Opinion
No. 99C4202
September 25, 2000
MEMORANDUM OPINION AND ORDER
Central States, Southeast and Southwest Areas Pension Fund, and Howard McDougall, Trustee, (collectively, "Fund") filed this action against Wiseway Motor Freight, Inc., ("Wisconsin Wiseway"). The Fund seeks to recover from Wisconsin Wiseway an obligation owed by the United Shipping Company ("United Shipping"), which the Fund contends is a predecessor of the instant defendant. Before this court are Wisconsin Wiseway's and the Fund's cross-motions for summary judgment.
I. Summary Judgment Standard
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, 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." Fed.R.Civ.P. 56(c); Cox v. Acme Health Serv., Inc., 55 F.3d 1304, 1308 (7th Cir. 1995). A genuine issue of material fact exists for trial when, in viewing the record and all reasonable inferences drawn from it in a light most favorable to the non-movant, a reasonable jury could return a verdict for the non-movant. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986); Biland v. Trinity Hosp., 150 F.3d 747, 750 (7th Cir. 1998).
The movant bears the burden of establishing that there exists no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986); Hedberg v. Indiana Bell Tel. Co., 47 F.3d 928, 931 (7th Cir. 1995). If the movant meets this burden, the non-movant must set forth specific facts that demonstrate the existence of a genuine issue for trial. Rule 56(e); Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. Rule 56(c) mandates the entry of summary judgment against a party "who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and in which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. at 2552-53. A scintilla of evidence in support of the non-movant's position is not sufficient to oppose successfully a summary judgment motion; "there must be evidence on which the jury could reasonably find for the [non-movant]." Anderson, 477 U.S. at 250, 106 S.Ct. at 2511. Weighing evidence, determining credibility, and drawing reasonable inferences are jury functions, not those of a judge deciding a motion for summary judgment. Anderson, 477 U.S. at 255, 106 S.Ct. at 2515.
On cross-motions for summary judgment, each movant must satisfy the requirements for summary judgment. See Anderson v. J.A. Interior Applications, Inc., No. 97 C. 4552, 1998 WL 708851, at *4 (N.D. 111. Sep. 28, 1998) (citing Proviso Assoc. of Retarded Citizens v. Village of Westchester, 914 F. Supp. 1555, 1560 (ND. Ill. 1996)). The merits of each cross-motion will be considered separately and all reasonable inferences and factual questions will be resolved against the party whose motion is under consideration. Id.
II. Factual Background
The Fund is a multiemployer pension plan and a third-party beneficiary to collective bargaining agreements negotiated between participating employers and local unions. See 29 U.S.C. § 1002 (37) and 1301(a)(3). Howard McDougall, trustee and fiduciary of the Fund, administers the Fund in Rosemont, Illinois. Wisconsin Wiseway is a Wisconsin corporation with its principle place of business in Wisconsin.
Advance United Expressways, Inc. ("Advance United") entered into a collective bargaining agreement with a local union of the International Brotherhood of Teamsters. The collective bargaining agreement obligated Advance United to contribute to the Fund. In November 1987, Advance United effected a complete withdrawal from the Fund. See 29 U.S.C. § 1383. As a result of this withdrawal, Advance United and all entities within its control group, including United Shipping, incurred withdrawal liability in the amount of $7,622,005.71 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.
Advance United and United Shipping were both owned by Advance United Enterprises, Inc.
In September 1987, Advance United filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court, District of Minnesota. In February 1988, United Shipping followed suit. The Fund filed a general unsecured proof of claim in both bankruptcy cases for $7,622,005.71, based on the amount of withdrawal liability. On December 7, 1989, United Shipping filed its final amended plan of reorganization ("Plan") in the bankruptcy court. In accordance with the Plan, United Shipping was to make certain distributions to holders of unsecured claims, including the Fund.
The Plan provided for unsecured creditors including the Fund to receive seven pro rata distributions in years 5, 6, 7, and 8 after the effective date of the Plan. The Fund accepted the Plan on December 9, 1989, and the bankruptcy court confirmed the plan on December 28, 1989. The Fund received the initial payments due under the Plan. However, United Shipping defaulted on Plan payments for the years 1995, 1996, 1997, and 1998 — payments totaling $175,614.88.
