Pension Benefit Guaranty Corporation v. 50509 Marine LLC

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 19-14968
________________________
D.C. Docket No. 9:18-cv-81099-RLR
PENSION BENEFIT GUARANTY CORPORATION,
Plaintiff - Appellee,
versus
50509 MARINE LLC,
AMH GOVERNMENT SERVICES, LLC, et al.,
Defendants - Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(November 24, 2020)
Before MARTIN, ROSENBAUM, and TALLMAN,∗ Circuit Judges.
∗
The Honorable Richard C. Tallman, Circuit Judge for the United States Court of Appeals for
the Ninth Circuit, sitting by designation.
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TALLMAN, Circuit Judge:
From the confluence of bankruptcy, employee benefits, and corporations law
comes this most unusual case. The answer to a seemingly simple but surprisingly
complex question controls our disposition: Did the Liberty Lighting Company
exist in July 2012? Liberty was an Illinois corporation that went bankrupt and
dissolved under state law in the 1990s. But if it nevertheless continued with the
assistance of its sole stockholder owner as the sponsor of a pension plan under the
federal Employee Retirement Income Security Act (ERISA), then federal law
dictates that other companies owned by Liberty’s owner may be held liable for the
unfunded liability, which was paid by the government agency known as the
Pension Benefit Guaranty Corporation (PBGC), when the plan ran out of funds.
Those companies—the appellants in this action—protest that they cannot be
considered owned in common with Liberty for the simple reason that Liberty
ceased to exist long ago. We disagree. Concluding that, in the unusual
circumstances of this case, Liberty still existed in 2012 sufficiently to act as the
plan’s sponsor under ERISA, we affirm the district court.
I
Joseph Wortley owned Liberty Lighting Co., Inc. (“Liberty”), a unionized
electrical supply manufacturing company based near Chicago in the late 1980s.
Prior to its ultimate dissolution, Liberty was the plan sponsor and administrator of
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the “Liberty Lighting Co., Inc. Pension Plan for IBEW Employees” (the “Plan”)
under Title IV of ERISA, 29 U.S.C. § 1301 et seq. Liberty ran into financial
trouble in the early ’90s, entered bankruptcy and surrendered its assets to a creditor
in 1992, and was thereafter administratively dissolved under state law. Wortley,
Liberty’s sole owner with 100% of the company’s stock, soon followed with his
own personal bankruptcy in 1993, from which he was discharged in 1998. As part
of the bankruptcy proceedings, all of Wortley’s assets were surrendered to a
trustee, including his stock in Liberty. Meanwhile, Wortley continued to act as the
Plan’s administrator, signing papers on behalf of the Plan at the request of the
Plan’s actuary for years after Liberty’s purported dissolution. These signatures
were necessary to effect continuing payments to pensioners.
In 2012, as the Plan’s funds ran low, the bank administering the Plan
notified PBGC of the Plan’s looming insolvency. PBGC, as the federal agency
charged with protecting the retirement incomes of workers in private-sector
defined benefit pension plans, contacted Wortley to reach a settlement regarding
the unfunded remaining liability of the Plan. Wortley and PBGC eventually agreed
to a settlement that represented Liberty as having dissolved in the ’90s and the
agreement contained language that Wortley believed established a final cutoff date
for his remaining liability by conveying “any and all powers, authority, et[] cetera,
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that [Wortley] may have on behalf of Liberty [] and/or the Plan to PBGC” on July
31, 2012.
But six years later, PBGC brought suit against these 19 appellants (“the
Companies”) in the United States District Court for the Southern District of
Florida, alleging that they, as other companies owned by Wortley, were
nonetheless part of a “controlled group” with Liberty, and therefore were still
liable for Liberty’s unpaid pension benefits, premiums, interest, and penalties
under 29 U.S.C. §§ 1306(a)(7), 1307, and 1362(a). PBGC’s theory of the case
under ERISA is simple: with Liberty unable to meet its ERISA obligations to its
former employees, Wortley’s other companies must foot the bill. See id.§ 1307(e)(2).
