Central States, Southeast & Southwest Areas Pension Fund v. Nagy , 714 F.3d 545 ( 2013 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-3055
C ENTRAL S TATES, S OUTHEAST AND
S OUTHWEST A REAS P ENSION F UND and
A RTHUR H. B UNTE, JR., Trustee,
Plaintiffs-Appellees,
v.
C HARLES F. N AGY,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 10 CV 358—Marvin E. Aspen, Judge.
A RGUED A PRIL 2, 2012—D ECIDED A PRIL 22, 2013
Before R OVNER, S YKES, and T INDER, Circuit Judges.
S YKES, Circuit Judge. Central States, Southeast and
Southwest Areas Pension Fund (“Central States” or “the
Fund”) is a multiemployer pension plan for members
of the Teamsters union in the eastern half of the United
States. Nagy Ready Mix employed Teamsters labor and
participated in the Central States plan. In 2007 Ready
2 No. 11-3055
Mix ceased employing covered workers and thus
incurred $3.6 million in “withdrawal liability” owed to
Central States and assessed against it to fully fund its
pension obligations.
Ready Mix was unable to pay the full $3.6 million
assessment. This case asks whether Charles F. Nagy, its
owner, and two affiliated companies under his common
control are liable for the shortfall under the Employee
Retirement Income Security Act (“ERISA”), as amended
by the Multiemployer Pension Plan Amendments Act
of 1980 (“MPPAA”), 29 U.S.C. § 1301(b)(1). The related
Nagy-owned companies conceded liability in the dis-
trict court, so the only question on appeal concerns
Nagy’s personal liability. The answer turns on whether
he engaged in an unincorporated “trade or business”
under common control with Ready Mix. If so, he is per-
sonally liable for the payments.
The Fund identified two possibilities. First, Nagy
owns the property on which Ready Mix conducts its
operations and leases the property back to his company.
The Fund contends that this rental activity qualifies as a
trade or business under § 1301(b)(1). Second, Nagy pro-
vided management services to a country-club venture.
The Fund claims that he did so as an independent con-
tractor, which likewise would qualify as a trade or
business under § 1301(b)(1).
On cross-motions for summary judgment, the district
court concluded that Nagy held and leased the prop-
erty to Ready Mix as a passive investment, not a trade or
business, so the leasing activity did not trigger personal
No. 11-3055 3
liability under § 1301(b)(1). But the court also held that
Nagy worked for the country club as an independent
contractor, not an employee, and this activity qualified
as a trade or business under § 1301(b)(1). That alone
was enough for personal liability, so the court entered
judgment for the Fund. Nagy appealed.
We affirm, though on a somewhat different analysis.
Recent decisions of this court confirm that Nagy’s
leasing activity is categorically a trade or business for
purposes of personal liability under § 1301(b)(1). See
Cent. States, Se. & Sw. Areas Pension Fund v. Messina
Prods., LLC, 706 F.3d 874, 881 (7th Cir. 2013); Cent. States,
Se. & Sw. Areas Pension Fund v. SCOFBP, LLC, 668 F.3d
873, 879 (7th Cir. 2011). Although the district court
did not have the benefit of these decisions, it is now
clear that it was a mistake to conclude that Nagy’s
leasing of property to Ready Mix did not qualify as a
trade or business. But this just means there are two
grounds for personal liability, not one. The district
court correctly held that Nagy provided management
services to the country club as an independent con-
tractor, which also qualifies as a trade or business
under § 1301(b)(1).
I. Background
Charles F. Nagy operates several small businesses.
Among them is Nagy Ready Mix, Inc., a concrete
company based in Utica, Michigan. For several years
Ready Mix employed Teamsters labor and made pay-
ments to the Central States Fund, the Teamsters’ pension
4 No. 11-3055
plan, under the terms of a collective-bargaining agree-
ment. In June 2007 Ready Mix stopped using Teamsters
labor and ended its participation in the Fund. This
action constituted a “complete withdrawal” from the
plan, see 29 U.S.C. § 1383, and to fully fund the com-
pany’s outstanding obligations, Central States assessed
Ready Mix a “withdrawal liability” in the principal
amount of $3,656,058.59. In May 2008 Ready Mix
initiated arbitration to challenge that calculation.
While arbitration was pending, Ready Mix was
obligated under 29 U.S.C. § 1401(d) to make payments
on the assessment. The company failed to do so, and
the Fund initiated this lawsuit against Nagy and
two related companies seeking to hold them jointly
and severally liable for the assessment. Before the
district court, the parties agreed that two other Nagy-
owned enterprises—Nagy Trucking and Nagy Concrete
Company—were under common control with Ready
Mix and therefore were jointly and severally liable for
the assessment. The parties disagreed, however, over
whether Nagy was personally liable.