From February 1988, when the company declared bankruptcy, to May 1988, United Shipping did not conduct any business and generated no revenue. On or about June 15, 1988, United Shipping entered into a purchase agreement for $35,000.00 with a Minnesota corporation known as Wiseway Motor Freight, Inc. ("Minnesota Wiseway"). United Shipping purchased equipment, customer lists, and the right to use the name "Wiseway Motor Freight, Inc." In turn, Minnesota Wiseway entered into a covenant not to compete with United Shipping.
On June 18, 1988, United Shipping filed a Certificate of Assumed Name with the state of Minnesota and began to conduct business under the name Wiseway Motor Freight. Jeff Wines, a shareholder and director of United Shipping, explained that United Shipping purchased the name Wiseway Motor Freight to ensure name recognition in the furniture industry. See also Schmidt Dep., P1. Exh. E at 10. Initially, United Shipping served as an irregular route motor carrier of general commodities. After the purchase of assets from Minnesota Wiseway, however, United Shipping focused its business on transporting furniture from the southeast into Minnesota, capitalizing on Minnesota Wiseway's business of transporting furniture on a "back-haul" basis from the Southeast to Minnesota. Jeff Wines discussed United Shipping's business strategy:
[T]he competition in the furniture market is somewhat limited and that was one of the aspects that we felt was definitely in our favor. [United Shipping] felt we could create a real niche in this market. There are at this point in time two other caters that are servicing on a limited basis the Minnesota, North Dakota and South Dakota distribution of furniture. And these carriers are based in the southeast with terminal operations in the southeast and they do not have facilities to handle effectively the distribution in the three-state area. Our terminals being located here give us the ability to basically do a much more efficient job of distribution on this end.
1988 Dep., Pl. Exh. D at 35.
United Shipping's September 13, 1989 disclosure statement to the bankruptcy court confirmed its business plan. United Shipping represented that it was engaged in the business of "transporting consolidated shipments of furniture from various origin markets, in the Southeast United States to Roseville, Minnesota for distribution point within Minnesota, North Dakota and South Dakota. . . . Debtor is positioned as the only specialized distribution furniture carrier within this market area." (Disc. Stmt., P1. Exh. C at 4-5). The additional business generated by the purchase, United Shipping claimed, would allow the company to remain profitable on a long term basis by enabling "creditors to receive a much stronger percentage of distribution through operations than would be available if the Company ceased operating." (Discl. Stmt., P1. Exh. C, at 5).
Pursuant to the bankruptcy plan, the old stock of United Shipping was to be canceled and redistributed with new common stock as follows: Randee Wines 26%, Jeff Wines, 24.67%, Brett Wines, 24.67%, Robert Schmidt ("Schmidt"), 12.3%, and Meyer Bolnik, 12.33%. In 1990, United Shipping stock was owned by: Jeff Wines 34.67%, Brett Wines 24.67%, Robert Schmidt 14.67%, Randee Wines 26.0%. In 1992, stock ownership shifted as follows: Jeff Wines 50.76%, Brett Wines 24.67%, Robert Schmidt 12.33%, and Randee Wines 12.24%. The Plan also provided that Jeff Wines, Robert Schmidt, and Meyer Bolnik would comprise the board of directors for United Shipping.
In September 1988, roughly seven months after United Shipping declared bankruptcy, Wiseway Motor Freight, Inc. ("Wisconsin Wiseway") was incorporated under the laws of Wisconsin. From Wisconsin Wiseway's inception until September 1989, Brett Wines served as president and sole shareholder of the company. Since September 1989, however, Jeff Wines, in addition to serving as president of United Shipping, has been president of Wisconsin Wiseway. Jeff Wines, Brett Wines, and Schmidt each acquired a third of Wisconsin Wiseway's stock in September 1989. The three also comprise Wisconsin Wiseway's board of directors.
Wisconsin Wiseway established itself as the only specialized furniture carrier with a distribution terminal in Minnesota. Initially, Wisconsin Wiseway focused its business on consolidating small shipments of furniture from the Southeast to the upper Midwest. In 1990, when United Shipping lost its operating authority, Wisconsin Wiseway "called on [United Shipping's former] customers and tried to obtain that freight that was lost." (Schmidt Dep., Pl. Exh. E at 78). Schmidt conceded that, as far as he was aware, Brett Wines, who incorporated Wisconsin Wiseway, "never made a distinction between United Shipping d/b/a/ Wiseway Motor Freight and [Wisconsin] Wiseway to furniture dealers and furniture manufacturers." (Pl. Exh. 13 at 71).
