Court Opinion

ID: 8986495
Source: CourtListenerOpinion
Date Created: 2022-11-27 11:52:21.994542+00
Date Added: 2024-06-11T17:10:49.177009
License: Public Domain

CLARK, Circuit Judge,
dissenting:
The trustees of the 1950 and 1974 Pension Plans brought this action against Janice Simmons in her personal capacity asserting that she is jointly and severally liable with several other defendants for Alan’s Coal Sales’ withdrawal liability under the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”). The district court’s finding that Ms. Simmons is personally liable rests on the theory that she and her husband were partners in a cattle farming business, or alternatively, that she and her husband engaged in a trade or business of leasing land. Because I find the evidence insufficient to establish a prima facie case 1) that Janice Simmons and her husband intended to form a partnership in the cattle farming business, or 2) that Janice Simmons and her husband engaged in a trade or business of leasing land, I respectfully dissent.
Under the MPPAA, all trades and businesses under common control are treated as a single employer. 29 U.S.C. § 1301(b)(1) (1980). Therefore, when an employer incurs withdrawal liability, all trades or businesses under common control with that employer become jointly and severally liable with the employer for the withdrawal liability. Teamsters Pension Trust Fund v. H.F. Johnson, 830 F.2d 1009, 1013 (9th Cir.1987). To prove that Ms. Simmons is personally liable for Alan’s Coal Sales’ withdrawal liability, the trustees must prove that she is associated with a trade or business under common control with Alan’s Coal Sales and that the association results *1469in her being personally liable for that business enterprise’s debts.
A. Evidence of Partnership
In support of a finding of liability on the part of Ms. Simmons, the trustees argue, and the district court found, that she was a partner with her husband in a cattle farming business that was under common control with Alan’s Coal Sales within the meaning of 29 U.S.C. § 1301(b)(1). Section 1301(b)(1) provides that the term “common control” should be interpreted to be “consistent and coextensive” with the definition for that term set forth by the Secretary of the Treasury under section 414(c) of the Internal Revenue Code. 29 U.S.C. § 1301(b)(1) (1980). Thus, for the purposes of establishing withdrawal liability, a business enterprise may be found to be under common control with the withdrawing employer if it is a member of a “parent-subsidiary group,” a “brother-sister group,” or a “combined group” of businesses under common control with the withdrawing employer. See 26 C.F.R. § 1.414(c)-2 (1990). Although it is not clear from the district court’s opinion, the court must have found that the cattle farming operation was a member of a “brother-sister group,” as there is no evidence that anyone other than George Simmons and Janice Simmons had any ownership interest whatsoever in the cattle farming operation.
To support a finding that the cattle farming operation was a member of a “brother-sister group” of business under common control along with Alan’s Coal Sales, the evidence must show that 1) the same five or fewer persons have a “controlling interest” in each member of the group, and 2) taking into account the ownership of each such person only to the extent such ownership is identical with respect to each member of the group, such persons are in “effective control” of each organization. 26 C.F.R. § 1.414(c)-2(c) (1990). For partnerships, “controlling interest” and “effective control” are defined in terms of ownership of certain percentages of the profits interest or capital interest of the partnership. 26 C.F.R. § 1.414(c)-2 (1990). With respect to the alleged cattle farming partnership between George and Janice Simmons, the-record reveals no evidence regarding their ownership interests in the “partnership’s” profits or capital.-- The district court apparently concluded from George Simmons’s deposition testimony that he owns 40% of the land. individually and 60% jointly with his wife; that he buys all the necessary equipment and supplies for the operation; and that his ownership interest in the “partnership’s” capital must meet the definitions of “controlling interest” and “effective control.” Although the parties do not take issue with the district court’s conclusion that the alleged partnership was under “common control” with Alan’s Coal Sales, I find the record insufficient to support such a conclusion.
Nevertheless, even assuming that the alleged partnership between George and Janice Simmons could be found to be under “common control” with Alan’s Coal Sales, the entirety of the evidence presented to the district court fails to establish a prima facie case that such a partnership existed. The majority finds that the question of whether such a partnership existed is ultimately a question of federal law, and that the focus of the inquiry must be on the intent of the alleged partners. Based on the general proposition that the question of “intent” is a question of fact, the majority reviews the district court’s determination that Ms. Simmons was her husband’s business partner under the clearly erroneous standard of review. While I cannot agree that the question of the existence of a partnership is purely a question of fact, rather than a mixed question of law and fact, even under the majority’s standards the district court’s ruling cannot be upheld.
