and occasionally filing papers for Paul or performing other clerical activities for him but was never compensated for any of those activities. I was never an employee of Paul or any business in which he had an interest.
The parties agree that a pension plan may recover a withdrawal liability assessment if it can show that (1) the employer was assessed withdrawal liability pursuant to 29 U.S.C. § 1399(b)(1); (2) the employer did not initiate arbitration pursuant to 29 U.S.C. § 1401(a); and (3) the employer is in default on paying its liability, 29 U.S.C. § 1399(c)(5). See Robbins v. Admiral Merchants Motor Freight, Inc., 846 F.2d 1054 (7th Cir. 1988). Further, 29 U.S.C. § 1301(b) provides: "An individual who owns the entire interest in an unincorporated trade or business is treated as his own employer, . . . . All employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer and all such trades and businesses as a single employer." Thus, each member of a control group of trades or businesses is jointly and severally liable as an employer. The parties agree that withdrawal liability is due and owing from R D Motor. It is also agreed that Paul Johnson was the owner of 100% of the stock of Johnco which in turn owned 100% of the stock of R D Motor. Further Paul Johnson operated an unincorporated leasing business which therefore is under common control with R D Motor. Paul Johnson does not dispute that, as a member of the control group, he is an employer jointly and severally liable for the withdrawal liability. The legal dispute that remains in this case is the question of whether Lois Johnson should also be considered a member of the control group who is also liable. Plaintiffs contend that, because certain assets owned by Paul Johnson were purchased with funds from a joint bank account and rental proceeds were deposited in joint accounts, Lois Johnson is a member of the control group.
The leasing business, whether characterized as a sole proprietorship or a partnership, is liable for the full withdrawal liability. Having determined that, the question then becomes one of who can be held responsible for the liabilities of the leasing business. See Connors v. Ryan's Coal Co., 923 F.2d 1461, 1468-69 (11th Cir. 1991) (Clark, J., dissenting).
The regulations applicable to § 414(c) of the Internal Revenue Code are applicable in determining what trades or businesses constitute a single employer. See 29 U.S.C. § 1301(b)(1); 29 C.F.R. § 2612.2; United Food & Commercial Workers Union v. Progressive Supermarkets, 644 F. Supp. 633, 639 (D.N.J. 1986). Those regulations include a spousal attribution rule for ownership.
Plaintiffs contend this regulation treats Lois Johnson as an owner of the leasing business of her husband regardless of whether she directly owned any portion of that business.
Defendant argues this regulation is inapplicable unless she owns a business that is part of the control group. She argues that the regulations are only incorporated into ERISA to define which trades or businesses are part of the control group, not to define which businesses are owned by a particular person. According to defendant, if a person owns a business that is part of the control group, then businesses controlled by that person's spouse are also considered to be part of the control group. Thus, in the present case, businesses owned by Lois Johnson could be attributed to Paul Johnson because he is an owner of the leasing business that is part of the control group. Under defendant's theory, however, there is no proof that Lois Johnson owned any member of the control group and therefore there is no basis for attributing ownership of Paul's business to her. The parties do not dispute that, to the extent the spousal attribution regulation is applicable, Lois Johnson is not excepted because condition (C) of the exception is not satisfied. See 26 C.F.R. § 1.414(c)-4(b)(5)(ii)(C).
There is some support for plaintiffs' position. See Board of Trustees of Western Conference of Teamsters Pension Trust Fund v. Lafrenz, 837 F.2d 892, 894 (9th Cir. 1988); Central States, Southeast & Southwest Areas Pension Fund v. National Transit Cartage Co., No. 88 C 9751 at 6 (N.D. Ill. Oct. 31, 1990). See also Pension Benefit Guaranty Corp. v. Ouimet Corp., 711 F.2d 1085, 1094 & n.11 (1st Cir.), cert. denied, 464 U.S. 961, 78 L. Ed. 2d 337 , 104 S. Ct. 393 (1983). Lafrenz, however, does not consider the issue raised by defendant because there each spouse had a direct ownership in at least one of the organizations in the control group. National Transit simply cites Lafrenz and has no discussion of the issue. Therefore, the issue before the court is one of first impression.
The spousal attribution regulation serves the purpose of preventing the use of marital property laws to circumvent federal law. See Lafrenz, 837 F.2d at 894. As applied to the present case, there is no evidence presented to indicate that Paul Johnson sought to avoid collection on some of his assets by assigning them to the sole ownership of his wife. To the contrary, the evidence only indicates that Lois Johnson has joint bank accounts with her husband. With the possible exception of Lois Johnson's future wages from her employment, there is no source for collection shown that plaintiffs would not be able to pursue if there were only a judgment against Paul Johnson. But even if the purpose is not served in this particular case, there may be a more broadly sweeping prophylactic rule in place to ensure that funds are not diverted to spouses.
