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CENTRAL STATES S.E. & S.E. AREAS PENSION FUND v. JOHNSON
991 F.2d 387 (1993)
CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, a pension trust, and Marion M. Winstead, Robert C. Sansone, Robert J. Baker, Howard McDougall, Arthur H. Bunte, Jr., R. Jerry Cook, R.V. Pulliam, Sr., and Harold D. Leu, the present trustees, Plaintiffs-Appellants,
v.
Lois S. JOHNSON, Defendant-Appellee.
No. 92-1088.
United States Court of Appeals, Seventh Circuit.
Argued October 23, 1992.
Decided April 13, 1993.
Terence G. Craig, Thomas C. Nyhan, James P. Condon (argued), Central States, Southeast & Southwest Area Pension Fund, Law Dept., Rosemont, IL, for plaintiffs-appellants.
Mark A. Jones, Keith C. Hult, Wildman, Harrold, Allen & Dixon, Chicago, IL, Douglas J. Heckler, Michael K. McCrory (argued), Barnes & Thornburg, Indianapolis, IN, for defendant-appellee.
Carol Connor Flowe, Jeffrey B. Cohen, Carol A. Resch, Pension Ben. Guar. Corp., Office of the General Counsel, Washington, DC, amicus curiae.
Before FLAUM and RIPPLE, Circuit Judges, and KAUFMAN, Senior District Judge.*
FLAUM, Circuit Judge. This case requires us to decide under what conditions an individual may be held liable for pension fund withdrawal liability owed by a spouse, pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), 29 U.S.C. § 1001 et seq. We decline to create a rule that one spouse's ownership interest in an unincorporated trade or business will automatically be imputed to the other spouse in order to extend personal liability to him or her. Instead, we hold that both spouses will be liable for a business's unmet pension obligations only when they intended to be partners in that enterprise. Paul E. Johnson was the owner of several incorporated and unincorporated businesses in the state of Indiana. Johnson owned 100% of the capital stock of Johnco, Inc., which in turn owned 100% of the capital stock of RD Motor Express, Inc., a trucking company. He also owned unrelated companies. In August 1985, Johnson leased to RD Motor a building and a semi-tractor of which he was the owner of record. Later that year, RD Motor ceased operations entirely. RD Motor had been subject to a collective bargaining agreement with a Teamster local union under which it was obligated to contribute to the Central States, Southeast and Southwest Areas Pension Fund ("the Fund"). In late 1985, the Fund determined that RD Motor had effected a "complete withdrawal" from the pension plan, See 29 U.S.C. § 1383 (1988), and notified RD Motor and Johnco that withdrawal liability was owed in the amount of $334,301.13. Neither RD Motor nor Johnco requested arbitration of this claim, as was their right pursuant to ERISA's dispute resolution mechanism. The Fund won a suit against the companies in 1988, see Central States, S.E. & S.W. Areas Pension Fund v. Johnco, Inc.,694 F.Supp. 478 (N.D.Ill.1988), but they were unable to satisfy the judgment. The Fund then brought the present suit against Paul Johnson and his wife Lois. The theory of the Fund's suit against Paul Johnson was that he was jointly and severally liable for RD Motor's withdrawal liability on account of his ownership of the unincorporated leasing business. Under MPPAA, all trades or businesses under "common control" — meaning those businesses that share significant ownership by the same people — are treated as constituting a single employer for purposes of determining withdrawal liability. See 29 U.S.C. § 1301(b)(1).1 Thus, if one company incurs withdrawal liability, any other related company in the same "controlled group" assumes joint and several liability for its obligation. The main purpose of this rule is to prevent a business subject to an unfulfilled pension debt from "fractionalizing its operations" or shifting assets to related companies to avoid meeting its financial obligations to the plan. To define the scope of a controlled group, MPPAA looks to certain regulations issued by the Secretary of the Treasury.2 Under these regulations, two organizations belong to a "brother-sister" group if the same five or fewer
people own a controlling interest (at least 80% of the stock) in each organization and exercise effective control over both. See 26 C.F.R. § 1.414(c)-2(c)(1) (1992). The district court held that the unincorporated leasing business was under common control with RD Motor and, therefore, jointly and severally liable for the latter's withdrawal liability. See Central States, S.E. & S.W. Areas Pension Fund v. Johnson,778 F.Supp. 425, 428 (N.D.Ill.1991). Because Paul Johnson owned the leasing business, and was not shielded by limited corporate liability, he in turn assumed this obligation. Accordingly, the district court entered summary judgment for the Fund against Paul Johnson. See id. at 430. He did not appeal the judgment. The Fund also named Lois Johnson, Paul's wife, in the suit. One apparent purpose in suing her was to make a claim against the Johnsons' residence in Selma, Indiana. Because the Johnsons own their home as tenants by the entirety, the property is insulated against all but joint creditors.3See Brief of Plaintiffs-Appellants at 6-7, 18. The evidence of Lois Johnson's involvement in her husband's business affairs was inconclusive. She submitted an affidavit stating that she did not participate in the management or control of any of Paul's business concerns, including the leasing business. She admitted that she accompanied Paul to RD Motor's offices on weekends and holidays, but only to knit or do needlepoint, and occasionally to file papers; she stated that she never received compensation for these activities. The district court found that the money used to purchase the building and semi-tractor leased to RD Motor came out of joint bank accounts maintained by Paul and Lois. It also found that the rental income produced by these leasing activities was deposited into joint accounts, and that the Johnsons claimed deductions from their combined gross income on their joint federal tax return, based on losses from the leasing activities.
