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


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  •                                                 Filed:    May 27, 2010
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    No. 09-1776
    (3:08-cv-00340-HEH)
    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;    EMPIRE    BEEF     COMPANY,
    INCORPORATED,
    Defendants – Appellees.
    O R D E R
    The court amends its opinion filed April 30, 2010, as
    follows:
    On the cover sheet caption, the party designation of
    “EMPIRE    BEEF     COMPANY,   INCORPORATED,”   is     corrected    from
    “Defendant” to “Defendant – Appellee.”
    On page 2, attorney information section, lines 3 and
    5, “for Appellee” is corrected to read “for Appellees.”
    For the Court – By Direction
    /s/ Patricia S. Connor
    Clerk
    2
    UNPUBLISHED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;     EMPIRE   BEEF     COMPANY,
    INCORPORATED,
    Defendants – Appellees.
    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    Affirmed in part, vacated in part, and remanded by unpublished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 Appellees.
    ON BRIEF: Richard F. Hawkins, III, HAWKINS LAW FIRM, PC,
    Richmond, Virginia, for Appellees.
    Unpublished opinions are not binding precedent in this circuit.
    2
    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
    4
    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.
    6
    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
    7
    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%
    8
    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.
    9
    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.
    10
    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.
    11
    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.
    12
    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
    13