Currently, Wisconsin Wiseway maintains approximately 200 employees. About five to ten of these employees previously worked for United Shipping of Wisconsin Wiseway's 10,000 current customers, approximately 100 were former customers of United Shipping. Wisconsin Wiseway and United Shipping shared the same terminal at 1708 Arthur Street, Minneapolis, Minnesota, from November 1991 through July 1996.
Whereas Wisconsin Wiseway was expanding, United Shipping scaled down its business operations. Because United Shipping did not have sufficient equipment, it outsourced the linehaul function of its furniture transport to other motor carriers, primarily Wisconsin Wiseway. In approximately 1990, United Shipping lost its operating authority due to its inability to maintain insurance. Thereafter, the company limited its business to providing distribution services for Wisconsin Wiseway. United Shipping gave up its operating name, which was now used by Wisconsin Wiseway, and changed it to Wiseway Distribution Services, Inc. Ultimately, United Shipping ceased operating in 1996.
III. Analysis
As a threshold matter, the court notes that diversity jurisdiction supplies this court with subject matter jurisdiction over this case. Wisconsin Wiseway is a Wisconsin corporation, and as such, a Wisconsin citizen. See 28 U.S.C. § 1332 (c)(1) (corporation deemed citizen of state in which it has been incorporated). The Fund is a diverse citizen because none of its trustees reside in Wisconsin. See Guaranty Nat'l Title Co., Inc. v. J.E.G. Assoc., 101 F.3d 57, 59 (7th Cir. 1996) (citizenship of trust is where its trustees reside). Finally, the amount in controversy exceeds $75,000, thereby satisfying the requisites for diversity jurisdiction. See 28 U.S.C. § 1332 (a)(1).
In its complaint, the Fund asserted jurisdiction on two bases: diversity and federal question. A line of successor liability cases in the employment context suggests that this court also may have federal question jurisdiction over this matter. The courts have developed a body of federal common law in this area, thereby supplying this court with original jurisdiction. See 32A American Jurisprudence, 2d § 1046 (stating that federal question jurisdiction encompasses claims founded on federal common law); Chicago Truck Drivers, Helpers, and Warehouse Workers Union (Independent) Pension Fund v. Tameskin, Inc., 59 F.3d 48, 49 (7th Cir. 1995) (discussing the development of federal common law of successor liability in employment cases); EEOC v. G-K-G Incorp., 39 F.3d 740, 748 (7th Cir. 1994) (same); J.A. Interior, 1998 WL 708851, at *4 (same). See also Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, 861 F. Supp. 1402, 1405 (N.D. Ill. 1994), 4f4, 85 F.3d 1282 (7th Cir. 1996) (concluding that the Seventh Circuit has "tacitly approved jurisdiction in successor liability cases under section 502 of ERISA") (citing Upholsterer's Union Pension Fund v. Artistic Furniture, 920 F.2d 1323, 1328 (7th Cir. 1990)).
With respect to venue, the court finds that the defendant waived any objections thereto. Venue is a "privilege personal to each defendant." James Win. Moore, et al., 1 Moore's Manual: Federal Practice and Procedure § 7.14[l] (1998). Consequently, venue may be waived unless a timely and sufficient objection is interposed. See 28 U.S.C. § 1406 (b);
The defendant cited improper venue as an affirmative defense in its answer to plaintiff's complaint, thereby satisfying the requirements of Fed.R.Civ.P. 12(h)(1). See Answ. 3 pg. 11; Fed.R.Civ.P. 12(h)(1) (deeming certain objections waived if not asserted in responsive pleading). Despite this initial objection, the defendant proceeded with discovery and even moved for summary judgment against the plaintiff. Only when the court requested further briefing on jurisdiction and venue did the defendant reassert any venue objections. At this late juncture, the defendant's revived objection carries no force. Instead, the defendant's challenge on the merits of the case operates as a waiver of its objections. See Moore, supra, at § 7.14[l]. See also Continental Bank. N.A. v. Meyer, 10 F.3d 1293, 1297 (7th Cir. 1993) (finding that defendants waived objection to personal jurisdiction where they participated in litigation on the merits despite raising defense in answer pursuant to rule 12(h)(1)); Trustees of Central Laborers' Welfare Fund v. Lowery, 924 F.2d 731, 732 (7th Cir. 1991) (stating that rule 12(h)(1) defenses may be "waived by formal submission in a cause, or by submission through conduct"); Burton v. Northern Duchess Hosp., 106 F.R.D. 477, 481 (S.D.N.Y. 1985) (concluding that an assertion of a 12(h)(l) defect in an answer does "not preserve the defense in perpetuity").
