Opinion ID: 858589
Heading Depth: 2
Heading Rank: 1

Heading: Leasing Activity

Text: 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 unincorporated 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 undertaken (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 influenced 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 employer 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 79394; 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 undertaking 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 company had not leased property to the withdrawing employer. 285 F.3d at 595. Fulkerson and White both dealt with real-estate holdings that were related to the withdrawing 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 categoriNo. 11-3055 13 cally constitutes a trade or business under common control with the withdrawing employer, which triggers personal liability under § 1301(b)(1).