After denying the Companies’ motion to dismiss, the district court granted
summary judgment to PBGC on November 22, 2019. The court based its finding
on several alternate grounds: (1) ERISA makes Liberty the contributing sponsor of
the Plan, and no operation of state law can change that; (2) courts are authorized to
make “federal common law” in pursuit of ERISA’s scheme and goals, and finding
that Liberty was the sponsor would further ERISA’s central goal of protecting the
interests of pension beneficiaries; and (3) Illinois law allows a dissolved company
“to carry on in a manner necessary to wind up its affairs,” so Liberty was able to
continue in existence after ceasing business operations in order to meet its
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obligations under the Plan. The court reasoned that under the Companies’ view of
ERISA, “nobody was responsible for the pension plan,” a result that “cannot be
squared with ERISA as a whole,” which “does not allow pension plans to exist in a
state of limbo, devoid of any caretaker.” Final judgment was entered on December
6, 2019, and the Companies timely appealed.
II
The district court had federal-question jurisdiction under 28 U.S.C. § 1331,
and we have appellate jurisdiction under § 1291.
We review the granting of summary judgment de novo, viewing all facts in
the light most favorable to the nonmoving party. See Nesbitt v. Candler Cnty., 945
F.3d 1355, 1357 (11th Cir. 2020). Summary judgment is proper only “if the
movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
III
This is, as the district court wrote in its summary-judgment order, “a
difficult case.” It comes down to what seems on the surface an easy question: On
July 31, 2012, was Liberty the “contributing sponsor” of the “Liberty Lighting Co.,
Inc. Pension Plan for IBEW Employees” under Title IV of ERISA? 1 If it was—
1
The Companies do not deny that Liberty was the Plan’s sponsor before Liberty’s dissolution.
And no one questions that Wortley owns the requisite percentage of the stock of the 19
companies seeking to avoid Liberty’s unfunded pension plan liability.
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and if Joseph Wortley was its owner—then the companies sued by PBGC are
responsible for the so-called termination liabilities: the Plan’s shortfall, plus
premiums, penalties, and interest associated with the Plan, totaling approximately
$6.2 million. 29 U.S.C. §§ 1362(b), 1306(a), 1307(c), 1307(d).
But asking that seemingly easy question triggers several others: What was
the effect of Liberty’s 1992 bankruptcy on its status as the Plan’s sponsor? Does it
matter that Wortley—sometimes using Liberty letterhead—continued to sign the
forms authorizing payment to the pensioners? If Liberty wasn’t the Plan’s sponsor,
who was? Answering them is made more difficult by an important omission: the
record does not show whether Liberty reported its bankruptcy, liquidation, and
dissolution to PBGC, as it was required to do under ERISA. As a result, two
decades passed between Liberty’s filing for bankruptcy and the agreement that
terminated the Plan. That delay, and the unfortunate destruction of the old
bankruptcy court files under the judiciary’s records retention policies, looms large
as we search for answers and grapple with this case’s unique circumstances.
A
We begin by noting that, while the district court provided three reasons for
its decision, “we may affirm on any ground that finds support in the record.” Long
v. Comm’r, 772 F.3d 670, 675 (11th Cir. 2014) (citation omitted). Both ERISA
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and Illinois law provide relevant clues to solving the mystery of Liberty’s
existence and corporate demise.
1
Liberty was an Illinois corporation; Illinois corporations law thus lays the
groundwork for its corporate status. See Freedman v. magicJack Vocaltec Ltd.,
963 F.3d 1125, 1133 (11th Cir. 2020) (“[C]orporations . . . are creatures of state
law . . . .” (quoting Kamen v. Kemper Fin. Servs., 500 U.S. 90, 98 (1991))).
Dissolution “terminates [an Illinois corporation’s] existence” and “a dissolved
corporation shall not thereafter carry on any business,” except wind-up and
liquidation. 805 Ill. Comp. Stat. 5/12.30(a). At common law, a corporation could
no longer sue or be sued after its dissolution. See Henderson-Smith & Assoc., Inc.
v. Nahamani Family Serv. Ctr., 752 N.E.2d 33, 37 (Ill. App. Ct. 2001). But like
most jurisdictions, Illinois has modified that rule by statute, allowing a corporation
to live on for another five years beyond its dissolution. 805 Ill. Comp. Stat.
5/12.80. See also Mich. Ind. Condo. Ass’n v. Mich. Place, LLC, 8 N.E.3d 1246,
1250 (Ill. App. Ct. 2014) (“Section 12.80 extends the life of the corporation after
its dissolution so that suits which normally would have abated may be brought by
and against the corporation.” (cleaned up)).
