Central States Areas v. Pioneer Ranch Limite ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-3757
HOWARD MCDOUGALL and CENTRAL
STATES, SOUTHEAST AND SOUTHWEST
AREAS PENSION FUND,
Plaintiffs-Appellees,
v.
PIONEER RANCH LIMITED PARTNERSHIP
and ROBERT S. WHITING,
Defendants-Appellants.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 C 5908—Suzanne B. Conlon, Judge.
____________
ARGUED MAY 25, 2007—DECIDED JULY 12, 2007
____________
Before BAUER, CUDAHY, and FLAUM, Circuit Judges.
FLAUM, Circuit Judge. Elaine and Robert Whiting
owned Pioneer Ranch Limited Partnership, a vacation
property on which they farmed and raised cattle. The
Whitings also owned a trucking company, which, after
several years of operation, became bankrupt and ceased
doing business. The Central States, Southeast and South-
west Areas Pension Fund (“the Fund”), a multi-employer
pension fund, assessed substantial withdrawal liability
on the trucking company, but could not collect any of
2 No. 06-3757
the amount owed. The Fund sued Pioneer Ranch and
Robert Whiting for the withdrawal liability. The district
court granted the Fund’s motion for summary judgment,
concluding that Pioneer Ranch was responsible for the
trucking company’s liability under the Multiemployer
Pension Plan Amendments Act of 1980 (“MPPAA”), 29
U.S.C. §§ 1381-1461 (1980). Pioneer Ranch appeals. For
the following reasons, we affirm.
I. BACKGROUND
A. Statutory Background
Congress passed the MPPAA as an amendment to the
Employee Retirement Income Security Act (“ERISA”), 29
U.S.C. §§ 1001-1371. Under ERISA, the Pension Benefit
Guaranty Corporation (“PBGC”), a government corpora-
tion, protects covered employees by insuring their bene-
fits against fund insolvency or premature termination.
Prior to 1980, ERISA’s contingent liability provisions
gave employers an incentive to withdraw from financially
weak multi-employer plans to avoid liability if the plan
terminated in the future. As a result, the PBGC reported
to Congress that the premiums paid to it were insufficient
to cover its expected future liabilities. Congress then
passed the MPPAA, seeking to discourage voluntary
withdrawals from multi-employer plans by imposing a
mandatory liability on all withdrawing employers. See
Cent. States, Se. and Sw. Areas Pension Fund v. Ditello,
974 F.2d 887, 888 (7th Cir. 1992). The Act holds such
employers liable for their proportionate share of “un-
funded vested benefits.” 29 U.S.C. § 1381.
Upon an employer’s withdrawal from a plan, the trustees
of the fund must promptly determine the amount of an
employer’s liability and create a payment schedule. Within
90 days of notification, the employer may request that
No. 06-3757 3
the trustees review their determination. 29 U.S.C.
§ 1399(b)(2)(A). If either party is dissatisfied with the
outcome of the review, the MPPAA mandates arbitration
proceedings. 29 U.S.C. § 1401(a)(1) (“Any dispute between
an employer and the plan sponsor . . . shall be resolved
through arbitration.”). After arbitration, or if no arbitra-
tion proceeding has been initiated, either party may
bring an action in federal district court “to enforce, vacate,
or modify the arbitrator’s award.” 28 U.S.C. § 1401(b)(2).
Section 1301(b)(1) 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 and businesses as
a single employer.” 29 U.S.C. § 1301(b)(1). Under this
section, each trade or business under common control is
jointly and severally liable for the withdrawal liability of
the others. See Ditello, 974 F.2d at 889.
B. Facts
In 1970, Robert and Elaine Whiting1 purchased property
located in Cheboygan County, Michigan to use as a
vacation home. The Whitings kept a number of cattle and
other livestock on the property and conducted some
farming and ranching activities. In 1973, the Whitings
hired David McCormick to care for the property and assist
with the farming and livestock. Over the next twenty
years, the Whitings used the property as a vacation home
and developed a small cattle herd by buying and selling
a few cattle each year.
In 1993, the Whitings established the Pioneer Ranch
Limited Partnership. Elaine and Robert were both general
1
Elaine Whiting died on January 5, 2005, and Robert Whiting
died on February 4, 2006.
4 No. 06-3757
and limited partners, and their four children, R. Scott
Whiting, Daniel Whiting, Jo Ann Skandalaris, and Jane
Whiting were limited partners. Pioneer Ranch’s partner-
ship agreement stated that the partnership’s purpose
was as follows:
a) acquiring and holding certain real property located
in the Township of Aloha, Cheboygan County,
Michigan, heretofore owned and managed as a
cattle farm by the General Partners.
