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Central States, Southeast and Southwest Areas Pension Fund v. Stephens

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

April 2, 2018




         This action arises under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), 20 U.S.C. § 1001 et seq., and under Ohio's Uniform Fraudulent Transfer Act (“UFTA”), Ohio Rev. Code Ann. § 1336 et seq. In Count I of the complaint, Plaintiffs Central States, Southeast and Southwest Areas Pension Fund (the “Fund”) and Arthur Bunte allege that certain transactions made by defendants Gregory Stephens and Sherry Stephens violate the MPPAA's evade or avoid provision; Count II alleges improper distributions; and Count III alleges violations of the UFTA. The parties have consented to the jurisdiction of the United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). This matter is now before the Court on Plaintiff's Motion for Summary Judgment [Doc. No. 28]. For the reasons that follow, the motion is denied.


         The Fund is a multiemployer plan within the meaning of 29 U.S.C. §§ 1002(37) and 1301(a)(3); Bunte is a present trustee and fiduciary of the Fund within the meaning of 29 U.S.C. § 1002(21)(A), and he and his fellow trustees are the plan sponsor of the Fund within the meaning of 29 U.S.C. § 1301(a)(10). (Pls.' LR 56.1(a)(3) ¶¶ 3-4.) The Fund is primarily funded by contributions remitted by multiple participating employers pursuant to collective bargaining agreements negotiated by the employers and local unions affiliated with the International Brotherhood of Teamsters on behalf of employees of those same employers. All principal and income from such contributions and investments thereof is held and used for the exclusive purpose of providing pension benefits to the Fund's participants and beneficiaries and paying the administrative expenses of the Fund. (Id. ¶ 6.) Defendants Gregory Stephens (“Gregory”) and Sherry Stephens (“Sherry”) are married and reside in Florida. (Id. ¶¶ 7-9.) Locker Moving & Storage, Inc. (“Locker”) was a corporation organized under the laws of the state of Ohio; it was in the residential and commercial moving and storage business with operations in Ohio and the eastern part of the United States. (Id. ¶¶ 10-11.) Locker was a participating employer in the Fund, because it was a party to collective bargaining agreements with a certain Teamsters union pursuant to which Locker was required to make contributions to the Fund on behalf of its covered employees. (Id. ¶ 18.)

         Locker's Corporate History

         From around 1985 until Locker ceased operating in 2013, Gregory was its president; he held 80% of Locker's shares and 80% of the shares' voting power. (Id. ¶ 12; Defs.' LR 56.1(b)(3)(B) ¶ 1.) As Locker's president, Gregory was the individual responsible for authorizing any payments made by Locker. (Pls.' LR 56.1(a)(3) ¶ 15.) From 2009 through 2013, Gregory received an annual salary in the following amounts: $123, 927; $96, 200; $45, 630; $16, 140; and $5, 180. (Id. ¶ 64.)

         The other 20% of Locker was owned by Kenneth Keller, who had no active role in the company's operations but would talk about company business with Gregory when Gregory was in town. (Id. ¶ 13; Defs.' LR 56.1(b)(3)(B) ¶ 2.) Sherry was Locker's secretary, and she worked at Locker when office or sales staff went on vacation. (Pls.' LR 56.1(a)(3) ¶ 14; Defs.' LR 56.1(b)(3)(B) ¶ 27.) Around 2009-2010, Defendants moved from Ohio to Florida, and thereafter Gregory operated Locker remotely from Florida. (Pls.' LR 56.1(a)(3) ¶ 16.)

         In 2008, Locker sold real property and self-storage units it owned at 5808 Fulton Rd. in Canton, Ohio for $960, 000 in cash and a promissory note for $240, 000 (the “Fulton Note”). Gregory testified that the property was probably sold to reduce Locker's debt at the request of its bank. (Id. ¶¶ 40-41.) On or around May 26, 2010, Locker sold real property and self-storage units it owned at 131 Perry Dr. N.W., Canton, Ohio, for $620, 000. Locker was forced to sell that property because its secured lender required Locker to pay off all remaining debt owed to the lender. (Pls.' LR 56.1(a)(3) ¶¶ 42-43.) The net proceeds of both property sales were used to fund Locker's ongoing operations. (Id. ¶ 44.)

