Opinion
02CV519A.
August 31, 2004
Report Recommendation
Before the Court is the plaintiffs' motion for a default judgement and summary judgment (Docket No. 27) and the defendants' cross-motion for summary judgment (Docket No. 32).
Background
The plaintiffs in this action are the individual Trustees [referred to collectively as "the Trustees"] of the Buffalo Carpenters Pension Fund ["BCPF"] and the BCPF. The plaintiffs assert that defendants Hamilton Installers, Inc.["Hamilton"], Hamilton Equipment Installers, Inc. ["Hamilton Equipment"]; A. Jan Stalker Associates, Inc. ["Stalker"]; and Professional Furnishings Equipment, Inc. ["Professional"] violated certain provisions of the Employee Retirement Income Security Act ["ERISA"] by failing to make obligated payments when withdrawing from the BCPF.
According to the Amended Complaint, the Trustees determined that Hamilton had completely withdrawn from the fund and had incurred withdrawal liability in the amount of $81,173.00. (Docket No. 19 at ¶ 15).
The withdrawal liability is the withdrawing employer's proportionate share of a fund's "unfunded vested benefits," 29 U.S.C. § 1381(b)(1). The term "unfunded vested benefits" is defined as "an amount equal to — (A) the value of nonforfeitable benefits under the plan, less (B) the value of the assets of the plan." Id. § 1393(c); Republic Industries v. Central Pa. Teamsters, 693 F.2d 290, 292 (3rd Cir. 1982). The withdrawal provisions "are a rational means of allocating among a group of employers the collective burden of insuring that their employees receive full compensation." Washington Star Co. v. International Typographical Union Negotiated Pension Plan, 729 F.2d 1502, 1510 (D.C. Cir. 1984). The trustees of a fund have the obligation of determining the amount of withdrawal liability, notifying the employer of the amount and collecting the amount from the employer. 29 U.S.C. § 1382; Republic Industries, 693 F.2d at 292. Jaspan v. Certified Industries, Inc., 645 F.Supp. 998, 1003 (E.D.N.Y.,1985).
The plaintiffs assert that at least two written "notice and demand" letters for payment were served upon Hamilton, but that Hamilton has refused to pay the amount owed. It is alleged that Hamilton failed to request a review or arbitration with respect to the determination. The Amended Complaint also asserts that Hamilton, Hamilton Equipment, Stalker and Professional were under "common control" within the meaning of 29 U.S.C. § 1031(b)(1) and that Hamilton Equipment and Professional are the successors to Hamilton and Stalker, respectively. (Docket No. 19 at ¶¶ 10-11). Further, the plaintiffs allege that the various corporate entities are alter egos of each other and were formed to avoid liability to the BCPF. (Docket No. 19 at ¶ 13).
The plaintiffs have filed a motion for default judgement against Hamilton and Stalker inasmuch as they have not appeared in this case. The plaintiffs also seek summary judgement against Hamilton Equipment and Professional on the grounds that Hamilton failed to request arbitration and therefore has waived it ability to challenge the withdrawal liability determination. The defendants have filed a cross-motion for summary judgment, arguing that Hamilton Equipment and Professional are not, and never have been, "employers" within the meaning of ERISA, and therefore the plaintiffs failed to satisfy a condition precedent for the issuance of a "notice and demand letter."
Discussion
Motion for Default Judgment
The Amended Complaint was served upon Hamilton and Stalker on August 19, 2003 by way of service upon the Office of the Secretary of State for New York State. (Docket No. 20). Neither Hamilton nor Stalker have filed an answer or otherwise appeared in this action. Thus, it is recommended that the motion for a default judgement be GRANTED against Hamilton and Stalker in the amount of $102,785.28 plus interest from January 20, 2004 computed pursuant to 29 C.F.R. § 4219.32.
According to papers filed on behalf of Hamilton Equipment and Professional, Stalker was controlled by an individual named A. Jan Stalker who is retired and living in Florida; and Hamilton was dissolved several years ago. (Docket No. 32 at ¶ 12-13).
