it's number two thousand seven hundred thirty five twenty pension benefit guaranty corporation versus family industries incorporated in ohio corp and all are not to exceed fifteen minutes per side m administers first whether leasing property between commonly controlled organizations is categorically a trade or business for risk a liability and second whether common law success or liability should be applied to single employer plans pension plans this case began when finley industries ceased operations with an underfunded pension plan p b two c took responsibility for the plan and later filed suit against petition for and was granted into walk a tory peel as to the trade or business the whole purpose of applying the control group rules to arista liability is to prevent businesses from shielding their assets from that liability by fractionalized their operations among multiple commonly controlled organisations if this is this really though just a question about whether or not the tax code construction is the appropriate one concerned some provisions of the tax code which had nothing to do with arista and it actually had to do with the whether gambling losses of an individual would were deductible as trade or business losses and that's not the best rule to be applied here the categorical rule is the best your rule to be applied here and has been applied by a record every other court looking at this issue  many pension plan sponsors use property owned directly or indirectly by the sponsors owners and that property is really a business asset and should not be shielded from business liability and preventing this kind of evasion through fractionalization is a is accomplished by holding that leasing between commonly controlled organizations is categorically a trade or business period so it is not relevant whether the liability arose from a multi employer plan or or a single employer plan it is not relevant whether the leasing it issue would be considered active or passive it is not relevant whether the less or is a trust a sole proprietorship or some other kind of whether the ownership of the less or the ownership of the lessee and of the existence of leasing and if those three facts or the ownership is above eighty percent those organizations will be under common control and in this case they were under common control as of the data plan termination which is the key date and they were also leasing the trust was leasing to finley industries so all three facts are present in this case the parents of tried to distinguish this case based in part on the fact that the trust trust was set up by the grand tour to take care of his sister's but he's ignoring that and it's a problem there probably wasn't coming control at the inception of the trust either because the the sisters who were the immediate beneficiaries were younger and all still alive but by the time that the plan terminated only one of them was even alive and she was eighty six years old so the ownership of the adult sons had increased about eighty percent and meanwhile they also inherited the ownership of family industries from their father so you look to the to the question of control at the time the so i'm still confused then about my hypothetical let's assume that the real estate was still being held in trust at the time of the terminations of the plan trust  claim against the trust why wouldn't there have been common control in my hypothetical if the sons were the trustees they're just not the residual beneficiaries well because they're all in the lease and because they're beneficial it's beneficial ownership rather than legal ownership which is determinative and if beneficial if they're if the sons had no beneficial ownership then they then we find that in the cases this fine line that you're driving it's a fact pattern that just hasn't happened yet but that but it's easily ascertained from from the previous rules so that's exactly the point why while categorical rule as opposed to a rule that looks at the facts well this  this rule does look at three facts it looks at ownership of the one entity in ownership of the other entity and finally whether there's an economic relationship generally it's leasing and in this case in the in your hypothetical one of those the fact that's missing is the ownership of the less or the ownership of the less or does not  zero the adult sons ownership of the les or would be zero under that hypothetical because their ownership is only legal not beneficial and that's measured at the time the trust terminates is that correct not the no no your honor it's not the want to trust terminates but when the plan pension plan terminates when the pension plan terminates though under this categorical rule you you look to use the beneficial ownership of terminations not the legal ownership of terminations that's correct even though the legal terminations would place the trust under common control if the trustees that run the trusts and set the lease agreements and everything else are the sons and they run the business if the beneficiary in my example was somebody else then that wouldn't be a tra regs but what it is it's really about ownership not control and this is found in the in the control group regs at treasury regular regulation one point four one fo the dash to the provides that the ownership of a trust is measured by the parties actuarial interests in other words the beneficial interests so it's not like we're making this up it is and that the reason it hasn't happened much is because there's i'm of the twenty seven cases we cited only three of them involve trusts and there was no dispute about the ownership of the trust in those cases i  guess what i'm still troubled by is this idea that we we should endorse a categorical rule that doesn't look at all the facts i will acknowledge that at least the way you're answering the question there are three facts that you look at under the test that you like but you ignore any other facts regardless of how relevant they might have they might end up being well i would say they aren't relevant under the rules liabilities or the segregating of assets to make them unavailable to satisfy those pension liabilities by setting them off in a different entity in an under the ownership of a different organization and so  this rule gets at that problem better than it then it and the other would whose perspective well from the perspective of you certainly but also from congress is  because congress intended that congress must have a reason for applying the control group rules to research and courts have found that that reason is to prevent this kind of  cited in numerous cases and many of which were cited in our brief but that's a perfect segue into your request to ask two three federal common law were paragraphs specifically address the question and consider the question of whether they have success or liability in these single  examples here single employer