         Locker's 2009 Federal Tax Return states that Locker had gross receipts or sales of $1, 038, 060 in 2009; Locker's 2010 Financial Statement shows that Locker had a net loss from operations of $42, 307 in 2009 and $599, 900 in assets. (Id. ¶¶ 34-35, 45.) In 2010, Locker's gross receipts were $587, 634, with a net loss from operations of $199, 168; in 2011, gross receipts were $350, 330, with a net loss from operations of $107, 058; in 2012, gross receipts were $306, 124, with a net loss from operations of $70, 452; and in 2013, gross receipts were $258, 339, with a net loss from operations of $40, 619. (Id. ¶¶ 36-39.)

         Up until 2009, Locker had a line of credit with Charter Bank that it used on a regular basis. (Defs.' LR 56.1(b)(3)(B) ¶ 7.) As Locker's sales declined, it was unable to maintain the financial arrangement, and the line of credit was discontinued in 2009. (Id. ¶ 8.) During the years 2008 to 2013, Locker also could not obtain financing from other banks or financial institutions. As a result, Gregory advanced monies to Locker to keep the company operating; the parties dispute whether those funds were given as loans or capital contributions. (Pls.' LR 56.1(a)(3) ¶ 52; Defs.' LR 56.1(b)(3)(B) ¶¶ 8, 10.) The money came from a second mortgage on Gregory's home. (Defs.' LR 56.1(b)(3)(B) ¶ 8.) In 2009, Gregory gave Locker $75, 000 in multiple amounts during the year. (Id. ¶ 9.)

         The money was used by Locker for ongoing expenses, such as paying bills and employees, and not to purchase capital assets. (Pls.' LR 56.1(a)(3) ¶ 58; Defs.' LR 56.1(b)(3)(B) ¶ 29.) Gregory's shares in the company never increased in value as a result of the money he paid to Locker. (Defs.' LR 56.1(b)(3)(B) ¶ 4.) With regard to the money given by Gregory to Locker, there were no loan documents executed, but “Loan” was written on the checks. (Pls.' LR 56.1(a)(3) ¶ 54; Defs.' LR 56.1(a) ¶ 55; Defs.' LR 56.1(b)(3)(B) ¶ 11.) There also was no schedule for repayment or maturity date given. (Pls.' LR 56.1(a)(3) ¶ 55.) Interest accrued on the funds, but it was deferred and not was actually paid to Gregory in order to avoid the tax consequences of payment. (Id. ¶ 56; Defs.' LR 56.1(b)(3)(B) ¶ 13.) Locker's tax returns from 2009 to 2013 identified the funds as shareholder loans. (Defs.' LR 56.1(b)(3)(B) ¶ 14.)

         Gregory's intention was to be repaid when Locker's business improved. (Pls.' LR 56.1(a)(3) ¶ 57.) Locker did not set up a sinking fund to repay Gregory, but it did set aside money as it became available and made occasional cash transfers to him. (Defs.' LR 56.1(b)(3)(B) ¶ 12.) According to Gregory, he had loaned money to Locker on numerous occasions between 1985 and 2012, and Locker paid him back in an ongoing and regular fashion, in the normal course of Locker's business operations. (Id. ¶¶ 3, 5.) Locker would generally pay other creditors ahead of repaying Gregory. (Pls.' LR 56.1(a)(3) ¶ 59.) Locker's accountant, Jeffrey Sherritt, testified that Locker repaid certain amounts to Gregory throughout the years 2010 to 2013.[2] (Id. ¶ 65.) Gregory was never fully repaid all the money he gave to Locker. (Id. ¶ 60.)

         On or around June 26, 2012, Locker authorized the assignment or transfer of the 2008 Fulton Note to Gregory. (Id. ¶ 66.) In conjunction with the assignment, Locker's Board of Directors acknowledged the company's indebtedness to Gregory. (Defs.' LR 56.1(b)(3)(B) ¶ 15). Approximately two days later, Locker executed an Assignment and Indorsement of the Fulton Note to Gregory and Sherry, as Trustees of the Sherry L. Stevens Revocable Trust (the “Sherry Trust”) dated September 20, 1997 (the “Assignment”). (Pls.' LR 56.1(a)(3) ¶ 67.) The Sherry Trust is a revocable trust established by Sherry; Gregory and Sherry are the Trustees, Sherry is the primary beneficiary, and Gregory is a secondary beneficiary. (Id. ¶ 68.) Gregory testified that Locker transferred the Fulton Note to the Sherry Trust because the trust held the title to Defendants' home residence, and they had obtained a home equity loan to make the advances or loans to Locker. (Id. ¶ 69.)

