Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_13-cv-02338/USCOURTS-cand-3_13-cv-02338-9/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1451 E.R.I.S.A.

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

PENSION PLAN FOR PENSION TRUST 

FUND FOR OPERATING ENGINEERS, et 

al.,

Plaintiffs,

v.

GIACALONE ELECTRICAL SERVICES, 

INC, et al.,

Defendants.

Case No. 13-cv-02338-SI 

ORDER RE: CROSS MOTIONS FOR 

SUMMARY JUDGMENT; DEFAULT 

JUDGMENT; MOTION TO SEAL

Re: Dkt. Nos. 85, 88, 89, 93

On June 26, 2015, the Court heard argument on the parties’ cross motions for summary 

judgment, plaintiffs’ motion for default judgment, and the parties’ motion to seal. For the reasons 

stated below, the Court GRANTS the Giacalones’ motion for summary judgment, DENIES 

plaintiffs’ motion for summary judgment, GRANTS plaintiffs’ motion for default judgment, and 

GRANTS the parties’ motion to seal. 

BACKGROUND

Plaintiffs, Pension Plan for Pension Trust Fund for Operating Engineers (“the Plan”), and 

Richard Piombo and Russell Burns (as trustees), bring this action against defendants Giacalone 

Electrical Services, Inc. (“GES”), and Lisa and Vincent Giacalone (“the Giacalones”) alleging 

violations of the Employment Retirement Income Security Act of 1974 (“ERISA”). During all 

relevant times, GES was a corporation engaged in the construction business, and an “employer” in 

an industry “affecting commerce” as defined by ERISA. 29 U.S.C. §§ 1002(5), 1002 (11)-(12). 

During all relevant times, the Giacalones were the sole shareholders of GES. Docket No. 86, V. 

Giacalone Decl. ¶ 4; Stipulation of Undisputed Facts (“SUF”) ¶ 3. Between 2002 and 2009, GES 

made contributions to the Plan as required by a collective bargaining agreement with the union 

representing its employees. V. Giacalone Decl. ¶ 4; SUF ¶ 1. However, in 2009, its employees 

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voted to oust their union in an effort to obtain better representation; GES was therefore required to 

cease recognizing the former union, and accordingly, withdrew from the Plan. V. Giacalone Decl. 

¶ 6; SUF ¶ 1. On November 7, 2012, GES and its control group members were assessed with 

withdrawal liability of $2,231,762. SUF ¶ 2. In 2010, GES went out of business, in part due to the 

change in union representation of its employees. V. Giacalone Decl. ¶ 6. GES’s corporate status is 

currently suspended, and its contractor’s license has expired. Babu Decl. Exhs. A, B. 

In 2004, the Giacalones purchased a vacation home in Incline Village Nevada (“the 

Property”) for $3.36 million dollars, which they eventually hoped to retire in. V. Giacalone Decl. 

¶¶ 8-9; SUF ¶¶ 4-5. The Giacalones leased the Property from time to time in order to defray the 

cost of the mortgage, and related expenses. However, the parties dispute whether the Property 

should be characterized as a passive investment, or as a profit-seeking business. 

On May 22, 2013, plaintiffs filed this action in federal court, alleging causes of action for 

(1) withdrawal liability (against all defendants), (2) reimbursement for distributions received from 

a dissolved corporation (against the Giacalones), and (3) failure to provide required information 

(against all defendants). Docket No. 1, Complaint. In the ensuing months, plaintiffs reached 

settlements or voluntarily dismissed many of the named defendants. See Docket Nos. 39, 49. The 

present motions only concern defendants GES and the Giacalones. On July 29, 2013, the 

Giacalones answered the complaint. Docket No. 17. GES failed to respond, or otherwise appear in 

this case; accordingly, on August 21, 2013, the Clerk entered default against GES. Docket No. 23. 

Now before the Court are cross motions for summary judgment filed by the Plan and the 

Giacalones, and a motion for default judgment filed by the Plan against GES. Docket Nos. 85, 88, 

89.

LEGAL STANDARD

Summary judgment is proper if the “pleadings, depositions, answers to interrogatories, and 

admissions on file, together with the affidavits, if any, show that there is no genuine issue as to 

any material fact and that the moving party is entitled to a judgment as a matter of law.” 

Rosenbaum v. Washoe Cnty., 663 F.3d 1071, 1075 (9th Cir. 2011); Fed. R. Civ. P. 56(a). The 

moving party bears the initial burden of demonstrating the absence of a genuine issue of material 

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fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party, however, has no 

burden to disprove matters on which the non-moving party will have the burden of proof at trial. 

The moving party need only demonstrate to the Court that there is an absence of evidence to 

support the non-moving party’s case. Id. at 325.

Once the moving party has met its burden, the burden shifts to the non-moving party to

“set out ‘specific facts showing a genuine issue for trial.’” Id. at 324 (quoting then-Fed. R. Civ. P. 

