Steam Fitters Union v. Direct Air, LLC
| Decision Date | 19 October 2020 |
| Docket Number | CIVIL ACTION NO. 18-1611 |
| Parties | STEAM FITTERS UNION, LOCAL 420 WELFARE FUND, STEAMFITTERS UNION, LOCAL 320 PENSION FUND, STEAMFITTERS UNION, LOCAL 420 SUPPLEMENTAL RETIREMENT PLAN, STEAMFITTERS UNION, LOCAL 420 APPRENTICESHIP TRAINING FUND, SCHOLARSHIP FUND OF STEAMFITTERS LOCAL UNION NO. 420, LOCAL UNION NBO. 420 PIPING INDUSTRY POLITICAL AND EDUCATION FUND, MECHANICAL CONTRACTORS ASSOCIATION OF EASTERN PENNSYLVANIA, INC. INDUSTRY FUND and LOCAL UNION NO. 420 OF THE UNITED ASSOCIATION OF THE PLUMBING AND PIPEFITTING INDUSTRY OF THE UNITED STATES AND CANADA v. DIRECT AIR, LLC, SALVATORE TAORMINA and SAL CAMPAGNA |
| Court | U.S. District Court — Eastern District of Pennsylvania |
The plaintiffs, a local union and its related welfare, pension, retirement and education funds, seek aid in the enforcement of a consent judgment entered against an employer and its two principals for failing to remit to the union and its funds employee contributions they were authorized to withhold from union members' wages. They move for an order charging the transferable membership interests of the employer's principals in an unrelated New Jersey limited liability company with payment of the unsatisfied amount of the judgment. They contend that although we lack jurisdiction over the foreign limited liability company, we have authority under the Pennsylvania Uniform Limited Liability Company Act of 2016, 15 Pa. C.S. § 8811, et. seq. (the "PULLCA") to enter a charging order against the members' transferable interests because we have jurisdiction over the members.
The issue is whether a Pennsylvania court can enter a charging order against members' transferable interests in a New Jersey limited liability company absent jurisdiction over the company. We conclude it cannot. Therefore, we shall deny the plaintiffs' motion.
The plaintiffs brought this action against the union members' employer, Direct Air, LLC and its principals, Salvatore Taormina and Sal Campagna. Pursuant to a series of collective bargaining agreements, Direct Air, LLC was required to deduct contributions from its employees' pay and remit them to the union and its funds. After Direct Air failed to remit the required contributions, the plaintiffs conducted an audit of its payroll from January of 2014 through June of 2016. The payroll audit revealed that $137,776 in delinquent contributions were due, together with $26,746 in accrued interest and $27,555 in liquidated damages as of June 2017.1
The plaintiffs then filed this action pursuant to the Employee Retirement Income Security Act of 19742 and the Labor Management Relations Act of 19473 to collect delinquent payments owed to the union and its funds. After the defendants failed to respond, a default was entered. Approximately six months later, on November 19,2018, the parties entered into a settlement agreement. The defendants consented to the entry of judgment in the amount of $321,475.37,4 which they agreed to pay over a four-month period. A consent order and judgment was entered in favor of the plaintiffs and against the defendants reflecting those terms.5
After the defendants failed to make any payment during the repayment period, the plaintiffs filed a praecipe for writ of execution on the judgment. Five months later, the defendants still having made no payments, the plaintiffs filed a motion for a charging order and other ancillary relief to aid in the enforcement of the judgment.6 They request an order against Taormina and Campagna: (1) charging their membership interests in SCST Realty Group LLC ("SCST"), a New Jersey limited liability company7; (2) preventing them from diminishing their interests in SCST and any other corporations, partnerships, limited liability companies or other business entities; and (3) requiring them to provide the plaintiffs and the sheriff with detailed information about their interests in other corporations, partnerships, limited liability companies or other business entities.
