Teamsters Joint Council No. 83 of the Virginia Pension Fund v. Weidner Realty Associates , 377 F. App'x 339 ( 2010 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-1776
TEAMSTERS JOINT COUNCIL NO. 83 OF THE VIRGINIA PENSION
FUND; W. ROBERT DAVIDSON, Trustee of the Fund; ANTHONY
NATIONS, Trustee of the Fund; LINDSAY MARSHALL, Trustee of
the Fund; JOSEPH AYERS, Trustee of the Fund; MICHAEL
HUGHES, Trustee of the Fund; JOHN FARRISH, Trustee of the
Fund,
Plaintiffs – Appellants,
and
RONALD JENKINS,
Plaintiff,
v.
WEIDNER REALTY ASSOCIATES,
Defendant – Appellee,
and
EMPIRE BEEF COMPANY, INCORPORATED,
Defendant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. Henry E. Hudson, District
Judge. (3:08-cv-00340-HEH)
Argued: March 24, 2010 Decided: April 30, 2010
Before TRAXLER, Chief Judge, DUNCAN, Circuit Judge, and Jackson
L. KISER, Senior United States District Judge for the Western
District of Virginia, sitting by designation.
Affirmed in part, vacated in part, and remanded by unpublished
per curiam opinion.
ARGUED: Jonathan G. Axelrod, BEINS & AXELROD, PC, Washington,
D.C., for Appellants. Glenn Edward Pezzulo, CULLEY MARKS
TANENBAUM & PEZZULO, LLP, Rochester, New York, for Appellee. ON
BRIEF: Richard F. Hawkins, III, HAWKINS LAW FIRM, PC, Richmond,
Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
The Teamsters Joint Council No. 83 of Virginia Pension Fund
(“the Fund”) and its trustees (collectively, “Appellants”)
appeal a district court order granting judgment in favor of
Weidner Realty Associates (“Weidner”) in Appellants’ action
seeking to hold Weidner and Empire Beef Co., Inc. (“Empire”)
jointly and severally responsible for a liability that Empire
incurred by failing to meet its pension-fund obligations.
Appellants also appeal a ruling by the district court that
circuit precedent precluded the court from addressing whether
Appellants could avoid a transfer of Empire’s assets in
collecting on their judgment against Empire. We affirm in part,
vacate in part, and remand for further proceedings.
I.
Weidner is a general partnership that was formed in the
1930s to purchase a parcel of land in Rochester, New York. Soon
after the purchase, the parcel became home to a slaughterhouse,
which Empire, a New York corporation, was formed to operate. In
1993, Weidner’s then-current partners, who were Empire; Empire’s
sole shareholder, Steven Levine (“Steven”); and Steven’s father,
Sidney Levine (“Sidney”), formalized their arrangement by
entering into an agreement (“the Partnership Agreement”).
3
In approximately 2002, Empire expanded its distribution
territory south and established a terminal in Richmond,
Virginia. Soon thereafter, Empire hired union drivers to
distribute its product from the new terminal. In so doing, it
became a party to a collective bargaining agreement that
obligated Empire to make contributions to the Fund. Empire
ceased its operations in Richmond in late-2005, however,
incurring nearly $500,000 in liability to the Fund. Empire
began to satisfy this liability in monthly installments that it
paid until September 2007, when it filed a voluntary Chapter 11
bankruptcy. Then, on January 5, 2008, as the bankruptcy
remained pending, Steven entered into an agreement (“the
Composition Agreement”) with Sidney transferring all of Empire’s
assets, except its receivables, to Sidney, in exchange for a
release of a secured debt of approximately $1.4 million that
Empire owed Sidney. The bankruptcy court subsequently dismissed
Empire’s bankruptcy proceeding five days later without
discharging Empire’s debts.
The next month, the Fund notified Weidner that it was
jointly and severally liable with Empire for the assessed
withdrawal liability because Weidner was a member of Empire’s
“control group” under the rules and regulations of the
Employment Retirement Income Security Act of 1974 (“ERISA”), see
29 U.S.C.A. § 1001 et seq. (West 2008 & Supp. 2009). Appellants
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later filed this ERISA action against Empire and Weidner seeking
to recover Empire’s unpaid withdrawal liability. Appellants
were granted summary judgment against Empire, which had not
contested its liability. Weidner, on the other hand, denied
that it was jointly and severally liable, maintaining that it
was not a “trade[] or business[]” and that it and Empire were
not “under common control.” 29 U.S.C.A. § 1301(b)(1).
Prior to trial, Appellants filed a motion in limine
announcing that they would argue that they were entitled under
29 U.S.C.A. § 1392(c) to collect a judgment against Empire and
to disregard the Composition Agreement (which they had come to
learn about during discovery). Appellants reiterated as the
bench trial began that they would be making this argument.
