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Trustees of Sheet Metal Workers Local No. 1 Welfare Trust v. Pekin Climate Control

November 9, 2009

TRUSTEES OF SHEET METAL WORKERS LOCAL NO. 1 WELFARE TRUST, PLAINTIFF,
v.
PEKIN CLIMATE CONTROL, LTD., AN ILLINOIS CORPORATION, KEVIN S. BROWN, AND JAMES E. BROWN, DEFENDANTS.



The opinion of the court was delivered by: Joe Billy McDADE United States District Judge

ORDER & OPINION

In a combined motion, Plaintiff, Trustees of Sheet Metal Workers Local No. 1 Welfare Trust, has asked the Court to take the following actions: reconsider the Court's Order of January 16, 2009, which granted Defendants' motion to dismiss; vacate the corresponding Judgment entered on January 21, 2009 pursuant to Rule 59(e) of the Federal Rules of Civil Procedure; and grant leave to file an amended complaint pursuant to Fed. R. Civ. P. 15(a). (Docs. 16-17). For the reasons that follow, the motion is GRANTED.

BACKGROUND

In 2005, Plaintiff, as trustee of an employee welfare benefit trust fund ("Fund"), filed a complaint in federal court against Meyer Climate Control, Inc., an Illinois corporation ("Meyer"), under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C § 1001 et seq. (Doc. 1 in Case No. 05-cv-1216 in the United States District Court for the Central District of Illinois).*fn1 In that complaint, Plaintiff alleged that Meyer had failed to make contributions to the Fund as required under provisions of a collective bargaining agreement to which Meyer had agreed. Plaintiff sought to recover the delinquent contributions. The parties to the 2005 suit subsequently consented to have the case heard to judgment by United States Magistrate Judge John A. Gorman pursuant to 28 U.S.C. § 636(c). In an Order dated December 8, 2006, Judge Gorman granted Plaintiff's motion for summary judgment and awarded Plaintiff $18,322.29 in owed contributions plus $5,947.50 in fees and costs (for a total of $24,269.79). (Doc. 18 in Case No. 05-cv-1216). On the same day, the Clerk entered judgment in favor of Plaintiff Trustees and against Meyer in the amount of $24,269.79. (Doc. 19 in Case No. 05-cv-1216).

Unable to collect the judgment from Meyer, Plaintiff Trustees initiated the present action on January 22, 2008 pursuant to ERISA and Section 301(a) of the Labor Management Relations Act, 1947 ("LMRA"), 29 U.S.C. § 185(a). (Doc. 1 in Case No. 08-cv-1023).*fn2 This time around, Plaintiff did not sue Meyer -- according to the 1/22/2008 Complaint, Meyer was administratively dissolved in February 2007. (Doc. 1 at p. 2). Instead, Plaintiff named as defendants Pekin Climate Control, Ltd. (an Illinois corporation, referred to herein as "PCC"), Kevin S. Brown (an individual), and James E. Brown (an individual). According to the 1/22/2008 Complaint, Kevin and James Brown were each 50 percent shareholders of Meyer with complete control over Meyer's operations. (Doc. 1 at pp. 2-3). The 1/22/2008 Complaint alleged that at some point close in time to the entry of judgment in the 2005 suit, Kevin and James Brown transferred Meyer's assets to PCC for inadequate consideration. (Doc. 1 at p. 3). The Complaint described PCC as a corporation owned and controlled by James and Kevin Brown, and it alleged that PCC "conducts substantially the same business, using substantially the same assets, at the same physical facility, with the same management, and same employees as those of Meyer Climate Control, Inc." (Doc. 1 at p. 3). Moreover, according to the 1/22/2008 Complaint, after Meyer was administratively dissolved in early 2007, the Browns failed to properly wind up Meyer's business affairs and failed to pay Plaintiff the amount owed pursuant to the December 8, 2006 ERISA judgment in the previous suit against Meyer. (Doc. 1 at pp. 2-3).

