United States District Court, N.D. Illinois, Eastern Division
CHICAGO REGIONAL COUNCIL OF CARPENTERS PENSION FUND et al., Plaintiffs,
LONGSHORE/DALY, INC., Defendant.
MEMORANDUM OPINION AND ORDER
MARIA VALDEZ, Magistrate Judge.
This matter is before the Court on Plaintiffs' Rule 25(c) Motion to Substitute Multicon, LLC as a Party Defendant. [Doc. No. 45]. For the reasons that follow, Plaintiffs' Motion to Substitute is denied. Plaintiffs' request in the alternative for limited discovery on the issue of successorship is granted.
On January 16, 2008, Plaintiffs, Trustees of the Chicago Regional Council of Carpenters Pension Fund, the Chicago Regional Council of Carpenters Welfare Fund, and the Chicago Regional Council of Carpenters Apprentice and Trainee Program Fund (collectively "the Funds") sued Defendant, Longshore/Daly, Inc. ("Longshore"), to recover delinquent contributions owed under a collective bargaining agreement. The Funds won a judgment against Longshore in the amount of $181, 518.99 on May 13, 2009.
Longshore subsequently paid only a portion of the owed amount, leaving $127, 389.80 of the debt, plus accrued interest, unsatisfied. On November 19, 2013, the Funds filed a motion pursuant to Federal Rule of Civil Procedure ("Rule") 25(c) seeking to substitute Multicon as a party defendant liable for the unpaid balance of the judgment against Longshore. The Funds base their motion on a theory of successor liability. In the alternative, the Funds request to engage in limited discovery on the question of successorship.
I. LEGAL STANDARD
Rule 25(c) is a procedural mechanism that allows a party to be substituted for another where an interest has been transferred. Sullivan v. Running Waters Irrigation, Inc. 739 F.3d 354, 358 (7th Cir. 2014). While the transfer of obligations using this mechanism has traditionally been limited in scope, the Seventh Circuit has expanded its application in ERISA cases to recover unpaid benefit fund contributions, using modified federal common law standards to establish successor liability. See Upholsterers' Int'l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323, 1327-29 (7th Cir. 1990). Substitution of parties under Rule 25(c) is in the court's discretion. ISI Int'l v. Borden Ladner Gervais, LLP, No. 98 C 7614, 2002 WL 230904, at *1 (N.D. Ill. Feb. 15, 2002), aff'd, 316 F.3d 731 (7th Cir. 2003).
In ERISA cases, successor liability applies when two conditions are met: (1) the successor had notice of the liability in question before an interest was transferred; and (2) there is substantial continuity of business operations between the predecessor and the successor. Sullivan, 739 F.3d at 357; Chi. Reg'l Council of Carpenters Pension Fund v. Estate Installations, Inc., No. 11 C 2924, 2013 WL 500833, at *2 (N.D. Ill. Feb. 8, 2013). While successor liability traditionally only applied to companies selling assets, the doctrine has been expanded to include "any reorganization that results in a substantial continuation of the business by the successor and either obliterates the previous business or leaves it as an empty shell." Trs. of Chi. Reg'l Council of Carpenters Pension Fund v. Conforti Const. Co., Inc., No. 09 C 322, 2013 WL 3771415, at *2 (N.D. Ill. July 17, 2013) (quoting Cent. States, S.E. & S.W. Areas Pension Fund v. TAS Inv. Co. LLC, No. 11 C 2991, 2013 WL 1222042, at *7 (N.D. Ill. Mar. 25, 2013)) (internal quotes omitted).
A. Notice of Liability
Multicon's prior notice of Longshore's liability is undisputed. As a result, the Court's inquiry is limited to whether there is "substantial continuity" of business operations between Longshore and Multicon.
B. Substantial Continuity
Whether there is sufficient continuity between two entities to establish successor liability is a fact-based question which requires courts to consider the totality of the circumstances. Sullivan, 739 F.3d at 358; Laborers' Pension Fund v. Seacrest Servs., Inc., No. 12 C 9103, 2014 WL 274100, at *2 (N.D. Ill. Jan. 24, 2014). Factors a court should consider in making this determination include: whether the successor employs "substantially all" of the predecessor's workforce, including supervisors and vice presidents; its use of a predecessor's plant and equipment to produce the same product; its completion of the predecessor's work orders; and its agreement to honor the predecessor's warranties. Artistic Furniture, 920 F.2d at 1329. Courts have also considered whether the business of both employers is the same, whether the employees of the ...