The Fund suggested two possible grounds for
Nagy’s personal liability. First, the Fund argued that
Nagy’s property-leasing activities constituted an unin-
corporated “trade or business” under § 1301(b)(1). This
statutory definition treats all commonly controlled
“trades or businesses,” incorporated and unincorporated
alike, as a single employer for purposes of withdrawal
liability. The facts of Nagy’s rental activity were undis-
puted. In 1972 Ready Mix purchased property at
No. 11-3055 5
480100 Hixson Avenue in Utica, Michigan, to serve as
its base of operations. In 1986 the company sold the
property to Nagy, who conveyed it to a revocable trust.
Nagy then leased the property back to Ready Mix
pursuant to a triple-net lease that made Ready Mix re-
sponsible for utilities, insurance, and tax payments, as
well as maintenance and repair. Thus, though owned
by Nagy individually, the property remained the
primary facility for both Ready Mix and Nagy Trucking.
The second possible ground for personal liability
focused on Nagy’s management work for a country club
located in the City of Washington, Michigan. The club,
consisting of a golf course and a restaurant, was owned
by the Wells Venture Corporation, of which Nagy was
a shareholder, director, and president. From the early
1990s through 2005, Nagy oversaw operations at the
golf course and in that capacity handled the book-
keeping and management. In 2005 the club’s board of
directors decided to sell the golf course. Nagy took the
lead in accomplishing this task, and for the first time
the board began compensating him to reflect his new
responsibilities. He was paid $150 per hour. After
selling the golf course, Nagy continued to manage the
club’s remaining assets, working from his home. Wells
Venture paid him as an independent contractor,
without payroll deductions, as reflected on 1099-MISC
forms for tax years 2005, 2006, 2007, and 2008. Nagy
reported this income, which exceeded $200,000 in
total, on Schedule C of his tax returns, which covers
sole proprietors. Wells Venture repossessed the golf
course in January 2010 after the purchaser defaulted.
6 No. 11-3055
On cross-motions for summary judgment, the district
court rejected the first ground for Nagy’s personal
liability but accepted the second. In the court’s view,
Nagy’s leasing activity was a passive investment, not a
trade or business within the meaning of § 1301(b)(1).
Regarding Nagy’s work for the country club, however,
the court held that Nagy provided managerial services
as an independent contractor, which qualified as a
trade or business under § 1301(b)(1). Because Nagy’s
independent-contractor work for the club was enough
to support personal liability, the court granted sum-
mary judgment for the Fund and against Nagy, and
also entered summary judgment for the Fund holding
Nagy Trucking and Nagy Concrete jointly and severally
liable for the assessment. This appeal followed.
II. Discussion
The MPPAA protects multiemployer pension plans
and their beneficiaries by preventing withdrawing em-
ployers from ducking their pension obligations. See
Messina Prods., 706 F.3d at 878; Cent. States, Se. & Sw.
Areas Pension Fund v. Slotky, 956 F.2d 1369, 1374 (7th
Cir. 1992). The withdrawal-liability provisions at issue
in this case were enacted “to ensure that when an
employer withdraws from a pension plan, the financial
burden of its employees’ vested pension benefits
would not be borne by the other employers in the
plan.” Cent. States, Se. & Sw. Areas Pension Fund v.
Personnel, Inc., 974 F.2d 789, 791 (7th Cir. 1992). In
current parlance we might say that the MPPAA has a
No. 11-3055 7
“no bailouts” clause—a withdrawing employer cannot
shift its obligations onto the other companies in the
plan or ultimately onto the taxpayers via the Pension
Benefit Guarantee Corporation. See Messina Prods.,
706 F.3d at 878.
To ensure that assets are available to cover a withdraw-
ing employer’s liability, Congress provided that all
trades or businesses under common control with the
withdrawing employer are treated as a single em-
ployer for purposes of joint and several liability:
An individual who owns the entire interest in an
unincorporated trade or business is treated as his
own employer . . . . For purposes of this subchapter,
under regulations prescribed by the corporation,
all employees of trades or businesses (whether or
not incorporated) which are under common con-
trol shall be treated as employed by a single
employer and all such trades or businesses as a
single employer.
29 U.S.C. § 1301(b)(1). The purpose of § 1301(b)(1) “is to
prevent businesses from shirking their ERISA obliga-
tions by fractionalizing operations into many separate
entities.” Messina Prods., 706 F.3d at 878 (internal quota-
tion marks omitted). “Common control” is defined by
the relevant regulations as 80% shared ownership.
