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Midwest Operating Engineers Fringe Benefit Funds v. Sulzberger Excavating Co.

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

September 14, 2017

Midwest Operating Engineers Fringe Benefit Funds, et al., Plaintiffs,
Sulzberger Excavating Co., et al., Defendants.


          Manish S. Shah, United States District Judge

         Midwest Operating Engineers Fringe Benefit Funds and the Construction Industry Research and Service Trust Fund sue defendants Sulzberger Excavating, Inc., and SulzCo, LLC, under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1132, 1145, for delinquent contributions.[1] The International Union of Operating Engineers, Local 150, AFL-CIO sues defendants for union dues under the Labor Management Relations Act, 29 U.S.C. § 185. Plaintiffs and defendants cross-move for summary judgment solely on the issue of whether SulzCo is liable for SEI's obligations to the union and the funds. For the following reasons, plaintiffs' motion for summary judgment is denied and defendants' motions for summary judgment are granted.

         I. Legal Standard

         Summary judgment is appropriate if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Spurling v. C & M Fine Pack, Inc., 739 F.3d 1055, 1060 (7th Cir. 2014); Fed.R.Civ.P. 56(a). A genuine dispute as to any material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “Cross-motions must be evaluated together, and the court may not grant summary judgment for either side unless the admissible evidence as a whole-from both motions-establishes that no material facts are in dispute.” Bloodworth v. Village of Greendale, 475 Fed. App'x 92, 95 (7th Cir. 2012).

         II. Background[2]

         Sulzberger Excavating, Inc. was an excavating company that conducted business in the area around Muscatine, Iowa. [46] ¶ 1. SEI's president, Jerry Sulzberger, founded the company in 1960. Id. ¶ 4; [52] ¶ 3. Jerry was the majority shareholder of SEI, owning 55%, with the remaining shares divided among his five sons. [46] ¶ 7; [52] ¶ 8. Throughout the years, Jerry employed various family members at SEI, including his son Barry Sulzberger, who was SEI's Vice President. [52] ¶¶ 8, 10. Jerry and Barry are members of the International Union of Operating Engineers, Local 150, AFL-CIO (Local 150), and SEI was a signatory to contracts with the union. [46] ¶ 8; [52] ¶¶ 6-7. Jerry also employed his grandson (Barry's son), Zack Sulzberger, as an estimator and Jerry's grand-nephew, Tyler Sulzberger, in accounting. [46] ¶¶ 13-14; [52] ¶¶ 10-11. The parties dispute the extent of Tyler's role, [46] ¶ 14; [52] ¶ 10, although there is no dispute that his CFO title was self-appointed. [45-2] at 8:22-9:4.

         By 2014, Jerry had made it clear that he was retiring. [46] ¶¶ 12, 22; [52] ¶ 14; [61] ¶ 17. The following year, SEI stopped bidding on jobs and began slowly selling its equipment (there is some dispute as to whether SEI began selling large pieces of equipment even earlier, [52] ¶ 14), beginning a drawn-out liquidation process to minimize the tax consequences of winding up the business. [46] ¶¶ 12, 42; [52] ¶ 14. In May 2016, Jerry informed Local 150 that SEI was shutting down. [52] ¶ 9. By September 2016, SEI had sold most of its machines and had entered into a contract to sell the office and yard. Id. ¶ 14. Jerry was the only employee left, and he expected SEI to be completely liquidated by the end of 2017. Id.

         When Jerry announced his retirement, Zack and Tyler began discussing carrying on in the excavating industry with their own, new company, instead of purchasing SEI. [46] ¶ 19. Zack and Tyler intended to start a non-union company. [52] ¶ 15. The parties dispute whether the men were concerned about their employment if SEI closed. [61] ¶ 16; [62] ¶¶ 9-10. The parties agree that Tyler had observed some “bad blood” and “family drama” at SEI, that he viewed starting a new company as a “clean slate, ” free from SEI's tarnished reputation, and that Zack thought the business was a “mess.” [62] ¶ 11. Plaintiffs dispute that these were the sole (or main) reasons for starting a new company. [61] ¶¶ 13-14; [62] ¶¶ 10-12. The parties also dispute whether Barry was interested in buying SEI and whether Zack and Tyler thought that Jerry would refuse to let anyone else run SEI. [52] ¶ 15; [61] ¶¶ 13-14; [62] ¶ 13. According to Jerry, Zack and Tyler did not want to buy SEI because they did not want to assume SEI's union contract, which made the company “basically like a dinosaur” and made it difficult to compete with local, largely non-union competitors. [52] ¶ 15; [62] ¶ 14; [45-2] at 87:22-88:1. Also, Tyler's father, Tim Sulzberger (Jerry's nephew), would not assist with financing and start-up unless the new company was non-union. [45-3] at 5:8-13.