For these reasons, the court finds that Wisconsin Wiseway also has waived any objections to personal jurisdiction. See Contimental Bank., N.A. v. Meyer, 10 F.3d 1293, 1297 (7th Cir. 1993).
The court now turns to the substance of the case. The Fund is due a substantial sum of money. The question is from whom and in what amount. When United Shipping withdrew from the Fund, the company incurred over seven million dollars in withdrawal liability. Subsequently, United Shipping's withdrawal liability was modified pursuant to its Chapter 11 bankruptcy confirmation plan. The Fund's suit is against Wisconsin Wiseway, however, not United Shipping. The Fund therefore seeks to impute United Shipping's liability unto Wisconsin Wiseway by arguing that the latter is a successor to the former.
The parties bring cross-motions for summary judgment. The defendant analyzes the Fund's claim under the federal common law of successorship. In contrast, the Fund urges summary judgment under a state breach of contract theory, although both federal and state theories were advanced in its complaint. Both federal and state courts have developed a body of common law on successor liability. Although the federal question posed by the ERISA claim calls for an application of federal law, See Upholsterers' Union Pension Fund v. Artistic Furniture, 920 F.2d 1323, 1328 (7th Cir. 1990) (recognizing federal statutory authority for the imposition of successor liability for unpaid multiemployer pension fund contributions), the breach of contract issue will be analyzed under Illinois law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). The federal and state theories will be discussed in turn.
The parties do not contest the applicability of Illinois law.
A. Federal Successorship Law
The issue presented is whether the doctrine of successor liability requires Wisconsin Wiseway to pay the delinquent employee contributions owed by United Shipping. As a general rule, assets become free and clear of liabilities upon sale or transfer. See Chicago Truck Drivers, Helpers, and Warehouse Workers Union (Independent) Pension Fund v. Tameskin, Inc., 59 F.3d 48, 49 (7th Cir. 1995). The successor liability doctrine provides an exception to this rule. In an effort to vindicate federal interests, federal intersticial law permits the liberal application of successor liability in the employment-related context. See id. Accordingly, determination of successorship involves consideration of "the well-articulated federal interest in ensuring that employers maintain properly funded pension plans and the social interests on facilitating the market in corporate and other assets." Artistic Furniture, 920 F.2d at 1325. See also J.A. Interiors, 1998 WL 708851, at *4 (observing that an overriding federal policy against unfair and arbitrary employment practices compels the imposition of successor liability) (citing Musikiwamba v. ESSI. Inc., 760 F.23d 740, 746 (7th Cir. 1985)).
Successor liability may be imposed where (1) the successor employer had prior notice of the claim against the predecessor; and (2) there has been substantial continuity in the business operations of the predecessor and the successor. See Tameskin, 59 F.3d at 49. Both elements are satisfied in the present case. First of all, the identity of shareholders and directors of United Shipping and Wisconsin Wiseway suggests that the latter was put on notice of the Fund's claim to withdrawal liability. Jeff Wines and Robert Schmidt, respectively, served as president and controller of United Shipping. During the bankruptcy reorganization, United Shipping stock was issued to Schmidt and Jeff, Brett, and Randy Wines. These same individuals held key roles in Wisconsin Wiseway. After United Shipping declared bankruptcy, Brett Wines incorporated Wisconsin Wiseway. Schmidt is currently a director of Wisconsin Wiseway, and Jeff Wines serves as president. Schmidt and Brett and Jeff Wines also own equal shares of Wisconsin Wiseway's stock. Thus, notice may be imputed from the identity of owners and directors of United Shipping and Wisconsin Wiseway's stock. Tameskin, 59 F.3d at 49 (inferring notice from individual's prominent and active role in predecessor and successor companies); Chicago District Council of Carpenters Pension Fund v. A.F. McCarthy. Inc., No. 94 C 6881, 1996 WL 563459, at *7 (N.D. Ill. Sep. 30, 1996) (listing cases where notice imputed from identity of owners).