26 C.F.R. § 1.414(c)-2(b)(2).
The parties agree that the two other Nagy-owned
companies—Nagy Trucking and Nagy Concrete—are
under common control with Ready Mix, and thus both
are liable for the $3.6 million that Ready Mix owes the
8 No. 11-3055
Fund. The contested issue is whether Nagy himself can
be held personally liable. An individual is personally
liable when he holds the entire interest in an unincorpo-
rated “trade or business” under common control with
the withdrawing employer. 29 U.S.C. § 1301(b)(1);
Messina Prods., 706 F.3d at 878; Cent. States, Se & Sw.
Areas Pension Fund v. Fulkerson, 238 F.3d 891, 893-94
(7th Cir. 2001). Under the circumstances here, the
common control is obvious; the key question is whether
Nagy engaged in an unincorporated “trade or business”
within the meaning of § 1301(b)(1). The answer depends
on whether his leasing arrangement with Ready Mix
or his management services to the country club, or
both, qualify as an unincorporated trade or business
within the meaning of § 1301(b)(1).
These are questions we would ordinarily review
de novo on an appeal from a summary judgment.
SCOFBP, 668 F.3d at 877. However, where, as here, there
is no right to a jury trial and “the only issue before
the district court is the characterization of undisputed
subsidiary facts,” we have held that the clear-error stan-
dard of review applies. Messina Prods., 706 F.3d at 879;
see also SCOFBP, 668 F.3d at 877. Put differently, in
these sorts of ERISA cases, we review “mixed questions
of law and fact” under a clearly erroneous standard.
Fulkerson, 238 F.3d at 894.1
1
Because it alters normal summary-judgment review, our
approach to the standard of review has sometimes been resisted.
(continued...)
No. 11-3055 9
The evaluation of Nagy’s work for the country club
is such a mixed question. We are asked to review
whether the district court properly characterized the
undisputed facts as establishing Nagy’s status as an
independent contractor. The leasing issue is different,
however. The parties dispute whether a categorical rule
governs leasing of property to a commonly controlled
company. This is a question of law under our prece-
dents, so our review is de novo. See Messina Prods., 706
F.3d at 879. We follow the district court’s order of
battle and take up the leasing question first.
1
(...continued)
See, e.g., Jurcev v. Central Cmty. Hosp., 7 F.3d 618, 623 (7th Cir.
1993) (“[T]his new standard causes us some concern.”). The
framework first appeared in Central States, Southeast & Southwest
Areas Pension Fund v. Slotky, 956 F.2d 1369, 1373 (7th Cir. 1992)
(citing United States v. McKinney, 919 F.2d 405, 419 (7th Cir.
1991) (Posner, J., concurring)). See Cent. States, Se. & Sw.
Pension Fund v. Personnel, Inc., 974 F.2d 789, 792 (7th Cir.
1992). On several occasions we have been asked to revisit and
overrule Slotky on the standard-of-review issue, but each time
we have declined to do so in the specific circumstances of the
case. See Cent. States, Se. & Sw. Areas Pension Fund v. Neiman,
285 F.3d 587, 593 (7th Cir. 2002); Cent. States, Se. & Sw. Areas
Pension Fund v. White, 258 F.3d 636, 640 (7th Cir. 2001); Cent.
States, Se. & Sw. Areas Pension Fund v. Fulkerson, 238 F.3d 891,
894 (7th Cir. 2001). We have noted, however, that the D.C.
Circuit has adopted standard summary-judgment review for
these cases. Neiman, 285 F.3d at 594 n.4 (citing Connors v.
Incoal, Inc., 995 F.2d 245, 251 n.9 (D.C. Cir. 1993)). The parties
have not asked us to revise our approach to the standard of
review, nor would a different standard affect our decision.
10 No. 11-3055
A. Leasing Activity
The Fund argues that because Nagy owned and leased
to Ready Mix the property on which it conducted its
business operations, he essentially acted as a commercial
landlord to his own company, thus engaging in an unin-
corporated trade or business under common control
with the withdrawing employer within the meaning of
§ 1301(b)(1). The term “trade or business” in § 1301(b)(1)
is not defined, but this circuit uses the test developed
by the Supreme Court in Commissioner of Internal Revenue
v. Groetzinger, 480 U.S. 23, 35 (1987), for applying a
similar phrase in the tax code. See Messina Prods., 706
F.3d at 878; Fulkerson, 238 F.3d at 895. The Groetzinger
test examines whether the activity in question is under-
taken (1) for the primary purpose of income or profit;
and (2) with continuity and regularity. 480 U.S. at 35; see
also Messina Prods., 706 F.3d at 878; Fulkerson, 238 F.3d
at 895. We have explained that “[o]ne purpose of the
Groetzinger test is to distinguish trades or business
from investments, which are not trades or business
and thus cannot form a basis for imputing withdrawal
liability under § 1301(b)(1).” Fulkerson, 238 F.3d at 895.
