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“You are liable for the pension-fund contributions that your owner failed to make,” Jerome, a pension fund's lawyer said to Vicky, a leasing company's lawyer.
“We just lease the land our owner's dealership is on; we are not liable if she fails to make pension-fund contributions for workers at her dealership,” Vicky replied.
FACTS: A car dealership entered into a collective bargaining agreement and an agreement to create a pension fund with the local automobile mechanic's union. Under the agreements' terms, the dealership had to pay contributions to the pension fund at the rate negotiated in the collective bargaining agreement.
The car dealership later ceased operations and stopped making contributions to the fund. The fund sent the dealership a notice and demand for payment with withdrawal liability according to a payment schedule. The dealership failed to make the first quarterly payment.
The fund informed the dealership that the defaulted payment must be made or all outstanding withdrawal liability would be accelerated. The dealership did not make payment and did not ask to review withdrawal-liability calculations.
The pension fund's board of trustees filed a lawsuit under the Employee Retirement Income Security Act, as amended by the Multiemployer Pension Plan Amendment Acts of 1980, against the dealership and against the company that leased property to the dealership.
The dealership owner held 85 percent of the dealership's stock and 100 percent of the stock of a second company that leased land to the dealership. Thus, the dealership and leasing company were businesses under common control of the same owner, and the leasing company was jointly and severally liable for the dealership's withdrawal liability assessment, plus interest, liquidated damages and attorneys' fees and costs, the fund said.
The fund's claims did not demonstrate common control of the two companies, the leasing company said, moving to dismiss the lawsuit for failure to state a claim upon which relief could be granted.
The act of leasing land to the dealership was insufficient to qualify the leasing company as a trade or business that could be held responsible for withdrawal liability, the company said, noting that it owned the land for “passive investment purposes.” The fund disagreed and moved for summary judgment against the dealership and the leasing company.
A pension plan brought a claim against a dealership that stopped contributing and the dealership owner's leasing company.
ISSUE: Was the leasing company jointly liable for the pension fund withdrawal liability assessment?
DECISION:The fund's claims were sufficient to state a claim that the dealership and leasing company were under common control and were jointly and severally liable for the withdraw liability assessment, a federal district court ruled.
The dealership failed to initiate an arbitration proceeding to challenge the withdrawal liability assessment, so it was liable for the full amount, plus interest, liquidated damages, attorneys' fees and costs, the court said
The leasing company's liability depended on the fund's ability to establish that the dealership and leasing company were under common control and were each a trade or business, the court said.
Common ownership was established because one person owned 85 percent of the dealership and 100 percent of the leasing company, the court said.
Determining that the leasing company is a corporation is enough to satisfy the statutory “trade or business” test, and the undisputed facts show that the dealership and leasing company are corporations under state law and, thus, qualify as trades or businesses jointly liable for the withdrawal liability assessment, the court said ((Bd. of Trs. of Auto. Mechs.' Local 701 v. Joyce Ford Inc.,2014 BL 245565, N.D. Ill., No. 1:12-cv-07047, 9/4/14).
POINTERS: For multiemployer plans, “withdrawal liability" is substituted for termination liability. Under the Employee Retirement Contribution Act, complete withdrawal from a multiemployer plan occurs when the employer permanently ceases all covered operations under the plan or permanently ceases to have an obligation to contribute to the plan.
Generally, the Multiemployer Pension Plan Amendments Act imposes liability equal to a share of the plan's unfunded vested benefits on employers who withdraw or partially withdraw from a multiemployer plan.
A multiemployer plan's ability to pay pensions and benefits to all of its retirees and employees depends on continued contribution by all of its employers. An employer's withdrawal may result in employees who have received past benefits that were disproportionate to the employer's contributions. If the withdrawing employer was not required to make up for its proportionate share of liability at the time of withdrawal, then the plan would be left with reduced reserves or the remaining participating employers would need to make additional contributions.
For additional information, see Compensation and Benefit Library's “Collectively Bargained Multiemployer Pension Plans” chapter.
To contact the editor responsible for this story: Michael Baer at email@example.com
This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.
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