The 1/22/2008 Complaint alleged that the Browns' transfer of assets from Meyer to PCC, alongside the subsequent dissolution of Meyer without proper winding-up of the corporation's business, was designed to hinder Plaintiff's ability to collect the $24,269.79 ERISA judgment against Meyer. (Doc. 1 at p. 3). Plaintiff asked this Court to "determine that Pekin Climate Control, Ltd. is the alter ego, or improper successor in interest to the assets of Meyer Climate Control, Inc." (Doc. 1 at p. 6). Each of the three Counts in the 1/22/2008 Complaint requested judgment against Kevin and James Brown, jointly and severally, in the same amount owed by Meyer pursuant to the judgment in the previous suit. The 1/22/2008 Complaint omitted any specific request for judgment against PCC (although Count III does request judgment against Meyer -- a possible typo).

On March 13, 2008, Defendants filed a motion to dismiss the 1/22/2008 Complaint pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. The Court granted the motion to dismiss in an Order dated January 16, 2009, finding a lack of subject-matter jurisdiction. (Doc. 14). The Court based its ruling on Peacock v. Thomas, 516 U.S. 349 (1996), a United States Supreme Court decision that essentially precludes a district court from exercising ERISA jurisdiction or federal ancillary jurisdiction over a suit to enforce a previously-obtained ERISA judgment, for which a corporation is liable, by "piercing the corporate veil" to reach a corporate officer or shareholder. Because this Court viewed the present action as an attempt by Plaintiff to enforce a previously-obtained ERISA judgment against third parties who were not involved in the initial suit, the Court dismissed the suit pursuant to Peacock. The Clerk entered judgment in this action on January 21, 2009. (Doc. 15).

On January 26, 2009, Plaintiff requested reconsideration of the Court's ruling on Defendants' motion to dismiss. On February 12, 2009, Defendants responded in opposition. Plaintiff's motion to reconsider and vacate judgment is now before the Court for disposition.

DISCUSSION

Upon reconsideration of its January 16, 2009 decision to dismiss the 1/22/2008 Complaint and enter judgment, the Court is persuaded that Seventh Circuit precedent requires a different result.*fn3

Subject-Matter Jurisdiction

In two post-Peacock decisions, Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 85 F.3d 1282 (7th Cir. 1996) and Board of Trustees, Sheet Metal Workers' National Pension Fund v. Elite Erectors, Inc., 212 F.3d 1031 (7th Cir. 2000), the United States Court of Appeals for the Seventh Circuit limited Peacock's reach, applying reasoning that is applicable under the facts alleged in the present action.

Peacock is the starting point of the analysis. Peacock involved a scenario in which an employee, who had previously obtained an ERISA judgment against his former employer, sought to enforce the judgment against the employer's officer/shareholder by bringing a successive "corporate-veil-piercing" action in federal court. 516 U.S. at 351-52. The district court determined that the employee stated a claim under federal law; the court exercised subject-matter jurisdiction over the successive suit, pierced the veil, and entered judgment in favor of the employee. Id. at 352-53. The Court of Appeals for the Fourth Circuit affirmed the judgment, holding that the district court properly executed ancillary jurisdiction over the successive suit. Id. at 352. The Supreme Court reversed, holding that the employee's veil-piercing claim was not cognizable under ERISA and that ancillary jurisdiction did not support the employee's attempt to enforce the previously-obtained ERISA judgment by suing a new defendant. Id. at 353-59. Accordingly, the Supreme Court concluded that the district court lacked subject-matter jurisdiction over the successive suit. Id. at 360.

Several months after Peacock, the Court of Appeals for the Seventh Circuit decided Central States. In Central States, a plaintiff pension fund that was unable to collect on an ERISA judgment against a group of corporate defendants brought a successive suit to impose the underlying ERISA liability on two different companies under an "alter ego" theory. 85 F.3d at 1284. Affirming the district court's exercise of subject-matter jurisdiction, the Court of Appeals distinguished Peacock. In Peacock, the Court of Appeals reasoned, the plaintiff employee sued generically to enforce a judgment under a "piercing-the-corporate-veil" theory -- there was no allegation that the defendant officer/shareholder was responsible for the underlying ERISA violation. Conversely, stated the Court of Appeals, in Central States, the plaintiff fund alleged that the new corporate defendants so dominated and controlled the previous "judgment defendants" that these new defendants played a role in the ...


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