(b) acquiring additional real and personal property to
be used in operating, managing, and expanding the
Property, and to engage in the business of farming,
ranching, and any agricultural pursuit or under-
taking; and
(c) doing any and all things and carrying on any and
all other activities necessary, convenient, or inci-
dental to accomplish any of the preceding pur-
poses and powers or to protect and benefit the
Partnership.
After the Whitings established the partnership, they
handled the livestock on the ranch the same way they
handled it before 1993.
From 1994 through 2003, Pioneer Ranch filed tax
returns that contained a schedule listing profits and
losses from farming. The schedule indicated that Pioneer
Ranch lost money every year after the Whitings estab-
lished the partnership. On its tax returns, the partner-
ship listed “cattle farm” as its principal business activity,
claimed farm expenses, and certified that it was entitled
to an agricultural production exemption.
The Whitings also owned a trucking company called
Whiting Distribution Services (“WDS”), which operated
in Detroit, Michigan. In 2003, WDS, which had been
experiencing financial difficulties, entered bankruptcy
No. 06-3757 5
and wound up its operations. WDS was subject to a series
of collective bargaining agreements requiring pension
contributions to the Fund. On December 6, 2003, WDS
withdrew from the Fund. On January 30, 2004, the Fund
demanded that the Whiting Controlled Group pay
$3,708,184.81 worth of withdrawal liability pursuant to
ERISA, 29 U.S.C. §§ 1382(2) and 1399(b). On August 23,
2005, the Fund issued another notice and demand to the
Whiting Controlled Group that was served on Pioneer
Ranch and Robert Whiting. On February 15, 2006, the
Whiting Controlled Group, through Pioneer Ranch,
received a notice that the withdrawal liability payments
were past due. When the Whiting Controlled Group failed
to pay the withdrawal liability, the Fund filed suit in
federal district court, arguing that it could collect the
withdrawal liability from Pioneer Ranch and Robert
Whiting because Pioneer Ranch was a “trade or business”
under § 1301(b)(1).
On June 15, 2006, the parties filed cross-motions for
summary judgment. On July 20, 2006, the district court
granted the plaintiffs’ motion for summary judgment
and denied the defendants’ motion, holding that Pioneer
Ranch was a trade or business under § 1301(b)(1).
II. DISCUSSION
A. Standard of Review
The initial question presented in this case is the stan-
dard by which we review the district court’s decision. We
ordinarily review a district court’s grant of summary
judgment in an ERISA case de novo. Santaella v. Metro.
Life Ins. Co., 123 F.3d 456, 460 (7th Cir. 1997). However,
in Central States, Southeast and Southwest Areas Pension
Fund v. Slotky, 956 F.2d 1369, 1373-74 (7th Cir. 1992),
this Court held that the clearly erroneous standard of
6 No. 06-3757
review applies when the only issue before the district
court is the characterization of undisputed subsidiary
facts and where a party does not have the right to a jury
trial. In Slotky, the Court stated that although the fact of
whether or not an enterprise is a trade or business is not
ordinarily resolved on summary judgment, “[delaying
judgment] does not make sense in a case in which the only
factual issue is one of characterization, . . . and the
opponent of summary judgment claims no right to a jury
trial.” Id. at 1374. In that scenario, “both the record and
the fact-finder are the same in the summary judgment
proceeding as they would be in a trial. There is no more
evidence to put in and no different trier to evaluate it.” Id.As we explain below, there is no dispute over the under-
lying facts in this case. Thus, to determine the appropr-
iate standard of review, we must analyze whether the
defendants are entitled to a jury trial.2
The Seventh Amendment provides that “[in] Suits at
common law, where the value in controversy shall exceed
twenty dollars, the right of trial by jury shall be pre-
served.” U.S. Const. amend. VII. The Supreme Court has
long understood “ ‘suits at common law’ to refer not merely
to suits that the common law recognized among its old
and settled proceedings, but to suits in which legal rights
were to be ascertained and determined, in contrast to
those where equitable rights and remedies were recog-
nized.” Feltner v. Columbia Pictures Television, Inc., 523
U.S. 340, 348 (1998) (quoting Parsons v. Bedford, 28 U.S.