Indeed, during the trial, both parties examined Steven regarding
his motivation for entering into the Composition Agreement, a
pivotal issue in Appellants’ attempt to reach the assets
transferred to Sidney under that agreement. And, in their post-
trial brief, Appellants argued once more that the Composition
Agreement should be set aside.
In the end, the district court ruled that Weidner was not
jointly and severally liable for Empire’s withdrawal obligations
because Appellants failed to prove that Empire and Weidner were
under common control. See Teamsters Joint Council No. 83 of Va.
Pension Fund v. Empire Beef Co., No. 3:08CV340-HEH, 2009 WL
5
1764554 (E.D. Va. June 18, 2009). The district court declined
to address the validity of the Composition Agreement, however,
concluding that circuit precedent precluded the court from
considering an agreement that was entered into after Empire
withdrew from the Fund. See id. at *2 n.3.
II.
Appellants first argue that the district court erred in
concluding that Empire and Weidner were not under common
control. We disagree.
Congress found in 1980 that the “withdrawals of
contributing employers from a multiemployer pension plan
frequently result in substantially increased funding obligations
for employers who continue to contribute to the plan, adversely
affecting the plan, its participants and beneficiaries, and
labor-management relations.” 29 U.S.C.A. § 1001a(a)(4)(A). To
address this problem, Congress enacted the Multiemployer Pension
Plan Amendments Act of 1980 (“MPPAA”), see 29 U.S.C.A. § 1381,
et seq., which amended ERISA. See SUPERVALU, Inc. v. Board of
Trs. of the Sw. Pa. and W. Md. Area Teamsters and Employers
Pension Fund, 500 F.3d 334, 336-37 (3d Cir. 2007). MPPAA
provides that when an employer withdraws from an ongoing multi-
employer pension plan, the employer becomes liable for a
proportionate share of the plan’s unfunded vested liability.
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See 29 U.S.C.A. § 1381. Under ERISA, the term “employer”
includes “trades or businesses . . . which are under common
control” at the time of the withdrawal, which in this case was
September 30, 2005. 29 U.S.C.A. § 1301(b)(1); see Teamsters
Joint Council No. 83 v. Centra, Inc., 947 F.2d 115, 121 (4th
Cir. 1991). Thus, to establish Weidner’s liability, Appellants
had to show that on that date the same five or fewer persons
owned a “controlling interest” in both Weidner and Empire and
that those people were in “effective control” of each
organization. 26 C.F.R. § 1.414(c)-2(c) (2009). As Empire’s
sole shareholder, Steven clearly had a controlling interest and
effective control of Empire. Consequently, the sole issue
before the district court related to common control concerned
whether Steven also owned a controlling interest and had
effective control of Widener.
The applicable regulation defines “controlling interest” in
a partnership as “ownership of at least 80 percent of the
profits interest or capital interest of such partnership.” 26
C.F.R. § 1.414(c)-2(b)(2)(i)(C) (2009). “Effective control” of
a partnership is defined as ownership of “an aggregate of more
than 50 percent of the profits interest or capital interest of
such partnership.” 26 C.F.R. § 1.414(c)-2(c)(2)(iii). “Capital
interest in a partnership,” in turn, is defined, as is relevant
here, as “an interest in [the partnership’s] assets that is
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distributable to the owner of the interest” upon the
partnership’s liquidation. Internal Revenue Service Publication
No. 541, Partnerships (2008).
In finding that Steven had only 50% of the capital interest
in Weidner, the district court relied on Articles XII and IV of
the Partnership Agreement. Article XII, entitled “Termination
and Liquidation,” provides that at the termination of the
Partnership,
the assets of the Partnership shall be sold and the
proceeds of the sale shall be applied or distributed
in the following order of priority:
(a) To pay or provide for the payment of all
liabilities of the Partnership;
(b) To pay all expenses of liquidation;
(c) To return to the Partners any credit balance
in their capital accounts; and
(d) To the Partners in proportion to their
percentage interest in the Partnership.
J.A. 169-70 (emphasis added). The court noted that the
partners’ percentage interests in the partnership were set forth
in Article IV of the agreement:
4.1 Percentage Interest in the Partnership. Each
of the partners shall have a percentage interest in
the Partnership as follows:
Sidney E. Levine 50%
Steven H. Levine 12½%
Empire Beef Co., Inc. 37½%
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J.A. 164. 1 The parties agree that Empire’s ownership interest is
imputed to Steven for purposes of ERISA by virtue of his
ownership of Empire. Therefore, the district court reasoned, as
of September 30, 2005, Sidney and Steven each owned a 50%
percentage interest in Weidner. Because Steven did not own
greater than 50% of Weidner’s capital interest, he did not
maintain effective control, and Weidner was not part of Empire’s
control group.