Motions for Summary Judgment
Standard of Review
Summary judgment is appropriate only if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Ford v. Reynolds, 2003 WL 132977 (2nd Cir. 2003); Fed.R.Civ.P. 56(c). The party seeking summary judgment has the burden to demonstrate that no genuine issue of material fact exists. In determining whether a genuine issue of material fact exists, a court must examine the evidence in the light most favorable to, and draw all inferences in favor of, the non-movant. Ford, 2003 WL 132977. "A dispute regarding a material fact is genuine `if the evidence is such that a reasonable jury could return a verdict for the non moving party.'" Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1535 (2d Cir. 1997) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248, (1986)). While the moving party must demonstrate the absence of any genuine factual dispute, (Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)), the party against whom summary judgment is sought, however, "must do more than simply show that there is some metaphysical doubt as to the material facts. . . . [T]he nonmoving party must come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); McCarthy v. American Intern. Group, Inc., ___ F.3d ___, 2002 WL 386590 (2d Cir. 2002); Marvel Characters v. Simon, 310 F.3d 280, 285-86 (2d Cir. 2002).
Withdrawal Liability
It is undisputed that Hamilton was a signatory to an agreement between the Construction Industry Employers Association and Buffalo Carpenters Local 9. As such, Hamilton was a participating employer in the BCPF and was obligated to and did make contributions to the BCPF. It is also undisputed that in 2001 the Trustees determined that Hamilton had withdrawn from the BCPF and incurred withdrawal liability of $81,173.00 pursuant to §§ 1381 et seq. of ERISA. A Notice and Demand letter advising Hamilton of this determination was sent registered delivery to Hamilton at 2191 George Urban Blvd. in Depew, New York on November 29, 2001. (Docket No. 27, Exhibit H). Acceptance of the delivery of this Notice and Demand was made at that address by Tracie Stalker on December 3, 2001. (Docket No. 27, Exhibit I). A second letter was sent to the same address on March 11, 2002. (Docket No. 27, Exhibit J). According to the postal mark on the returned envelope, delivery of this letter was refused by the addressee. (Docket No. 27, Exhibit K). Neither Hamilton, nor any of the other corporate defendants, responded to either letter or took any steps to challenge the Trustees determination of withdrawal liability.
Pursuant to 29 U.S.C. § 1401(a), "any dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under sections 1381 through 1399 . . . shall be resolved through arbitration." An employer that wishes to dispute any such determination must request a review within 90 days of receiving notice of the determination. 29 U.S.C. § 1399. Arbitration must be initiated within 60 days after the plan sponsors notify the employer of the results of their request for review, or 120 days after the employer made the request for review. 29 U.S.C. § 1399(b)(2)(B). If arbitration is not commenced within these time frames, "the amounts demanded by the plan sponsor . . . shall be due and owing." 29 U.S.C. § 1401(b). Where no request for arbitration is made, the company's liability becomes "fixed." New York State Teamsters Conference Pension Retirement Fund v. McNicholas Transporation Co., 848 F.2d. 20, 23 (2d Cir. 1988).
Hamilton Equipment and Professional do not dispute the operation of §§ 1399 or 1401, or even the determination by the Trustees as to Hamilton's withdrawal liability. Instead, Hamilton Equipment and Professional argue that they are separate and distinct corporations from Hamilton and Stalker; and that Hamilton Equipment and Professional are not "employers" as defined under ERISA. The plaintiffs argue that Hamilton Equipment and Professional had actual notice of the assessment of withdrawal liability inasmuch as Tracie Stalker accepted and signed for the November 29, 2001 Notice and Demand (Docket No. 28 at page 7). The plaintiffs assert that Professional is located at the address that was listed for Hamilton. Further, the plaintiffs argue that Hamilton Equipment is also located at that office, that it has no separate offices and is actually "a part" of Professional. (Docket No. 28 at page 7). Further, the plaintiffs contend that the money used by Hamilton Equipment to disburse to its employees came from Professional. The plaintiffs point out that Tracie Stalker testified that Hamilton Equipment is "a payroll company, that's all." (Tracie Stalker Deposition, Docket No. 27, Exhibit D, page 33).
Common Control
One key issue in this case is whether Hamilton Equipment and Professional were under "common control" with Hamilton (the signatory to the BCPF) pursuant to 26 U.S.C. § 414(c).