* The Honorable Frank A. Kaufman, Senior District Judge for the District of Maryland, sitting by designation. 1. Section 1301(b)(1) provides:
An individual who owns the entire interest in an unincorporated trade or business is treated as his own employer.... For purposes of this subchapter, under regulations prescribed by the corporation, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer and all such trades and businesses as a single employer. The regulations prescribed under the preceding sentence shall be consistent and coextensive with regulations prescribed for similar purposes by the Secretary of the Treasury under section 414(c) of Title 26. 2. More precisely, MPPAA authorizes the Pension Benefit Guaranty Corporation (PBGC) to issue regulations defining the scope of a controlled group that will be "consistent and coextensive" with these treasury regulations. The PBGC has done so. See 29 C.F.R. § 2612.2 (1992). For simplicity, we refer to the treasury regulations themselves. 3. We express no view as to whether some of the Johnsons' personal property may be exempted from enforcement of this withdrawal liability under 29 U.S.C. § 1405(c) (1988). While some courts have held that this limitation applies whether the unincorporated business was obligated to contribute to a pension fund in the first instance or was merely under common control with such a business, see, e.g., Western Conference of Teamsters Pension Trust Fund v. H.F. Johnson, Inc.,830 F.2d 1009, 1015 (9th Cir. 1987), commentators have criticized this reading of the statute. See Israel Goldowitz & Thomas S. Gigot, The Controlled Group Rule for Purposes of the Withdrawal Liability Provisions of the Employee Retirement Income Security Act, 90 W.Va.L.Rev. 773, 798-801 (1988). 4. A footnote in our recent decision in Central States, S.E. & S.W. Areas Pension Fund v. Ditello,974 F.2d 887 (7th Cir.1992), has created some confusion about this point. In Ditello, the Central States Pension Fund pursued Angelo and Jean Ditello for withdrawal liability incurred by National Transit Cartage Company, because National Transit was under common control with an unincorporated real estate leasing business that the Ditellos owned. In the course of affirming the entry of summary judgment for the Fund, we noted that in reality only Angelo, not Jean, owned the real estate proprietorship. We explained that this fact was irrelevant, however, because MPPAA attributes Angelo's interest to Jean. See id. at 891 n. 1. That statement does not support the Fund's argument that the spousal attribution rule creates personal liability for a spouse. We had no occasion in Ditello to consider the question of Jean Ditello's personal liability for the debts of her husband, since she did not raise the argument. 5. As we noted on another occasion, "[t]he PBGC's views are entitled to deference because of its responsibility to enforce Title IV of ERISA, 29 U.S.C. §§ 1301-1461 (which includes ERISA's withdrawal liability provisions)." Trustees of Iron Workers Local 473 Pension Trust v. Allied Prods. Corp.,872 F.2d 208, 210 n. 2 (7th Cir.) (citation omitted), cert. denied, 493 U.S. 847, 110 S.Ct. 143, 107 L.Ed.2d 102 (1989). 6. One other situation merits discussion. If the Fund can prove that Paul Johnson transferred personal assets to Lois in order to avoid withdrawal liability, then it should be able to recover those amounts from her without recourse to any doctrine developed here. Without wishing to pass on a difficult question involving ERISA preemption, we observe merely that relief from such a transfer is already available, whether under MPPAA (see 29 U.S.C. § 1392(c) (1988) ("If a principal purpose of any transaction is to evade or avoid liability under this part, this part shall be applied (and liability shall be determined and collected) without regard to such transaction.")) or under state fraudulent conveyance law. 7. The district court's memorandum and order did not mention this piece of evidence, which suggests a pattern of involvement by Lois Johnson in her husband's business affairs. Cf. Connors, 923 F.2d at 1467-68. Before this court, Lois complains that evidence of this other business is outside the record, and therefore cannot be considered. We do not understand how she can raise such an objection, when she herself put these facts into the record before the district court. See Defendants' Memorandum in Reply to Plaintiffs' Motion for Summary Judgment, Ex. A at 4-6 (Paul Johnson Dep.). 8. Lois Johnson never formally moved for summary judgment; she requested it in response to the Fund's own summary judgment motion. Nevertheless, since the district court entered summary judgment in her favor, we treat her as the moving party, and the Fund as the nonmoving party.
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