As the plaintiffs in this action, the trustees of the pension funds bear the burden of proof as to Ms. Simmons’s liability. Thus, the trustees bear the burden of proving that a partnership existed between Ms. Simmons and her husband. To meet that burden, the evidence must at the very least establish a prima facie showing of the existence of a partnership. A district court’s finding of fact is clearly erroneous if the evidence is insufficient to support a prima facie case.
The majority cites the following evidence from the record to support its conclusion *1470that the district court was not clearly erroneous in finding that Ms. Simmons was a partner with her husband in the cattle farming operation. The cattle farm was located on land owned 40% by Mr. Simmons individually and 60% by Janice and George jointly. Mr. Simmons “apparently” owned all the equipment and supervised the day-to-day operations. The cattle farming operation paid the property taxes on the land and made the mortgage payments, and the appropriate deductions were shown as expenses of the operation on Schedule F of the couple’s joint tax return. The joint tax return also indicated that the couple shared in the profits and losses of the operation.
Although the majority appears to acknowledge the well-established proposition that mere co-ownership of property does not create a partnership, a careful review of the evidence shows that the finding that Ms. Simmons was a partner rests entirely on the fact that she has a joint ownership interest with her husband in a portion of the property. Absent the evidence of her ownership interest in the land, the above-cited evidence gives no indication that a business partnership exists between the Simmons. The fact that a husband and wife file a joint tax return, or that income from a farm’s operations is reported on that joint return and thus appears to accrue to their joint benefit is of no probative value with respect to the existence of a partnership. See Zeeman v. United States, 395 F.2d 861, 864 (2d Cir.1968) (Filing of joint tax return does not amount to merger of spouses into a permanent, single economic unit.) When a farm is run as a sole proprietorship, farm income is appropriately reported by attaching Schedule F to the proprietor’s tax return. While the fact that Mr. Simmons reported the farm’s income as though he was its sole proprietor does not conclusively establish that the farm was not run as a partnership, it also does not establish that the farm was run as a partnership.
Thus, the district court’s and majority’s conclusions that Ms. Simmons was her husband’s business partner rest entirely on the fact that she had an ownership interest in some of the land used by the farm operation and that the farm operation paid the mortgage and the property taxes on the land. A review of federal and state law reveals that such evidence is clearly insufficient to establish the existence of a partnership between a husband and wife.
Although the existence of a partnership in this case is ultimately a question of federal law, Johnson, 830 F.2d at 1014, reference to state law is necessary, as the federal common law of partnership so far developed in this area is sparse at best. The best approach is to apply, consistent with the purposes of the MPPAA, the common law of partnership as it has been developed in the various states. As of 1988, all states except Louisiana have adopted the Uniform Partnership Act (the “UPA”). 1 Z. Cavitch, BUSINESS ORGANIZATIONS WITH TAX PLANNING § 11.01[4] n. 7 (1990). The UPA defines a partnership as “an association of two or more persons to carry on as co-owners a business for profit.” Uniform Partnership Act § 6. In general, a partnership arises only from an express or implied agreement among the parties and is never established by implication or operation of law. Adderhold v. Adderhold, 426 So.2d 457 (Ala.Civ. App.1983). Under the UPA, one of the rules for determining the existence of a partnership is that “Qjjoint tenancy, tenancy in common, tenancy by the entireties, joint property, common property or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property.” Uniform Partnership Act § 7(2). Therefore, the fact that Ms. Simmons “shared” in the profits of the farming operation as a result of the payment of her pro rata portion of the property taxes and mortgage is not sufficient to establish the existence of a partnership. Furthermore, the record is completely devoid of any evidence on the important issue of whether Ms. Simmons enjoyed a right to manage and control the business. Adder-hold, 426 So.2d at 459 (holding that while co-ownership of property is not generally held a condition of partnership, a “community of interest which includes the right to manage and control the business” is).