It appears that A. Jan Stalker ["Jan Stalker"] formed Stalker and Hamilton in the 1960s. Jan Stalker held voting control of both corporations, although Donald O'Connor, a union carpenter, held a minority interest in Hamilton. (Docket No. 33 at page 1-2). Although the exact percentages are said to be "unknown," it is undisputed that Jan Stalker owned a majority of the stock in both Hamilton and Stalker. (Greg Stalker Deposition, Docket No. 27, Exhibit C at ¶ 2; Docket No. 32 at ¶ 12). The defendants contend that for several years Stalker sold various fixtures such as laboratory equipment or stadium seating. (Greg Stalker Deposition, Docket No. 27, Exhibit D, page 13). Hamilton provided the installation services for these fixtures. Eventually, both Greg Stalker and Tracie Stalker (Jan Stalker's children) worked at Stalker. The extent to which Hamilton and Stalker maintained separate corporate identities (separate board members, separate board meetings, payroll, exchange of personnel, expenditures, financing) is not clear from the record.
The defendants' Memorandum of Law refers to the Affidavit of Antonio Cardarelli. The Cardarelli Affidavit is not filed under separate cover. Instead, it is attached to Docket No. 32 directly after the first Exhibit E.
It does not appear that O'Connor remained involved in Hamilton for very long. Greg Stalker testified that he worked for his father at Stalker for 15 to 20 years before the formation of Professional in 1996 and that as a sales person for Stalker he was familiar with the installers that worked for Hamilton. (Greg Stalker Deposition, Docket No. 27, Exhibit D at page 6-7, 12). Further, Greg Stalker stated that he believed that his father, Jan Stalker, owned Hamilton. He testified that he knew that his father had another shareholder in Hamilton when the corporation was formed, but could not identify that person as O'Connor. When asked about O'Connor, Greg Stalker stated that he recognized that name only because he remembered O'Connor being around when he "was a kid, but that's going back pretty far." (Greg Stalker Deposition, Docket No. 27, Exhibit D at page 10-11).
According to the defendants, Hamilton Equipment was formed in 1993 or 1994. It appears that upon its formation, Tracie Stalker owned 60% of the stock and Jan Stalker owned 40% of the stock. (Docket No. 32 at ¶ 14). In 2001, Tracie Stalker took ownership of her father's 40% to become the sole shareholder in Hamilton Equipment. (Docket No. 32 at ¶ 14). Professional was formed in 1996 with Greg Stalker as the sole shareholder. (Docket No. 32 at ¶ 15).
(Docket No. 32 at ¶ 14).
(Docket No. 33 at page 2).
The defendants contend that neither Tracie Stalker or Greg Stalker owned stock in Hamilton or Stalker. Further, the defendants assert that Jan Stalker never had a controlling interest in Hamilton Equipment or Professional. (Docket No. 32 at ¶ 16-17). The defendants also contend that no assets were transferred from Stalker to Professional or from Hamilton to Hamilton Equipment. (Docket No. 32 at ¶ 18).
"[A]ll businesses under common control are treated as a single employer for purposes of collecting withdrawal liability, and each is liable for the withdrawal liability of another." Corbett v. MacDonald Moving Servs., Inc., 124 F.3d 82, 86 (2d Cir. 1997); 29 U.S.C. § 1301(b)(1). Common control is defined in the Treasury regulations adopted under § 414 of the Internal Revenue Code. 29 U.S.C. § 1301(b)(1); 26 C.F.R. §§ 1.414(c)-1 to (c)-5. The regulations provide three different groups the members of which are considered to be under common control and therefore responsible for each other's withdrawal liability. The first is a "parent-subsidiary group" consisting of "one or more chains of organizations conducting trades or businesses connected through ownership of a controlling interest with a common parent organization." 26 C.F.R. § 1.414(c)-2(b). The second is a "brother-sister group" consisting of "two or more organizations conducting trades or businesses if (i) the same five or fewer persons . . . own . . . a controlling interest in each organization, and (ii) taking into account the ownership of each such person only to the extent such ownership is identical with respect to each such organization, such persons are in effective control of each organization." Id. § 1.414(c)-2(c). The third is a "combined group" consisting of "any group of three or more organizations", if (1) each such organization is a member of either a parent-subsidiary group . . . or a brother-sister group . . ., and (2) at least one such organization is the common parent organization of a parent-subsidiary group . . . and is also a member of a brother-sister group. . . . Id. § 1.414(c)-2(d).
In the calculation of ownership interest, direct as well as indirect ownership is included. See 26 C.F.R. § 1.414(c)-4. Thus, an interest owned by one corporation in another corporation is attributed to any person who owns more than a 5% share of the first corporation's stock. For example, if a Shareholder B owns 60% of Corporation P, and Corporation P owns 50% of Corporation S, then Shareholder B owns 30% of Corporation S (60% × 50%). See 26 C.F.R. § 1.414(c)-4(b)(4)(ii) (providing a more detailed example). I.L.G.W.U. Nat'l. Retirement Fund v. ESI Group, Inc., 2002 WL 999303, *6 (S.D.N.Y.,2002).