56©). To carry this burden, the non-moving party must “do more than simply show that there is 

some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith 

Radio Corp., 475 U.S. 574, 586 (1986). “The mere existence of a scintilla of evidence . . . will be 

insufficient; there must be evidence on which the jury could reasonably find for the [non-moving 

party].” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

In deciding a summary judgment motion, the court must view the evidence in the light 

most favorable to the non-moving party and draw all justifiable inferences in its favor. Id. at 255. 

“Credibility determinations, the weighing of the evidence, and the drawing of legitimate 

inferences from the facts are jury functions, not those of a judge . . . ruling on a motion for 

summary judgment.” Id. However, conclusory, speculative testimony in affidavits and moving 

papers is insufficient to raise genuine issues of fact and defeat summary judgment. Thornhill 

Publ’g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). The evidence the parties 

present must be admissible. Fed. R. Civ. P. 56(c)(2).

DISCUSSION

I. Cross Motions for Summary Judgment

The Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”) amended ERISA 

and was enacted to reduce the incentive for employers to terminate their affiliation with 

multiemployer pension plans. H.C. Elliott, Inc. v. Carpenters Pension Trust Fund, 859 F.2d 808, 

810 (9th Cir. 1988). The MPPAA imposes withdrawal liability on an “employer” which withdraws 

from a multiemployer pension plan. Resilient Floor Covering Pension Fund v. M&M Installation, 

Inc., 630 F.3d 848, 851 (9th Cir. 2010) (citing 29 U.S.C. § 1381). The MPAA defines “employer” 

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to include, not only the entity making contributions to the plan, but also all “trades or businesses 

(whether or not incorporated) which are under common control” with the contributing employer. 

29 U.S.C. § 1301(b)(1). Therefore, all “trades or businesses” under “common control” are jointly 

and severally liable for all such employers’ withdrawal liability. See Bd. of Trs. of W. Conference 

of Teamsters Pension Trust Fund v. Lafrenz, 837 F.2d 892, 893 (9th Cir. 1988); Auto. Indus. 

Pension Trust Fund v. Fitzpatrick Chevrolet Inc., 833 F. Supp. 2d 1162, 1164 (N.D. Cal. 2011); 

see also Cent. States, Se. & Sw. Areas Pension Fund v. Fulkerson, 238 F.3d 891, 894-95 (7th Cir. 

2001) (“[T]o 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 corporation; and (2) it must be a trade or business.”).

A. Trade or Business

Plaintiffs argue that the Property constitutes such a trade or business under common 

control of GES–the withdrawing employer–and thus wish to assess withdrawal liability against the 

Giacalones as sole proprietors of the Property. The Giacalones concede that the Property is under 

“common control,” but dispute that it constitutes a “trade or business” as defined by Section 

1301(b)(1). SUF ¶ 3; Docket No. 85, Def. Mot at 5. 

“ERISA does not contain a definition of the term ‘trade or business.’” Carpenters Pension 

Trust Fund for N. Cal. v. Lindquist, 2011 U.S. Dist. LEXIS 78193, at *12 (N.D. Cal. Jul. 19, 

2011), aff’d 491 Fed. App’x 830 (9th Cir. 2012). Section 1301(b)(1) provides that the phrase 

“trades or businesses (whether or not incorporated) which are under common control” has the 

same meaning as that provided in the regulations promulgated under section 414(c) of the Internal 

Revenue Code. Lafrenz, 837 F.2d at 894 n.6. “However, ‘trade or business’ is not clearly defined 

in either section 414(c) or the regulations promulgated thereunder.” Lindquist, 2011 U.S. Dist. 

LEXIS 78193, at *12. 

The Ninth Circuit has provided little guidance as to what qualifies as a “trade or a 

business” except to state that it is essentially a factual inquiry. Lafrenz, 837 F.2d at 894 n.6 

(holding that a truck leasing operation constituted a “trade or business”); see also Lindquist, 2011 

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U.S. Dist. LEXIS 78193, at *12-20 (holding that a leasing arrangement between the defendant and 

the withdrawing entity constituted a “trade or business”). This factual inquiry should be guided by 

Congress’ intent in enacting Section 1301(b)(1), which was “to prevent businesses from shirking 

their ERISA obligations by fractionalizing operations into many separate entities.” Teamsters 

Pension Trust Fund-Bd. of Trustees of W. Conference v. Allyn Transp. Co., 832 F.2d 502, 507 (9th 

Cir. 1987) (citing Board of Trustees v. Johnson, Inc., 830 F.2d 1009, 1013 (9th Cir.1987)); see 

also Lafrenz, 837 F.2d at 894 (“The point of section 1301(b)(1) is simply to prevent the 

controlling group...from avoiding withdrawal liability by shifting corporate assets into other 

business ventures under its control.”). 

