement...." And as this court held in Niedrich, only those employers who enter into a collective bargaining agreement are subject to liability under § 1145.

This court thus affirms its ruling in Niedrich that when a corporation has obligated itself under a collective bargaining agreement to contribute to a multi-employer plan, a controlling person of the corporation is not liable for unpaid contributions under § 1145 unless the court can pierce the corporation's veil of limited liability or the corporation is the alter ego of the controlling person. The plaintiffs argue that this case presents an occasion for the court to hold such a person, namely, William Litgen, so liable. The plaintiffs argue in both Counts 3 and 4 that Litgen Concrete is the alter ego of William Litgen, and for this reason William is liable for Litgen Concrete's unpaid contributions and wages.

The decision whether to pierce a corporate veil or hold a controlling person liable under the narrower, stricter doctrine of corporate alter ego in cases arising under the Employee Retirement Income Security Act ("ERISA") is a matter of federal and not state law. See Firestone Tire and Rubber Company v. Bruch, ___ U.S. ___, ___, 109 S.Ct. 948, 950, 103 L.Ed.2d 80 (1989), quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 1557, 95 L.Ed.2d 39 (1987) (federal courts are to develop a "federal common law of rights and obligations under ERISA-regulated plans"). Owing to the small number of instances where federal common law applies, there are few cases that explain the federal common law of disregarding the corporate fiction. The Supreme Court has noted in several instances that the limited liability of corporations is the rule, and not the exception. See, for example, Anderson v. Abbott, 321 U.S. 349, 361-62, 64 S.Ct. 531, 537-38, 88 L.Ed. 793 (1944) (citations omitted) ("Normally the corporation is an insulator from liability on claims of creditors. The fact that incorporation was desired in order to obtain limited liability does not defeat that purpose. Limited liability is the rule, not the exception; and on that assumption large undertakings are rested, vast enterprises are launched, and huge sums of capital attracted."); Bangor Punta Operations v. Bangor & A.R. Co., 417 U.S. 703, 713, 94 S.Ct. 2578, 2584, 41 L.Ed.2d 418 (1974). The courts are free to ignore the corporate form, however, in order to advance the dictates of public policy. Courts frequently take such a step in order to defeat fraud, remedy gross undercapitalization of the enterprise, prevent circumvention of the law, or elevate the substance of a transaction over its form. See Anderson, 321 U.S. at 362-65, ...