A "controlling interest" is defined as ownership of stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote of [a company], or at least 80% of the total value of shares of all classes of stock in [a company]. New York State Teamsters Conference Pension and Retirement Fund ex rel. Bulgaro v. Doren Avenue Associates, Inc., 321 F.Supp.2d 435, 445 (N.D.N.Y.,2004).
"Identical ownership" interests are calculated by adding the minimal ownership interests identical in each principal. For example, if Shareholder A owns 20% of Corporation X, 20% of Corporation Y, and 10% of Corporation Z, Shareholder A's identical interest is 10%. See 26 C.F.R. § 1.414(c)-2(c)(2)(I).I.L.G.W.U., 2002 WL 999303, *7.
"Effective control" is defined as ownership of `stock possessing more than 50% of the total combined voting power of all classes of stock' entitled to vote or more than 50% of the total value of shares of all classes of stock of [a company].New York State Teamsters, 321 F.Supp.2d at 445.
An individual may be deemed to have constructive ownership of stock in the name of a family member. Pursuant to 26 C.F.R. § 1.414(c)-4(b)(6)(I) (ii), the following attributive rules apply:
(i) An individual shall be considered to own an interest owned, directly or indirectly, by or for the individual's children who have not attained the age of 21 years, and if the individual has not attained the age of 21 years, an interest owned, directly or indirectly, by or for the individual's parents.
(ii) Children, grandchildren, parents, and grandparents. If an individual is in effective control (within the meaning of § 1.414(c)-2(c)(2)), directly and with the application of the rules of this paragraph without regard to this subdivision, of an organization, then such individual shall be considered to own an interest in such organization owned, directly or indirectly, by or for the individual's parents, grandparents, grandchildren, and children who have attained the age of 21 years.
The defendants acknowledge that Hamilton and Stalker were "commonly controlled" under § 414 because Jan Stalker owned more than 50% of each company. (Docket No. 33 at page 10). Tracie Stalker's age does not appear to be in the record. Inasmuch as the plaintiffs do not claim that her interest in Hamilton Equipment can be attributed to Jan Stalker, the Court assumes that she was over 21 years of age for the time period relevant in this case. Assuming that to be the case, at no time did Jan Stalker have a controlling interest or effective control over Hamilton Equipment. Jan Stalker is not alleged to have ever owned stock in Professional. Thus, under § 414, Hamilton Equipment and Professional are not, and never were, in common control with Hamilton. Similarly, because Professional is solely owned by Greg Stalker, and Greg Stalker has no ownership interest in Hamilton Equipment, Professional and Hamilton Equipment are not "commonly controlled" under § 414.
Several Court's have held that service upon a corporation which was at one time a member of a commonly controlled group of companies would be sufficient even if service took place after the companies ceased to be commonly controlled. See I.L.G.W.U., 2002 WL 999303, *8 (S.D.N.Y.,2002) (collecting cases). This is not the situation in the present case.
Successor Corporations and/or Alter Egos
The Trustees assert that Hamilton Equipment and Professional are the successor corporations and/or alter egos to Hamilton and Stalker. As such, the plaintiffs claim Hamilton Equipment and Professional are responsible for the withdrawal liability.
Section 1369(b) describes certain particular changes in corporate structure that are exempted from withdrawal liability. In this regard, the statute provides that "[i]f a person ceases to exist by reason of a reorganization which involves a mere change in identity, form, or place of organization, however effected, a successor corporation resulting from such reorganization shall be treated as the person to whom this subtitle applies." Bowers v. Andrew Weir Shipping, Ltd., 810 F.Supp. 522, 526 (S.D.N.Y.,1992). The converse is also true, the defendants acknowledge that the doctrine of successor liability to claims for withdrawal liability has been upheld. (Docket No. 33 at page 7), see Truck Drivers Union v. Tasemkin, Inc., 59 F.3d. 48 (7th Cir. 1995)). Indeed, the withdrawal liability provisions are designed not only to insure against possible default by the withdrawing employer's successor in interest, but other risks and casualties that may befall other contributors to the fund. Jaspan v. Certified Industries, Inc. 645 F.Supp. 998, 1006 (E.D.N.Y.,1985).