The district court, applying Groetzinger, concluded
that Nagy’s leasing activity was primarily for passive
investment purposes. This conclusion was heavily influ-
enced by our decision in Fulkerson. As we have recently
explained, however, Fulkerson does not apply where, as
here, the property is leased to the withdrawing em-
ployer itself. See Messina Prods., 706 F.3d at 882. In
that situation, the bright-line rule of SCOFBP and Central
No. 11-3055 11
States, Southeast & Southwest Areas Pension Fund v. Ditello,
974 F.2d 887, 890 (7th Cir. 1992), applies. See Messina
Prods., 706 F.3d at 881-83. We held in Ditello that the
leasing of property to a withdrawing company under
the common control of the property owner constitutes
a “trade or business” within the meaning of § 1301(b)(1).
974 F.2d at 890; see also Personnel, Inc., 974 F.2d at 793-
94; Cent. States, Se. & Sw. Areas Pension Fund v. Koder,
969 F.2d 451, 453 (7th Cir. 1992); Slotky, 956 F.2d at 1374.
The district court thought that the rule set forth in
Ditello had been vitiated by subsequent decisions under-
taking a more fact-specific analysis under Groetzinger.
The court specifically focused on Fulkerson, and to a
lesser degree on Central States, Southeast & Southwest
Areas Pension Fund v. Neiman, 285 F.3d 587, 595 (7th Cir.
2002), and Central States, Southeast & Southwest Areas
Pension Fund v. White, 258 F.3d 636, 642-43 (7th Cir.
2001), all of which had been decided differently—more
particularly, not in accordance with the Ditello rule.
The court did not have the benefit of SCOFBP, however,
which reiterated the principle established in Ditello
and explained that “leasing property to a withdrawing
employer itself is categorically a ‘trade or business.’ ” 668
F.3d at 879 (emphasis added). Our recent decision in
Messina Products elaborates this principle and explains
that categorical treatment of leasing activity between
the owner and the withdrawing employer is consistent
with the Groetzinger test and serves the purpose of
§ 1301(b)(1):
[W]here the real estate is rented to or used by the
withdrawing employer and there is common owner-
12 No. 11-3055
ship, it is improbable that the rental activity could
be deemed a truly passive investment. In such sit-
uations, the likelihood that a true purpose of
the “lease” is to split up the withdrawing em-
ployer’s assets is self-evident.
Messina Prods., 706 F.3d at 882.
Fulkerson, Nieman, and White are not irreconcilable
with Ditello, SCOFBP, and Messina Products. In Nieman
the defendant earned income for management services
rendered to a real-estate company; the real-estate com-
pany had not leased property to the withdrawing em-
ployer. 285 F.3d at 595. Fulkerson and White both dealt
with real-estate holdings that were related to the with-
drawing employer only by common ownership. Fulkerson,
238 F.3d at 893; White, 258 F.3d at 642-43. Distin-
guishing Fulkerson and White in Messina Products,
we explained that “neither the Fulkersons nor the
Whites rented property to the withdrawing employer
itself.” 706 F.3d at 882.
There were other issues in Messina Products, but on
this point the case is materially indistinguishable from
this one. In Messina Products the Central States Fund
sought to impose personal liability on the owners of a
withdrawing company based in part on the fact that they
owned the property on which their company operated
and leased it to the company. That situation, we said,
was controlled by the “categorical” rule of SCOFBP and
Ditello. Id. at 881-83. The same is true here. Nagy holds
and leases to Ready Mix the commercial property on
which Ready Mix conducts its operations. This categori-
No. 11-3055 13
cally constitutes a trade or business under common
control with the withdrawing employer, which triggers
personal liability under § 1301(b)(1).
B. Independent-Contractor Status
Alternatively, if Nagy provided management services
for Wells Venture as an independent contractor, then he
is personally liable to the Fund as the sole proprietor of
an unincorporated trade or business. If, however, he
was an employee of Wells Venture, then his work
does not supply a basis for personal liability under
§ 1301(b)(1).