In Connors, 923 F.2d at 1468-73, Judge Clark argued in dissent that it must first be determined if a particular organization is part of the control group and that, once that is determined, it must then be determined whether an individual's association with that organization results in her being personally liable for that organization's debt.
Id. at 1468-69. While neither the majority nor the dissent in Connors considered the spousal attribution regulation, Judge Clark's approach is the proper one. Nothing is presented by plaintiffs to show that Congress intended that a spouse would be held jointly liable whenever the other spouse was engaged in a leasing business in which the first spouse had no direct interest. The spousal attribution regulation only comes into play to add additional businesses to the control group, not to add additional owners for a business. This view is consistent with 29 C.F.R. § 2612.1 which provides that the "purpose of this part is to prescribe regulations to determine the trades or businesses that shall be treated as a single employer," not that the regulations will prescribe who is the owner of the business. Also, there is no express statutory provision making a person liable for the debts of his or her spouse. Lois Johnson will not be held liable for the withdrawal liability unless it has been shown that she should be held liable for debts of the leasing business, which has been proven to be a member of the control group.
Federal law controls on the issue of who can be held responsible for the debts of a particular business, though state law may be consulted for guidance. See Evans v. Einhorn, 855 F.2d 1245, 1255 (7th Cir. 1988) (per curiam); Connors, 923 F.2d at 1466; id. at 1470 (Clark, J., dissenting). Plaintiffs have cited Indiana law that they contend shows that Lois Johnson would have had a marital interest in the building and semi-tractors of Paul Johnson. That, however, is not the issue to focus on. The question is whether a creditor of the leasing business would have a claim against Lois Johnson, not whether Lois Johnson would have any claim against Paul Johnson or a lien on the business's property. In Connors, it was held that a wife's partial ownership of the land on which her husband's ranching business was located made her a partner in the ranching business. Here, however, Lois Johnson has no title ownership of any of the property of the leasing business. The titles to the building and the semi-tractors are solely in Paul Johnson's name and Lois Johnson was not involved in the management of the business. Plaintiffs do not point to any precedent holding that purchasing a business out of joint funds and depositing proceeds in a joint account, by themselves, would permit a creditor to pursue a claim against the nonowner of the business who is on the joint account. To the contrary, state law would hold that such facts are insufficient to support liability. See Bradford v. Bentonville Farm Supply, Inc., 510 N.E.2d 745, 747 (Ind. Ct. App. 1987); Zack v. Smith, 429 N.E.2d 983, 985 (Ind. Ct. App. 1982).
That the income and losses of the business were reported on Schedule E of the defendants' joint income tax return is also unavailing. As long as defendants file a joint return, the income would appear on that schedule regardless of whether the leased property is jointly owned or solely held by one spouse. See Zeeman v. United States, 395 F.2d 861, 864 (2d Cir. 1968). Also, there is no notation on the schedule that the business or property is jointly owned.
Plaintiffs do not present evidence that would support holding Lois Johnson liable for the debts of the leasing business. Therefore, Lois Johnson is entitled to summary judgment on the claim against her.
Plaintiffs shall submit a draft judgment order setting forth the exact amount of Paul Johnson's liability including statutory damages and statutory interest computed to November 13, 1991. The judgment shall also set forth that the Pension Fund is awarded reasonable attorney's fees related to the claim against Paul Johnson. A petition setting forth the amount of attorney's fees shall be presented by motion by December 6, 1991. No time spent on the claim against Lois Johnson shall be included. Prior to moving as to the specific amount of fees, plaintiffs shall discuss the fee request with defendant to determine if the parties can stipulate as to all or some of the reasonable amount of fees. The draft judgment shall also provide that the claim against Lois Johnson is dismissed with prejudice.
IT IS THEREFORE ORDERED that plaintiffs' motion for summary judgment is granted in part and denied in part. Defendant Lois Johnson's motion for summary judgment is granted. Status hearing is set for November 13, 1991 at 9:15 a.m. at which time plaintiffs shall present a draft judgment order as described herein and reserving jurisdiction to consider costs and attorney's fees. Plaintiffs' petition for attorney's fees must be presented by December 6, 1991, conditioned on plaintiffs first seeking to resolve that issue with defendant Paul Johnson.