While the determination of whether an entity constitutes a “trade or business” will depend 

on the facts and circumstances of each case, three guiding principles have emerged from the case 

law. First, courts generally find that an entity is a “trade or business” where it is engaged in 

economic activity with the withdrawing employer. See Lindquist, 491 F. App'x 830, 831 (9th Cir. 

2012); Cent. States S.E. & S.W. Areas Pension Fund v. Ditello, 974 F.2d 887, 890 (7th Cir.1992) 

(“Federal courts reaching this issue, including this circuit, have uniformly held that leasing 

property to a withdrawing employer is a ‘trade or business’ for purposes of section 1301(b)(1).”); 

Bd. of Trustees, Sheet Metal Workers' Nat. Pension Fund v. Delaware Valley Sign Corp., 945

F.Supp.2d 649, 653 (E.D.V.A. 2013) (“Although the Fourth Circuit has not yet addressed this 

issue, those circuit and district courts that have done so are in accord that renting property to a 

withdrawing employer is categorically a trade or business.”) (internal quotation marks and 

modifications omitted). However, while the existence of an economic nexus is sufficient to confer 

“trade or business” status, it is by no means necessary. Lafrenz 837 F.2d at 895 (“section 

1301(b)(1) does not require that commonly controlled businesses be economically related.”).

Second, “the statute does not distinguish between active and passive investments.” Id. at 894. 

Therefore, merely characterizing an entity as “passive” in nature does not necessarily render it 

beyond Section 1301(b)(1)’s ambit. Id. at 894, nt. 7. Third, “[t]he mere ownership of property 

without more is insufficient to constitute a ‘trade or business.’” Pac. Coast Shipyards Pension 

Fund v. Nautical Eng'g, Inc., No. 12-05439 RS, 2014 WL 120637, at *3 (N.D. Cal. Jan. 13, 2014) 

Case 3:13-cv-02338-SI Document 112 Filed 06/29/15 Page 5 of 17
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(citing Pension Plan for Pension Trust Fund for Operating Engineers v. Galletti Concrete, Inc.,

2013 WL 5289017, *4 (N.D. Cal.2013)). With these precepts in mind, the Court now turns to the 

facts of this particular case to determine whether the Property constitutes a “trade or a business.”

The Giacalones purchased the Property in 2004 for $3.36 million dollars to use as a 

vacation home and serve as their eventual retirement home. V. Giacalone Decl. ¶ 9. In late 2004 or 

early 2005, the Giacalones befriended Terry Barbery, a handy man and resident of Incline Village

since 2000. Barbery Decl. ¶ 1; V. Giacalone Decl ¶ 10. The Giacalones hired Barbery, who 

assisted them in making substantial repairs to the Property over several years. V. Giacalone Decl ¶ 

10. These repairs included replacing a “ruined” carpet with hardwood floors, resurfacing the deck, 

replacing the irrigation system, some painting, as well as other “maintenance and remodeling.” Id. 

Approximately a year after Barbery met the Giacalones, he suggested that they might consider 

renting out the Property to defray the costs of ownership. Id.; Barbery Decl. ¶ 2. The Giacalones 

agreed, and began renting the Property in 2006. They employed Barbery to let guests in and out, 

and to hire cleaners. Barbery Decl. ¶ 3; V. Giacalone ¶ 10. In July of 2010, Barbery began 

advertising the Property as a vacation rental online. Id. 

The Property produced $49,500, $65,074, $26,504, $41,000, and $58,625 in rental income

in 2006, 2007, 2008, 2009, and 2010, respectively. V. Giacalone Decl. Exhs. 5-10. From 2006 

through 2009, the annual mortgage expense was $170,363, and in 2010 it was $220,822. 

Giacalone Decl. Exhs. 4, 11. The effect of the sizeable mortgage payment, in addition to taxes and 

upkeep, was to make the Property cash flow negative to the tune of hundreds of thousands a year.

The Giacalones’ Schedule E tax returns show that they claimed deductions for cleaning, insurance, 

mortgage, taxes, utilities, and depreciation. Babu Decl. Exh. D-F. The Giacalones also checked a 

box indicating that they had not used the Property for personal purposes for more than the greater 

of 14 days or 10 percent of the total days the property was rented at fair market value. Id.; see also 

Babu Decl. Exh. H, Giacalone Depo. at 218:17-23 (testifying to have used the Property for less 

than 14 days a year, and only 2 days in the first 10 months of 2013). However, in February of 

2015, in the midst of this litigation, the Giacalones amended their returns to indicate that they had 

indeed used the Property for personal purposes for more than the greater of 14 days or 10 percent 

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of the total days the property was rented at fair market value.1From 2006 to through 2010, the 

Property was never rented more than 65 days in calendar year

2

, and before the Property was 

advertised publicly in July of 2010, it was rented only to friends, family, and by word of mouth. V. 

Giacalone Decl. ¶¶ 10, 12. It is undisputed that the Property was never rented to GES. 

