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Central States v. Dizack

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

February 28, 2018

CENTRAL STATES SOUTHEAST AND SOUTHWEST AREAS PENSION FUND; and ARTHUR H. BUNTE, JR., Trustee, Plaintiffs,
v.
SCOTT DIZACK, an Individual, Defendant. Date Paid by Dizack to Harris Lumber Paid by Harris Lumber to Dizack Harris's Net Received from Dizack

          MEMORANDUM OPINION AND ORDER

          HARRY D. LEINENWEBER, JUDGE.

         This case arises out of efforts by Plaintiff Central States, Southeast and Southwest Areas Pension Fund (“the Fund”) to collect withdrawal liability assessments owed to it by non-party Harris Lumber Company (“Harris”), of which Defendant Scott Dizack (“Dizack”) is the sole shareholder. Both parties now move for summary judgment on all counts, and Dizack also moves to strike two of the Fund's statements of facts filed in support of its Motions. For the reasons set forth herein, the Court grants in part and denies in part the Fund's Motion and denies in full each of Dizack's Motions.

         I. BACKGROUND

         Dizack is a Wisconsinite who began serving as the President and sole shareholder of Harris Lumber Co. in 2004 (if not earlier). (R. 66, Def.'s Resp. to Pl.'s Rule 56.1 Statement ¶¶ 7, 10.) During Harris's years in operation, it was a party to collective bargaining agreements that required it to make certain pension payments to the Fund. (Id. ¶ 11.) Harris Lumber ran into financial troubles, however, and in December 2012 and December 2013 respectively, Harris triggered a partial and then a complete withdrawal from the Fund. (Id. ¶¶ 15-16 (citing 29 U.S.C. §§ 1385(a)(1), 1383).) By April 2014, the Fund had sued Harris Lumber to collect on assessments for both withdrawals, and by May the Fund had won judgment in the amount of $1, 204, 720.30 plus interest. (Id. ¶¶ 19-20.) When the Fund could not collect its judgment in full from Harris, it brought this action seeking to recover certain monies from Dizack.

         A. Harris Lumber's Finances

         Harris's financial troubles date to at least 2006, when the company ceased to be profitable. (Id. ¶ 21.) By 2012, Harris could no longer pay its debts as they became due. (Id.) Between 2004 and 2013, Dizack made several cash payments to Harris, and Harris made several return payments to Dizack:

Date
Paid by Dizack to Harris Lumber
Paid by Harris Lumber to Dizack
Harris's Net Received from Dizack
4/28/2004
$200, 000
$200, 000
8/23/2004
$75, 000
$275, 000
8/24/2004
$75, 000
$350, 000
8/27/2004
$125, 000
$475, 000
10/18/2004
$112, 000
$363, 000
4/29/2005
$75, 000
$288, 000
5/24/2005
$50, 000
$238, 000
12/15/2005
$150, 000
$388, 000
12/23/2005
$100, 000
$488, 000
1/24/2006
$75, 000
$413, 000
4/17/2006
$213, 000
$200, 000
8/10/2006
$225, 000
$425, 000
12/29/2006
$150, 000
$575, 000
1/3/2007
$150, 000
$425, 000
9/28/2007
$60, 000
$485, 000
10/11/2008
$60, 000
$425, 000
1/31/2008
$187, 000
$612, 000
7/2/2013
$30, 000
$642, 000
10/1/2013
$35, 000
$607, 000
12/31/2013
$8, 425
$598, 575

         12/31/2013 $8, 425 $598, 575

         (R. 46-2, Def.'s Rule 56.1 Statement ¶¶ 24-32; R. 65, Def.'s Resp. to Pl.'s Mot. at 3-4.) The parties dispute whether Harris executed instruments of indebtedness when Dizack made these payments. (R. 46-2 ¶ 23.) Where instruments undisputedly exist, there are few facts describing their execution or purpose. In January 2010, Harris executed a promissory note for a $750, 000 loan from Dizack to be secured by a security agreement and a UCC financing statement giving Dizack a security interest in Harris Lumber's assets. (Id. ¶ 26.) Dizack recalls executing that security agreement but has not been able to produce it. (Id. ¶ 27.) In March 2010, counsel for Harris drafted another promissory note and another security agreement, these covering all previous payments Dizack made to Harris. (Id. ¶ 28.) The March 2010 note stated an outstanding balance owed by Harris to Dizack of $612, 000. (Id. ¶ 32.) Harris has not been able to produce an executed copy of either March 2010 document. (Id. ¶ 28.) During the years at issue, Harris made interest payments to Dizack from 2004 through mid-2010. Harris's financial troubles intensified in 2010, and it stopped paying interest. (Id. ¶ 39.)

