Court Opinion

ID: 145336
Source: CourtListenerOpinion
Date Created: 2010-05-01 00:06:38+00
Date Added: 2024-06-11T17:23:38.326808
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                               No. 09-1776

TEAMSTERS JOINT COUNCIL NO. 83 OF THE VIRGINIA PENSION
FUND; W. ROBERT DAVIDSON, Trustee of the Fund; ANTHONY
NATIONS, Trustee of the Fund; LINDSAY MARSHALL, Trustee of
the Fund; JOSEPH AYERS, Trustee of the Fund; MICHAEL
HUGHES, Trustee of the Fund; JOHN FARRISH, Trustee of the
Fund,

                  Plaintiffs – Appellants,

           and

RONALD JENKINS,

                  Plaintiff,

           v.

WEIDNER REALTY ASSOCIATES,

                  Defendant – Appellee,

           and

EMPIRE BEEF COMPANY, INCORPORATED,

                  Defendant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond.  Henry E. Hudson, District
Judge. (3:08-cv-00340-HEH)

Argued:   March 24, 2010                     Decided:   April 30, 2010
Before TRAXLER, Chief Judge, DUNCAN, Circuit Judge, and Jackson
L. KISER, Senior United States District Judge for the Western
District of Virginia, sitting by designation.

Affirmed in part, vacated in part, and remanded by unpublished
per curiam opinion.

ARGUED: Jonathan G. Axelrod, BEINS & AXELROD, PC, Washington,
D.C., for Appellants.      Glenn Edward Pezzulo, CULLEY MARKS
TANENBAUM & PEZZULO, LLP, Rochester, New York, for Appellee. ON
BRIEF: Richard F. Hawkins, III, HAWKINS LAW FIRM, PC, Richmond,
Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

                                2
PER CURIAM:

     The Teamsters Joint Council No. 83 of Virginia Pension Fund

(“the     Fund”)       and    its     trustees          (collectively,        “Appellants”)

appeal    a    district       court       order       granting     judgment      in    favor    of

Weidner       Realty    Associates            (“Weidner”)        in    Appellants’        action

seeking to hold Weidner and Empire Beef Co., Inc. (“Empire”)

jointly and severally responsible for a liability that Empire

incurred       by     failing    to       meet        its    pension-fund        obligations.

Appellants      also        appeal    a       ruling    by   the      district    court        that

circuit precedent precluded the court from addressing whether

Appellants          could    avoid        a    transfer       of      Empire’s        assets    in

collecting on their judgment against Empire.                            We affirm in part,

vacate in part, and remand for further proceedings.

                                                 I.

     Weidner is a general partnership that was formed in the

1930s to purchase a parcel of land in Rochester, New York.                                     Soon

after the purchase, the parcel became home to a slaughterhouse,

which Empire, a New York corporation, was formed to operate.                                    In

1993, Weidner’s then-current partners, who were Empire; Empire’s

sole shareholder, Steven Levine (“Steven”); and Steven’s father,

Sidney     Levine       (“Sidney”),            formalized          their   arrangement          by

entering into an agreement (“the Partnership Agreement”).

                                                  3
     In    approximately            2002,       Empire     expanded             its    distribution

territory        south    and        established           a     terminal             in     Richmond,

Virginia.         Soon     thereafter,           Empire         hired          union       drivers    to

distribute its product from the new terminal.                                    In so doing, it

became     a    party     to    a     collective           bargaining            agreement          that

obligated      Empire     to    make    contributions                to    the       Fund.      Empire

ceased     its     operations         in        Richmond        in        late-2005,          however,

incurring      nearly     $500,000         in    liability           to    the       Fund.      Empire

began to satisfy this liability in monthly installments that it

paid until September 2007, when it filed a voluntary Chapter 11

bankruptcy.            Then,    on     January        5,       2008,       as        the    bankruptcy

remained       pending,        Steven       entered        into           an    agreement          (“the

Composition Agreement”) with Sidney transferring all of Empire’s

assets, except its receivables, to Sidney, in exchange for a

release of a secured debt of approximately $1.4 million that

Empire owed Sidney.            The bankruptcy court subsequently dismissed

Empire’s        bankruptcy          proceeding           five         days           later     without

discharging Empire’s debts.

