Triple E Produce Corp. v. Mastronardi Produce, Ltd.

• Court: Court of Appeal of Michigan
• Writing for the Court: HOLBROOK
• Citation: Triple E Produce Corp. v. Mastronardi Produce, Ltd., 530 N.W.2d 772, 209 Mich.App. 165 (Mich. App. 1995)
• Decision Date: 06 March 1995
• Docket Number: 150418,Docket Nos. 146743
• Parties: TRIPLE E PRODUCE CORPORATION and Esfresh Produce, Inc., f/k/a Harry Becker Produce Company, Plaintiffs-Appellees, v. MASTRONARDI PRODUCE, LTD., Defendant-Appellant.

Page 772

530 N.W.2d 772

209 Mich.App. 165

TRIPLE E PRODUCE CORPORATION and Esfresh Produce, Inc. f/k/a Harry Becker Produce Company, Plaintiffs-Appellees, v. MASTRONARDI PRODUCE, LTD., Defendant-Appellant.

Docket Nos. 146743, 150418.

Court of Appeals of Michigan.

Submitted May 10, 1994, at Lansing.

Decided March 6, 1995, at 9:25 a.m.

Released for Publication April 17, 1995.

Weisman, Trogan, Young & Schloss, P.C. by John A. Ruemenapp, Birmingham, for plaintiffs.

Strobl & Manoogian, P.C. by John Sharp, Bloomfield Hills (D'Agostini, Sable & Ruggeri, P.C. by Richard J. Sable, Sterling Heights, of Counsel), for defendant.

Before WHITE, P.J., and HOLBROOK, and QUINNELL, ^* JJ.

HOLBROOK, Judge.

Defendant appeals as of right from a judgment entered for plaintiffs, awarding them $40,000 in damages as indemnification for "withdrawal liability" assessed against them by a multiemployer pension fund pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), 29 U.S.C. § 1381 et seq. The "withdrawal liability" had been assessed against plaintiffs after they closed the business they had purchased from defendant and withdrew from the fund. Defendant also appeals from a subsequent award for the plaintiffs of $20,000 in attorney fees. The appeals were consolidated by the Court of Appeals. We affirm.

I

Triple E Produce Corporation, a farming and packing business, supplied produce to Harry Becker Produce Company for many years. Defendant Mastronardi Produce, Ltd. Mastronardi, acquired Becker in 1972, and Robert Mastronardi was president of Becker until the mid-1980s. In the early- to mid-1980s, Mastronardi began to have difficulty paying amounts that it owed to Triple E. During this time, Robert Mastronardi met with Nathan and Joe Esformes, principals of Triple E, to discuss Mastronardi's financial problems. As a result of those discussions, Triple E agreed to "work with" Becker while it tried to become profitable. Triple E continued to supply Becker, but Becker's debt to Triple E grew to approximately $800,000 by early 1986. Robert Mastronardi contemplated closing Becker.

To resolve the debt, Triple E agreed to acquire Becker from Mastronardi and assume the debt to itself. Apparently, Triple E hoped to recoup some of the debt by operating the company itself. Before acquiring Becker, Triple E sent one of its employees, Paul Draper, to Detroit to supervise Becker's operations. At Draper's request, an accounting firm prepared financial statements for Becker before the acquisition. Draper also retained an attorney to negotiate and prepare a purchase agreement. Although Robert Mastronardi was represented by counsel during part of the negotiations, he was not represented at closing. The purchase agreement became effective November 1, 1986, when all of Becker's stock was transferred to Triple E for one dollar. As part of the agreement, Robert Mastronardi was to work for Becker for ten years at a salary of $75,000 a year.

Triple E operated Becker but found that it could not make a profit and decided to close the business and discontinue operations in 1988. Under the ownership of both Mastronardi and Triple E, Becker had a collective bargaining agreement with the Teamsters union and, pursuant to that agreement, had been making payments to the Central States Pension Fund, a multiemployer pension fund. When Becker closed its business and stopped making payments to the pension fund, it was assessed "withdrawal liability" pursuant to the ERISA, as amended by the MPPAA. Triple E incurred approximately $30,000 in attorney fees to defend against the claim by the fund, but eventually paid $127,059.45 in withdrawal liability.