         B. Dizack's Leasing Business

         The scope of Dizack's leasing operations is crucial to Counts IV and V of the Fund's First Amended Complaint. Dizack owns and lives in an apartment in Racine, Wisconsin. (Id. ¶¶ 47, 48.) At some point, Dizack expanded his unit into the unit next door. (Id. ¶ 49.) This expansion rendered the next door unit too small to sell under his condo association's rules. (R. 67, Def.'s Additional Rule 56 Statement ¶ 23.) Dizack immediately began renting out the adjacent unit (the “Racine Apartment”) and it has rarely been without a tenant. (R. 66 ¶ 51.) In 2004, Dizack purchased a condo in Naples, Florida, which he rented from 2006 until 2016 when he sold the property. (Id. ¶¶ 52-54, 62.) Prior to that sale, Dizack worked with a real estate agent who handled various administrative and upkeep tasks for the Naples property, including handling tenant recruitment, advertising the condo and handling showings, receiving checks for rent and taxes, ensuring the property was cleaned and supplied, assessing and coordinating repairs and maintenance, and staying in contact with tenants as needed. (Id. ¶¶ 56-59.)

         II. LEGAL STANDARD

         Summary judgment is proper 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.” Fed.R.Civ.P. 56(a). On cross-motions for summary judgment, the Court construes all facts and inferences “in favor of the party against whom the motion under consideration is made.” In re United Air Lines, Inc., 453 F.3d 463, 468 (7th Cir. 2006) (quoting Kort v. Diversified Collection Servs., Inc., 394 F.3d 530, 536 (7th Cir. 2005)). To avoid summary judgment, the opposing party must go beyond the pleadings and “set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (quotation omitted). A genuine issue of material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248. The party seeking summary judgment has the burden of establishing the lack of any genuine issue of material fact. See, Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         III. DISCUSSION

         The Fund pursues summary judgment on five counts, which can be divided into two groups. Counts I, II, and III turn upon the characterization of payments Dizack made to Harris Lumber from 2004 to 2013. Dizack contends these were loans, and so Harris's return payments were simply repayments of those loans. The Fund argues Dizack's payments were not loans at all, but rather capital contributions and, as such, Dizack was not entitled to repayment. Counts IV and V form the second group. In those counts, the Fund argues Dizack's leasing business and Harris are under Dizack's common control, and thus the business and Dizack himself are joint and severally liable for Harris's withdrawal assessments.

         Both parties now move for summary judgment on all counts. In addition to combatting the Fund on the merits, Dizack also argues Counts I-III are barred by the statute of limitations. Finally, Dizack moves to strike (Rs. 68, 79) two of the Fund's statements of fact for nonconformity with Local Rule 56.1. For the reasons discussed below, the Fund's Motion for Summary Judgment is granted in part and denied in part, and Dizack's Motion for Summary Judgment and Motions to Strike are denied in full.

         A. Loans or Capital Contributions?

         This question arises time and time again in this case. The morass boils down to whether the Court should accept Dizack's labeling of his payments as “loans, ” or whether the Court should instead characterize these as capital contributions which did not entitle Dizack to repayment. In Roth Steel Tube Co. v. C.I.R., 800 F.2d 625, 630 (6th Cir. 1986), the Sixth Circuit set forth eleven factors to assist courts in analyzing the loan v. capital contributions question. Put another way, the Roth Steel analysis aims “to determine whether the objective facts establish an intention to create an unconditional obligation to repay the finances.” Id. The Seventh Circuit has employed a similar set of factors, Price v. Comm'r of Internal Revenue, No. 97-2842, 1998 WL 234520, at *2 (7th Cir. May 6, 1998) (citing Roth Steel, 800 F.2d at 630), and other courts in this district have applied the Roth Steel analysis, see, e.g., Central States v. TAS Inv. Co. LLC, No. 11-CV-2991, 2013 WL 1222042, at *18 (N.D. Ill. Mar. 25, 2013); In re Outboard Marine Corp., No. 00 B 37405, 2003 WL 21697357, at *5 (N.D. Ill. July 22, 2003)). Those factors are:

(1) the names given to the instruments, if any, evidencing the indebtedness;
(2) the presence or absence of a fixed maturity date and schedule of payments;
(3) the presence or absence of a fixed rate of interest and interest payments;
(4) the source of repayments;
(5) the adequacy or inadequacy of capitalization;
(6) the identity of interest between the creditor and the stockholder;
(7) the security, if any, for the advances;
(8) the corporation's ability to obtain financing from outside lending institutions;
(9) the extent to which the advances were subordinated to the claims of outside creditors;
(10) the extent to which the advances were used to acquire capital assets; and
(11) the presence or absence of a sinking fund to provide repayments.

Roth Steel, 800 F.2d at 630.

         Here, the character of the Dizack payments (loan or capital contributions) is a material factual issue. But keeping in mind the parties' respective summary judgment burdens, applying the Roth Steel factors to this case does not produce a picture clear enough to rule upon as a matter of law. It does not help that Dizack simply shrugged off the Roth Steel analysis, stating incorrectly that addressing the factors would “not serve any purpose.” (R. 65 at 6.) To its credit, the Fund argued the factors, but the Court disagrees with some of its conclusions. To the Court's eye, the three factors related respectively to the payment schedule, the identity between creditor and stockholder, and the subordination of advances weigh most heavily toward capital. The March 2010 promissory note does not set any fixed maturity date or payment schedule for the Dizack “loans” (Harris Lumber 30(b)(6) Dep. Tr., R. 49-18 at 33-34), and Dizack has not pointed to a date or schedule set forth elsewhere. Dizack is the sole shareholder of Harris Lumber, so he is thus Dizack's creditor and shareholder, which “suggests the opportunity to contrive a fictional debt.” Roth Steel, 800 F.2d at ...


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