2The appellants stated that they were entitled to a jury trial
while the appellees contended that they were not entitled to one,
but neither party explained why the appellants were or were
not entitled to a jury trial. Indeed, both parties presented
deficient arguments for their preferred standard of review.
Accordingly, it falls to us to reach the merits of the jury trial
issue in order to determine the appropriate standard of review.
No. 06-3757 7
433, 447 (1830)). The general rule in ERISA cases is that
there is no right to a jury trial because “ERISA’s anteced-
ents are equitable,” not legal. Matthews v. Sears Pen-
sion Plan, 144 F.3d 461, 468 (7th Cir. 1998). However,
§ 4301(a)(1) permits plan fiduciaries, employers, partici-
pants, or beneficiaries to bring civil suits under Title IV of
ERISA and seek appropriate legal or equitable relief with
respect to a multi-employer plan. 29 U.S.C. § 1451(a)(1).
Though § 4301(a)(1) provides for both legal and equitable
remedies in the case of multi-employer pension plan
disputes, the few courts that have considered the ques-
tion have determined that the Seventh Amendment does
not guarantee a jury in these types of cases. See Connors
v. Ryan’s Coal Co., 923 F.2d 1461 (11th Cir. 1991); Bd. of
Trs. of W. Conference of Teamsters Pension Trust Fund v.
Thompson Bldg. Materials, Inc., 749 F.2d 1396 (9th Cir.
1984).
In Thompson Building Materials, Inc., the Ninth Circuit
held that Congress did not violate the Seventh Amendment
by requiring employers and plan sponsors to resolve
disputes about withdrawal liability through arbitration.
749 F.2d at 1405. The court held that the MPPAA’s
statutory scheme was not known to the common law, and
that Congress may delegate fact-finding functions to non-
jury bodies in cases involving newly created statutory
rights. Id. Likewise, in Connors, the Eleventh Circuit held
that the defendant was not entitled to a jury in a with-
drawal liability collection action brought by multi-em-
ployer plan trustees. 923 F.2d at 1465. The court stated
that the MPPAA’s mandatary arbitration provisions did
not unconstitutionally deprive the liable employer of its
right to a jury trial. Id.We agree with the reasoning of our sister circuits. If
Pioneer Ranch had proceeded to arbitration to challenge
its status as an employer it would not have been entitled
8 No. 06-3757
to a jury. It is anomalous then to allow the defendants to
have a jury trial simply because they avoided the dispute
resolution scheme that Congress contemplated in the
statute. Because the defendants are not entitled to a jury
trial, the Court must review the district court’s grant of
summary judgment for clear error.
B. Trade or Business
To impose withdrawal liability on an organization other
than the one obligated to the Fund, two conditions must
be satisfied: 1) the organization must be under “common
control” with the obligated organization, and 2) the
organization must be a trade or business. Cent. States, Se.
and Sw. Areas Pension Fund v. Fulkerson, 238 F.3d 891,
895 (7th Cir. 2001). The defendants do not dispute that
the Whitings controlled both WDS and Pioneer Ranch. The
only question, therefore, is whether Pioneer Ranch consti-
tutes a trade or business.
Although the MPPAA does not define “trade or busi-
ness,” this Court has adopted the test established in
Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987), to
determine whether an enterprise constitutes a trade or
business. See Cent. States, Se. and Sw. Areas Pension
Fund v. White, 258 F.3d 636, 642 (7th Cir. 2001);
Fulkerson, 238 F.3d at 895. Under Groetzinger, the Court
must consider whether the person engaged in an activity
1) for the primary purpose of income or profit and 2) with
continuity and regularity. 480 U.S. at 35. The phrase
“trade or business” “does not encompass purely personal
activities no matter how continuous or extended the
activity may be nor how profitable . . . .” White, 258 F.3d
at 642 (internal quotation omitted). Additionally, “a
sporadic activity, a hobby, or an amusement diversion
does not qualify.” Groetzinger, 480 U.S. at 35.
No. 06-3757 9
The parties focus their dispute on whether the Whit-
ings engaged in ranching and farming primarily for the
purpose of income or profit. The defendants contend that
the Whitings operated Pioneer Ranch for purely personal
reasons, as a vacation home and retreat, and created the
partnership for estate planning purposes.3 Additionally,
they point out that the Whitings owned the land that
became Pioneer Ranch for twenty-two years prior to
establishing the partnership and that the manner in
which they handled the livestock and farming on the
ranch did not change in any way from the manner in
which it was handled before 1993. They also emphasize
that the Whitings suffered significant losses for nine
straight years after they established the partnership, and
that the property’s tennis courts, shuffleboard court, and
trout pond all demonstrate that the Whitings intended
Pioneer Ranch to be a vacation home because those things
have nothing to do with ranching or farming. Finally, they
allege that the Whitings acquired land that was largely
unsuitable for either ranching or farming because Pioneer
Ranch was an investment, not a trade or business.