When Triple E's request for indemnification from Mastronardi was refused, Triple E began this action to recover under the parties' contract, relying on the following indemnity clause in the purchase agreement, which provided in pertinent part:

Section 12.1 Agreement to Indemnify. The seller shall unconditionally indemnify and hold harmless Corporation, Buyer, and/or their successors and assigns, against and in respect of any and all liabilities, loss, cost, damage, interest, legal fees and other expenses, of whatsoever kind or nature, incurred by Corporation, Buyer and/or their successors and assigns, by reason of: (a) any claims, of whatsoever kind or nature, against Corporation of any nature, whether accrued, matured, unmatured, absolute, contingent or otherwise and which arise out of the operations of Corporation prior to the closing date, or which are based upon any facts in existence prior to the closing date which are known to Seller, or should have been known to Seller, or (b) any claims against any of the Shares being purchased by Buyer hereunder or arising out of the operation of Corporation and which first arose prior to the closing date or which are based upon facts in existence prior to the closing date, or (c) any claims against, or cost, expense or liability of Corporation, Buyer, and/or their successors and assigns, arising out of, related to, or connected with the claims which are the subject matter of the litigation described on the annexed Schedule 3.17 and referred to in Section 3.17 hereof; or (d) any breach of any representation, warranty or covenant contained in this Agreement; all such claims described in (a), (b), (c) and (d) being hereinafter individually called "Claim" and collectively called "Claims".

At the bench trial, Nathan Esformes testified that he was unaware of the potential assessment of withdrawal liability at the time he and his brother decided to discontinue operations at Becker and withdraw from the pension fund. He understood the indemnity clause in the purchase agreement to mean that Mastronardi would indemnify Triple E for liabilities that might not have been reflected in the financial statements.

Robert Mastronardi testified that he was unaware of the potential for withdrawal liability before the sale of Becker to Triple E. He admitted that he may have received annual statements from the fund, but testified that he did not read the statements and denied that he knew that the fund was underfunded. He testified that, as president of Becker, he negotiated labor contracts with the Teamsters himself, that he received mail from the fund and read some of it, and that he personally negotiated with plaintiffs' attorney for the sale of Becker. Robert Mastronardi insisted, however, that no one associated with Mastronardi knew about the unfunded pension liability.

The trial court adopted plaintiffs' proposed findings of fact, except for the portion referring to damages, and awarded judgment for plaintiffs in the amount of $40,000, without explaining its basis for the award. Defendant appeals as of right.

II

Relying on certain federal court decisions, defendant asserts that withdrawal liability did not accrue until plaintiffs withdrew from the pension fund and, therefore, defendant, as a predecessor employer, cannot be held liable. We disagree.

Drawing from its findings of fact, the trial court concluded:

The imposition of withdrawal liability triggers indemnification under both of these clauses [in § 12.1]. As evidenced by Trial Exhibit # 4, the unfunded, vested liability (which eventually resulted in the imposition of withdrawal liability) existed well prior to Triple's acquisition of Becker and resulted from Becker's operations prior to the acquisition. This unfunded, vested liability--while neither mature nor liquidated at the time of the acquisition--became due upon demand by the Fund. The claim of the Fund, therefore, fits squarely within the indemnity provision as a "liability, loss, cost, damage ... of whatsoever kind or nature incurred ... by reason of any ... claim of whatsoever kind or nature" whether "accrued, matured, unmatured, absolute, contingent or otherwise." It was out there, ready to pounce on an unwitting buyer. This type of potential claim had to be [the] type of thing covered by the indemnity. Clearly it was intended to be so according to the testimony of Howard Young.

In addition, facts in existence prior to the closing date (i.e., an unfunded, vested liability) and either known to Mastronardi or should have been known to Mastronardi--as a result of its receipt of annual statements--gave rise to the imposition of withdrawal liability. Indemnification is required.

Accordingly, even though only one of the clauses of Section 12.1(a) need be satisfied to find for the Plaintiffs in this case, the Court finds that both clauses are satisfied in this case.

This Court reviews a trial court's findings of fact for clear error. MCR 2.613(C); In re Stafford, 200 Mich.App. 41, 42-43, 503 N.W.2d 678 (1993). A finding of fact is clearly erroneous when, although there is evidence to support it, the reviewing court is left with a definite and firm conviction that a mistake has been made. Tuttle v. Dep't of State Hwys., 397 Mich. 44, 46, 243 N.W.2d 244 (1976).

The question presented in this case is predominately a question of contract law rather than a question of statutory construction under the MPPAA. See D.C. Transportation Services v. Coca-Cola Bottling Co., 853 F.Supp. 1002, 1007-1008 (N.D.Ohio, 1994). Cf. Global Leasing, Inc. v. Henkel Corp., 744 F.Supp. 595 (D.N.J.1990). This case does not involve a direct claim for "withdrawal liability" against or by an "employer" under the MPPAA, but, rather, involves the contractual obligation of one party to indemnify another for such an assessment. Although a determination of when "withdrawal liability" arises under the MPPAA is instructive, it is not dispositive under these facts. Instead, we view this action for breach of contract as controlled by the intent of the parties in making their contract. Accordingly, our paramount consideration is to discern whether the withdrawal liability...