The majority’s holding that the evidence supports a finding that a partnership exist*1471ed between George and Janice Simmons is inconsistent with the general trend of federal and state partnership law with respect to the existence of business partnerships between husbands and wives. While the existence of a partnership may be established from “the circumstances surrounding the purported partnership arrangement,” Majority Opn. at 1467, “acts and circumstances between spouses may not have the same significance ... as the same acts and circumstances between strangers might have.” Sunkyong International v. Anderson Land & Livestock Co., 828 F.2d 1245, 1249 (8th Cir.1987) (quoting Fish v. Fish, 307 S.W.2d 46, 52 (Mo.Ct.App.1957)). For example, the Supreme Court of North Dakota found the following facts insufficient to support a claim that a partnership existed between a husband and wife. The husband and wife jointly purchased farm land, on which the husband raised cattle. Proceeds from the farm operations were used for family expenses and to pay the mortgage on the land. The wife did not participate on a daily basis in the purchase or sale of the cattle, although she did occasionally assist in the operation by milking cows, etc. The court found that this evidence presented “no credible evidence to support a claim of partnership.” Schlichenmayer v. Luithle, 221 N.W.2d 77, 82. (N.D.1974) (holding that under state statutory law, “joint tenants are not, merely because of joint ownership, partners”). See also Stern v. Wisconsin Dept. of Revenue, 63 Wis.2d 506, 217 N.W.2d 326, 329 (Wis.1974) (holding in the case of a husband and wife interior decorating business that “mere community of interest in property, such as exists between ... joint tenants of real or personal property, does not make such owners partners or raise a presumption that a partnership exists, and this is so even though they cooperate in making improvements on their property and in realizing and sharing the profits or the losses and expenses arising therefrom”); Farm Bureau Service Co. of Hardin County v. Bavender, 217 N.W.2d 560, 563 (Iowa 1974) (holding in a case of husband and wife joint tenants of farmland similar to the present case that the “evidence in this case is totally lacking with regard to any voluntary agreement between the defendants to engage in a joint venture in the operation of their farming enterprise. Instead, the evidence demonstrates a typical joint ownership of property and the pooling of assets for common advantage between a husband and wife.”).1
B. Evidence of Trade or Business of Leasing Land
The district court held in the alternative that if Janice Simmons was not a partner in her husband’s cattle farming operation, then she was clearly a co-owner of the “trade or business” which owned the land and leased it to Mr. Simmons as the sole proprietor of the cattle farming operation. The court reasoned that Ms. Simmons was therefore a partner or joint venturer with her husband in this land leasing business, which, apparently by virtue of Mr. Simmons’s involvement, was under common control with Alan’s Coal Sales.2 Assuming for the sake of argument that this alleged partnership could be found to be under common control with Alan’s Coal Sales, I find the evidence insufficient to show that by allowing their jointly owned property to be used by Mr. Simmons in his cattle farming business, the Simmons were engaged in a “trade or business” of leasing land.
Neither ERISA nor the MPPAA define the term “trade or business,” although sec*1472tion 1301(b) refers to the regulations promulgated under section 414(c) of the Internal Revenue Code as providing the proper guidelines. 29 U.S.C. § 1301(b) (1988). The District Court of New Jersey, in a thorough and thoughtful opinion, reasoned that because section 414(c) and its regulations also give no definition of “trade or business,” the courts should interpret the meaning of “trade or business” in light of the purposes of ERISA. United Food & Commercial Workers Union v. Progressive Supermarkets, 644 F.Supp. 633, 637-39 (D.N.J.1986); accord Pension Benefit Guaranty Corp. v. Center City Motors, 609 F.Supp. 409 (S.D.Cal.1984). With respect to the imposition of withdrawal liability on all employers under common control with the withdrawing employer under the MPPAA, Congress “clearly intended to prevent a business from limiting its responsibilities under ERISA by the fractionalization of its business operations.” Center City Motors, 609 F.Supp. at 412; H.R.Rep. No. 807, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 4716 (“The committee ... intends to make it clear that the coverage and antidiscrim-ination provision cannot be avoided by operating through separate corporations instead of separate branches of one corporation.”). This forced sharing of withdrawal liability among commonly controlled entities thus furthers the central purpose of ERISA, the prevention of “the great personal tragedy suffered by employees when pension plans are terminated.” Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 374, 100 S.Ct. 1723, 1733, 64 L.Ed.2d 354 (1980).