examples in the compromise they reached as i understand it from the legislative history they declined to do so so what we now want us to do what congress expressly considered and declined to do under the guise of creating a law well i don't i don't agree that we can infer that your honor one house had that clause in it in the other house did not and the final bill ended up without and i can in er that from that no your honor and i think we cited a supreme court precedent to that effect that you can't infer from mute legislative maneuvering and even if we could  one of the courts that has held otherwise as to withdraw liability which is indistinguishable for any practical matter several courts including two at the circuit level have held that the federal successor doctrine does apply to a throw away ability and one of those courts was zahra was the seventh circuit in sorry the man webb where in they noted that it's equitable to apply this federal successor doctrine because the asset purchaser is not liable unless among other things it has noticed it had notice of the withdrawal liability before the sale so that  able to negotiate a change in the purchase price based on that information but there are other questions  american kennel club that has almost the same initials i've forgotten what the full name is but oh that the p g beat the p b g c didn't argue that this was a reorganization well we think that the provision of book thirteen sixty nine be right which provides for corporate reorganizations that's the title is not designed for asset sales clearly i think we can agree on that  it's designed for structural reorganizations such as mergers and therefore it's it does not have anything to do with success or liability interest so it because this was simply a sale of liability claim and the request to create a new federal common law as the court well knows it is unusual to create federal common law in the context of a recess which is a comprehensive particularly good statute and this court  thirteen sixty nine b does lay out what under what circumstances certain successors will be liable and as mr boone conceded it omits asset purchasers which is the situation here so this is not a case where a recess is silent for the same reason there is no gap in the statute to be filled congress considered having every or any successor in interest be held liable and it did not include that language it deliberately omitted it and because congress left it out it cannot be said that at now forty years later adding asset purchasers to the list of who can be liable is essential to promoting fundamental of marriage at least two circuit courts that have found otherwise true the seventh and the ninth with respect to successor liability not in the context of single employer pension play well i thought everybody was willing to admit that there's no real distinction between those two situations actually your honor we believe that there are a number of distinctions but most  importantly the withdrawal lot ability provisions from the multiemployer pension plan plan amendments act do not account for successor liability they don't have a similar provision of thirteen sixty nine b they don't say that these types of successors will be alive so there is a gap in that statute which we have said makes sense to fill with common law that the single employer pension plan does not have such a gap so we believe that that is no important distinction i think the presence or absence of a gap is something that we probably don't need to get into because my concern is with the third prong that is whether there is whether creating a little common law here is essential to the purposes of a risk  pension is that would you say that was correct yes i would agree that those are some of the purposes of her missa well it's overarching probably the main purposes i would think so let me try this set of facts out on you michael gardner purchased all of families valuable assets for only three point four million and within four and a half years had turned a nearly twelve million dollars profit using former findley employees making former findley products and selling to findlay's biggest customer if we can't say that their success or liability in that factual situation what's to stop people all across the country from doing what findlay did and leaving eighteen million to thirty million dollars in debt in the corporation your honor i certainly understand that argument on the on the equities and i have several responses to it but wait a minute i thought successor liability was an equitable rule well your honor i think it is it is partly an equitable rule but but in terms of the fact pattern that you presented i think there are number of important facts and other principles that come into play one is that the existing law at the time a state law which is also the t traditional successor doctrine state corporate law provides that asset purchasers are not liable for those of liability as it were and also a general principle that congress was looking for uniform law across the country and if we start letting state law control then there's going to be no uniformity because state law in this in this situation is not in fact you know form well why wouldn't we want a uniform applicable rule i would argue your honor that we do have a uniform rule thirteen sixty nine b reflects the state standard corporate law which is a fairly standard across the country in terms of the mere continuation rule and that is in consistent with thirteen sixty nine b so when congress was deciding whether to have broad successor live below the or limit its successor what i believe is that does not include asset purchasers that is essentially a choice between the federal successor dr no we're going to just go back to the main purpose of a risk it's to protect the employees who are left unprotected in this situation yes and to hold the employers to their promises yes which is an occurring here and if you can fly in the face of the purposes of a risk in this manner it seems to me that everybody will be concocting something like this in order to avoid paying out pensions what if for example in this situation they transferred all the assets to michael and he sold them to a straw man who then sold them back that would keep him from ever getting to the to the pension promises wouldn't it i mean you could think up situations it would cause you to be able to avoid liability just through this kind of inventive situation i'm not saying that that was the case here but if we don't have a successor liability principle at play here that's what's going to happen your honor let me i do understand your concern and i really do want to try to address it there is a countervailing principle which is discussed in the artistic carton case from the seventh circuit which is in a r case and they describe a situation where an employer is going bankrupt essentially the problem with