In Auto. Indus. Pension Trust Fund v. Tractor Equip. Sales, Inc., No. 13-CV-03703-WHO, 

2014 WL 5810336 (N.D. Cal. Nov. 7, 2014), the court was presented with a set of facts very 

similar to the case at bar. The defendants, the Van Tuyls, owned a controlling interest in the 

withdrawing employer, TES. Plaintiffs attempted to argue that each of three properties that the 

Van Tuyls owned and leased constituted “trades or businesses” and were therefore subject to 

withdrawal liability. The Court found that none of the three properties constituted a trade or 

business and granted summary judgment in favor of the defendants. 

One of these three properties, a residential property located in the Lake Tahoe area, bears 

considerable resemblance to the Property at issue in the present action. The Van Tuyls’ Tahoe 

property was a single family residence, which they rented to friends and family, earning 

approximately twenty thousand dollars a year in rental income. Id. at *2. The Van Tuyls claimed 

tax deductions for travel expenses, insurance, utilities, gardening, and depreciation. Id. On their 

Schedule E Form, they indicated that they had not used the property for personal purposes for 

more than the greater of 14 days or 10 percent of the total days the property was rented at fair 

market value. Id. They reported 365 “fair rental days” and zero “personal use days.” Id. They 

 

1

Plaintiffs argue that the Court should not rely on the amended tax returns as they were 

filed and produced only a month before the fact discovery cut-off, and caused plaintiff to suffer 

undue prejudice. Pl. Mot. at 4, nt. 1. While this about-face certainly creates an aura of 

unreliability, the Court can find no resultant prejudice which would justify disregarding the 

amended returns. Moreover, considering the evidence of the amended returns would not alter the 

Court’s ultimate determination. See Auto. Indus. Pension Trust Fund v. Tractor Equip. Sales, Inc., 

No. 13-CV-03703-WHO, 2014 WL 5810336 (N.D. Cal. Nov. 7, 2014) (finding that a leasing 

operation was not a “trade or business” even where defendants had indicated on their Schedule E 

that that they had not used the property for personal purposes for more than the greater of 14 days 

or 10 percent of the total days the property was rented at fair market value.). 

2

Plaintiffs dispute that the Property was rented for only 65 days a year, pointing to guest 

logs showing that it was rented for 82 days in 2011. Babu Decl. Exh. I. However, this fails to 

undermine the Giacalones assertion that prior to 2011, it was never rented more than 65 days. 

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engaged in very little maintenance or improvement of the property. Id. The Van Tuyls never 

leased the property to TES, the withdrawing employer. Id.

Plaintiffs attempt to distinguish Tractor on three grounds: (1) the Giacalones rented the 

property to strangers, (2) the Giacalones advertised the property for rent to the public, and (3) the 

Giacalones performed substantial repairs and improvements to the Property. Pl. Opp’n at 4. As to 

the first two issues, the Giacalones did not start advertising the Property to members of the public 

until July of 2010, Barbery Decl. ¶ 3; V. Giacalone ¶ 10, almost a year after GES incurred 

withdrawal liability. “[T]he crucial date for testing controlled group status is the date of 

withdrawal.” Lyons v. Raymond Rosen & Co., No. CIV. A. 93-1514, 1994 WL 129955, at *9 

(E.D. Pa. Apr. 12, 1994) (citing IUE AFL-CIO Pension Fund v. Barker & Williamson, Inc., 788 

F.2d 118, 125 (3d Cir. 1986); see also Cent. States, Se. & Sw. Areas Pension Fund v. CLP Venture 

LLC, 760 F.3d 745, 749 (7th Cir. 2014) (finding that an entity was a member of the controlled 

group because the withdrawing employer owned a controlling interest before the date of 

withdrawal). Therefore, the Giacalones’ modest advertising efforts, which took place 

approximately a year after the date of withdrawal, are of little moment to the Court’s analysis.3

Next, plaintiffs seize on the fact that the Giacalones and Barbery spent “thousands” of 

hours “performing repairs and maintaining” the Property. Babu Decl. Exh. L, Interrog. No. 5. 

However, the types of improvements the Giacalones performed are not particularly instructive to 

the Court’s inquiry. Replacing an old carpet and resurfacing a deck are repairs that might have 

 

3

In Linquist the court clarified that where the withdrawing employer is engaged in a 

leasing agreement with the controlled entity, it may not escape withdrawal liability as a “trade or 

business” simply by terminating the lease the day before the date of withdrawal. No. 10-3386 SC, 

2011 WL 2884850, at *6. However here, it is undisputed that the Property was never leased to 

GES, and Linquist does not hold that facts occurring a year after the date of withdrawal are 

material to determining whether an entity is a “trade or business.” Finally, a review of the rental 

records shows that the character of the property did not change after the Giacalones began offering 

it for rent to the public. The Giacalones received rental income of $48,300, $60,950, $73,100, and 

$48,600 in 2011, 2012, 2013, and 2014 respectively, with the property being rented between 55 

and 82 nights a year. Babu Decl. Exh. I. A review of the guest logs also shows that a significant 

number of the guests stayed either for free or received a substantial discount, presumably for 

friends and family. Id. 