Under the alter ego theory of piercing, the element of control is established by factors indicating that the corporation is the mere alter ego of another corporation or an individual, such as: "(1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether the related corporations deal with the dominated corporation at arms length, (8) whether the corporations are treated as independent profit centers, (9) the payment or guarantee of debts of the dominated corporation by other corporations in the group, and (10) whether the corporation in question had property that was used by other of the corporations as if it were its own." In re Vebeliunas, 332 F.3d 85, 91 (2d Cir. 2003) quoting Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 139 (2d Cir. 1991). If it is demonstrated that two companies are, in fact, alter egos of one another, "then each is bound by the collective bargaining agreements signed by the other," including any obligation therein to make contributions to a fund. Lihli Fashions Corp. v. NLRB, 80 F.3d 743, 748 (2d Cir. 1996); Local One, Amalgamated Lithographers v. Stearns Beale, Inc., 812 F.2d 763, 772 (2d Cir. 1987); New York State Teamsters Conference Pension and Retirement Fund ex rel. Bulgaro v. Doren Avenue Associates, Inc., 321 F.Supp.2d 435, 446-447 (N.D.N.Y.,2004).
With respect to successor liability, the defendants point toTruck Drivers Union v. Tasemkin, Inc., 59 F.3d 48 (7th Cir. 1995). There, the Court held:
Most states have adopted exceptions to the general no-liability rule that allow creditors to pursue the successor if the "sale" is merely a merger or some other type of corporate reorganization that leaves real ownership unchanged. . . . Successor liability under federal common law is broader still: in order to protect federal rights or effectuate federal policies, this theory allows lawsuits against even a genuinely distinct purchaser of a business if (1) the successor had notice of the claim before the acquisition; and (2) there was "substantial continuity in the operation of the business before and after the sale.". . . Successor liability is an equitable doctrine, not an inflexible command, and "in light of the difficulty of the successorship question, the myriad factual circumstances and legal contexts in which it can arise, and the absence of congressional guidance as to its resolution, emphasis on the facts of each case as it arises is especially appropriate."Truck Drivers, 59 F.3d at 49 (emphasis added, citations omitted).
The plaintiffs claim that Hamilton Equipment is a successor to Hamilton and was formed merely to avoid withdrawal liability to the BCPF. The undisputed record reflects significant ties between Hamiltion and Hamilton Equipment. Jan Stalker was a founder or co-founder and stockholder in both corporations. In addition to the similarity in their names (Hamilton and Hamilton Equipment), there appears to have been common management inasmuch as both companies were owned and operated by Jan Stalker and Tracie Stalker. Both companies perform the same type of business operations, the installation of certain types of equipment and auditorium seating. Both companies have similar arrangements with an affiliated sales company owned and operated by members of the Stalker family (Hamilton and Stalker; Hamilton Equipment and Professional). The argument that Hamilton Equipment may be a successor to Hamilton is further supported by the fact Hamilton Equipment was formed shortly at about the same time as the attempted dissolution of Hamilton. Indeed, upon its creation it is undisputed that Hamilton Equipment assumed the role of Hamilton with respect to the installation services rendered on sales made by Stalker. (Tracie Stalker Deposition, Docket No. 27, Exhibit D, page 27). The record suggests that once Professional was formed, arguably as a replacement for Stalker, Stalker ceased operations and Hamilton Equipment became the installer for Professional. Although the defendants deny that any assets belonging to Hamilton were transferred to Hamilton Equipment, this may be explained by the fact that both Hamilton and Hamilton Equipment were operated merely as a "payroll" entity by the Stalker family. (Tracie Stalker Deposition, Docket No. 27, Exhibit D, page 33). The record reflects that in 2001 Tracie Stalker accepted the Notice and Demand letter addressed to Hamilton. The record also reflects that, although Hamilton Equipment denies being a signatory to or having any liability to the BCPF, after Hamilton ceased operations, Hamilton Equipment did make at least one payment to the BCPF in 1995 based upon work performed by Hamilton Equipment employees (who had formally been Hamilton employees). (Docket No. 52 at ¶ 2-3). The defendants have not adequately explained why such a payment was made by Hamilton Equipment to the BCPF. The plaintiffs assert that this payment supports the argument that Hamilton Equipment was a successor to Hamilton. It appears that the only difference between Hamilton and Hamilton Equipment is the fact that stock ownership was transferred from Jan Stalker to Tracie Stalker and that Hamilton Equipment no longer hires union workers (and therefore does not contribute to the BCPF).