Appellants challenged this conclusion at trial, pointing to
Article V of the Agreement, which states, in relevant part:
5.1 Capital Accounts. A separate capital
account shall be maintained for each Partner. The
capital interest of each Partner shall consist of his
capital contribution, increased by such Partner’s
subsequent capital contributions and such Partner’s
share of net Partnership profits, and decreased by
distributions to such Partner by the Partnership and
his share of Partnership losses.
J.A. 164 (second emphasis added). Appellants maintained that
this section essentially redefined “capital interest,”
superseding the definition provided in IRS Publication 541. For
1
That section also provides that
[t]he percentage of interest of each of the Partners
in the Partnership, initially as set forth above, and
as the same may from time to time change by virtue of
transfers of Partnership interests or otherwise, shall
be referred to in this Partnership Agreement as the
“percentage interest in the Partnership.”
J.A. 164.
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this reason, Appellants argued that it is the partners’ capital
accounts rather than their percentage interests that should be
used to determine controlling interests and effective control.
The district court rejected this argument, and we do as well. 2
As the district court noted, Section 5.1 is titled “Capital
Accounts,” and nothing in the agreement gives any indication
that the words “capital interest” were intended to refer to
anything other than the amount of a capital account. Indeed, as
we have noted, the amounts due each partner upon liquidation are
handled in a completely separate section of the agreement. We
therefore conclude that the district court correctly looked to
Article XII rather than Article V of the agreement to determine
Steven’s capital interest percentage in Weidner.
2
In rejecting Appellants’ interpretation, the district
court described the agreement’s use of the words “capital
interest” as a “scrivener’s error.” J.A. 426. Appellants take
issue with that characterization, but whether that description
was correct is immaterial. The critical aspect of the district
court’s ruling was that the parties did not intend “capital
interest” in Article V to supersede the definition in IRS
Publication 541, and the district court was on firm ground in
drawing this conclusion.
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III.
Appellants also maintain that the district court erred in
declining to address the validity of the Composition Agreement.
As to this issue, we agree. 3
MPPAA provides that “[i]f a principal purpose of any
transaction is to evade or avoid liability under this part, this
part shall be applied (and liability shall be determined and
collected) without regard to such transaction.” 29 U.S.C.A.
§ 1392(c). This subsection authorizes the recovery of
improperly transferred assets from the party to whom they have
been illegitimately transferred. See IUE AFL-CIO Pension Fund
v. Herrmann, 9 F.3d 1049, 1056 (2d Cir. 1993).
3
Initially, we note that Widener maintains that we should
not address this issue because Appellants did not raise it in
their pleadings. However, the parties certainly tried this
issue by consent. See Fed. R. Civ. P. 15(b)(2) (“When an issue
not raised by the pleadings is tried by the parties’ express or
implied consent, it must be treated in all respects as if raised
in the pleadings.”). Appellants raised the issue in a motion in
limine and also reiterated at the start of the trial that it
would seek to litigate the avoidability of the Composition
Agreement. Both parties examined Steven regarding the purpose
behind the Composition Agreement. And, Appellants continued to
request the voiding of the agreement in their post-trial brief.
Weidner also maintains that Appellants’ challenge to the
Composition Agreement is moot because the property transferred
to Sidney pursuant to the Composite Agreement is encumbered with
substantial debt and will likely be foreclosed upon by a secured
creditor. Weidner’s predictions concerning the possible future
fate of this property are not sufficient to moot this case,
however.
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Citing our discussion in Centra, the district court
“decline[d] to address the validity of the Composition Agreement
because, under Fourth Circuit precedent, the Court’s decision
must be based on the facts as they existed when Empire withdrew
from the Pension Fund on September 30, 2005.” Empire Beef Co.,
2009 WL 1764554, at *2 n.3. This is an erroneous application of
Centra, which holds only that the existence of a control group—
which affects whether a company qualifies as an employer—must be
determined as of the time of the withdrawal. See Centra, 947
F.2d at 121. The correctness of Centra’s holding is apparent
because it stands to reason that to incur liability as an
employer withdrawing from a pension fund, the withdrawing
company must be an employer at the time of the withdrawal. In
contrast, nothing in § 1392(c) suggests that it applies only to
pre-withdrawal efforts to evade or avoid liability. In fact,
limiting § 1392(c) in that way would thwart MPPAA’s purpose of
protecting pension funds from the adverse effects of withdrawing
employers. See id. at 123 (explaining that ERISA and MPPAA are
remedial statutes that “should be liberally construed in favor
of protecting the participants in employee benefits plans”). We
therefore remand so that the district court may address the
merits of Appellants’ § 1392(c) claim.
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IV.
In sum, we affirm the district court’s ruling that Weidner
was not jointly and severally liable for Empire’s withdrawal
liability and we remand for consideration of Appellants’ claim
that they can collect their judgment against Empire without
regard to the Composition Agreement.
AFFIRMED IN PART,
VACATED IN PART,
AND REMANDED
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