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been undertaken whether the Property was used as a residence, a passive investment or a bed and 

breakfast. A blanket rule which states that significant improvements to property necessarily 

require characterizing it as a “trade or business” could lead to perverse outcomes, such as allowing 

employers to escape withdrawal liability merely because they purchased newly renovated 

properties that require little upkeep. To the extent the facts surrounding the improvement and 

maintenance of the Property bear on the question of whether it constitutes a “trade or business,” 

they are in equipoise. 

The Giacalones and plaintiffs base their arguments on essentially the same evidence. Their 

dispute therefore arises not out of the presentation of conflicting facts, but rather centers on how

these facts should be characterized. While plaintiffs wish to characterize the Property as a fullfledged business operation, they have failed to cite a single case holding that where there is no 

economic nexus with the withdrawing employer, occasionally renting residential property 

constitutes a trade or business.4In fact, in one case cited by plaintiffs, the court appears to suggest 

that a “vacation home rented out during the summer season to defray mortgages expenses” would 

not constitute a trade or business. ILGWU Nat. Ret. Fund v. Minotola Indus., Inc., No. 88 CIV. 

9131 (RJW), 1991 WL 79466, at *5 (S.D.N.Y. May 3, 1991).

Given the lack of economic nexus between the Property and GES, and the limited nature of 

the rental activity, the Court finds that, as a matter of law, the Property is not a “trade or business.”

As this Court and others have previously held, the “mere ownership of property without more is 

insufficient to constitute a ‘trade or business.’” Galletti No. CV 13-3176 SI, 2013 WL 5289017, at 

*4. Accordingly, the Court GRANTS the Giacalones’ motion for summary judgment, and 

DENIES plaintiffs’ motion for summary judgment on the issue of whether the Property is a “trade 

or business.” 

 

4 Moreover, many of the cases cited by plaintiffs employ the test for defining “trade or 

business” announced in Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23 (1987), 

which has been rejected by the Ninth Circuit. See Lafrenz, 837 F.2d 892; see also Groetzinger 480 

U.S. at 27, nt. 8 (“We caution that in this opinion our interpretation of the phrase ‘trade or 

business’ is confined to the specific sections of the Code at issue here. We do not purport to 

construe the phrase where it appears in other places.”). 

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B. Arbitration Requirement

Plaintiffs argue that by failing to initiate arbitration, the Giacalones have waived the right 

to contest whether the Property is a trade or business under common control, and therefore an

“employer” subject to withdrawal liability. Pl. Mot. at 8-9. As noted above, the MPAA defines 

“employer” to include, not only the entity making contributions to the plan, but also all “trades or 

businesses (whether or not incorporated) which are under common control” with the contributing 

employer. Under 29 U.S.C. § 1401(a)(1), “‘[a]ny dispute over withdrawal liability as determined 

under [sections 1381 to 1399] shall be arbitrated.’” Teamsters Pension Trust Fund-Board of 

Trustees v. Allyn Transp. Co., 832 F.2d 502, 504 (9th Cir. 1987). “If an employer fails to initiate 

arbitration, the employer waives the opportunity to assert any defenses that could have been raised 

before the arbitrator.” Pension Plan for Pension Trust Fund v. Weldway Constr., Inc., 920 F. 

Supp. 2d 1034, 1044 (N.D. Cal. 2013) (citing Allyn, 832 F.2d at 505). Plaintiffs read this provision 

as precluding the Giacalones from arguing that the Property is not a “trade or business,” and 

therefore not an “employer” in a judicial forum. 

As the court in Tractor noted, the plain language of the statute forecloses plaintiffs’

argument. Section 1401 compels arbitration only for disputes arising out of sections 1381 through 

1399, while controlled group status is determined under Section 1301. No. 13-CV-03703-WHO, 

2014 WL 5810336, at *7; see also 29 U.S.C. § 1401. Although the Ninth Circuit has not yet 

directly addressed this issue,5this Court and several circuit courts have held that the issue of 

whether a defendant is a member of the controlled group, and therefore an “employer” within the 

meaning of the MPPAA, need not be arbitrated. Galletti No. CV 13-3176 SI, 2013 WL 5289017, 

at *2 (citing cases from the Second, Third, Eighth, and Eleventh Circuits). Accordingly, the Court 

finds that the Giacalones have not waived their right to contest whether the Property is a “trade or 

business” – and therefore a member of the controlled group – in a judicial forum.6

 

5

In Allyn, the Ninth Circuit found that a control group member could be held responsible 

in default for the withdrawing party’s liability where no arbitration was initiated. 832 F.2d at 506-

07. However, in Allyn, the Court only addressed the issue of whether the notice to this member of 

the control group was sufficient, and not whether the member could challenge its status as an 

“employer” in the district court. See id.