Shortly after the consent judgment was entered, the City of Philadelphia filed a real estate tax lien petition in the Court of Common Pleas against SCST as owner of real property located at 2431 Reed Street, Unit 2, in Philadelphia, seeking $58,723.61 inback taxes. In August of 2019, the state court ordered a sheriff's sale of the property. The sale has been postponed.8 The plaintiffs specifically request that we order all distributions, returns of contributions and outstanding valid obligations to which Taormina and Campagna are entitled as members of SCST to be paid by SCST directly to plaintiffs, including proceeds from the sale of the Reed Street property.9
On April 6, 2020, we entered an order enjoining the defendants from selling any property or transferring any interest in any entities, including interests in limited liability companies, limited partnerships, corporations or partnerships.10
Federal Rule of Civil Procedure 69(a)(1) provides that the procedure on execution must accord with the procedure of the state where the court is located. Hence, Pennsylvania procedural rules, including those covering execution, attachment and garnishment, apply.11
The PULLCA allows a judgment creditor to obtain a charging order against a judgment debtor's transferable interest in a limited liability company to the extent of the unsatisfied amount of the judgment. 15 Pa. C.S. § 8853(a). The charging orderconstitutes a lien on the member's transferable interest and requires the limited liability company to pay over to the judgment creditor "any distribution that otherwise would be paid to the judgment debtor." Id.
The statutory definitions show how the process works. A "transferable interest" is the right to receive distributions from the company. 15 Pa. C.S. § 8812. It is personal property. 15 Pa. C.S. § 8851(a). A "distribution" is a "transfer of money or other property . . . by a limited liability company to a person on account of a transferable interest." 15 Pa. C.S. § 8812. "A transferee12 has the right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled." 15 Pa. C.S. § 8852(b).
Only a member's economic interests are transferable to a non-member. Governance rights are not. 15 Pa. C.S. § 8852(a)(3), (g); 2016 Committee Cmt. to § 8852. Because a member who transfers a transferable interest retains all remaining rights as a member, 15 Pa. C.S. § 8852(g), the transferee is not entitled to manage or conduct the company's activities or business. 15 Pa. C.S. § 8852(a)(3)(i); Zokaites v. Pittsburgh Irish Pubs, LLC, 962 A.2d 1220, 1224-26 (Pa. Super. 2008) ().
The question is whether a Pennsylvania court can charge a transferable interest in a New Jersey limited liability company. The plaintiffs contend that jurisdiction over a foreign limited liability company is not required to enter a charging order against its members' transferable interests. They argue that because we have personaljurisdiction over SCST's members, our jurisdiction over them extends to their personal property, wherever it is located. They rationalize that because a judgment creditor, as transferee, obtains only limited rights of a member, the charging order will affect only the member's transferable rights and will not affect SCST itself. They point out that the PULLCA does not expressly prohibit the entry of a charging order against transferable interests of members of foreign limited liability companies.13
Although we have personal jurisdiction over Taormina and Campagna, the members of SCST, we do not have jurisdiction over SCST. The plaintiffs' claim against Taormina and Campagna arose out of their operating their Philadelphia-based business, Direct Air, and breaching their fiduciary duty to their employees working in Philadelphia, providing a basis for the exercise of specific jurisdiction. See 42 Pa. C.S.A. § 5322(a)(1)(iv). They indisputably had minimum contacts with Pennsylvania comporting with due process. 42 Pa. C.S.A. § 5322(b); BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549, 1558 (2017). But, we cannot impute their Pennsylvania contacts having nothing to do with SCST to SCST.
There is no basis for the exercise of general jurisdiction over SCST, a foreign company that is neither registered to do business nor carries on a "continuous and systematic part" of its business in Pennsylvania. See 42 Pa. C.S.A. § 5301(a)(3). Although SCST owns real property in Pennsylvania, none of the plaintiffs' claims arise out of the ownership of that property. Mere ownership of property in the state does not provide a basis for the exercise of specific jurisdiction over it. Nor can Taormina's andCampagna's contacts with Pennsylvania in connection with their actions on behalf of Direct Air be attributed to SCST to establish personal jurisdiction over the company. Omnicare Pharmacies of Pennsylvania W., LLC v. Latrobe Health LLC, No. 2:12-CV-00761, 2013 WL 1102878, at *5 n.10 (W.D. Pa. Mar. 15, 2013). Therefore, we do not have personal jurisdiction over SCST, a New Jersey limited liability company.
The PULLCA is silent about whether a Pennsylvania court is authorized to enter an order charging the interests of members of a foreign limited liability company in the absence of personal jurisdiction over the company.14 Nor has any Pennsylvania court decided whether the PULLCA authorizes a Pennsylvania court to do so.
Courts in other states have held that they had authority under their states' respective limited liability company laws to enter a charging order against a member's interest in a foreign limited liability company without having jurisdiction over the company itself.15 Their primary rationale was that because the judgment creditor...
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