Distinguishing between an employee and an independ-
ent contractor depends on an analysis of the following
factors: (1) the extent of the employer’s control and super-
vision over the worker, including directions on sched-
uling and performance of work; (2) the kind of occupa-
tion and the nature of the skills required, including
whether skills are obtained in the workplace; (3) respon-
sibility for the costs of operation, such as equipment,
supplies, fees, licenses, workplace, and maintenance of
operations; (4) the method and form of payment and
benefits; and (5) the length of job commitment and/or
expectations. Mazzei v. Rock-N-Around Trucking, Inc., 246
F.3d 956, 963 (7th Cir. 2001); see also Nationwide Mut. Ins.
Co. v. Darden, 503 U.S. 318, 323-24 (1992). The district
court weighed these factors and concluded that Nagy
was an independent contractor.
We see no clear error in this determination. As
president of Wells Venture, Nagy was responsible to its
14 No. 11-3055
board of directors, of which he was also a member. No
one supervised Nagy’s work on a day-to-day basis. In
his management of Wells Venture’s affairs, Nagy had
total freedom, subject only to occasional decisions by
the board. We agree with the district court that the
“control and supervision” exercised by the board
was minimal, suggesting Nagy’s independent-contractor
status.
The “skills” factor in the analysis is inconclusive, as
the district court held. Nagy provided management
services, which can indicate either employee or
independent-contractor status. There is no evidence
that Wells Venture gave Nagy any specialized training.
Rather, he performed general management tasks, like
accounting and processing paperwork. The “expenses”
factor is likewise inconclusive. In a typical employer-
employee relationship, the employer pays for overhead
and other operational expenses, while independent
contractors usually bear their own costs. EEOC v. N.
Knox Sch. Corp., 154 F.3d 744, 749 (7th Cir. 1998). After
the golf course was sold, Wells Venture’s business
address shifted to Nagy’s home. He did not take a
tax deduction for a home office, but he did take small
deductions for office expenses related to his work for
Wells Venture. But his management duties did not
imply a significant cost, so this factor is at best neutral,
as the district court held.
Most important to the district court’s conclusion was
the method and form by which Nagy was paid. He
did not receive a salary through a payroll system, as
No. 11-3055 15
one would expect of an employee. Rather, Wells Venture
paid Nagy an hourly rate and did not withhold taxes or
provide fringe benefits. Presumably at his request, Wells
Venture accounted for Nagy’s compensation on the 1099-
MISC form, which is used to report “miscellaneous in-
come,” often for independent contractors. See Forms and
Associated Taxes for Independent Contractors, Internal
Revenue Service (Page Last Reviewed or Updated Jan. 14,
2013), http://www.irs.gov/businesses/small/article/0,,id=
179114,00.html. On his personal tax returns, Nagy re-
ported his Wells Venture income on Schedule C,
which covers “Profit or Loss from Business (Sole Propri-
etorship).” See Sole Proprietorships, Internal Revenue
Service (Page Last Reviewed or Updated Apr. 5, 2013),
http://w w w.irs.gov/Businesses/Sm a ll-Businesses-& -
Self-Employed/Sole-Proprietorships. We have held in
previous cases that the 1099 tax treatment weighs
heavily in favor of independent-contractor status. See
N. Knox, 154 F.3d at 750; Neiman, 285 F.3d at 595. It does
here as well.
Nagy’s other activities confirm that he provided
services to Wells Venture as an independent contractor.
Nagy had at least three other going concerns during
the relevant time period: Nagy Ready Mix, Nagy
Trucking, and Nagy Concrete. The record suggests he
was a sales agent for another enterprise for some time
as well, though the company flopped. Certainly a
person can be a part-time employee for more than one
enterprise. But on this record it looks more like Nagy
was compensated by Wells Venture for purposes of a
short-term project: handling the golf-course deal and
16 No. 11-3055
winding down the club’s operations by selling off its
assets and closing its accounts. This project took longer
than expected because the golf-course purchaser de-
faulted. But the signs of an employer-employee relation-
ship are missing. Nagy provided management services
independently and for a limited, short-term purpose,
and he was paid as an independent contractor. All
this leads us to agree with the district court that Nagy
was an independent contractor for Wells Venture and
thus was engaged in an unincorporated trade or busi-
ness. This is an independent basis for personal lia-
bility under § 1301(b)(1).
III. Conclusion
Nagy owned and leased property to Ready Mix, a
withdrawing employer over which he had common
control. He also provided management services to Wells
Venture as an independent contractor. Both activities
qualify as an unincorporated trade or business under
§ 1301(b)(1). The district court therefore correctly found
Nagy personally liable for Ready Mix’s withdrawal
liability, along with Nagy Trucking and Nagy Concrete.
Summary judgment for the Fund was proper.
A FFIRMED.
4-22-13