6 Nowhere in plaintiffs’ two-page reply brief do they respond to the Giacalones’ 

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C. California Corporations Code § 2011

On October 1, 2010, Vincent Giacalone received $369,450 in equipment from GES, which, 

according to plaintiffs, he later sold. Babu Decl. Exh. M. Vincent Giacalone also received 

$286,360.3 in proceeds from GES’ insurance account. Id. Exh. N. Plaintiffs argue that these funds 

did not constitute repayment of a debt, but are rather equity distributions,

7

and seek to recover 

these funds from the Giacalones pursuant to California Corporations Code § 2011(a)(1)(B). Pl. 

Mot. at 8. Section 2011(a)(1)(B) states: 

(a)(1) Causes of action against a dissolved corporation, whether 

arising before or after the dissolution of the corporation, may be 

enforced against any of the following:

...

(B) If any of the assets of the dissolved corporation have been 

distributed to shareholders, against shareholders of the dissolved 

corporation to the extent of their pro rata share of the claim or to the 

extent of the corporate assets distributed to them upon dissolution of 

the corporation, whichever is less.” 

Cal. Corp. Code § 2011(a)(1)(B).

The Giacalones contend that Section 2011 does not apply because GES’ corporate status is 

merely suspended, not dissolved.8 Babu Decl. Exh. A. By its plain language, the statute applies 

exclusively to dissolved corporations. See Gibble v. Car-Lene Research, Inc., 67 Cal. App. 4th 

295, 310 nt. 11 (1998) (“Certainly, Corporations Code section 2011...applies only to ‘dissolved’

corporations.”). In their reply, plaintiffs make an appeal to public policy, arguing that GES has 

 

arguments, or otherwise address the issue of arbitration.

7

It is wholly unclear from the evidence before the Court whether the transactions plaintiffs 

describe constitute a distribution of equity or a repayment of debt. 

8

It appears GES corporate status was suspended for failure to pay taxes. Def. Opp’n at 4. 

“Where the rights and privileges of a corporation are suspended for failure to pay franchise taxes, 

it is [not] treated as having been dissolved or its corporate franchise ‘forfeited,’ but it is merely 

subjected to certain disabilities unless and until it is ‘revived’ by the payment of the back taxes 

and penalties.” Marsh’s California Corporation Law § 21.15 (2015).

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ceased business operations and is therefore functionally dissolved, even if it has not met the legal 

requirements for dissolution. In their view, shareholders should not be able to avoid section 2011 

liability by winding up operations, but simply opting not to formally dissolve the corporation. Pl. 

Rep. at 2. Therefore, the question the Court must resolve is whether section 2011 provides a 

remedy against the shareholders of a corporation that has not been dissolved de jure, even if 

dissolved de facto. Neither party cites any case that bears on this inquiry. 

In CB Richard Ellis, Inc. v. Terra Nostra Consultants, 230 Cal. App. 4th 405 (2014), the 

court of appeals addressed the analogous question of whether plaintiffs could avail themselves of a 

statute which provided a cause of action against the members of a dissolved limited liability 

company (“LLC”), even though the LLC had not met the statutory requirements for dissolution. 

The court held that “‘[d]e facto’ dissolution is an acceptable predicate to a claim under former 

section 17355, subdivision (a)(1)(B).” Id. at 415. In arriving at this conclusion, the court reasoned 

that “[t]he statute does not say there are no other potential causes of dissolution. Nor does the 

statute indicate that satisfaction of one of the three statutory events is the exclusive determinant of 

dissolution.” Id. at 414. It ultimately based its holding on the very same policy concern expressed 

by the plaintiffs in this action. Id. at 415 (“If defendants’ interpretation of the statutory scheme 

were correct, companies (and their members) could avoid the force of former section 17355, 

subdivision (a)(1)(B), by the simple expedient of transferring assets out of the company the day 

before voting to dissolve.”)

This reasoning applies with equal force to section 2011, whose statutory language is 

almost identical to the provision analyzed in CB Richard Ellis.

9 Compare Cal. Corp. Code 

 

9 On June 23, 2015, the Court ordered the parties to be prepared to address CB Richard 

Ellis at oral argument, as neither party cited it in their briefs. At argument, the Giacalones argued 

that this case was distinguishable because its holding was animated by a concern that plaintiffs 

would be left without a remedy absent the doctrine of de facto dissolution. Conversely, they argue, 

that plaintiffs in this case could avail themselves of other statutory provisions that allow recovery 

of improper distributions to shareholders. However, this argument is belied by the plain language 

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§ 17707.07(a)(1) with § 2011(a)(1). While the Corporations Code sets forth various methods for 

effectuating the dissolution of a corporation, there is nothing to suggest that they are exclusive or 

that the Legislature meant to preclude the doctrine of de facto dissolution. See Cal. Corp. Code § 

1900, et seq. Indeed, the statutory framework evinces a concern that shareholders may make 

improper distributions during the process of winding up, but before dissolution. See e.g. Cal. 

