UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION
May 21, 1991
CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, a pension trust, and MARION W. WINSTEAD, ROBERT C. SANSONE, ROBERT J. BAKER, HOWARD McDOUGALL, ARTHUR H. BUNTE, JR., R. JERRY COOK, R.V. PULLIAM, SR., and HAROLD D. LEU, the present trustees, Plaintiffs,
MINNEAPOLIS VAN & WAREHOUSE CO., d/b/a DOWNTOWN MINI STORAGE, a Minnesota corporation, and ERWIN BRUESEHOFF, Defendants
Milton I. Shadur, United States District Judge.
The opinion of the court was delivered by: SHADUR
MEMORANDUM OPINION AND ORDER
MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE
Central States, Southeast and Southwest Areas Pension Fund and its Trustees ("Pension Fund," treated as a collective noun taking singular verbs) sued Minneapolis Van & Warehouse Company ("Minneapolis Van"), a now-dissolved Minnesota corporation, and its former sole stockholder Erwin Bruesehoff ("Bruesehoff") to collect past due interim withdrawal liability payments owed to Pension Fund pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1368 ("ERISA"), as amended by the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. §§ 1381-1461 ("MPPAA").
Pension Fund now moves for summary judgment under Fed. R. Civ. P. ("Rule") 56. For the reasons stated in this memorandum opinion and order, Pension Fund's motion is granted in part and denied in part -- but the partial grant is enough to provide Pension Fund with a total victory.
and Procedural History
Pension Fund is a multiemployer pension plan as defined in Section 1301(a)(3). Until the end of 1988 Minneapolis Van was subject to a collective bargaining agreement with Teamsters Local Union No. 544 under which Minneapolis Van was required to make specified contributions to Pension Fund on behalf of Minneapolis Van's covered employees.
On December 30, 1988 Minneapolis Van transferred the real estate that it owned at 106 First Avenue North, Minneapolis, Minnesota -- valued at $ 750,000 -- to Bruesehoff, then owner of 100% of its outstanding shares. Four days later Minneapolis Van dissolved and obtained a Certificate of Dissolution from the Minnesota Secretary of State. Either in connection with or before the time of its dissolution, Minneapolis Van transferred $ 54,000 in stocks, bonds and automobiles to Bruesehoff -- again wholly without consideration.
Neither Pension Fund nor other creditors received any value from the transfer of Minneapolis Van's assets (currently valued at $ 628,000) to Bruesehoff.
Pension Fund determined that on December 31, 1988 Minneapolis Van permanently ceased to have an obligation to contribute to Pension Fund, thereby effecting a statutory "complete withdrawal" (as defined in Section 1383(a)) from Pension Fund by Minneapolis Van and any trade or business under common control with it. As a result, Pension Plan says (though Minneapolis Van disputes) that Minneapolis Van incurred withdrawal liability to Pension Fund in the amount of $ 113,259.45, determined pursuant to statutory procedures outlined in Section 1381(b). After its transfer of assets to Bruesehoff, Minneapolis Van had nothing with which to satisfy any such withdrawal liability.
On September 5, 1989 Minneapolis Van received a Notice and Demand from Pension Fund seeking payment of $ 113,259.45, payable in a lump sum or in monthly installments of $ 4,753.02. On November 27, 1989 Minneapolis Van formally requested that Pension Fund review the assessment pursuant to Section 1399(b)(2)(A).
Pension Fund rejected Minneapolis Van's position in a letter received by Minneapolis Van on December 26, 1989.
Except for one payment in October 1989, Minneapolis Van did not make any payments in accordance with Pension Fund's Notice and Demand. Pension Fund's First Amended Complaint seeks:
1. recovery under MPPAA from Minneapolis Van and Bruesehoff for $ 71,295.30 in past due withdrawal liability payments plus $ 41,164.68 in interest, plus $ 14,259.06 in additional interest (pursuant to Section 1132(g)) (Count I);
2. imposition of a constructive trust on the value of Minneapolis Van's assets held by Bruesehoff (Count II); and
3. recovery of the value of those assets on the basis of Bruesehoff's violation of Section 5 of the Uniform Fraudulent Transfer Act ("UFTA"), Minn. Stat. §§ 513.41-513.51 (Count III).
This opinion addresses each claim in turn.