     The       next    month,     the      Fund      notified         Weidner          that    it    was

jointly    and        severally      liable       with         Empire          for    the     assessed

withdrawal liability because Weidner was a member of Empire’s

“control       group”     under        the       rules         and     regulations            of     the

Employment Retirement Income Security Act of 1974 (“ERISA”), see

29 U.S.C.A. § 1001 et seq. (West 2008 & Supp. 2009).                                       Appellants

                                                 4
later filed this ERISA action against Empire and Weidner seeking

to   recover     Empire’s       unpaid      withdrawal      liability.       Appellants

were    granted       summary    judgment      against      Empire,   which       had    not

contested its liability.                 Weidner, on the other hand, denied

that it was jointly and severally liable, maintaining that it

was not a “trade[] or business[]” and that it and Empire were

not “under common control.”              29 U.S.C.A. § 1301(b)(1).

       Prior     to    trial,       Appellants      filed     a    motion    in    limine

announcing that they would argue that they were entitled under

29 U.S.C.A. § 1392(c) to collect a judgment against Empire and

to disregard the Composition Agreement (which they had come to

learn about during discovery).                     Appellants reiterated as the

bench    trial    began      that    they     would    be   making    this    argument.

Indeed, during the trial, both parties examined Steven regarding

his motivation for entering into the Composition Agreement, a

pivotal    issue       in    Appellants’          attempt    to    reach    the    assets

transferred to Sidney under that agreement.                       And, in their post-

trial brief, Appellants argued once more that the Composition

Agreement should be set aside.

       In the end, the district court ruled that Weidner was not

jointly and severally liable for Empire’s withdrawal obligations

because Appellants failed to prove that Empire and Weidner were

under common control.            See Teamsters Joint Council No. 83 of Va.

Pension   Fund        v.   Empire    Beef    Co.,     No.   3:08CV340-HEH,        2009    WL

                                              5
1764554 (E.D. Va. June 18, 2009).                     The district court declined

to address the validity of the Composition Agreement, however,

concluding     that    circuit         precedent      precluded         the    court    from

considering    an     agreement        that    was    entered     into        after    Empire

withdrew from the Fund.           See id. at *2 n.3.

                                             II.

     Appellants first argue that the district court erred in

concluding     that    Empire         and     Weidner     were     not    under       common

control.    We disagree.

     Congress       found        in     1980       that     the     “withdrawals             of

contributing       employers          from     a     multiemployer        pension       plan

frequently result in substantially increased funding obligations

for employers who continue to contribute to the plan, adversely

affecting    the    plan,    its       participants        and    beneficiaries,            and

labor-management relations.”                 29 U.S.C.A. § 1001a(a)(4)(A).                  To

address this problem, Congress enacted the Multiemployer Pension

Plan Amendments Act of 1980 (“MPPAA”), see 29 U.S.C.A. § 1381,

et seq., which amended ERISA.                  See SUPERVALU, Inc. v. Board of

Trs. of the Sw. Pa. and W. Md. Area Teamsters and Employers

Pension    Fund,    500    F.3d       334,    336-37      (3d    Cir.    2007).        MPPAA

provides that when an employer withdraws from an ongoing multi-

employer     pension      plan,       the     employer     becomes       liable       for    a

proportionate      share    of    the       plan’s    unfunded     vested       liability.

                                              6
See    29    U.S.C.A.      § 1381.       Under       ERISA,      the   term    “employer”

includes “trades or businesses . . . which are under common

control” at the time of the withdrawal, which in this case was

September 30, 2005.              29 U.S.C.A. § 1301(b)(1); see Teamsters

Joint Council No. 83 v. Centra, Inc., 947 F.2d 115, 121 (4th

Cir. 1991).         Thus, to establish Weidner’s liability, Appellants

had to show that on that date the same five or fewer persons

owned a “controlling interest” in both Weidner and Empire and

that    those       people       were    in        “effective     control”       of       each

organization.         26 C.F.R. § 1.414(c)-2(c) (2009).                       As Empire’s

sole shareholder, Steven clearly had a controlling interest and

effective      control      of    Empire.          Consequently,       the    sole     issue

before the district court related to common control concerned

whether      Steven     also     owned    a        controlling     interest      and      had

effective control of Widener.

