Court Ruling Establishing "Common Control" Applied To Earlier Withdrawal Liability
CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. SCOFBP (December 27, 2011)
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Michael Cappy operated a number of businesses, including SCOFBP, MCRI, and MCOF. SCOFBP operated a lumber yard in O’Fallon, Missouri. MCOF owns the lumberyard. MCRI owns property in Rock Island, Illinois. When SCOFBP went bankrupt and stopped paying into Central States' pension fund, the Fund brought suit against all three entities for withdrawal liability under the Multiemployer Pension Plan Amendments Act of 1980. Judge Pallmeyer (N.D. Ill.) entered judgment for the Fund.
In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Tinder and Hamilton affirmed. Under the Act, a "trade or business" under "common control" with the withdrawing firm is jointly and severally liable for withdrawal liability. The Court first turned to the question whether the solvent entities were "trades or businesses" under the Act. Although the Act does not define what constitutes a trade or business, the Court applied the Groetzinger test of whether the entity engaged in an activity regularly and continuously for the primary purpose of income or profit. The Court concluded that both MCRI and MCOF were trades or businesses. Both are engaged principally in the ownership of property. Owning property can be a personal investment, and not a trade or business, under the right circumstances. This case does not present those circumstances. Both companies were for-profit, both had bank accounts and federal employer identification numbers, both maintained offices and retained professionals to provide services. Next, the Court considered whether the entities were all under common control at the time SCOFBP incurred withdrawal liability. Cappy's business empire was a rather complex one. He filed for personal bankruptcy in 1999. In 2004, the district court affirmed the bankruptcy court's holding that Cappy's transfers were fraudulent and that all of his holdings, including MCOF and MCRI, were part of the bankruptcy estate and under common control. But SCOFBP incurred its liability in 2001. Even though the bankruptcy court's order followed that date by several years, the Court concluded that a withdrawal liability creditor could rely on that later decision to establish earlier common control.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select