Minneapolis Van's Interim Withdrawal Liability
Congress enacted MPPAA in response to the advice of the Pension Benefit Guaranty Corporation ("PBGC"), a government entity created by Congress to administer the pension fund program. PBGC warned that ERISA's contingent liability provisions gave employers an incentive to withdraw from the program (see Board of Trustees of the Western Conference of Teamsters Pension Trust Fund v. Thompson Building Materials, Inc., 749 F.2d 1396, 1399 (9th Cir. 1984)). As the Secretary of Labor testified before Congress, PBGC proposed this means to address the problem (T.I.M.E. - DC, Inc. v. Management-Labor Welfare & Pension Funds, of Local 1730 International Longshoremen's Association, 756 F.2d 939, 944 (2d Cir. 1985), quoting Multiemployer Pension Plan Amendments Act of 1980: Hearings on H.R. 3904 Before Subcommittee on Labor-Management Relations of the House Committee on Education and Labor, 96th Cong., 1st Sess. 362 (1979)):
An employer that leaves the multiemployer pension plan would be required to pay its fair share of the plan's vested liabilities. The objective of this element is to discourage withdrawals and to provide a financial cushion for the plan which is not now provided by the present system because of the limitations of liability and the absence of any disincentive to withdraw.
Hence MPPAA provides for withdrawal liability payments by the employer.
In keeping with its goals of discouraging withdrawal and providing a financial cushion, MPPAA also compels an employer to begin making withdrawal liability payments almost immediately after the pension fund makes a demand (Section 1399(c)(2)):
Withdrawal liability shall be payable in accordance with the schedule set forth by the plan sponsor under subsection (b)(1) of this section beginning no later than 60 days after the date of the demand notwithstanding any request for review or appeal of determinations of the amount of such liability or of the schedule.
MPPAA therefore sets up a "'pay now, dispute later' collection procedure" ( Robbins v. Pepsi-Cola Metropolitan Bottling Co., 800 F.2d 641, 642 (7th Cir. 1986) (per curiam)). Thus even though Section 1401(a)(1) provides that disputes arising under Sections 1381 through 1399 are to be resolved through arbitration, Section 1401(d) nevertheless requires interim payments:
Payments shall be made by an employer in accordance with the determinations made under this part until the arbitrator issues a final decision with respect to the determination submitted for arbitration, with any necessary adjustments in subsequent payments for overpayments or underpayments arising out of the decision of the arbitrator with respect to the determination.
If the employer fails to make such interim payments, the pension fund may bring a district court action to compel payment (Section 1451(b) and (c)).
It is therefore beyond question that Minneapolis Van was required to begin making interim payments -- as scheduled by Pension Fund -- 60 days after Pension Fund demanded withdrawal payments. Furthermore, Minneapolis Van continued to be liable for such payments despite the existence of any underlying dispute. Contrary to its contention, this situation is not one where this Court should reserve decision pending the outcome of arbitration. In expressly providing for interim payments and their immediate enforcement pending arbitration, MPPAA makes it clear that exhaustion of the administrative remedy is neither necessary or sensible. Any errors made in calculation can be corrected either by the arbitrator or by later judicial review (Section 1401(b)(2)).
Of course this Court has not been asked to resolve -- and indeed should not engage in resolving -- the underlying factual dispute ( Robbins v. McNicholas Transportation Co., 819 F.2d 682, 686 n. 4 (7th Cir. 1987)):
Ordinarily, in the absence of a demonstration that making interim payments would inflict irreparable injury on an employer, a court should enforce the interim payments requirement without examining the merits of the underlying dispute concerning withdrawal liability. Even when a court denies interim payments based on demonstrated irreparable injury and a preliminary review of the merits, the underlying dispute should still be arbitrated.
No preliminary injunction was requested here, and in any case Minneapolis Van has not suggested irreparable injury. Nor could it: It has no operations or other activities that could be disrupted by the interim payments. Indeed, as explained in Central States Southeast and Southwest Areas Pension Fund v. Bellmont Trucking Co., 788 F.2d 428, 432-34 (7th Cir. 1986) imposition of withdrawal liability even on an employer no longer obligated to make payments to a pension fund due to bankruptcy clearly furthers MPPAA's policy.