Moreover, there has been substantial continuity of business operations between United Shipping and Wisconsin Wiseway. Substantial continuity is established where the "new company has acquired substantial assets of its predecessors and continued, without interruption or substantial change, the predecessor's business operations." Fall River Dyeing Finishing Corp. v. NLRB, 482 U.S. 27, 43, 107 S.Ct. 2225, 2236, 96 L.Ed.2d 22 (1987). In June 1988, while in bankruptcy, United Shipping purchased a customer list and the right to use the name "Wiseway Motor Freight" for $35,000. In September 1988, three months after United Shipping acquired the Wiseway name, Brett Wines incorporated Wiseway Motor Freight, Inc., in Wisconsin. Thus, United Shipping's most valuable asset, its operating name, was freely transferred to Wisconsin Wiseway. See Tameskin, 59 F.3d at 49 (stating that the "assumption of [alleged predecessor's] corporate identity makes a strong case for substantial continuity").
In fact, United Shipping eventually changed its name to Wiseway Distribution Services, Inc., allowing Wisconsin Wiseway exclusive use of the name Wiseway Motor Freight.
Wisconsin Wiseway not only adopted United Shipping's new operating name, it also engaged in substantially similar business operations. Both companies served as specialized furniture carriers with a distribution terminal in Minnesota. United Shipping had taken great care to protect its position as a furniture carrier, even to the extent of demanding that Minnesota Wiseway, which sold United Shipping the Wiseway name, enter into a covenant not to compete in the furniture hauling business. However, Wisconsin Wiseway was allowed to enter into this same market while United Shipping watched its own demise, despite having assured the bankruptcy court that the purchase of the Wiseway name would allow the company to remain profitable for the long term.
The two companies also utilized the same resources, whether it be facilities or employee and customer pools. From 1988 to 1996, at which time United Shipping ceased operations, both companies leased the same terminals in Minnesota. When United Shipping declared bankruptcy, it had about 5-10 employees. Although Wisconsin Wiseway currently maintains a much larger operation, it hired the former United Shipping employees in addition to outside employees. In the same way, Wisconsin Wiseway's customer base has expanded significantly but includes approximately 100 of the same customers who relied on United Shipping. The identity of ownership between United Shipping and Wisconsin Wiseway, as discussed above, also underscores the continuity of business. See Central States, Southeast and Southwest areas Pension Fund v. Hayes, 789 F. Supp. 1430, 1436 (N.D. Ill. 1992) (examining totality of the circumstances to determine successorship).
The defendant argues that it never purchased any assets from United Shipping. Yet the parties do not dispute that Wisconsin Wiseway freely utilized the Wiseway name and customer list purchased by United Shipping. Even if there was no consideration exchanged between United Shipping and Wisconsin Wiseway, there was a transfer of substantial assets. This transfer falls within the scope of successorship principles, which "encompass not only outright sales of a business but any reorganization that results in a substantial continuation of the business by the successor and either obliterates the previous business or leaves it as an "empty shell." See Chicago Dist. Council of Carpenters Pension Fund v. J.F. McCarthy Inc., No. 94 C 6881, 1996 WL 563459, at * 6 (N.D. Ill. Sep. 30, 1996).
Although United Shipping continued to operate for a handful of years after the creation of Wisconsin Wiseway, and even managed to make payments to the Funds, its business, as discussed previously, was slowly but surely surrendered to Wisconsin Wiseway.
Wisconsin Wiseway also attempts to distinguish the type of work performed by the predecessor and successor companies. Wisconsin Wiseway contracts with furniture manufacturers, the defendant points out, while United Shipping contracted with furniture dealers. The record indicates that United Shipping yielded much of its business to Wisconsin Wiseway. United Shipping outsourced the line-haul function of its furniture transport to Wisconsin Wiseway. After United Shipping lost its operating authority, it limited its business to servicing Wisconsin Wiseway's distributions. If United Shipping's business focus diverged from those of Wisconsin Wiseway, it was only because United Shipping's business (including business potential) was ceded to Wisconsin Wiseway.
Clearly, the overlap between the two companies demonstrates that Wisconsin Wiseway was the successor to United Shipping. Therefore, Wisconsin Wiseway's motion for summary judgment on the theory of successorship under federal law is denied. For reasons that aren't entirely clear to the court, the Fund has abandoned its federal law theory, at least in its summary judgment motion. Lest the Fund revives the federal theory in hopes of recovering the full amount of withdrawal liability, however, the court will proceed to a discussion of the amount of liability that would be imposed on Wisconsin Wiseway under federal successorship laws.