Thus, there is ample evidence in the record to suggest that Hamilton Equipment was created as a successor corporation to take over the operation of Hamilton and to avoid Hamilton's withdrawal liability to the BCPF. Hamilton Equipment denies this and suggests that the transfer was motivated by the fact that O'Connor, Jan Stalker's original partner in Hamilton had moved from the area and that some major corporate decisions legally require more than the 51% owned by Jan Stalker. (Cardarelli Affidavit at ¶ 16-17). The record does not provide the answer to all questions regarding the relationship between Hamilton and Hamilton Equipment. It is unclear from the record as to when O'Connor left the Western New York area (if he had left the area or had ceased to participate in Hamilton years earlier, it would weaken the argument that the corporate changeover was motivated by O'Connor and not by a desire to withdraw from the BCPF without incurring withdrawal liability). The record does not establish that corporate dissolution of Hamilton was the necessary remedy to the defendants' proffered motivation for the creation of Hamilton Equipment — to have a local presence of more than 51% of the shareholders. If Hamilton had no assets and was merely a payroll company, as represented by Tracie Stalker, its stock would have had a limited value. Rather than creating a new corporate entity, it might have been advantageous to simply purchase or transfer O'Connor's apparently valueless shares to Jan or Tracie Stalker. The defendants argument that successor liability cannot attach because Hamilton Equipment did not have notice of the BCPF claim in 1994 when Hamilton Equipment was created, also fails to resolve the issue. A question of fact exists as to whether the Stalkers were aware of the fact that Hamilton would incur withdrawal liability if it switched to non-union employees in 1994. If Hamilton Equipment was created to take over the role and operations of Hamilton and to avoid withdrawal liability to the BCPF as it changed from a union to a non-union company, Hamilton Equipment would be a successor corporation liable for Hamilton's obligation to the BCPF, notwithstanding that the BCPF did not actually pursue the claim until after Hamilton Equipment was formed. Based upon the record before the Court, questions of fact exist as to whether such was the case. These questions of fact preclude the entry of summary judgment at this time as to the plaintiffs' claim that Hamilton Equipment is liable to the BCPF as an alter ego or successor to Hamilton Equipment.
The proposition that Hamilton's stock was of quite limited value is supported by the fact that it appears, based upon this record, that O'Connor walked away from the company apparently without obtaining any compensation for his equity interest in Hamilton. Similarly, Jan Stalker apparently was willing to simply abandon Hamilton in favor or Hamilton Equipment.
To hold otherwise would allow a corporation to avoid withdrawal liability merely by changing corporate form prior to receiving a demand letter from its pension fund. Arguably, the Stalkers could have known that eventually the BCPF would have assessed withdrawal liability against Hamilton once it withdrew.
With respect to Professional the analysis is different. Although it may be argued that Professional is a successor to Stalker, as an initial matter the relevant inquiry is whether Professional is a successor to Hamilton, the entity that is the signatory to the BCPF. It is undisputed that Stalker and Hamilton had a working arrangement whereby Hamilton would install equipment sold by Stalker. However, the plaintiffs have presented no authority stating that such an arrangement, by itself, makes Hamilton the alter ego of Stalker, or vice versa. Each corporation operated in a different role and performed different services. It does not appear that Professional is a successor to Hamilton or Hamilton Equipment.
However, the plaintiffs contend that because of the way in which Hamilton Equipment and Professional operate, equitable principles should be employed to ignore the corporate form and hold Professional responsible for the obligation of Hamilton Equipment. In support of this proposition, the plaintiffs rely onLowen v. Tower Asset Management, Inc., 829 F.2d. 1209, 1220 (2d Cir. 1987). In Lowen the Second Circuit held:
The Supreme Court has "consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies.". . . In determining whether to disregard the corporate form, we must consider the importance of the use of that form in the federal statutory scheme, . . . an inquiry that generally gives less deference to the corporate form than does the strict alter ego doctrine of state law. . . . Courts have without difficulty disregarded form for substance where ERISA's effectiveness would otherwise be undermined.Lowen, 829 F.2d. at 11220-221.
