Opinion
No. 90 C 2066
September 10, 1990
MEMORANDUM OPINION
This matter comes before the court on Defendant John C. Holmes's motion to dismiss Plaintiffs Central States, Southeast and Southwest Areas Pension Fund and the fund's trustees' complaint. For the following reasons, the motion is denied.
BACKGROUND
This is an action for the imposition and collection of withdrawal liability payments under the 1980 amendments to ERISA known as the Multiemployer Pension Plan Amendment Act of 1980. Plaintiffs allege in their complaint that Defendant Holmes is personally liable under 29 U.S.C. § 1381 and 1382 (1988) for the withdrawal liability incurred when a corporation known as Associated Service Corporation stopped making payments to the Fund on June 14, 1983, after it had ceased doing business. Mr. Holmes, who is defending this action pro se, has moved to dismiss the action against him, claiming that he is not legally responsible for the ERISA withdrawal debt incurred by Associated Service and that, in any event, he does not have the money to pay such a debt.
Whether Mr. Holmes is personally liable for Associated Service's withdrawal liability debt hinges, not surprisingly, on his relationship to that corporation. The description of that relationship found in the plaintiffs' complaint, which we must take as true for purposes of this motion, is as follows.
At the time Associated Service ceased doing business and withdrew from participation in the Central States fund, Mr. Holmes owned 93.99% of Associated Service's common stock, a controlling interest in the entity. In addition, Holmes owned the land upon which Associated Service engaged in its business. He leased the land to Associated Service in return for money, as he had done since he bought the land from his father's estate in 1975, and as his father apparently had done since Associated Service first began business in 1946.
DISCUSSION
There is no question here that Associated Service incurred $30,570.97 in withdrawal liability under ERISA when it ceased making payments to the fund. The amount ultimately assessed by Central States after the withdrawal was never challenged by either Associated Service or Mr. Holmes through the filing of an arbitration proceeding under 29 U.S.C. § 1401(b)(1). Thus, the amount is due and owing. The question, rather, is whether Holmes can be held personally liable for this debt.
Section 1401(b)(1) of title 29 provides that "if no arbitration proceeding has been initiated, . . . the amounts demanded . . . shall be due and owing. . . ."
Normally, an individual shareholder cannot be held liable under ERISA for his corporation's failure to meet its pension plan obligations. Courts, in other words, have balked at the idea of creating an exception in ERISA cases to the general rule that a shareholder can only be held personally liable for a corporation's debts where there has been some hint of fraud in the exercise of the corporate persona, i.e., where it is appropriate to "pierce the corporate veil." This has been true even in cases where the individual has been instrumental in the corporation's operations and is the controlling shareholder. See, e.g., Massachusetts Laborers' Health and Welfare Fund v. Starrett Paving Corp., 845 F.2d 23 (1st Cir.1988) (holding that an owner/manager is not liable for a bankrupt corporation's promised contributions to a pension solely by virtue of his position as chief officer/shareholder of the corporation).
The situation here, however, is alleged to be more involved. Based on the leasing arrangement between Associated Services and Holmes with respect to property upon which Associated Services performed its operations, the plaintiffs argue that there are not one but two businesses here, and that both were under the common control of Mr. Holmes: Associated Services, a corporate entity, and Mr. Holmes's leasing operation, which was unincorporated.
This has relevance because of 29 U.S.C. § 1301(b)(1), which provides that "all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer and all such trades or businesses as a single employer." Thus, if Mr. Holmes's leasing operation and Associated Service are both "trades or businesses (whether or not incorporated) under common control," i.e., Mr. Holmes's control, then the leasing business is equally liable under ERISA for the withdrawal liability incurred by Associated Service. And since the leasing operation was an unincorporated sole proprietorship, Mr. Holmes is personally liable for its debts.
Well-settled ERISA law supports the plaintiffs' position that this is the situation presented here. Regulatory glossing of the term "trades or businesses under common control" has defined it to include "brother-sister" groups such as the complaint alleges existed here between Mr. Holmes's leasing operation and Associated Services, of which Mr. Holmes owned 93.99% of the common stock and had effective control. See 26 C.F.R. § 414(c)-2(c)(1) (1990) ("The term 'brother-sister group . . .' means two or more organizations conducting trades or businesses if (i) the same five or fewer persons . . . own . . . a controlling interest of each organization and (ii) . . . such persons are in effective control of each organization."). The extant case law, moreover, supports multiemployer withdrawal liability for individual owners in leasing situations quite similar to the one alleged here. See, e.g., Western Conference of Teamsters Pension Plan v. Lafrenz, 837 F.2d 892, 893 (9th Cir.1988) (unincorporated sole owners of truck leasing operation held liable for withdrawal liability of concrete mixing corporation in which they held 96% interest); Central States, Southeast and Southwest Areas Pension Fund v. Bay, 684 F. Supp. 483, 485 n. 6 (E.D.Mich.1988) ("sole proprietorship leasing operation constitutes a trade or business includable in a control group for purposes of withdrawal liability").
Mr. Holmes's only response to this body of well settled law is that the leasing of his property to Associated Service cannot constitute a trade or business within the meaning of ERISA because it is a passive investment rather than an active one. Although he does not say, Mr. Holmes's characterization of his leasing activity seems to be based on an analogy to federal income tax law. But, in any event, it does not matter because the distinction is of no relevance as it applies to ERISA. The leasing of property, whether realty or personalty, is a business under ERISA regardless of whether it is an active or a passive investment. Mr. Holmes chose to operate in the manner he did and he chose not to protect his exposure from the leasing activity by incorporation. He must now face the consequences of these decisions.
With respect to Mr. Holmes's claim that he has no money to pay any judgment entered against him, we note only that this cannot affect our decision on this motion one way or the other. If the allegations in the complaint are true, Mr. Holmes has violated federal law and is responsible for the $30,570.97 that Associated Service incurred when it withdrew from the plaintiffs' fund. Any issue of his ability to satisfy that judgment must be left for another day.