Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 1181--John W. Darrah, Judge.
Before Flaum, Chief Judge, and Harlington Wood, Jr. and Williams, Circuit
The opinion of the court was delivered by: Flaum, Chief Judge.
Following a bench trial, the district court held that Defendant-Appellant Orin S. Neiman operated a sole proprietorship in 1991 and 1993, resulting in withdrawal liability under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. sec. 1001, et seq. Neiman appeals, and, for the reasons stated herein, we affirm.
Central States, Southeast and Southwest Areas Pension Fund ("Central States") is a multi-employer pension fund. As is evident from many of the citations below, Central States is actively engaged in enforcing its rights under ERISA sec. 4001(b)(1), under which an employer that reduces the amount it contributes to a multi-employer pension plan may be liable for "withdrawal liability." 29 U.S.C. sec. 1381(b)(1). Because one employer's withdrawal results in decreased payments even though employee benefits may have vested, ERISA imposes a statutory obligation to continue payments despite the cessation of contributions. ERISA imposes this statutory obligation on "all trades or businesses" under "common control" with the company that withdrew from the fund. 29 U.S.C. sec. 1301(b)(1). This prevents employers from "fractionalizing" their assets among several entities to avoid liability. See Central States, Southeast & Southwest Areas Pension Fund v. Ditello, 974 F.2d 887, 890 (7th Cir. 1992). Both parties agree that the only issue in this case is whether Neiman operated a sole proprietorship under common control with South Coast Transport Company ("South Coast"), which partially withdrew from Central States in 1991 and completely withdrew in 1993. If Neiman did, then the sole proprietorships--and Neiman personally--are subject to withdrawal liability under ERISA.
In 1991, Neiman owned a family of interstate trucking companies that included both South Coast and Transcon, Inc. On December 31, 1991, Central States determined that South Coast partially withdrew from the pension fund due to a substantial and permanent decline in contributions. This partial withdrawal resulted in liability in the amount of $1,750,527.76. At the time South Coast withdrew, Neiman devoted all of his daily activity to Transcon, where he served as president. However, Neiman was also a shareholder and officer of NCO Financial Corporation ("NCO"), a real estate management company. Throughout 1991, Nei man received regular monthly payments from NCO in the total amount of $36,875.45. NCO reported these payments as non-employee compensation on IRS Form 1099. NCO recorded many of these payments in a "Cash Disbursement Journal," and characterized them as "mgmt. fees."
Neiman forwarded all tax documents to his accountant, Arnold Anisgarten. Anisgarten was responsible for completing Neiman's income tax returns. In this case, Anisgarten reported the income from NCO on IRS Schedule C, which is entitled "Profit or Loss from Business (Sole Proprietorship)." Beyond the selection of the form, Anisgarten provided information on Schedule C suggesting that Neiman provided management services to NCO. For example, Anisgarten checked a box stating that Neiman materially participated in the operation of the business throughout the year. In addition, Anisgarten stated that the business's accounting method was "cash," that the principal business or profession was "business and management/management," and that all of Neiman's investment was at risk. Neiman signed the income tax return before forwarding it to the Internal Revenue Service. Neiman's signature attested to the fact that he had examined the return and believed it was true and correct.
On December 16, 1993, South Coast permanently ceased contributions to Central States and thus incurred a complete withdrawal. The complete withdrawal resulted in liability in the amount of $503,325.71. Several months prior to the complete withdrawal, Neiman had been employed by TC Services, a Transcon subsidiary. In September 1993, Neiman and Transcon's other officers sold their shares of stock to Michael Kibler and a group of investors. Transcon stated in a proxy statement filed with the SEC that Neiman would serve as a consultant for the remaining months in 1993 as part of a severance package. Neiman received several payments from Transcon at the end of 1993 totaling slightly more than $100,000. Like NCO, Transcon reported these payments on three separate 1099s, which reflected non-employee compensation. At least one 1099 contained the notation "Consult," although the record is unclear concerning who marked the form.
Anisgarten also prepared Neiman's 1993 income tax return. Anisgarten reported the Transcon payments on IRS Schedule C, Profit or Loss From Business (Sole Proprietorship). Once again, the Schedule C reflected that the principal business or profession was "Business and Management--Management Services." The Schedule C also represented that Neiman materially participated in the business, that all of the taxpayer's investment was at risk, and that the business referred to had previously filed a Schedule C. In addition, by filing the 1993 Schedule C, Neiman was able to claim business tax deductions totaling $107,285. Anisgarten based these deductions on a business expense ledger, prepared at Neiman's direction, that included typical business expenses such as travel, entertainment, Federal Express charges, payments for office supplies, and an advance to NCO. Neiman signed the 1993 income tax return before forwarding it to the IRS.
Central States sued Neiman to recover the shortfalls attributable to South Coast's withdrawal from the pension fund in 1991 and 1993. Central States' theory of recovery derived from the fact that all "trades or businesses" under Neiman's control were responsible for the missing funds, and that Neiman operated businesses providing management and consulting services in both 1991 and 1993. Both parties moved for summary judgment before the district court.*fn1 In support of its motion, Central States relied exclusively upon documentary evidence, including Neiman's income tax returns from 1991 and 1993, the 1099s, NCO's Cash Disbursement Journal, Transcon's proxy statement to the SEC, and the business expense ...