In the usual case, the successor is held liable for the predecessor's obligation to the plaintiff. The present case presents an added twist. The Funds have a seven million dollar claim against United Shipping for withdrawal liability. That amount was discharged during the chapter 11 bankruptcy proceeding. Under the confirmed reorganization plan, United Shipping's payment obligation was reduced. United Shipping paid off part of that debt before defaulting, leaving roughly $175,000 in default.
In view of the intervening bankruptcy proceeding, then, what obligation did Wisconsin Wiseway incur? When presented with the question of whether a declaration of bankruptcy precludes a successor liability claim, the Seventh Circuit in Tameskin, held that it did not. See F.3d at 50-51. That court rejected the argument that successor liability would frustrate the scheme of the Bankruptcy Code by giving unsecured creditors priority. See 59 F.3d at 51. Because the bankruptcy case was closed, the court reasoned, the successorship claim could no longer effect the bankruptcy proceeding. See id. The court also dismissed the argument that it would be unfair to allow the plaintiff a second chance of obtaining more a lucrative recovery from the successor through a separate suit. "[A] second chance is precisely the point of successor liability," the court noted. Id.
But, the court added, a plaintiffs ability to obtain relief against the predecessor in a bankruptcy proceeding is a relevant consideration, even if it does not absolutely preclude the plaintiffs recovery on a theory of successor liability. See 59 F.3d at 51. In addition to the availability of prior relief to the plaintiff, the court must also consider the extent to which the predecessor was able to provide the relief sought. See Artistic, 920 F.2d at 1327 (cautioning against permitting a predecessor to externalize liability onto another party); Musikiwamba, 760 F.2d at 750-51 (discouraging the imposition of "liability on a successor when a predecessor could have provided no relief whatsoever [because it] is likely to severely inhibit the reorganization or transfer of assets").
The above principles, along with the nature of a chapter 11 bankruptcy, suggest that liability should be limited to that articulated in the Plan. United Shipping's declaration of bankruptcy does not foreclose the imposition of successor liability upon Wisconsin Wiseway. If the court were called to determine the amount of liability imputed to Wisconsin Wiseway, however, under the facts of this case, the court would limit Plaintiffs recovery to the amount set forth in the plan because it would be inequitable to permit the plaintiff to recover the full amount of withdrawal liability. See generally Tameskin, 59 F.3d at 49 (observing that successor liability is an equitable doctrine).
Tameskin suggests that a creditor who fails to recover withdrawal liability in chapter 7 proceedings could recover the debt through a successorship claim. See 59 F.3d at 5051; J.A. Interior, 1998 WL 708851, at *6 (relying on Tameskin in awarding plaintiff amount of original withdrawal liability where defendant's predecessor subject to Chapter 7 bankruptcy). Unlike the intervening chapter 7 bankruptcy presented in Tameskin, the instant bankruptcy was declared under chapter 11. The court is mindful that upon confirmation of United Shipping's Plan, the bankruptcy court modified the company's preconfirmation debt. See 11 U.S.C. § 1141. No comparable modification of rights exists in chapter seven cases. Compare 11 U.S.C. § 1141(d); 11 U.S.C. § 542(a) with 11 U.S.C. § 727(a)(1). Chapter 7 cases might compel the imposition of the original withdrawal liability upon a successor because no debt has been discharged. See J.A. Interior, 1998 WL 708851, at *6. In contrast, confirmation of a chapter 11 plan binds the debtor only to the payment obligation set forth in the plan. United Shipping's confirmed plan has not been modified, and it is now too late to do so. Wisconsin Wiseway should be held liable only to the extent imputed onto its predecessor.
The circumstances surrounding the underlying bankruptcy proceeding also support the imposition of limited liability. The Funds had an opportunity during United Shipping's bankruptcy proceedings to demand payment for the withdrawal liability owed by the company. And the Funds were granted relief, albeit less than the original amount of debt. The instant successorship claim, by giving plaintiff a second chance to recover the defaulted amount from the bankruptcy plan, nevertheless allows the plaintiff a second bite at the apple, which the Seventh Circuit noted was the purpose of the doctrine. At the time of United Shipping's declaration of bankruptcy, it was unable to provide the full amount of relief. The bankruptcy court accordingly worked out a long-term repayment schedule. Limiting Wisconsin Wiseway's liability to the amount set forth in the chapter 11 plan preserves the integrity of the resulting plan.
