This court thus affirms its ruling in Niedrich that when a corporation has obligated itself under a collective bargaining agreement to contribute to a multi-employer plan, a controlling person of the corporation is not liable for unpaid contributions under § 1145 unless the court can pierce the corporation's veil of limited liability or the corporation is the alter ego of the controlling person. The plaintiffs argue that this case presents an occasion for the court to hold such a person, namely, William Litgen, so liable. The plaintiffs argue in both Counts 3 and 4 that Litgen Concrete is the alter ego of William Litgen, and for this reason William is liable for Litgen Concrete's unpaid contributions and wages.
The decision whether to pierce a corporate veil or hold a controlling person liable under the narrower, stricter doctrine of corporate alter ego in cases arising under the Employee Retirement Income Security Act ("ERISA") is a matter of federal and not state law. See Firestone Tire and Rubber Company v. Bruch, 489 U.S. 101, 103 L. Ed. 2d 80, 109 S. Ct. 948, 57 U.S.L.W. 4194, 4197 (1989), quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 95 L. Ed. 2d 39, 107 S. Ct. 1549 (1987) (federal courts are to develop a "federal common law of rights and obligations under ERISA-regulated plans"). Owing to the small number of instances where federal common law applies, there are few cases that explain the federal common law of disregarding the corporate fiction. The Supreme Court has noted in several instances that the limited liability of corporations is the rule, and not the exception. See, for example, Anderson v. Abbott, 321 U.S. 349, 361-62, 88 L. Ed. 793, 64 S. Ct. 531 (1944) (citations omitted) ("Normally the corporation is an insulator from liability on claims of creditors. The fact that incorporation was desired in order to obtain limited liability does not defeat that purpose. Limited liability is the rule, not the exception; and on that assumption large undertakings are rested, vast enterprises are launched, and huge sums of capital attracted."); Bangor Punta Operations v. Bangor & A.R. Co., 417 U.S. 703, 713, 41 L. Ed. 2d 418, 94 S. Ct. 2578 (1974). The courts are free to ignore the corporate form, however, in order to advance the dictates of public policy. Courts frequently take such a step in order to defeat fraud, remedy gross undercapitalization of the enterprise, prevent circumvention of the law, or elevate the substance of a transaction over its form. See Anderson, 321 U.S. at 362-65; Bangor Punta, 417 U.S. at 713; Evans Products Co. v. I.C.C., 729 F.2d 1107, 1110 (7th Cir. 1984); see generally William Meade Fletcher, 1 Cyclopedia of the Law of Private Corporations §§ 41-41.20 (Rev. ed. 1983) (hereafter "Corporations").
Before a court will disregard the limited liability of the corporation, "there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and circumstances must indicate that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice." Id. at § 41.30 (footnote omitted). See also Seymour v. Hull & Moreland Engineering, 605 F.2d 1105, 1111 (9th Cir. 1979); Operating Engineers Pension Trust v. Reed, 726 F.2d 513, 515 (9th Cir. 1984) (Kennedy, J.); Contractors, Laborers, Teamsters & Engin. v. Hroch, 757 F.2d 184, 190 (8th Cir. 1985); Alman v. Danin, 801 F.2d 1, 4 (1st Cir. 1986). Since it is the exceptional instance where a court will disregard the corporate form, the party who wishes the court to disregard that form "bears the burden of proving that there are substantial reasons for doing so." Hroch, 757 F.2d at 190.
As Fletcher notes in his treatise, the question of whether the court should disregard a corporation's limited liability is usually one of fact. See Fletcher, 1 Corporations at § 41.95. Here the facts are undisputed. Litgen Concrete is a corporation in good standing. It maintains its corporate records, has adequate capital, and is a going concern. There is no evidence that any of its three officer/directors commingles his funds with that of the corporation, or vice versa. There also is no evidence that the identities of Litgen Concrete and those of its officer/directors have merged.
Based on these undisputed facts, the court holds that the plaintiffs have not given this court substantial reasons for ignoring Litgen Concrete's corporate form. The plaintiffs have submitted no evidence indicating a unity of interest and ownership between Litgen Concrete and William Litgen. The fact that Litgen Concrete is a closely held corporation is insufficient evidence standing alone to warrant piercing of Litgen Concrete's corporate veil. The plaintiffs' blanket denials of Litgen Concrete's affidavit testimony are similarly insufficient to avoid summary judgment on the question of William Litgen's personal liability for Litgen Concrete's obligations. See Rule 56(e) (party opposing summary judgment must set forth specific facts showing that there is a genuine issue for trial).