         In July 2014, Zack and Tyler formed SulzCo, LLC. [46] ¶ 20; [52] ¶¶ 5, 17; [62] ¶ 8. Zack is SulzCo's president, estimator, and project manager, and Tyler is Vice President and CFO. [52] ¶ 5. At the time they registered SulzCo, Zack and Tyler were still on full-time payroll at SEI. Id. ¶ 13. Zack was employed by SEI until early May 2015. [46] ¶ 36; [52] ¶¶ 10, 28. Tyler continued at SEI until late June 2015. [52] ¶¶ 10, 28. From June 2015 to June 2016, he assisted SEI with payroll and accounting matters as a consultant, billing SEI around $16, 000 for his services and working on SEI computers (though he occasionally logged in to SEI's computers remotely). [46] ¶ 37; [52] ¶¶ 10, 35; [62] ¶ 20. According to Jerry, Tyler was helping SEI until Jerry could find a replacement because he was “caught pretty flat footed.” [62] ¶ 20. At some point in 2015, Zack and Tyler told Jerry that SulzCo had been formed and Jerry reportedly was “fine with it.” [52] ¶ 27.

         In early 2015, Zack and Tyler drafted a business plan, which was based off of SEI's work and research tools and which listed many of the same competitors. Id. ¶¶ 23-24. The business plan included arrangements to buy construction equipment from SEI because SEI was going out of business. Id. ¶ 25. Zack and Tyler also considered storing SulzCo's equipment at Barry's (Zack's father's) yard. Id. The business plan was drafted on either Tyler's personal computer or computers purchased by Zack and Tyler for SulzCo. [61] ¶ 19. In February 2015, Tyler, Zack, and Tyler's father, Tim Sulzberger (Jerry's nephew), presented the business plan to a bank. Id. ¶ 18. To obtain loans for starting up SulzCo and purchasing equipment, Tyler and Zack put up their personal assets as collateral. [52] ¶¶ 18, 37; [61] ¶ 20. Tim also took out a personal loan to purchase SulzCo's first pieces of equipment, and he personally guaranteed loans for purchasing equipment and obtaining an operating line of credit for SulzCo. [46] ¶¶ 29-30; [52] ¶ 18; [61] ¶¶ 21-22. Eventually, in 2016, SulzCo adopted an operating agreement giving Tim one-third ownership in SulzCo in exchange for financing; Zack and Tyler each own one-third as well. [46] ¶ 32; [62] ¶ 1. Tyler, Zack, and Tim do not own any interest in SEI. [62] ¶ 5. Jerry and Barry do not own any interest in SulzCo. Id. SEI has never applied for, guaranteed, or co-signed any application for a loan, or line of credit, for SulzCo. [46] ¶ 49. In late 2014 or early 2015, Jerry offered to assist Zack and Tyler with securing bonding for SulzCo projects, but nothing ever came of it, and the parties dispute whether Jerry's offer was serious. [52] ¶ 22.

         By the spring of 2015, SEI had stopped bidding for work and focused on finishing lingering projects. Id. ¶ 14. Unbeknownst to Jerry, SulzCo began bidding on work in April 2015. Id. ¶¶ 27-28; [39-1] at 45:14-22. SulzCo performed work in SEI's and Local 150's geographic jurisdiction, near Muscatine, Iowa (where both SEI and SulzCo are based). [52] ¶¶ 3-5. Zack worked as an estimator, and Tyler helped with numbers, bid bonds when necessary, insurance, and packing bids. Id. ¶ 28. Barry also helped Zack with estimates. Id. SulzCo bid on projects similar to those SEI performed, for similar or the same customers. Id. ¶¶ 28, 33. Plaintiffs and defendants dispute whether SulzCo performs the exact same work as SEI. Id. ¶ 5. Defendants contend that they only have three pieces of heavy equipment (fewer than SEI) and have started out only doing small repair jobs, though they plan to expand to do work similar to SEI. Id. SEI has never assigned an excavating job to SulzCo. [46] ¶ 45. To generate business for SulzCo, Zack and Tyler advertised their company by making calls to engineers, businesses, and cities and by taking out a phonebook ad. [52] ¶ 34.

