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Central States, Southeast and Southwest Areas Pension Fund v. Sidney Insulation, Inc.

United States District Court, N.D. Illinois, Eastern Division

January 23, 2017

SIDNEY INSULATION, INC., a Missouri corporation, Defendant.


          Milton I. Shadur Senior United States District Judge

         Sidney Insulation, Inc. ("Sidney Insulation") is an insulation contractor in the St. Louis area owned by majority shareholder Sarah Sidney ("Sarah") and her minority shareholder siblings Kevin Sidney ("Kevin") and Patrick Sidney ("Patrick"). Their father David Sidney had owned a successful insulation company, Flexo Supply Company, Inc. d/b/a Stovey Company Division ("Stovey"), until it went out of business in 2011.

         This action stems from Stovey's withdrawal from the Central States Pension Fund ("Pension Fund"[1]) on November 27, 2011 and its resulting withdrawal liability of $639, 495.41 as determined under 29 U.S.C. § 1381(b), part of the Employee Retirement Income Security Act of 1974 ("ERISA") (P. St. ¶ 5).[2]

         On April 30, 2013 this Court's colleague Honorable Matthew Kennelly entered judgment in favor of Pension Fund and against Stovey in the amount of $787, 967.48 (P. St. ¶ 6). Because Stovey has not paid and cannot pay that withdrawal liability, Pension Fund brought this action to enforce that judgment against Sidney Insulation as a claimed successor to Stovey. That has generated cross-motions for summary judgment, and with those motions now fully briefed they are ripe for decision.[3]

         Legal Standards

         Every Rule 56 movant bears the burden of establishing the absence of any genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)). For that purpose courts consider evidentiary records in the light most favorable to nonmovants and draw all reasonable inferences in their favor (Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th Cir. 2002)). Courts "may not make credibility determinations, weigh the evidence, or decide which inferences to draw from the facts" in resolving motions for summary judgment (Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003)). But a nonmovant must produce more than "a mere scintilla of evidence" to support the position that a genuine issue of material fact exists (Wheeler v. Lawson, 539 F.3d 629, 634 (7th Cir. 2008)) and "must come forward with specific facts demonstrating that there is a genuine issue for trial" (id.). Ultimately summary judgment is warranted only if a reasonable jury could not return a verdict for the nonmovant (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

         There is a potential added complexity where, as here, cross-motions for summary judgment are presented. Because the court must then adopt a dual perspective that this Court has often referred to as Janus-like, it must credit the nonmovant's version of any disputed facts as to each motion, and that could on occasion lead to the denial of both motions. Fortunately that is not the case here, for the undisputed facts readily suffice to cause Pension Fund's motion to be granted.

         Factual Background

         Stovey was formed in 1922 (D. St. ¶ 7), and David Sidney took over the company from his father in 1981 (D. Dep. 6:13-15). Its business comprised two operations: It ran a supply house where it sold insulation materials to insulation contractors, and it provided insulation installation services as a subcontractor to mechanical contractors on commercial building projects (D. St. ¶ 8). Stovey's obligations to Pension Fund arose under collective bargaining agreements with Teamsters' Local Union No. 862 ("Local 862")(P. St. ¶ 4), agreements that David Sidney Dated: behalf of Stovey (P. St. ¶ 11).

         Starting in the 2000s Stovey ran into financial trouble when it was routinely named as a defendant in a national wave of asbestos liability lawsuits (D. St. ¶ 18). When the company's liability insurance ran out, Stovey found itself unable to secure bonds for new insulation projects (id.). From about 2006 to 2010 Stovey's annual income shrank from $1.5 million to $22, 908 (P. St. ¶ 23). Although Stovey ceased contracting about 2007 or 2008, it continued to operate its supply house business until 2011 (D. St. ¶ 19). Then in November 2011 Stovey terminated its sole warehouse employee and ceased making contribution payments to Pension Fund (D. St. ¶ 19). David Sidney was Stovey's sole shareholder at the time of its withdrawal from Pension Fund (P. St. ¶ 8).

         As is often the case in family-owned businesses, David's children worked for the company at various points throughout its existence. Sarah worked at Stovey during the 1990s (D. St. ¶ 11), after which she moved to various other cities to pursue educational and career opportunities until she returned in 2002 to work at Stovey again, acting in a clerical position (D. St. ¶ 11, 12).