       The applicable regulation defines “controlling interest” in

a   partnership       as   “ownership         of    at   least    80   percent       of   the

profits interest or capital interest of such partnership.”                                 26

C.F.R. § 1.414(c)-2(b)(2)(i)(C) (2009).                     “Effective control” of

a partnership is defined as ownership of “an aggregate of more

than 50 percent of the profits interest or capital interest of

such partnership.”           26 C.F.R. § 1.414(c)-2(c)(2)(iii).                  “Capital

interest in a partnership,” in turn, is defined, as is relevant

here,   as    “an    interest      in   [the       partnership’s]      assets    that      is

                                              7
distributable      to   the   owner       of        the     interest”     upon   the

partnership’s liquidation.         Internal Revenue Service Publication

No. 541, Partnerships (2008).

       In finding that Steven had only 50% of the capital interest

in Weidner, the district court relied on Articles XII and IV of

the Partnership Agreement.          Article XII, entitled “Termination

and    Liquidation,”    provides    that       at    the     termination    of   the

Partnership,

       the assets of the Partnership shall be sold and the
       proceeds of the sale shall be applied or distributed
       in the following order of priority:

            (a)   To pay or provide for the payment of all
                  liabilities of the Partnership;

            (b)   To pay all expenses of liquidation;

            (c)   To return to the Partners any credit balance
                  in their capital accounts; and

            (d)   To the Partners in proportion to their
                  percentage interest in the Partnership.

J.A.    169-70    (emphasis   added).          The        court   noted   that   the

partners’ percentage interests in the partnership were set forth

in Article IV of the agreement:

            4.1 Percentage Interest in the Partnership. Each
       of the partners shall have a percentage interest in
       the Partnership as follows:

                  Sidney E. Levine                   50%
                  Steven H. Levine                   12½%
                  Empire Beef Co., Inc.              37½%

                                      8
J.A. 164. 1       The parties agree that Empire’s ownership interest is

imputed      to     Steven    for    purposes    of    ERISA    by   virtue     of   his

ownership of Empire.              Therefore, the district court reasoned, as

of   September       30,     2005,    Sidney    and   Steven    each    owned    a   50%

percentage        interest     in    Weidner.     Because      Steven   did   not    own

greater      than    50%     of   Weidner’s     capital   interest,      he   did    not

maintain effective control, and Weidner was not part of Empire’s

control group.

       Appellants challenged this conclusion at trial, pointing to

Article V of the Agreement, which states, in relevant part:

            5.1 Capital Accounts.    A   separate    capital
       account shall be maintained for each Partner.     The
       capital interest of each Partner shall consist of his
       capital contribution, increased by such Partner’s
       subsequent capital contributions and such Partner’s
       share of net Partnership profits, and decreased by
       distributions to such Partner by the Partnership and
       his share of Partnership losses.

J.A. 164 (second emphasis added).                     Appellants maintained that

this       section      essentially        redefined        “capital      interest,”

superseding the definition provided in IRS Publication 541.                          For

       1
           That section also provides that

       [t]he percentage of interest of each of the Partners
       in the Partnership, initially as set forth above, and
       as the same may from time to time change by virtue of
       transfers of Partnership interests or otherwise, shall
       be referred to in this Partnership Agreement as the
       “percentage interest in the Partnership.”

J.A. 164.

                                            9
this reason, Appellants argued that it is the partners’ capital

accounts rather than their percentage interests that should be

used to determine controlling interests and effective control.