         In May 2015, Zack and Tyler purchased insurance for the company and SulzCo hired some former SEI employees, including Chad Estabrook (a Local 150 member), and two others. Id. ¶¶ 20-21, 38; [46] ¶¶ 8-9. None of these new employees were directly hired from SEI. For example, Estabrook left SEI in December 2014 and did not start at SulzCo until May 2015. [61] ¶¶ 37-38. In October 2015, SulzCo hired Zack's brother, Jeremy, who had also previously worked for SEI. [52] ¶ 40. Zack and Tyler were interested in hiring at least three other SEI employees, but because they were Local 150 union members, Zack and Tyler did not think they would be interested in working for non-union SulzCo. Id. ¶ 39. Tyler drafted at-will, non-union employment agreements for SulzCo's employees, and he established SulzCo's pay scales based on non-union pay rates in the area construction industry. Id. ¶¶ 41-42. The Local 150 operator scale at SEI was $29.40 per hour, but SulzCo offered operator rates from $18.00 to $22.00 per hour based on years of experience. Id. ¶ 42. SulzCo, operating non-union, did not pay the union pension or retiree medical savings plans benefits for its employees, including Estabrook (a Local 150 member). Id. ¶ 44. In September 2015, SulzCo paid Estabrook a $4, 069.79 bonus-another employee was given a bonus as well. Id.; [62] ¶ 22. Plaintiffs assert that this bonus effectively compensated Estabrook for unpaid union pension and retiree medical savings plan contributions, minus SulzCo's health insurance contributions for Estabrook. [52] ¶ 44. Defendants assert that this was an incentive bonus for project completion. Id.

         SulzCo's first project also began in May 2015 and was a small repair job for a former customer of SEI. Id. ¶ 45; [61] ¶ 24. Tyler, although still a full-time SEI employee, went to the SulzCo jobsite to photograph the start-up. [52] ¶ 46. (At that time, Zack was no longer employed by SEI. Id. ¶ 10.) That same month, a local newspaper published an online news story, interviewing Zack and Tyler about SulzCo. Id. ¶ 36. In the article, Zack and Tyler stated that they were “carry[ing] on” the business and the family name. Id.; [45-6] at 10-11. SulzCo did not request any clarifications to the article. [52] ¶ 36. The article also stated that Zack and Tyler decided to move forward with a new company and a new name because they had no ownership stake in SEI, and Jerry's children were themselves approaching retirement age and uninterested in continuing SEI. [45-6] at 11.

         That same month, SulzCo also began purchasing equipment from SEI, using money from a loan obtained by Tim. [52] ¶ 49. From May to October 2015, SulzCo owned just three pieces of heavy equipment, all purchased from SEI. [46] ¶ 34. Tyler prepared for SEI, and executed on SulzCo's behalf, a bill of sale for SulzCo's purchase of a backhoe and excavator from SEI. [52] ¶ 49. SulzCo purchased the backhoe for $20, 000 and the excavator for $25, 000, although SEI had insured this equipment at actual cash values of $22, 000 and $45, 000, respectively. Id. ¶ 50. In October 2015, SulzCo purchased a front end loader from SEI for $27, 780. [45-7] at 36. SulzCo had previously rented the machine from SEI for $14, 220. [52] ¶ 52. SEI had insured it for $50, 000. Id.

         Over time, SulzCo rented and purchased more equipment from SEI and from various auctions. [46] ¶ 38; [52] ¶ 70; [61] ¶ 25. Jerry used auction sales prices to estimate fair market value of the equipment SEI sold to SulzCo. [52] ¶ 53; [62] 24. SEI also sold equipment to other companies and at auctions, but Jerry preferred to sell SEI's equipment to other companies because he had been “burned” at auctions in the ...

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