In Lowen, the Court cited approvingly to Alman v. Danin, 801 F.2d 1 (1st Cir. 1986). In Alman, the incorporators of an inadequately capitalized corporation were held liable for the corporation's unpaid contributions to various pension plans. The First Circuit noted:
ERISA, the statute sought to be enforced here, cannot be said to attach great weight to corporate form. Indeed, deferring too readily to the corporate identity may run contrary to the explicit purposes of the Act. Congress enacted ERISA in part because many employees were being deprived of anticipated benefits, which not only reduced the financial resources of individual employees and their dependents but also undermined the stability of industrial relations generally. . . . Allowing the shareholders of a marginal corporation to invoke the corporate shield in circumstances where it is inequitable for them to do so and thereby avoid financial obligations to employee benefit plans, would seem to be precisely the type of conduct Congress wanted to prevent. 801 F.2d at 3-4 (citations omitted).
The Second Circuit continued in Lowen:
A failure to disregard the corporate form in the circumstances of the present case would fatally undermine ERISA. The record demonstrates beyond dispute extensive intermixing of assets among the corporations, and among the corporations and individual defendants, without observing the appropriate formalities, simultaneous sharing of employees and office space by the corporate and individual defendants, and wholly inadequate capitalization of the corporations in light of the nature of the businesses in which they were engaged.Lowen, 829 at 1220-1221.
These considerations are consistent with the factors to guide an alter ego determination as set out in Vebeliunas. Several of the factors in Vebeliunas appear to support a finding that Hamilton Equipment is merely an alter ego of Professional. As noted above, is appears undisputed that Professional, like Stalker, sells equipment with the installation included in the price. Professional's customer pays Professional directly, including any amount attributed to installation. Hamilton Equipment would then arrange for installation of the equipment, apparently hiring sufficient laborers as need to perform the job. (Tracie Stalker Deposition, Docket No. 27, Exhibit D at page 32). Professional would transfer an amount to Hamilton Equipment sufficient to meet the payroll. According to Tracie Stalker, Hamilton Equipment does not realize any profit from this arrangement. (Tracie Stalker Deposition, Docket No. 27, Exhibit D at page 33). Under these circumstances, the plaintiffs argue that Hamilton Equipment is under-capitalized and would have no assets to meet any liability to the BCPF, if any is found. It is argued that pursuant to the business arrangement between Professional and Hamilton Equipment, Professional is keeping profit that should go to Hamilton Equipment. Thus, a strong argument can be made to challenge whether Hamilton Equipment is operated at arms-length or as an independent profit center. Further, it is undisputed that Tracie Stalker, Hamilton Equipment's sole shareholder (and one of only two employees) is a full-time employee of Professional, which is owned by Greg Stalker. (Tracie Stalker Deposition, Docket No. 27, Exhibit D, at page 18). It does not appear that Hamilton Equipment performs installation services that originate from companies other than Professional. Thus, it appears that Hamilton Equipment does no business other than through Professional. Tracie Stalker performs "most" of her work for Hamilton Equipment while at Professional's office (Tracie Stalker Deposition, Docket No. 27, Exhibit D, page 27). Hamilton Equipment owns no vehicles of its own, no equipment, and no computers. Id.
It appears that Professional now uses other installation firms, in addition to Hamilton Equipment. (Tracie Stalker Deposition, Docket No. 27, Exhibit D at page 24).
At the time of her deposition, Hamilton Equipment had only two employees. (Docket No. 27, Exhibit D at page 23).
Professional has four employees: Greg Stalker, Loretta Stalker (Greg's wife), Tracie Stalker (Greg's sister) and Chris Berry. (Greg Stalker Deposition, Docket No. 27, Exhibit d, at page 9).
However, the record is far from complete as to what extent separate corporate identities were formally observed. The record lacks a complete description of the respective book keeping process of Hamilton Equipment and Professional. Whether Hamilton Equipment retains any business discretion, or is completely dominated by Professional is unclear. As noted above, it does not appear that Hamilton Equipment performs installation services for sales generated by companies other than Professional. It also appears that Professional sells equipment with the installation price incorporated. The record does not reflect what role Hamilton Equipment has in the determination of the installation cost. The record does not reflect whether Professional has made or guaranteed the payment of any debts of Hamilton Equipment or the extent to which the corporations use each other's property as if it were its own." In re Vebeliunas, 332 F.3d at 91.
While the Cardarelli Affidavit (Docket No. 32, after the first Exhibit E) states that separate tax returns have been filed, this Affidavit cannot answer many questions regarding corporate form of the two entities. The identity of corporate officers and directors is not listed. Among other things, also missing are the dates of corporate meetings, if any were actually conducted, and whether the purportedly independent corporations conducted such meetings separately.
