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UPHOLSTERER'S UNION v. PONTIAC FURNITURE

August 5, 1986

UPHOLSTERER'S INTERNATIONAL UNION HEALTH AND WELFARE FUND TRUSTEES, AND THE TRUSTEES OF THE UPHOLSTERER'S INTERNATIONAL UNION PENSION TRUST, PLAINTIFFS,
v.
PONTIAC FURNITURE, INC., AND LEONARD SHANE, INDIVIDUALLY AND AS PRESIDENT OF PONTIAC FURNITURE, INC., DEFENDANTS.



The opinion of the court was delivered by: Baker, Chief Judge.

ORDER

The defendant, Leonard Shane, moves to dismiss the plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. For the reasons stated below this motion will be denied.

The plaintiffs ("Upholsterers") filed a three-count complaint alleging that the defendant Shane sold or transferred the assets of Pontiac Furniture to a secured creditor in a manner in violation of the collective bargaining agreement, the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq., and various state statutes. A summary of the allegations indicates that Shane was an officer and a director of Pontiac Furniture, Inc. He was the principal shareholder. As officer of the corporation, Shane failed to comply with the requirements of the Illinois Business Corporation Act, and consequently, Pontiac Furniture Inc. was involuntarily dissolved by the Illinois Secretary of State. Shane also allegedly failed to give the Upholsterers notice of the dissolution as required by the Illinois Business Corporation Act. The Upholsterers claim this failure gives rise to a cause of action against Shane in his individual capacity. See Ill.Rev.Stat. ch. 32, §§ 12.75 and 8.65.

The Upholsterers allege as well that Shane failed to make contributions to the Health and Welfare Fund and to the Pension Trust on behalf of employees covered by a collective bargaining agreement entered into between Pontiac Furniture and the Upholsterers. The Pension Trust account is delinquent in the sum of $51,098.59. The Health and Welfare Fund is delinquent in the sum of $1,111.00. The Upholsterers claim that this money is due and owing from both Pontiac Furniture, Inc. and the defendant Shane in his individual capacity pursuant to the provisions of Section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3). Section 301(a) of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 185(a), and the Illinois Wage Payment and Collection Act, Ill.Rev.Stat. ch. 48, § 39m-8.

COUNT I

The defendant Shane contests the sufficiency of the allegations seeking to state a claim against Shane under ERISA. He concedes that an ERISA claim is properly alleged against an "employer". However, while Pontiac Furniture, Inc., may be an employer under ERISA, he is not. Shane claims that in order to state a cause of action against him for the benefits allegedly due, the Upholsterers must allege that Mr. Shane is the alter ego of the corporation, Pontiac Furniture, Inc. He argues that none of the allegations conform with the requirements in Illinois law for establishing alter ego status.

The Upholsterers cite several cases issued by Massachusetts district courts which explicitly hold that a corporate officer may be personally liable under ERISA for failure to make contributions to a plan. Massachusetts State Carpenters Pension Fund v. Atlantic Diving Company, Inc., 635 F. Supp. 9, (D.C.Mass., 1984); Alman v. Servall Manufacturing Company, 6 E.B.C. 2031 (D.C.Mass., April 9, 1984); Alman v. Franks Sportwear Company, Inc., 6 E.B.C. 2798 (D.C.Mass., Jan. 24, 1985). The Carpenters' Pension Fund decision presents a thorough review of the law on this question and holds that corporate officers may be subject to personal liability for obligations due to pension funds under the collective bargaining agreement and ERISA. The Massachusetts court used federal law to construe the definition of employer in ERISA. See 29 U.S.C. § 1002(5).*fn1 The court found that ERISA was part of a federal statutory scheme developed to regulate contributions to pension funds. ERISA preempted state corporate laws which limited the personal liability of corporate officers and shareholders to the extent the laws conflict with the ERISA provisions imposing liability on employers. 635 F. Supp. 9, 6 E.B.C. at 2126 and 2128 n. 3. The court borrowed from case law construing the definition of employer found in the Fair Labor Standards Act to construe similar language in ERISA. Thus, the Massachusetts court developed the following test to determine whether a corporate officer may be personally liable under ERISA and section 301 of the LMRA:

  According to the court, two "corporate officers
  with a significant ownership interest and who had
  operational control of significant aspects of the
  corporation's day to day functions, including the
  compensation of employees, and who personally
  made decisions to continue operations despite
  financial adversity during the period of
  non-payment" were "employers" within the meaning
  of FLSA.

635 F. Supp. 9, 6 E.B.C. 2127 (citing Donovan v. Agnew, 712 F.2d 1509, 1514 (1st Cir. 1983)).

The court concurs with the decision in Carpenters' Pension Fund. It presents a well reasoned approach to the personal liability issue. In applying the Carpenters' decision, the court finds that the allegations of the complaint are sufficient to withstand dismissal. Specifically, the plaintiffs allege that Shane sold or transferred the assets of the corporation to a secured creditor without proper notice as required by the Illinois Business Corporation Act, Ill.Rev.Stat. ch. 32, § 1.01 et seq.; that the corporation was not in good standing at the time of the assignment because of its failure to comply with the Illinois law and that it had been involuntarily dissolved by the Secretary of State's office. These allegations specifically put at issue the question of whether defendant Shane was acting in his own interest when the assets of the corporation were assigned to one creditor to the substantial detriment of other creditors. To make such an assignment without notice indicates that the officers and directors of the corporation were conscious of the fact that other creditors would be adversely effected by the assignment. A complaint may be dismissed for failure to state a claim only if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). The court finds that these allegations are sufficient to set forth a claim under ERISA against Shane. Therefore, Shane's motion to dismiss Count I will be denied.

COUNT II

The defendants argue that Count II, a claim under the Illinois Wage Payment and Collection Act, Ill.Rev.Stat. ch. 48, § 39m-1 et seq., is preempted by ERISA. This question was recently presented to the Seventh Circuit in National Metalcrafters v. McNeil, 784 F.2d 817, 822 (7th Cir. 1986). However, the court avoided ruling on this question, indicating that preemption of the Illinois Wage and Payment Act by ERISA would be ill advised:

  The issue we are most reluctant to decide is
  whether the Illinois wage payment act is
  preempted by ERISA. It is a difficult issue and
  if resolved in favor of ...

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