Consequently this Court holds that Minneapolis Van is liable for all past due withdrawal liability payments. It is additionally liable for interest, fees, costs and liquidated damages in accordance with Section 1132(g)(2); see Central States, Southeast and Southwest Areas Pension Fund v. Gerber Truck Service, Inc., 870 F.2d 1148, 1156 (7th Cir. 1989) (en banc).
Bruesehoff's Interim Withdrawal Liability
Pension Fund does not seek to impose personal liability on Bruesehoff for the interim withdrawal payments either as an "employer" within ERISA's subchapter III (governing such liability) or on the piercing-the-corporate veil or alter ego lines of analyses most frequently encountered in attempts to saddle stockholders or officers or directors with the obligations of their corporations. Instead Pension Fund points to Bruesehoff's having received -- without giving value for value -- the assets of Minneapolis Van that would otherwise have been available to satisfy Pension Fund's statutory claim.
Corporate veil-piercing is no longer an issue once a company has dissolved, for there is no longer a veil to be pierced. Rather, what is involved is a basic tenet of corporate law ( Snyder v. State-wide Properties, Inc., 235 F. Supp. 733, 742 (N.D. Ill. 1964), aff'd 353 F.2d 3 (7th Cir. 1965), quoting Hatch v. Morosco Holding Co., 50 F.2d 138, 139 (2d Cir. 1931)):
When the assets of a corporation are distributed to its shareholders leaving corporate debts unpaid, liability of the shareholders to a creditor, to the extent of the value of the assets received is beyond question.
Any such distribution of assets is deemed a fraud on creditors (15A Fletcher § 7417 (1990 rev. vol.)). That universal rule of stockholder liability is simply a function of the basic concept that stockholders are remaindermen -- that their interest is only in the equity, only in what is left over after all the corporate obligations have been paid.
Another way of framing that concept is the familiar terminology of the "trust fund" ( Snyder, 235 F. Supp. at 741-42, citing Stewart v. United States, 327 F.2d 201 (10th Cir. 1964)):
Irrespective of the condition of solvency or insolvency, . . . such a complete cessation of business and formal steps toward dissolution . . . invoke the well-known trust fund theory of corporate assets for the benefit of the creditors.
That trust fund theory is a common law doctrine that "has long-standing antecedents in the federal courts which may be traced back, in part, at least as far back as the noted decision by Justice Story in Wood v. Drummer, 30 F. Cas. 435 [No. 17, 944]" ( Commissioner v. Stern, 357 U.S. 39, 50, 2 L. Ed. 2d 1126, 78 S. Ct. 1047 (1958) (Black, J., dissenting)).
And of course the application of that trust fund doctrine to the recovery of withdrawal liability under MPPAA is wholly consistent with this Court's authority to provide "appropriate equitable relief" (Section 1132(a)(3)(B)). As Stormer v. Charlie's Cafe Exceptionale, Inc., No. 4-87-575, slip op. at 17 (D. Minn. May 4, 1988) has put it:
Allowing recovery of withdrawal liability payments under this doctrine promotes the stability and solvency of multiemployer pension plans without imposing new or unexpected burdens on an employer. Unlike an action against shareholders under an expansive definition of "employer," recovery under the trust fund doctrine does not pose the threat of personal liability without regard to the shareholder's receipts from the corporation. Recovery is limited to those assets transferred to the shareholder before the corporation's debts have been satisfied. Thus, establishing a cause of action under the trust fund doctrine is consistent with the policies of ERISA because it will not discourage entry into a multiemployer plan and may encourage plan entry by protecting the remaining employers contributing to the plan.
Up to now this opinion has spoken in terms of the universality of corporate law -- as though there were a federal common law in the area (despite Justice Holmes' disclaimer of such a "brooding omnipresence in the sky" ( Southern Pacific Co. v. Jensen, 244 U.S. 205, 222, 61 L. Ed. 1086, 37 S. Ct. 524 (1917)). And it is certainly true that when interpretation of a federal statute such as ERISA is involved, federal law does represent the applicable source of law -- and in the case of ERISA in particular, Congress did intend that "a body of Federal substantive law will be developed by the courts to deal with issues involving rights and obligations under private welfare and pension plans" ( Franchise Tax Board of California v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1, 24 n. 26, 77 L. Ed. 2d 420, 103 S. Ct. 2841 (1983), quoting 120 Cong. Rec. 29942 (1974) (remarks of Sen Javits); see also Board of Trustees of the Western Conference of Teamsters Pension Trust Fund v. H.F. Johnson, Inc., 830 F.2d 1009, 1014 (9th Cir. 1987)). Nonetheless, because corporations are by definition the creatures of state corporate law, courts must be cautious to avoid any unnecessary collisions between (1) the rules that are established for corporations as a very condition of their existence (the state statutory provisions that are inherently incorporated into every corporate charter) and (2) the need to avoid improper limitations or impedances on the federal policies served by ERISA (see, e.g., Alman v. Danin, 801 F.2d 1, 3-4 (1st Cir. 1986); cf. Evans v. Einhorn, 855 F.2d 1245, 1255-56 (7th Cir. 1988) (per curiam)).