The parties sharply disagree about section 12.80’s effect on a corporation’s
ability to serve as a contributing sponsor under ERISA. The Companies maintain
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that a corporation ceases existence for all purposes after the five-year period, while
PBGC argues the statutory death a corporation suffers five years after its
dissolution affects only the company’s ability to sue and be sued, and has no effect
on its federally defined role as an ERISA contributing sponsor. The Companies
rely heavily on dicta from Illinois state cases to support their position. See, e.g.,
Pielet v. Pielet, 978 N.E.2d 1000, 1008 n.3 (Ill. 2012) (“[T]he five-year extension
to a corporation’s life granted by section 12.80 establishes a fixed endpoint beyond
which a corporation ceases to exist. After that point, it may no longer sue or be
sued.” (emphasis added)).
But Illinois courts have not always given section 12.80 such a rigid reading.
See, e.g., Moore By and Through Moore v. Nick’s Finer Foods, Inc., 460 N.E.2d
420, 421 (Ill. App. Ct. 1984) (holding a dissolved corporation liable outside the
then-two-year dissolution period and noting “that the two-year limitation on
corporate survival is not absolute, and may be extended under certain
circumstances”). Moore is flatly inconsistent with the Companies’ construction of
section 12.80. And besides, Pielet’s discussion of Illinois’s corporate-survival
statute is primarily focused on whether a dissolved corporation may sue or be sued.
Whether or not Illinois law would allow Liberty to sue or be sued is not the
question here; rather, we must ask instead whether Liberty had the capacity to
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serve as the Plan’s ERISA sponsor up until 2012. That is a question of federal law,
and one to which Illinois corporations law provides no answer.
B
Neither ERISA nor Illinois law tells us what to do with pension liabilities
when the sponsor of a plan has dissolved but the plan has continued to operate.
Where ERISA is silent, we are required “to develop a ‘federal common law of
rights and obligations under ERISA-regulated plans.’” Arnold v. Life Ins. Co. of N.
Am., 894 F.2d 1566, 1567 (11th Cir. 1990) (citing Firestone Tire & Rubber Co. v.
Bruch, 489 U.S. 101, 109 (1989)). In deciding whether a rule should “become part
of ERISA’s common law,” we must decide “whether the rule, if adopted, would
further ERISA’s scheme and goals,” which are “(1) protection of the interests of
employees and their beneficiaries in employee benefit plans . . . and (2) uniformity
in the administration of employee benefit plans.” Horton v. Reliance Standard Life
Ins. Co., 141 F.3d 1038, 1041 (11th Cir. 1998) (per curiam) (citations omitted).
See also Bd. of Trs. of W. Conf. of Teamsters Pension Tr. Fund v. H.F. Johnson
Inc., 830 F.2d 1009, 1014 (9th Cir. 1987) (relying on Congress’s command to use
“Federal substantive law” to fill in statutory gaps).
Mindful that this power to create rules that fit ERISA’s purposes is to be
wielded carefully and narrowly, we exercise it here. 29 U.S.C. § 1307(e)(2)
establishes liability for the “controlled group” of a plan sponsor—that is, other
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entities “under common control with” the sponsor. 29 U.S.C. § 1301(a)(14)(A).
The purpose and effect of this provision is plain: the sponsor of a defunct pension
plan cannot be allowed to funnel its assets into other entities it owns, and then
leave PBGC holding the bag for the plan’s continuing liabilities. If a sponsor is on
the hook for unfunded pension liabilities, then every other entity sharing a
specified percentage ownership interest in common (here through Wortley) is also
on the hook, jointly and severally. 29 U.S.C. § 1307(e)(2); see also Durango-
Georgia Paper Co. v. H.G. Estate, LLC, 739 F.3d 1263, 1266 (11th Cir. 2014) (“In
the event that the contributing sponsor can no longer pay benefits when they are
due, the PBGC is authorized to terminate the plan . . . and to demand that the
contributing sponsor and the members of the controlled group provide for the
unfunded benefit liabilities.” (internal citations omitted)). Joseph Wortley owned
Liberty, and Joseph Wortley owns the Companies; there is no dispute about that.