Congress’ casting of this wide net of liability strongly indicates that courts should liberally construe the provisions of ERISA and MPPAA to provide maximum protection to employees covered under pension plans. Center City Motors, 609 F.Supp. at 411. Nevertheless, Congress did set limits by confining liability to those “trades or businesses” under common control with the withdrawing employer. Thus, for example, a commonly controlled corporation’s shareholders are not personally responsible for the withdrawal liability. De-Breceni v. Graf Brothers Leasing, Inc., 828 F.2d 877 (1st Cir.1987), cert. denied, 484 U.S. 1064, 108 S.Ct. 1024, 98 L.Ed.2d 988 (1988); Connors v. P & M Coal Co., 801 F.2d 1373 (D.C.Cir.1986). Even in light of Congress’ desire to provide maximum protection to employees, I cannot agree with the district court that under the circumstances as they appear in the record, the Simmons were engaged in a “trade or business” of leasing land. The record shows only that they jointly own a portion of the land that Mr. Simmons uses for cattle farming. Although the farming operation pays the property taxes and mortgage on the land, the evidence does not indicate the existence of either a written or oral lease agreement. Under these circumstances, the record reveals only joint ownership of land by a husband and wife that one spouse uses for farming, not a “trade or business” of leasing land employed by the couple at least partially for the purpose of protecting the land from any liabilities incurred by the farming operation.
Because this case involves a sole proprietor using land that he and his wife own for the benefit of the sole proprietorship, it involves a “leasing” of land that is qualitatively different from other leasing operations that have been held to be “trades or businesses” within the meaning of the MPPAA. For example, in Board of Trustees of the Western Conference of Teamsters Pension Trust Fund v. Lafrenz, 837 F.2d 892 (9th Cir.1988), a husband and wife together owned 96% of the stock of a corporation. They also owned two dump trucks, which they leased to the corporation admittedly for profit. The Ninth Circuit, while acknowledging that not every passive investment is necessarily a trade or business, held that the dump truck leasing operation was a trade or business within the meaning of § 1301(b). Similarly, in Central States, Southeast and Southwest Areas Pension Fund v. Bay, 684 F.Supp. 483 (E.D.Mich.1988), a husband and wife purchased commercial real estate that they leased to related corporations and from which they reported rental income. The court concluded that this leasing operation qualified as a trade or business under section 1301(b).
*1473In contrast, the present case involves a sole proprietor using land that he and his wife jointly own. He would gain no protection for the land by leasing it to his sole proprietorship, as any assets he owns are subject to liabilities incurred by his business. While Ms. Simmons may legally have a right to demand some payment for her husband’s business’s use of her portion of the land, nothing in the law requires that she do so, or requires that a lease be implied where there is no evidence of a formal lease arrangement.
In conclusion, I find the evidence that Ms. Simmons jointly owned farmland with her husband and that payment of the property taxes and mortgage on that land was deducted as a business expense on Schedule F of the couple’s joint tax return insufficient to establish either that Ms. Simmons intended to join with her husband in “an association ... to carry on as co-owners a business for profit” or that Ms. Simmons was engaged in a trade or business of leasing land to her husband’s sole proprietorship cattle farm. I therefore dissent from the majority’s imposition of personal liability on Ms. Simmons for Alan’s Coal Sales withdrawal liability.

. Accord G.R. Little Agency, Inc. v. Jennings, 88 N.C.App. 107, 362 S.E.2d 807 (1987); Skaar v. Wisconsin Dept. of Revenue, 61 Wis.2d 93, 211 N.W.2d 642 (1973); Cooper v. Spencer, 218 Va. 541, 238 S.E.2d 805 (1977); Harvey v. Palmer, 179 Kan. 472, 296 P.2d 1053 (1956); Herbert v. Herbert, 272 S.W.2d 705 (Mo.Ct.App.1954). For decisions by federal courts compare Breashears v. Mathews, 440 F.Supp. 1230 (W.D.Ark.1977) and Matter of Ward, 6 B.R. 93 (Bankr.M.D.Fla.1980) with Sunkyong International v. Anderson Land & Livestock Co., 828 F.2d 1245 (8th Cir.1987); In re Schroeder, 62 B.R. 604 (Bankr.D.Kan.1986); and In re Lapp, 66 B.R. 67 (Bankr.D.Colo.1986).

. Here again I see no evidence in the record that clearly defines the capital or profits interests of George and Janice in this alleged land leasing partnership. Therefore, the record is insufficient to establish that this "land leasing business” is under common control with Alan’s coal sales.