By contrast, the Fund emphasizes the partnership
agreement, which stated that the business purpose of
Pioneer Ranch was “to engage in the business of farming,
ranching, and any agricultural pursuit or under-
taking . . . .” Courts have held that “a defendant’s stated
intention of forming a business is highly relevant, because
3
The four Whiting children each testified that their parents told
them that they established Pioneer Ranch Limited Partnership
on the advice of their accountants and lawyers. Though the
children’s testimony is inadmissible hearsay, there is admissible
evidence that the Whitings established Pioneer Ranch for
estate planning purposes. Each year the Whitings gave their
children un-taxable gifts of land, which is consistent with estate
planning.
10 No. 06-3757
it constitutes a declaration against interest.” See, e.g.,
Connors, 995 F.2d at 254. The Fund also points out that
the Whitings constructed fences to hold cattle, sold
livestock and grains, employed one full-time employee and
two part-time employees, and provided the employees
with health, retirement, and workers’ compensation
benefits. They also highlight the fact that the Whitings’
tax returns claimed business exemptions and deductions
for farming expenses each year. Moreover, from 1994
through 2003, Pioneer Ranch represented that its prin-
cipal business activity was cattle farming and that it
generated an annual income of $20,000.
On these undisputed underlying facts, the district court
held that Pioneer Ranch is a trade or business. Even if
this Court might have interpreted the facts differently, a
fact finder could reasonably consider the documentary
evidence of the Whitings’ intent and conclude that they
engaged in the activities on Pioneer Ranch for the prim-
ary purpose of income or profit and simply derived in-
cidental personal benefit from Pioneer Ranch.
The defendants maintain that it would be fundamentally
unfair to impose withdrawal liability on Pioneer Ranch.4
They argue that, as in Fulkerson and White, this Court
should reverse summary judgment. Fulkerson and White
are readily distinguishable from this case because they
addressed legal errors about whether the activities in
those cases were sufficiently regular and continuous, an
issue that is undisputed in this case.
Because there are no disputed facts and the defendants
are not entitled to a jury trial, if the Court remands the
4
We note that parties are responsible for whatever legal
consequences attach to their own choice of business organization.
See Connors, 995 F.2d at 254.
No. 06-3757 11
case for a trial, the same trier of fact will consider the
same evidence on which it already concluded that no fact-
finder could reasonably find that Pioneer Ranch was not
a trade or business. Because the district court committed
no errors of law, and a reasonable fact finder could con-
clude that Pioneer Ranch was a trade or business, the
district court did not commit clear error.
III. CONCLUSION
For the above reasons, we AFFIRM the district court’s
grant of summary judgment to the plaintiffs.
CUDAHY, Circuit Judge, concurring in the judgment. It
is somewhat doubtful whether Congress’s intent as to
the legitimate purposes of withdrawal liability under the
Multiemployer Pension Plan Amendments Act is being
properly served here. The majority correctly states that
a “trade or business,” as defined in Commissioner of
Internal Revenue v. Groetzinger, requires as its “primary
purpose” the realization of “income or profit.” 480 U.S. 23,
35 (1987). There is no clear error in the district court’s
conclusion that Pioneer Ranch was primarily intended to
make a profit, but the continued existence of the “ranch”
in the face of relentless losses suggests otherwise, its
founding agreement and tax filings notwithstanding. A
reasonable jury could conclude that Pioneer Ranch was
a vacation home enhanced by a few livestock and inflated
to the status of a “ranch” for tax purposes.
12 No. 06-3757
As the majority notes, this makes the case turn on
whether Pioneer Ranch is entitled to a jury trial on the
fund’s claim for withdrawal liability. (Op. at 6-8.) The
centrality of this issue entitles it to a degree of rigorous
attention to which neither the majority nor, it should be
noted, the parties have subjected it. (Although Central
States has asserted that Pioneer Ranch is not entitled to
a jury trial, and Pioneer Ranch has asserted the con-
trary, neither has done much to explain why such a right
should or should not exist.)
The majority concludes that Pioneer Ranch is not
entitled to a jury because it “avoided the dispute resolu-
tion scheme that Congress contemplated in the statute,”
that is, private arbitration described in 29 U.S.C.