Further, Wortley’s actions on behalf of Liberty after its purported dissolution
constitute strong evidence that Liberty continued to serve as the Plan’s sponsor de
facto, whatever its technical status under Illinois law. For years after its
dissolution, Liberty—through Wortley—continued to authorize payments out of
the Plan. Liberty played an active role in the Plan years after its bankruptcy; most
notably, Wortley filed with the government and the bank that held the assets in
2002 and 2004 ERISA forms that identified Liberty as the Plan’s sponsor. And
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Wortley sent a letter to the Plan’s actuary on Liberty letterhead inquiring about
benefit entitlements. These steps—necessary to the Plan’s continuing
maintenance—can only have been undertaken by the Plan’s sponsor.
With all this in mind, we follow the Supreme Court’s instruction to fill in
ERISA’s gaps with common-law rules, see Firestone, 489 U.S. at 109, and we
hold that where the sponsor of an ERISA plan dissolves under state law but
continues to authorize payments to beneficiaries and is not supplanted as the plan’s
sponsor by another entity, it remains the constructive sponsor such that other
members of its controlled group may be held liable for the plan’s termination
liabilities. Under the narrow rule we craft here, the Companies are liable to PBGC
for the Plan’s termination liabilities for the simple reason that Liberty persisted as
the Plan’s sponsor even as it dissolved as an Illinois corporation.
This rule “further[s] ERISA’s scheme and goals” by “protecting . . . the
interests of employees and their beneficiaries in employee benefit plans”—it
ensures that a plan such as this does not go without a sponsor—and it promotes
“uniformity in the administration of employee benefit plans” by clarifying that
disparate state corporations laws are not the sole factor in determining a sponsor’s
identity. Horton, 141 F.3d at 1041. By contrast, giving credence to the
Companies’ overly broad view of Illinois law would mean leaving the government
agency to pick up the Plan’s tab rather than first exhausting any funds that might
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be kept in Wortley’s other entities, and it would make the definition of sponsor
entirely dependent on state laws that may differ widely on a corporation’s post-
dissolution status. 2
The Companies claim that Liberty cannot have been the Plan’s sponsor, but
they provide no possible alternative sponsor. PBGC insists that it was never
notified at the time of Liberty’s bankruptcy in 1992 that the company was
dissolving so that it could lodge an appropriate claim as a creditor to the bankrupt
corporate estate and make provision for protecting retirees’ future benefit
payments. The government agency has no record of any such communications and
the bankruptcy court file that might contain the answer no longer exists. And the
Companies point to no provision of ERISA that contemplates a plan without a
sponsor—certainly, no provision that contemplates a plan continuing to operate
and pay out pension benefits for twenty years after the purported dissolution of its
sponsor while apparently failing to meet its notification requirements to PBGC.
Ruling for the Companies would mean holding that an extant pension plan may be
left without a sponsor for decades, which could have vast ripple effects across even
2
To be sure, we do not hold that ERISA preempts Illinois corporations law. See Graham v. R.J.
Reynolds Tobacco Co., 782 F.3d 1261, 1275 (11th Cir. 2015) (the “presumption against
preemption” means “the historic police powers of the States were not to be superseded by
[federal law] unless that was the clear and manifest purpose of Congress” (citation omitted)
(alteration in original) (overruled on other grounds by Graham v. R.J. Reynolds Tobacco Co.,
857 F.3d 1169 (11th Cir. 2017) (en banc))). Rather, we clarify that it is ERISA—not Illinois
law—that determines the identity of a plan’s sponsor in a situation such as this.
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unrelated provisions of ERISA. See, e.g., 29 U.S.C. § 1082(c)(4)(A)(ii) (naming a
plan’s sponsor as one party that may perfect a security interest as part of a
minimum-funding waiver); § 1083(c)(2)(D)(vi)(I) (requiring a plan’s sponsor to
use certain segment rates in determining waiver amortization installments). The
implication that an ERISA plan may function without a sponsor risks chaos by
muddying the meaning of these sections and others that depend on an ascertainable
sponsor. We decline the Companies’ invitation to create this uncertainty in ERISA
law.
Because we craft this common-law rule to conclude that Liberty remained
the Plan’s sponsor until the execution of the 2012 agreement, we do not reach the
parties’ other arguments or the district court’s other findings.
IV
We hold that—under the particular circumstances presented here, and
mindful of ERISA’s scheme and protectionist goals—the Companies owned by
Joseph Wortley are liable for the Plan’s termination liabilities notwithstanding
Liberty’s apparent dissolution under Illinois law. The judgment of the district
court is
AFFIRMED.
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