imposing liability on all asset purchasers is that you discourage asset purchases you discourage the sale of failing businesses and that is a double whammy for the employees that you're rightly concerned about because the not only do they lose their pensions but they lose their jobs discouraging the purchases of failing businesses which is what would happen if you had a broad rule of successful had ability like that puts everybody out of work it doesn't it doesn't help anybody so in this situation for example what michael gartner did is he took businesses that were undisputedly failing and he turned them around and those people had jobs and when you look at the equities of the situation it's easy to say in hindsight that well he made three million dollars a year you know twelve million over four years you know and he only paid three million but at the time of the sale it was the beginning of the great there was a great deal of uncertainty about what the future of the markets were with the future of the car automobile market was which is what he was in so it was still a risk and in terms of well he adjusted the purchase price and this is all a sweetheart deal if you can't you can't convince me it wasn't an arms and that it was an arms aling deal with iran or there is certainly a father son relationship now the father was dead at that point it was his father's company but in terms of an arm's length relationship anybody else could bought that company other another company had come along and looked at it but nobody else was willing to buy it so i would i'd submit that the facts about that are not before the court at this time because we're on an interlocutory appeal on a motion to dismiss but i  would not agree with that characterization however the the more important point is that if you look at the pleadings what p b g c has pled is that well he made twelve million dollars over four years but they also say that at the time of the  sale he knew they say that michael gartner knew that there was liability of eighteen million dollars well who would buy a company even if they thought they were going to get three million dollars a year if they knew that there were eighteen million dollars in liability they wouldn't he would have walked away nobody would because a joint several liability they're seeking all of the lives realty that finley industries have has from the companies from the two companies these were two of i believe sixteen plants that michael garner bought three million dollars for the asses and then you know thirty million dollars on the pensions correct we think that's fair because he made some money in the media i think i agree your honor it is not not only is it not fair but it will have a chilling effect and that's something congress considered at the time that they passed a and something that other courts like artistic carton there to say carton court has considered but that artistic carton opinion did that was it wasn't that an earlier opinion that followed the the seventh circuit  employer thing was a later case was it not yes your honor i would also note that however the i noted there are distinctions between multiplayer plants and single employee plans there are a number of  distinctions one of them is that withdrawal liability is different from the kind of liability we're talking about here where p b g c essentially has to guarantee the benefits and they have the right to come and sue people who are who essentially under the rules that congress has set out and withdraw liability the p c is not who brings the suit it's the it's the union who brings the suit or you know the the party that's that's essentially being hurt and there are very different rules set up for when an employer can withdraw and how they withdraw to protect themselves from liability it's simply a different scheme so to say that because there's this kind of rule over there it should therefore come to this situation it doesn't make sense it's really apples and oranges in a particular case that you believe more strongly supports your position on the show we support your position in this interest and and also how does this trader business definition impact where we should come out on this in terms of characterizing michael gardner's actions and the consequent results actually questions your honor on the first question just to finish up count fifteen with success or liability i think one of the best cases it's peter's versus western paper products it's a six circuit case in one thousand nine hundred eight and the the point there is the principle that if you chill if you if you have too broad a rule of success or liability you're going to hurt everybody essentially that's what i would point to i think and so this this issue really relates to the father to philip gardener and he set up the stress to take care of the sisters you asked initially at the beginning of argument what the relevant facts were and if you look at the cases twenty seven or so cases cited by p b t see there's an additional fact that mr boone did not mention in his argument and that is that those cases involve leasebacks the leaseback is essentially where the employer is the employer own the entity that is doing the leasing and the entity that is paying the rent and essentially it's a closed loop they're paying themselves it's a you know essentially closed loop the facts here do not involve a lease back here there's no closed loop the the income went to the sisters it never could go to fill gardner it could never go to his company and in fact the trust says that he can never be a beneficiary and it's a written irrevocable trust so the fact that it's really salient to the categorical rule that p c c urges here is missing from our fact pattern and we would argue that that's an important distinction one of the that bothers me about the success or liability question is the concept of subtle the expectations there was no federal common law at the time of this transaction we would get into retroactivity when we deal with a b s cases and criminal cases we don't really talk about it much at least that i can think about the top of my head in connection with civil cases but if you come across any authority that deals with this one way or the other there there isn't any requirement that he assume those liabilities and an asset sale at the time he does it and then however many years later now they want to come back and collect not only the three million or the twelve million but they want to collect thirty million dollars your honor i believe i don't remember the case but there are cases cited at the end of our brief when we talk about adopting state the common law principle rather than federal law and that's one of the reasons is because we want to avoid upsetting the commercial expectations of the parties because that's not fair now i can't think of a case offhand where that happened retroactively and equities were looked at but