§ 1401(a)(1). (Op. at 8.) But, whatever it would mean for
Congress to “contemplate” arbitration, this court has
determined that Congress has not always required that
every issue in a dispute between a fund and an employer
be arbitrated. In Central States, Se. & Sw. Areas Pension
Fund v. Slotky, we held that “the issue of membership in
a controlled group,” the very issue that Pioneer Ranch
disputes in this case, “cannot be within exclusive arbitral
jurisdiction. For then people who had absolutely no
reason to believe that they might be deemed members of a
controlled group would be foreclosed from litigating the
issue in any forum.” 956 F.2d 1369, 1373 (7th Cir. 1992).
We suggested that some defendants might still be required
to arbitrate the issue, for instance “if the pension plan
explicitly notifies the person of his potential liability,”
dispelling any notice concerns, but the issue is sometimes
properly decided by courts in the first instance. Id.; cf.
Central States, Se. & Sw. Pension Fund v. Personnel, Inc.,
974 F.2d 789, 792 n.1 (7th Cir. 1992) (suggesting that
a defendant is never required to arbitrate employer
status).
No. 06-3757 13
If Pioneer Ranch has not evaded any congressionally-
required arbitration, it is not clear why its failure to
pursue arbitration barred it from jury trial; Pioneer Ranch
could have plausibly argued that it has a Seventh Amend-
ment right to a jury trial in the federal courts, and the
availability of a jury trial often depends on the litigants’
choice of the forum in which their dispute will be resolved.
See, e.g., Langenkamp v. Culp, 498 U.S. 42, 44-45 (1990)
(per curiam); Statland v. United States, 178 F.3d 465, 472-
73 (7th Cir. 1999). When Congress “provides for enforce-
ment of statutory rights in an ordinary civil action in the
district courts,” the Seventh Amendment applies and “a
jury trial must be available if the action involves
rights and remedies of the sort typically enforced in an
action at law.” Curtis v. Loether, 415 U.S. 189, 195 (1974);
cf. Granfinanceria, S.A. v. Norderg, 492 U.S. 33, 52-53
(1989) (explaining that the Seventh Amendment does not
apply to disputes that Congress assigns “to a forum in
which jury trials are unavailable”). While it may not be
entirely clear whether an action for MPPAA withdrawal
liability involves such rights and remedies, it is certainly
a respectable candidate for them. Money damages are
a typically legal remedy, and we have previously held
that the Seventh Amendment provides a jury right when
a union trust fund seeks contractually required contribu-
tions from an employer. See Bugher v. Feightner, 722 F.2d
1356, 1357-60 (7th Cir. 1983).
This is not to say that the majority’s reasoning is
incorrect. It might be that Central States’ suit is not an
“ordinary civil action,” even though it is heard in the
district courts, Curtis, 415 U.S. at 195 (emphasis added),
or it might be that the Seventh Amendment does not
ensure a jury trial even if it applies. But I think the
issue remains somewhat obscure and need not be re-
solved in the present case. Pioneer Ranch seems to have
forfeited the jury trial issue on appeal by failing to support
14 No. 06-3757
it with any sort of citation to authority or argument.
Central States, Se. & Sw. Areas Pension Fund v. Schilli
Corp., 420 F.3d 663, 670 (7th Cir. 2005); Pelfresne v.
Village of Williams Bay, 917 F.2d 1017, 1023 (7th Cir.
1990). (The Fund has done almost as little to explain its
assertion that Pioneer Ranch had no right to a jury trial,
but it has at least cited to Central States, Se. & Sw.
Pension Fund v. Personnel, Inc., which by omitting any
discussion of the jury issue from its determination of the
standard of review arguably suggests that a jury right does
not exist. 974 F.2d 789, 792 (7th Cir. 1992).) Even if it had
not waived the issue on appeal, Central States “explicitly
notifie[d] [Pioneer Ranch] of [its] potential liability” under
the MPPAA, which suggests that it might have been
required to arbitrate its control group membership.
Central States, Se. & Sw. Areas Pension Fund vs. Slotky,
956 F.2d 1369, 1373 (7th Cir. 1992). If so, the majority
is correct and it has no right to a jury trial.
I would therefore not reach the general issue of whether
there is a right to a jury trial in lawsuits to recover
MPPAA withdrawal liability under 29 U.S.C. § 1401(b)(1).
I otherwise agree with the majority opinion.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-12-07