Corp. Code § 2009. The Court therefore finds that a cause of action under section 2011 may lie 

against the shareholders of a corporation that is dissolved “de facto.”

10 This conclusion is also 

supported by the Ninth Circuit’s interpretation of federal tax law, which has elevated substance 

over form as it relates to determining dissolved status. A B C Brewing Corp. v. Commissioner of 

Internal Revenue, 224 F.2d 483, 488 (9th Cir. 1955) (“if it appears that the corporation is a 

corporation in name and semblance only, without corporate substance and serving no real 

corporate purpose, it must, though not formally dissolved, be treated as dissolved de facto.”) 

(internal citations and quotations omitted).

However, the determination of section 2011’s scope does not end the Court’s inquiry. It 

must also determine whether the Giacalones have raised any triable issue of fact as to (1) whether 

GES was dissolved de facto, and (2) whether the distributions made from GES to Vincent 

Giacalone were equity distributions, as plaintiffs suggest.

 

of the CB Richard Ellis decision, whose rationale rested on the court’s understanding of the

statute’s purpose, rather than any perceived absence of an alternative adequate statutory remedy. 

230 Cal. App. 4th at 414-15.

10 In Pacific Scene, Inc. v. Penasquitos, Inc., the California Supreme Court held that the 

California Legislature had “occupied the field” as it relates to causes of action against shareholders 

of dissolved corporations, and therefore “precluded...the provision of extra-statutory relief.” 46 

Cal. 3d 407, 413 (1988). “Once the Legislature has evinced an intent to comprehensively define

the contours of a particular field, however, such complex policy determinations must plainly 

remain beyond the reach of our equitable jurisdiction.” Id. at 413-14. However, in Pacific Scene

the court was primarily concerned with judicial implementation of common law remedies that 

conflicted with the statutory framework. In this case, the concept of de facto dissolution advances 

the public policy the Legislature meant to further when it enacted section 2011. 

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As to the first issue, it does appear that GES was no longer conducting business operations 

at the time of the distributions. V. Giacalone Decl. ¶ 6 (“By 2010, GES was out of business.”). As 

to the second issue, the evidence submitted by the parties falls short of conclusively demonstrating

the nature of the distributions that Vincent Giacalone received. Therefore this issue is not 

amenable to summary judgment. Accordingly, the Court DENIES plaintiffs’ motion for summary 

judgment on the issue of whether the Giacalones are liable under section 2011 for distributions 

received. 

D. Conclusion

The parties’ motions for summary judgment are asymmetrical. While both moved for 

summary judgment on the issue of whether the Property constitutes a “trade or business,” only 

plaintiffs moved for summary judgment on their claim under section 2011. Therefore, on the issue 

of whether the Property is a “trade or business” under ERISA as amended by the MPPAA, the 

Court GRANTS the Giacalones’ motion and DENIES plaintiffs’ motion. As to plaintiffs’ claim 

arising under section 2011 of the Corporations Code, the Court DENIES plaintiffs’ motion.

II. Default Judgment

Defendant GES has failed to appear in this case, or otherwise respond to plaintiffs’ 

allegations. On August 14, 2013, plaintiffs filed a motion to enter default against GES. Docket No. 

21. On August 21, 2013, the Clerk entered default against GES. Docket No. 22. On May 1, 2015, 

plaintiffs filed a motion for default judgment against GES, requesting damages for assessed 

withdrawal liability, liquidated damages, attorneys’ fees and costs, and interest totaling 

$3,411,525.72. Docket No. 89 at 1. 

Default judgment does not flow automatically from the Clerk’s entry of default, but is 

rather a matter reserved to the district court’s sound discretion. Draper v. Coombs, 792 F.2d 915, 

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925 (9th Cir. 1986). In the Ninth Circuit, courts are guided by the eponymously named Eitel 

factors in determining whether entry of default judgment is appropriate. “Factors which may be 

considered by courts in exercising discretion as to the entry of a default judgment include: (1) the 

possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the 

sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a 

dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the 

strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.” 

Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Upon entry of default, the well-pleaded 

allegations pertaining to liability are taken as true. TeleVideo 826 F.2d at 917-18.

Upon reviewing the Eitel factors, the Court finds that default judgment is appropriate. As 

to the first factor, the possible prejudice to plaintiffs is high, as they would be left without a 

remedy for assessed withdrawal liability absent a default judgment. As to the second and third 

factors, plaintiffs complaint properly alleges the elements of the causes of action it seeks to prevail 

upon. See Kloepping v. Fireman's Fund, No. C 94-2684 TEH, 1996 WL 75314, at *2 (N.D. Cal. 

Feb. 13, 1996) (“The Ninth Circuit has suggested that [these two factors] require that [the] 

plaintiffs' allegations state a claim on which the plaintiff may recover.”) (internal quotations 

omitted). As to the fourth factor, while the sum of money at stake in this case is certainly not 

insignificant, it is also not disproportionate to the scale of GES’s business operations or to the 

seriousness of its alleged conduct. See TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915 (9th Cir. 