certainly we think that's exactly right and that's why if the court decides to adopt a common law rule we think it should be at the state common law state law doctrine which is the traditional successor doctrine because that is consistent with the presumably different from state to state and don't achieve uniformity under the context of the rest of your i think maybe statutes of limitations under arrest often i believe that you adopt state law for statutes of limitations and then those can differ from state to state but that affects the ability to bring suit it doesn't affect the result i mean if you're beyond the statute you're out but it doesn't have any effect on the substance of the situation that's true your honor it effects your right to bring suit not on the substantive law that will govern when you get there but i do that's at least one example i believe there are others but i i know we cite cases on around those points at the end of our brief there are other questions we don't know thank you thank you for your argument i like to address a little of a few things regarding successor liability and and one thing about the trade or business argument first of all withdraw liability is very similar to the people you see claims that issue contrary to the ultimate purpose of p g claims and the withdrawal claims liability claims is the same as to allow p v c to continue to guarantee benefits under multiemployer and single employer pension plans without having to raise premiums on the employers that are still contributing to the isp and according to twenty nine u s c section thirteen zero two a that is one of the three purposes of the subchapter that applies to both single and multiemployer pension plans why do we have different sections for the two different player types of players if you simply say they look pretty similar to us would just apply the same rules to both whether the statute says that or not well there are different they are not saying they're identical i'm saying that in the important fact as to the important facts they are the facts relating to liability in in the briefs below that the both the court and the apple lease identified several differences between mostly employer and single employer plans but none of them had to do with liability and liability or similar and not only regarding the purpose of that liability but also the person explicitly liable under the statute are almost identical which suggests that the there under the common law the same people should be liable and those multiple employer set ups exist only in the situation where there is an agreement under a c b s a right actually multiple employer is it is actually a third category plan but multi employer plans are plans under a collective bargaining agreement yes is that the reason you all don't come in that the union comes in well actually we are the ultimate guarantor of those benefits as well but there is an intermediary which is the plan the trustees in which actually suggests that we should have more protection not less because there is no intermediate barrier and the final similarity that i want to mention is that the unfunded benefit liabilities are calculated by subtracting assets from benefit liabilities and that's the same way that withdrawal  and also regarding thirteen sixty nine counsel continues to say that that doesn't apply to most employer plans but we've said over and over again in our brief it does apply to multi employer plans under twenty nine u s c thirteen ninety  eight it says that the corporation the corporately organizations described in thirteen sixty nine b are not considered withdrawals and the successor or parent corporation is considered the original employer which means that the successor or parent corporation is liable when i was when withdrawal eventually does occur just as the successor parent corporation is liable for terminations are you arguing that successor liability gardner would be liable for the full amount here because he made money off of this asset purchase or would the would your position be exactly the same had he not made it are  legally our position would be the same if there's notice and substantial continuity then legally i mean those are those that's all we need to allege he knew that there was a deficiency on the pension plan then he'd be take a flyer he buys the assets on the cheap and he doesn't make it fail he's liable for all of the pension amounts right well it's not just the buying assets it's the same employees having the same cousin who does all the same small amount of fraudulent transfers are at issue here but the companies are liable and of course the company's if they didn't make any money if they want profitable if they failed then we wouldn't be going after them anyway but the point is it's not for this venture turned a profit of twelve million dollars over four years is i understand your answer that that's basically irrelevant except to explain why you're actually suing well no i would say it's irrelevant because the seventh circuit has held has stated that and other courts i don't think any court disagrees that successor liability is an equitable remedy and that's what that's i think why we mention that effect in our complaint that the amount of profit and i want to get i want to get clarification on judge mckee previous question which is assuming all of the perks that we have in this case now except that under his hypothetical  gardener lost money rather than made money would you still allege that he whatever the amount is and your question was well we would be going after but is it that you would be going after  going have him personally now so judgment he's questions that assume everything we've got now except assume a loss and he said would you still argue that would you still be i mean would there still be liability you said well we wouldn't be going after him and my question is would you not be going after him because of the futility or because there's no liability mainly because of the futility ok so argument is we can't let the agency do this because it will chill efforts to save failing companies and your response to that is if there are not sufficient assets available we wouldn't bother to come in and try to ruin the business is that yes that's correct and this happens in bankruptcy  receivership situations all the time but if but what we're missing here is is gardner takes these assets and he puts them in two different companies right let me change the facts a little bit and let's assume that these two companies or however many there are don't end up making any money in connection with the former assets and customers and employees but these other companies are successful in other respects they're either already successful when they take a flyer on these assets or or whatever you're going to go after them that's great evil even though they don't make a dime on these assets that they acquired here because they