The district court rejected this argument, and we do as well. 2

       As the district court noted, Section 5.1 is titled “Capital

Accounts,” and nothing in the agreement gives any indication

that   the   words   “capital   interest”   were   intended   to    refer   to

anything other than the amount of a capital account.               Indeed, as

we have noted, the amounts due each partner upon liquidation are

handled in a completely separate section of the agreement.                  We

therefore conclude that the district court correctly looked to

Article XII rather than Article V of the agreement to determine

Steven’s capital interest percentage in Weidner.

       2
        In rejecting Appellants’ interpretation, the district
court described the agreement’s use of the words “capital
interest” as a “scrivener’s error.” J.A. 426. Appellants take
issue with that characterization, but whether that description
was correct is immaterial. The critical aspect of the district
court’s ruling was that the parties did not intend “capital
interest” in Article V to supersede the definition in IRS
Publication 541, and the district court was on firm ground in
drawing this conclusion.

                                    10
                                  III.

     Appellants also maintain that the district court erred in

declining to address the validity of the Composition Agreement.

As to this issue, we agree. 3

     MPPAA   provides   that    “[i]f    a   principal   purpose   of   any

transaction is to evade or avoid liability under this part, this

part shall be applied (and liability shall be determined and

collected) without regard to such transaction.”              29 U.S.C.A.

§ 1392(c).      This    subsection      authorizes   the    recovery     of

improperly transferred assets from the party to whom they have

been illegitimately transferred.         See IUE AFL-CIO Pension Fund

v. Herrmann, 9 F.3d 1049, 1056 (2d Cir. 1993).

     3
       Initially, we note that Widener maintains that we should
not address this issue because Appellants did not raise it in
their pleadings.    However, the parties certainly tried this
issue by consent. See Fed. R. Civ. P. 15(b)(2) (“When an issue
not raised by the pleadings is tried by the parties’ express or
implied consent, it must be treated in all respects as if raised
in the pleadings.”). Appellants raised the issue in a motion in
limine and also reiterated at the start of the trial that it
would seek to litigate the avoidability of the Composition
Agreement.   Both parties examined Steven regarding the purpose
behind the Composition Agreement.   And, Appellants continued to
request the voiding of the agreement in their post-trial brief.

     Weidner also maintains that Appellants’ challenge to the
Composition Agreement is moot because the property transferred
to Sidney pursuant to the Composite Agreement is encumbered with
substantial debt and will likely be foreclosed upon by a secured
creditor.   Weidner’s predictions concerning the possible future
fate of this property are not sufficient to moot this case,
however.

                                   11
     Citing     our   discussion             in   Centra,   the    district   court

“decline[d] to address the validity of the Composition Agreement

because, under Fourth Circuit precedent, the Court’s decision

must be based on the facts as they existed when Empire withdrew

from the Pension Fund on September 30, 2005.”                     Empire Beef Co.,

2009 WL 1764554, at *2 n.3.             This is an erroneous application of

Centra, which holds only that the existence of a control group—

which affects whether a company qualifies as an employer—must be

determined as of the time of the withdrawal.                      See Centra, 947

F.2d at 121.       The correctness of Centra’s holding is apparent

because    it   stands     to   reason        that   to   incur   liability   as    an

employer     withdrawing        from    a     pension     fund,   the   withdrawing

company must be an employer at the time of the withdrawal.                         In

contrast, nothing in § 1392(c) suggests that it applies only to

pre-withdrawal efforts to evade or avoid liability.                        In fact,

limiting § 1392(c) in that way would thwart MPPAA’s purpose of

protecting pension funds from the adverse effects of withdrawing

employers.      See id. at 123 (explaining that ERISA and MPPAA are

remedial statutes that “should be liberally construed in favor

of protecting the participants in employee benefits plans”).                       We

therefore    remand   so    that       the    district    court   may   address    the

merits of Appellants’ § 1392(c) claim.

                                             12
                                      IV.

       In sum, we affirm the district court’s ruling that Weidner

was not jointly and severally liable for Empire’s withdrawal

liability and we remand for consideration of Appellants’ claim

that   they   can   collect   their   judgment   against   Empire   without

regard to the Composition Agreement.

                                                       AFFIRMED IN PART,
                                                        VACATED IN PART,
                                                            AND REMANDED

                                      13