         It should be acknowledged at this point that there is an area of the factual background on which the litigants part company: the roles that Sarah played over the years vis-a-vis both Stovey and Sidney Insulation. For their part defendants insist that Sarah was never an officer of Stovey, nor did she hold any position as a director or manager (D. Resp. P. St. ¶ 19)), nor did she handle payroll (D. St. ¶¶ 11, 12), while for its part Pension Fund asserts that Sarah served as a Stovey board member in 2004 and as an officer in 2004 and 2005 (P. St. ¶ 24 (d)). Notably, Sarah is referred to as an officer of Stovey in its 2004 and 2005 tax returns (P. Ex. H at 30) and as an officer and member of Stovey's board of directors in its 2004 filings with the Missouri Secretary of State (D. Dep. Ex. A).[4] Pension Fund claims (1) that Stovey's accountant had erroneously listed Sarah as an officer and director in 2004 and (2) that in actuality Sarah would have been prohibited by law from being an officer or director of Stovey while owning a WBE "at the same time" (D. Resp. P. St. ¶ 19).[5]

         But lest those differences impermissibly pre-signal the defeat of either or both summary judgment motions even before this opinion turns to the relevant legal analysis, a brief preview of a critical aspect of that analysis -- though normally out of place in the section of an opinion labeled Factual Background -- is in order. Remember first that the universally stated test of a Rule 56 motion is its showing of the absence of any "genuine issue as to any material fact" (Colotex Corp., 477 U.S. at 322-23). And for that purpose the universally stated definition of a "material fact" is set out in the seminal opinion in Anderson, 477 U.S. at 248:

As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.

         Hence, as the ensuing section of this opinion -- that labeled Sidney Insulation's Successor Liability -- will demonstrate in spades, the parties' just-described differences are not "material" --not even potentially outcome-determinative. And that being so, the later legal analysis can proceed apace to decide whether summary judgment may properly be granted.

         But to return to the factual background as such, it is undisputed that in 2004 Sarah incorporated Sidney Insulation, a company whose primary business is also insulation, as its sole shareholder (D. Resp. Mem. 4). Sarah applied for but was denied certification as a WBE in 2004 (S. Dep. 35:7-13). One year later she applied again and received such certification (id.), which conferred special status under Missouri law in competing for bids (D. St. ¶ 13). From 2006 to 2010 Sidney Insulation's annual income grew from $539, 703 to $1.2 million (P. St. ¶ 23).

         Sidney Insulation and Stovey are both in the business of installing insulation, though Sidney Insulation asserts that its target market was quite distinct from Stovey's because it worked on much smaller scale projects, including "setasides" for minority-owned businesses (D. St. ¶ 13). But documents from Enterprise Bank also listed a casino, Washington University and a township as some of Sidney Insulation's contracts in 2007 (P. St. Ex. G at 3).

         In 2007 and 2008 Sidney Insulation purchased from Stovey some vehicles and a host of equipment needed to construct and install insulation (P. St. ¶¶ 10, 11, 26). At one point Stovey also supplied insulation to Sidney Insulation, among other users (P. St. ¶ 28). When Stovey started sourcing its insulation from third parties, Sidney Insulation began buying insulation from those same suppliers (id.).

         Sidney Insulation and Stovey ran at least part of their operations out of the same warehouse space at 5701 Manchester Road in St. Louis (P. St. ¶ 22). For official purposes, however, Sidney Insulation listed its business address at Sarah's personal residence in Webster Grove, Missouri (id.). In 2007 Stovey sold the Manchester Road building to DMC, LLC, which is owned in equal shares by Sarah, Kevin, Patrick and Megan Minnear, David Sidney's daughter-in-law (D. St. ¶ 28). DMC leased the building to Sidney Insulation, and then Sidney Insulation subleased part of the building back to Stovey (P. St. ¶ 22). As Stovey needed less space for its operations, Sidney Insulation expanded (id.). Although Sidney Insulation listed its address as 130 Roseacre Lane (Sarah's residential address) on its report filed with the Missouri Secretary of State, Enterprise Bank notes on its loan documents that Sidney Insulation operates out of the Manchester Road address (P. St. Ex. G at 23).

         Sarah started Sidney Insulation with money she had from an inheritance as well as a personal loan from David Sidney (D. St. ¶ 13). In the latter part of 2008 Sidney Insulation received a line of credit from Commerce Bank that was cross-collateralized with Stovey and personally guaranteed by both Sarah and David (P. St. ¶ 25). Pension Fund also provides documentation showing that on July 2, 2007, Sidney Insulation received a line of credit from Enterprise Bank and Trust in the amount of $210, 000, the stated ...

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