As a general policy matter, limiting a successor's liability to the amount set forth in a chapter 11 plan does not create an incentive for plaintiffs to forego their chapter 11 remedies in favor of advancing separate successorship claims. At the same time, a successorship claim is not precluded.
B. State Law Breach of Contract Claim
Rather than advancing a federal claim of successorship, the Fund proceeds under a state breach of contract theory. The Fund's theory is as follows. United Shipping was bound by the payment obligation set forth in the chapter 11 plan. See generally In re Water Gap Village, 99 B.R. 226, 229 (Bankr. D. N.D. 1989) ("The [bankruptcy] plan is essentially a new and binding contract sanctioned by the court between a debtor and his pre-confirmation debtors.") The company's default entitles the Fund to bring a state law breach of contract action to enforce its rights under the confirmed plan. See generally Paul v. Monts, 906 F.2d 1468, 1475 (10th Cir. 1990). Thus, the Fund construes its case as a state successorship claim for a breach of contract.
The parties do not dispute that Illinois law applies to this contract dispute. Under Illinois law, when a corporation transfers its assets to another corporation, the acquiring corporation is generally not liable for the transferor's debts and liabilities. See Vernon v. Schuster, 179 Ill.2d 338, 344-45, 688 N.E.2d 1172, 1175 (Ill. 1997). This traditional rule of successor nonliability seeks to protect bona fide purchasers from unassumed liability. 179 Ill.2d at 345, 688 N.E.2d at 1175. To protect the rights of corporate creditors, however, the law has carved out four exceptions to the general rule. Successors will be held liable for the obligations incurred by their predecessors where: (1) there is an express or implied agreement of assumption; (2) the transaction amounts to a consolidation or merger of the purchaser or seller corporation; (3) the purchaser is merely a continuation of the seller; or (4) the transaction is for the fraudulent purpose of escaping liability for the seller's obligation. See id.
The Fund argues that Wisconsin Wiseway is a mere continuation of United Shipping, and thereby liable for the latter's unpaid debt. The mere continuation exception to the rule of successor corporate nonliability applies when the purchasing corporation is "merely a continuation or reincarnation of the selling corporation." 179 Ill.2d at 346, 688 N.E.2d at 1176 (citing Grand Lab., Inc. v. Midcon Labs of Iowa, Inc., 32 F.3d 1277, 1282 (8th Cir. 1994)). The underlying theory is that, if a corporation goes through a mere change in form without a significant change in substance, it should not be allowed to escape liability. See id. (quoting Baltimore Luggage Co. v. Holtzman, 80 Md. App. 282, 297, 562 A.2d 1286, 1293 (Md. 1989)).
The Fund also maintains that Wisconsin Wiseway was incorporated for the fraudulent purpose of escaping United Shipping's obligations. The court's finding that Wisconsin Wiseway was a mere continuation of United Shipping renders unnecessary this alterative inquiry.
The mere continuation inquiry under Illinois law is akin to the federal successorship test, but more stringent. Whereas the federal common law test requires notice and substantial continuation of business operations, Illinois law demands a continuation of the corporate entity in addition to a continuation in business operations. Successor liability under state law, then, necessitates a common identity of officers, directors, and shareholders between the predecessor and successor corporations. See 179 Ill.2d at 347, 688 N.E.2d at 1176.
Because the elements of continuation were previously discussed in depth, the following analysis will be brief. Identity of ownership between United Shipping and Wisconsin Wiseway is easily established. As discussed above, Schmidt and Jeff and Brett Wines collectively owned a controlling interest in and served on the board of directors of the two corporations. In addition, the record demonstrates that the two companies engaged in substantially similar businesses and even used the same name. Therefore, Wisconsin Wiseway must be deemed a successor to United Shipping under Illinois law. See Kennedy v. Four Boys Labor Serv. Inc., 279 Ill. App.3d 361, 368, 664 N.E.2d 1088, 1092 (Ill.App.Ct. 1996) (continuity established where there was continuity of shareholders and directors, and successor operated the same business and used the same name as predecessor). As such, Wisconsin Wiseway is liable for the remaining payment obligation under the bankruptcy plan. The plaintiff's motion for summary judgment is granted.
IV. Conclusion
For the foregoing reasons, plaintiff's motion for summary judgment is granted, The defendant's motion for summary judgment is denied. Judgment shall be entered in the plaintiffs favor for $175,614.88.