Even if this court were to assume that William Litgen and Litgen Concrete were one, the plaintiffs still would have to demonstrate that it would be unjust to limit their recovery on Litgen Concrete's obligations to Litgen Concrete alone. The plaintiffs have submitted no facts demonstrating, for example, that William Litgen incorporated Litgen Concrete to defraud the plaintiffs or circumvent the law. The plaintiffs also have submitted no evidence that, were this court to hold Litgen Concrete liable, Litgen Concrete could not pay the judgment. Of course, were such to be the case, and the plaintiffs established the other prerequisite for piercing Litgen Concrete's corporate veil, the plaintiffs could bring another action to pierce the veil and recover from Litgen Concrete. See Alman, 801 F.2d at 3-4 (union could seek to recover ERISA judgment from former owners of closely held, but defunct and assetless, corporation once union discovered after judgment the true financial position of corporation).
This court thus holds that, on the evidence presently before the court, the plaintiffs may not recover unpaid contributions owed to them under § 1145 from William Litgen. The plaintiffs assert another basis for William Litgen's liability in Counts 3 and 4, however: 29 U.S.C. § 1132(a)(2). That provision of ERISA states: "A civil action may be brought . . . by a participant, beneficiary, or fiduciary for appropriate relief under section 1109 of this title." Broadly speaking, 29 U.S.C. § 1109 imposes liability for breach of fiduciary duties. The plaintiffs claim that William Litgen has participated in a breach of the duty imposed by 29 U.S.C. § 1106(a) (1) (B), which states that, unless ERISA provides otherwise, "A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect lending of money or other extension of credit between the plan and a party in interest."
The plaintiffs misconceive who here owes a duty under § 1106(a) (1) (B). The plaintiffs claim that, because Litgen Concrete has refused to pay moneys which it owes the Welfare and Pension Funds, the Welfare and Pension Funds have "extended" credit to William Litgen. As noted earlier, William Litgen is a party in interest, see id. at § 1002(14) (H), as is Litgen Concrete, see id. at § 1002(14)(C). Yet William Litgen and Litgen Concrete are separate individuals. Even if the court were to treat the Funds as having "extended credit" to Litgen Concrete by reason of the corporation's failure to pay its bills -- a somewhat whimsical assumption -- there is nothing in ERISA that allows a plan to recover a loan from a party in interest who did not receive the loan. Moreover, § 1106(a) (1) (B) enjoins the fiduciary from extending credit. Section 1002(21) (A) of ERISA states that, except as otherwise provided,
a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation . . . with respect to any moneys or property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.
Never have the plaintiffs submitted evidence that William Litgen was a fiduciary with respect to the decision of the Funds to "extend credit" to Litgen Concrete. While he certainly exercises authority over Litgen Concrete's affairs, this court would be surprised to learn that William holds any authority, discretionary control, or responsibility with respect to management or administration of the plaintiffs' funds or assets. See Leigh v. Engle, 727 F.2d 113, 133-34 (7th Cir. 1984) (persons are fiduciaries only to the extent they perform fiduciary functions). The court thus holds that based on the evidence presently before this court, the court cannot hold William Litgen liable under 29 U.S.C. § 1132(a) (2) and grants summary judgment in favor of him on Counts 3 and 4 of the Complaint.
The court now turns to Count 5. There the plaintiffs claim that William is liable for Litgen Concrete's unpaid contributions under the Illinois Wage Payment and Collection Act, Ill.Rev.Stat. ch. 48, para. 39m-1 et seq. (Smith-Hurd Ann. 1986). The court notes initially that Count 5 presently raises a question regarding this court's jurisdiction over a pendent party, as the court has dismissed all federal claims pending against William. This court has treated the issue of pendent party jurisdiction on two recent occasions. See Doe v. Bobbitt, 682 F. Supp. 388 (N.D. Ill. 1988); Valliere v. Kaplan, 694 F. Supp. 517 (N.D. Ill. 1988). Since those decisions, which reviewed the Supreme Court and Seventh Circuit precedents on the topic, the Seventh Circuit has weighed in with yet another discussion of pendent party jurisdiction, this one in Huffman v. Hains, 865 F.2d 920 (7th Cir. 1989). There the court discussed the two steps that are necessary to determine if pendent party jurisdiction exists in a case:
First, the court must examine whether the constitutional power to exercise jurisdiction exists. Second, the court must examine whether Congress has limited the court's power to exercise pendent party jurisdiction in the specific statutory provison conferring federal jurisdiction in that case.