Although the evidence in the record reflects a considerable dependence by Hamilton Equipment on Professional, questions of fact exist precluding a determination at this time, as a matter of law, as to whether Hamilton Equipment is the alter ego of Professional.
Latches and Other Issues
The plaintiffs argue that Hamilton Equipment and Professional cannot raise the issue of latches or argue the sufficiency of the notice for the first time in District Court. Further, the plaintiffs assert that Hamilton Equipment and Professional cannot challenge their status as "employers" without first resorting to arbitration. The defendants represent that they have not, and do not, argue that latches apply in this case. (Docket No. 51 at page 3). Thus, this issue need not be addressed further.
With respect to the proposition that Hamilton Equipment and Professional cannot challenge their status as "employers" for purposes of withdrawal liability unless they first arbitrate, the plaintiffs rely on ILGWU Nat. Retirement Fund v. Levy Bros. Frocks, Inc., 846 F.2d 879 (2d Cir. 1988). In that case, as a defense to a federal court action brought by a pension fund, a dissolved corporation served with a demand for withdrawal liability sought to challenge whether it qualified as an employer under ERISA because of its dissolved status. There, the Court held that the corporation was required to arbitrate the issue to preserve it for judicial review. The instant case, however, may be distinguished inasmuch as Hamilton Equipment and Professional argue that they are separate and distinct corporations from Hamilton such that they have no obligation to respond to notices served upon Hamilton. The factual questions discussed above similarly preclude the resolution of this issue.
This issue may, in fact, be moot. The defendants do not appear to contest Hamilton's liability to the BCPF. Indeed, the defendants also acknowledged that the BCPF could have collected from Stalker as a "commonly controlled" corporation. (Docket No. 37 at page 4). Moreover, this issue would only be ripe if it is found that Hamilton Equipment and/or Professional are responsible for Hamilton's debt to the BCPF as successor or alter ego corporations, and then Hamilton Equipment or Professional asserts a right to arbitrate the issue of Hamilton's liability.
Conclusion
Based on the above, it is recommended that the plaintiff's motion for default judgement against Hamilton and Stalker be GRANTED, and that respective motions for summary judgment (Docket No. 27 and 32) be GRANTED IN PART AND DENIED IN PART consistent with the above.So ordered.
Pursuant to 28 USC § 636(b)(1), it is hereby ordered that this Report Recommendation be filed with the Clerk of the Court and that the Clerk shall send a copy of the Report Recommendation to all parties.
ANY OBJECTIONS to this Report Recommendation must be filed with the Clerk of this Court within ten(10) days after receipt of a copy of this Report Recommendation in accordance with 28 U.S.C. § 636(b)(1), Rules 6(a), 6(e) and 72(b) of the Federal Rules of Civil Procedure, as well as WDNY Local Rule 72(a)(3). FAILURE TO FILE OBJECTIONS TO THIS REPORT RECOMMENDATION WITHIN THE SPECIFIED TIME, OR TO REQUEST AN EXTENSION OF TIME TO FILE OBJECTIONS, WAIVES THE RIGHT TO APPEAL ANY SUBSEQUENT ORDER BY THE DISTRICT COURT ADOPTING THE RECOMMENDATIONS CONTAINED HEREIN. Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed2d 435 (1985); F.D.I.C. v. Hillcrest Associates, 66 F.3d 566 (2d. Cir. 1995); Wesolak v. Canadair Ltd., 838 F.2d 55 (2d Cir. 1988); see also 28 U.S.C. § 636(b)(1), Rules 6(a), 6(e) and 72(b) of the Federal Rules of Civil Procedure, and WDNY Local Rule 72(a)(3).
Please also note that the District Court, on de novo review, will ordinarily refuse to consider arguments, case law and/or evidentiary material which could have been, but was not, presented to the Magistrate Judge in the first instance. SeePatterson-Leitch Co. Inc. v. Massachusetts Municipal Wholesale Electric Co., 840 F.2d 985 (1st Cir. 1988).
Finally, the parties are reminded that, pursuant to WDNY Local Rule 72.3(a)(3), "written objections shall specifically identify the portions of the proposed findings and recommendations to which objection is made and the basis for such objection and shall be supported by legal authority." Failure to comply with the provisions of Rule 72.3(a)(3)may result in the District Court's refusal to consider the objection.
So ordered.