If for example Minnesota corporate law
turned out to contain provisions that were inconsistent with the universally recognized doctrine that stockholders cannot receive the unencumbered benefit of corporate assets until all creditors have been paid or provided for, this Court would have to determine whether it must reject such a reference to state law as impeding the congressional goals in enacting MPPAA. Not surprisingly, such a hypothetical conflict is not realized here: Minnesota law does not depart from that universal doctrine or from the trust fund theory as its justification (see, e.g., B & S Rigging & Erection, Inc. v. Wydella, 353 N.W.2d 163, 167-68 (Minn. App. 1984), holding that employees of an insolvent corporation can recover vacation pay against officers and stockholders -- whom the law makes fiduciaries of the corporate assets for the benefit of its creditors). Hence the basic tenets of corporate law, whether viewed under the lens of either federal common law or state law, permit an ex-stockholder in Bruesehoff's position to be reached personally for satisfaction of the withdrawal liability payments.
In this instance Minneapolis Van's transfer to Bruesehoff of real estate valued at $ 750,000 on December 30, 1988, and of the other $ 54,000 in assets at about the same time, left the corporation with insufficient assets to pay withdrawal liability payments to Pension Fund. Bruesehoff is therefore liable for withdrawal liability payments up to the extent of those transfers.
This Court accordingly exercises its equitable powers under ERISA to impose a constructive trust on the distributed assets (or on the sale price of any assets distributed and then sold, see n. 10) for the benefit of Pension Fund.
Bruesehoff complains that Minnesota Van paid off all creditors known to it at the time of its dissolution, so that Bruesehoff cannot be held liable for a claim that came to his attention only upon Pension Fund's Notice and Demand some eight months later. But even were that lack-of-knowledge claim an accurate one,
there is no requirement of knowledge as a precondition for imposition of liability. Minneapolis Van's MPPAA liability for withdrawal payments arose as a matter of law at the moment that the corporation dissolved and thereby effected a "complete withdrawal" (Section 1383). That liability existed (though it was then unasserted) when the distributions in liquidation were made,
and nothing in the trust fund doctrine requires that this type of creditor's claim be known to the stockholder in order to require the stockholder to satisfy the claim to the extent of the assets received.
Distribution alone, and not an affirmative intent to defraud, establishes this type of "fraud on the creditor."
In that respect, it is worth noting that Congress has given employee benefit plans such as Pension Fund six years to bring their claims (Section 1451(f)), so it would often be possible that defendants would not have received formal notice -- or even had anything but generalized constructive knowledge -- of such a claim at the time of dissolution.
That statutory provision would plainly call for the rejection of any argument that Minneapolis Van cannot be held liable because Pension Fund's claim is time-barred under Minnesota law.
As against any general state-law period of limitations in that respect, this Court holds that MPPAA's express six-year statute of limitations controls and applies to Pension Fund's claim.
What of the derivative claim against Bruesehoff? On that score defendants contend that because the Minneapolis Van dissolution was conducted (as it had to be) according to state law (Minn. Stat. §§ 302A.721 to.733), the Minnesota one-year statute of limitations (Minn. Stat. § 302A.781) should apply to bar all creditors' claims not brought within one year after the articles of dissolution were filed. But defendants' basic premise is wrong. That one-year statute does not apply to claims of creditors who were not given notice of intent to dissolve under Minn. Stat. § 302A.727 -- instead such creditors are afforded two years to sue under Minn. Stat. § 302A.729. Here Pension Fund was not given notice of the dissolution (see Bruesehoff's statement in Minneapolis Van's Articles of Dissolution, P. Mem. Ex. B, acknowledging that all creditors were not given notice), and it did bring this lawsuit within two years of the notice of intent to dissolve.