1987) (district court did not abuse its discretion by striking the answer and entering $11.1 million 

default judgment against defendant as a sanction for committing perjury and filing false 

pleadings.). As to the fifth factor, there is a low possibility of dispute concerning material facts 

because upon entry of default all well-pleaded facts relating to defendants’ liability are taken as 

true. TeleVideo 826 F.2d at 917-18. As to the sixth factor, there is nothing in the record to suggest 

that GES’s absence is due to excusable neglect. If anything, GES’s absence is likely a response to 

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the indisputable liability-conferring evidence presented against it. 

The final factor is the only one which weighs against entering default judgment. “[T]he 

general rule [is] that default judgments are ordinarily disfavored. Cases should be decided upon 

their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472. However, “this preference, 

standing alone, is not dispositive.” PepsiCo, Inc. v. California Sec. Cans, 238 F. Supp. 2d 1172, 

1177 (C.D. Cal. 2002) (internal quotations omitted). Here, the Court cannot find that this final 

factor outweighs the other six, all of which militate in favor of entry of default judgment. 

In ERISA cases, once it is established that the defendant employer has failed to become 

current on its withdrawal liability obligations, the Court must award the prevailing party attorneys’ 

fees, interest on unpaid contributions, and an amount equal to the greater of liquidated damages or 

interest on unpaid contributions. See 29 U.S.C. §§ 1132, 1451; see also Trustees of Amalgamated 

Ins. Fund v. Geltman Indus., Inc., 784 F.2d 926, 932 (9th Cir. 1986). Accordingly, the Court finds 

that GES is liable to plaintiffs for damages in the following amounts: (1) $2,231,762 in assessed 

withdrawal liability, (2) $560,079.04 in interest, (3) liquidated damages of $560,079.05, (4) 

reasonable attorneys’ fees of $55,370, (5) reasonable costs of $4,235.64, for an amount totaling 

$3,411,525.72. 

III. Motion to Seal

With the exception of a narrow range of documents that are “traditionally kept secret,” 

courts begin their sealing analysis with “a strong presumption in favor of access.” Foltz v. State 

Farm Mut. Auto. Ins., 331 F.3d 1122, 1135 (9th Cir. 2003). “A stipulation, or a blanket protective 

order that allows a party to designate documents as sealable, will not suffice to allow the filing of 

documents under seal.” Civ. L.R. 79-5(a). When applying to file documents under seal in 

connection with a dispositive motion, the party seeking to seal must articulate “compelling reasons 

supported by specific factual findings that outweigh the general history of access and the public 

policies favoring disclosure, such as the public interest in understanding the judicial process.” 

Kamakana v. City and County of Honolulu, 447 F.3d 1172, 1178-79 (9th Cir. 2006) (internal 

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quotations and citations omitted). Where a party seeks to seal documents attached to a nondispositive motion, a showing of “good cause” under Federal Rule of Civil Procedure 26(c) is 

sufficient. Id. at 1179-80; see also Fed. R. Civ. P. 26(c). In addition, all requests to file under seal 

must be “narrowly tailored,” such that only sealable information is sought to be redacted from 

public access. Civ. L.R. 79-5(b). Because a motion for summary judgment is a dispositive 

motion, the “compelling reasons” standard applies here. See, e.g., In re Dynamic Random Access 

Memory (DRAM) Antitrust Litig., No. M02-1486PJH, 2007 WL 707499, at *1 (N.D. Cal. Mar. 6, 

2007).

The parties have filed a motion to seal in conjunction with their motions for summary 

judgment. Docket No. 93. The motion seeks to redact personal identifying information from 

financial documents such as bank statements and tax records, as well as the names of individuals 

who rented the Property (non-parties to this action) as indicated on the rental logs. The Court finds 

that the parties have sufficiently articulated compelling reasons to render this information sealable 

and have narrowly tailored their request such that only sealable information has been redacted. 

Accordingly the Court GRANTS the parties motion to seal.11

IT IS SO ORDERED.

Dated: June 29, 2015

________________________

SUSAN ILLSTON

United States District Judge

 

11 The parties failed to comply with the Local Rules which require that the “[t]he 

unredacted version must indicate, by highlighting or other clear method, the portions of the 

document that have been omitted from the redacted version, and prominently display the 

notation.” L.R. 79-5(d)(1)(D). Failure to comply with this provision creates an administrative 

burden by making it difficult for the Court to discern the content of the material the parties wish to 

seal. The parties failed to remedy their filings even after the clerk contacted them to request 

updated copies that complied with the Local Rules. Given the relatively limited nature of the 

redactions, the Court was able to review the documents as they were submitted. However, the 

Court cautions the parties that future failure to comply with the Local Rules will result in denial. 

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