         At the time of the Assignment, the principal amount remaining due on the Fulton Note was $231, 313.08. (Id. ¶ 70.) Repayment on the Fulton Note was not dependent on Locker's financial success, as it was being paid back by a debtor rather than Locker. (Defs.' LR 56.1(b)(3)(B) ¶ 16.) Defendants ultimately received payments totaling $235, 821.64 - $226, 674.08 in principal and $12, 147.56 in interest - on the Fulton Note from 2012 to February 20, 2014. (Pls.' LR 56.1(a)(3) ¶¶ 71-72.) On Defendants' 2014 tax return, they recognized a capital loss in the amount of $7, 639, representing the remaining unpaid principal balance on the Fulton Note.

         On or around March 30, 2013, Locker sold certain assets to Lytle Transfer and Storage for $30, 000, and around July 19, 2013, Locker sold all of its remaining assets to The Cotter Moving and Storage Company for $52, 500, and ceased operations. (Id. ¶¶ 17, 62-63.)

         Locker's History with the Fund

         In 2004, Gregory asked the Fund to provide an estimate of Locker's withdrawal liability, because the company was considering withdrawing from the Fund. (Id. ¶ 19.) According to Gregory, he wanted to explore providing a 401(k) plan instead of the Fund's pension plan. (Defs.' LR 56.1(b)(3)(B) ¶ 29.) In a letter dated March 29, 2004, the Fund informed Locker that it would be charged money if it were to withdraw, and the estimated amount of withdrawal liability to the Fund was $95, 423.08. (Pls.' LR 56.1(a)(3) ¶ 20; Defs.' LR 56.1(b)(3)(B) ¶ 21.) In a subsequent letter dated October 18, 2004, the Fund informed Locker that its estimated withdrawal liability was $134, 998.20. (Pls.' LR 56.1(a)(3) ¶ 20.) Locker ultimately elected to remain in the Fund, because the withdrawal amount was so large that it would not be cost-effective to switch to a 401(k) plan. (Id. ¶ 21; Defs.' LR 56.1(b)(3)(B) ¶ 22.) Pursuant to the March and October letters, Locker and Gregory had knowledge of Locker's potential withdrawal liability to the Fund in 2004. (Pls.' LR 56.1(a)(3) ¶ 22.) However, Locker did not have any further contact or discussions with the Fund in relation to actual or potential withdrawal from 2004 to 2013. (Defs.' LR 56.1(b)(3)(B) ¶¶ 23-25.)

         Because of a decline in Locker's contributions to the Fund in 2011, Locker effected a “partial withdrawal” from the Fund as defined in 29 U.S.C. § 1385(a)(1) (the “2011 Partial Withdrawal”), and as a result, Locker incurred withdrawal liability to the Fund in the principal amount of $220, 856.52, as determined under 29 U.S.C. § 1381(b) (the “2011 Assessment”). (Pls.' LR 56.1(a)(3) ¶ 23.) On or around May 16, 2013, Locker first received a notice and demand for payment of the 2011 Assessment issued by the Fund in accordance with 29 U.S.C. §§ 1382(2) and 1399(b)(1) (the “2011 Notice”). The 2011 Notice and attached invoices notified Locker that it was required to discharge its liability in a lump sum payment of $220, 856.52 by June 1, 2013, or in monthly installments of $1, 237.93 commencing on June 1, 2013. (Id. ¶ 24; Defs.' LR 56.1(b)(3)(B) ¶¶ 17, 24.) Gregory asked the Fund why he received the 2011 Notice, since Locker had never asked to withdraw from the Fund, had not advised the Fund that it was shutting down, and had been paying contributions regularly. (Defs.' LR 56.1(b)(3)(B) ¶¶ 18-19.)

         Following a further decline Locker's contributions to the Fund, on December 31, 2012, Locker effected another “partial withdrawal” from the Fund (the “2012 Partial Withdrawal”). As a result of the 2012 Partial Withdrawal, Locker incurred withdrawal liability to the Fund in the principal amount of $227, 749.54 (the “2012 Assessment”). (Pls.' LR 56.1(a)(3) ¶ 25.) On or about December 6, 2013, Locker received a notice and demand for payment of the 2012 Assessment issued by the Fund (the “2012 Notice”). The 2012 Notice demanded full payment of the ...

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