That being so, the issue of which statute of limitations to apply -- that under state corporate law or that prescribed by ERISA -- is really moot, for it makes no difference. This situation is somewhat analogous to the so-called "false conflict" issues in choice of law jurisprudence, where courts are not called upon to resolve which jurisdiction's substantive law to apply because the same result would obtain under the law of all the competing jurisdictions (see, e.g., In re Air Crash Disaster Near Chicago, Illinois on May 25, 1979, 644 F.2d 594, 605 (7th Cir. 1981)). It is still worth observing, however, that there is a great deal of force to the argument that the shorter Minnesota statute would be preempted by the six-year statute of limitations that Congress has expressly prescribed for actions to collect ERISA withdrawal liability. As Holmberg v. Armbrecht, 327 U.S. 392, 395, 90 L. Ed. 743, 66 S. Ct. 582 (1946) (citation omitted) said nearly a half century ago:
If Congress explicitly puts a limit upon the time for enforcing a right which it created, there is an end of the matter. The Congressional statute of limitation is definitive.
Thus, with a few express exceptions inapplicable here, ERISA "supersedes any and all State laws insofar as they . . . relate to any employee benefit plan . . ." (Section 1144(a)). And as stated in H.F. Johnson, 830 F.2d at 1016, citing Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 45-46, 95 L. Ed. 2d 39, 107 S. Ct. 1549 (1987) and Shaw v. Delta Air Lines, 463 U.S. 85, 98-100, 77 L. Ed. 2d 490, 103 S. Ct. 2890 (1983)):
ERISA preemption is to be construed broadly, and is not limited to state laws designed specifically to affect employee benefit plans.
It would certainly appear that Minnesota's statute of limitations on creditors' claims "relates to" Pension Fund's claim and would therefore, to the extent applicable to ERISA-based claims of withdrawal liability, be preempted (see similar holding in H.F. Johnson, 830 F.2d at 1016). Indeed, if the rule were otherwise, every employer ceasing its business operations (the paradigmatic event that triggers withdrawal liability) could simply choose to dissolve and distribute its assets to its stockholders, thus taking an end run around the longer limitation period granted by Congress to employee benefit plans.
Uniform Fraudulent Transfer Act
As a separate cause of action, Pension Fund claims that Bruesehoff is liable under the UFTA, codified at Minn. Stat. §§ 513.41-.513.51. UFTA § 5(a) (Minn. Stat. § 513.45(a)) provides that a transfer made or obligation incurred without the receipt of reasonably equivalent value is fraudulent as to creditors, without regard to any actual intent to defraud, if the debtor was insolvent or would be rendered insolvent as a result of the transfer.
Whatever the merits of that contention might be, two considerations counsel against its resolution at this point. For one thing, it too implicates complex questions of preemption that should not be dealt with unless it is necessary to do so. But perhaps more importantly, the applicability of UFTA to Pension Fund depends on its status as a "creditor" within the meaning of that statute. This opinion has decided only the existence of an obligation to make interim payments pending the arbitrator's determination of liability, and not the existence of any ultimate liability. Whether that interim obligation to make payments to Pension Fund pending the determination of liability renders Pension Fund a "creditor" in UFTA terms -- something independent of ERISA and federal law -- is an issue better left to state courts unless essential to resolution of the case (as it is not).
Accordingly this Court eschews addressing that state UFTA claim and dismisses Count III without prejudice.
No genuine issue of material fact exists as to Minneapolis Van's and Bruesehoff's obligations to make interim withdrawal liability payments to Pension Fund under MPPAA, and Pension Fund is entitled to a judgment as a matter of law. This Court orders each defendant, jointly and severally:
1. to pay to Pension Fund all delinquent withdrawal payments (currently 19 times $ 4,753.02, or $ 90,307.38) plus interest, fees, costs and liquidated damages in accordance with Section 1132(g) and
2. to continue to make such payments according to the schedule set out by Pension Fund pending the outcome of the arbitration proceedings.
Defendants are ordered to pay the principal sum of $ 90,307.38 forthwith, and to pay the other presently due amounts within 10 days after this Court enters an order approving those amounts (Pension Fund is ordered to calculate those amounts and to submit its calculations to defendants and to this Court on or before May 29, 1991).