The opinion of the court was delivered by: Sweet, District Judge.
Plaintiffs, the Trustees of the Amalgamated Insurance Fund
("the Fund"), have moved for summary judgment on their claim
for ERISA pension plan withdrawal liability against the
defendants Nathan and Jack Saltz ("the Saltzes"). For the
following reasons, the motion is granted.
The Fund is a trust fund designed to provide health, welfare
and retirement benefits to eligible employees of businesses in
contractual relations with the Amalgamated Clothing and Textile
Workers Union ("the Union") and its affiliates. The Fund
actually consists of two distinct sub-funds: the Retirement
Fund and the Social Insurance Fund. The Retirement Fund is a
multiemployer pension plan as that term is defined by the
Employee Retirement Income Security Act of 1974 ("ERISA"),
29 U.S.C. § 1001-1461, as amended by the Multiemployer Pension
Plan Amendments Act of 1980 ("MPPAA"). 29 U.S.C. § 1381-1405.
The Saltzes are the sole shareholders of Frank Saltz & Sons,
Inc. ("the Corporation"), which prior to 1989 had a collective
bargaining agreement with the Union under which it contributed
to the Fund on behalf of its employees. The Saltzes are also
the owners as joint tenants with rights of survivorship of the
property at which the Corporation's business was located.
Under ERISA and the MPPAA, an employer who ceases making
regular contributions to a multiemployer pension plan is
required to assume responsibility for its share of the plan's
"unfunded vested benefits." 29 U.S.C. § 1381. It is the
responsibility of the plan sponsor to notify the employer of
the amount of its withdrawal liability and to make arrangements
to collect that liability. 29 U.S.C. § 1382.
An employer who receives a notice of withdrawal liability may
seek further review by the plan sponsor pursuant to §
1399(b)(2)(A), and if still dissatisfied may seek arbitration
of the dispute under § 1401. Except in unusual circumstances,
arbitration must be initiated within 60 days of the sponsor's
final notification of liability. Notwithstanding the timely
initiation of arbitration, the employer is required to make all
scheduled payments during the pendency of the arbitration. Upon
an employer's failure to make timely payment as requested by
the sponsor, § 1451(b) authorizes the sponsor to bring suit to
enforce the withdrawal liability.
For the purposes of ERISA and the MPPAA, the term "employer"
is defined to include all "trades or businesses" which are
controlled in common with the actual employing entity:
29 U.S.C. § 1301(b)(1); see also 29 C.F.R. § 2612.3 (1990).
Under regulations promulgated in connection with this section
of the statute, the term "trades or businesses (whether or not
incorporated) which are under common control" is given the same
meaning as that provided in § 414(c) of the
Internal Revenue Code, 26 U.S.C. § 414(c). 29 C.F.R. § 2612.2
(1990). Section 414(c) and the regulations promulgated
thereunder describe in detail how to determine when several
"trades or businesses" are commonly controlled, 26 C.F.R. §
1.414(c) (1990), but do not define the term "trade or business"
The relevant facts in this case are undisputed. The Saltzes
each own fifty percent of the shares of the Corporation, which
operated its clothing manufacturing business from 347 Chestnut
Street ("the Property") in Passaic, New Jersey. The Property
was owned by the Saltzes beginning in 1979 and was owned by
them as joint tenants with rights of survivorship from 1985.
The Corporation leased the Property from the Saltzes through a
net lease under which it paid rent and assumed responsibility
for managing and maintaining the Property. The lease extended
from March 1, 1987 to February 28, 2001. Pursuant to the lease,
the Saltzes received rental income during 1987 and 1988 and
took depreciation on the Property while the Corporation paid
all real estate taxes.
The Corporation was party to a collective bargaining
agreement with the Union under which it was to make
contributions to the Fund on behalf of its employees. On August
7, 1989 the Corporation ceased operations, and on August 10 the
Fund notified the Corporation by mail that the Corporation's
withdrawal liability had been calculated at $1,211,491.27 and
that the first payment would be $161,679.81, due on October 1,
1989. The letter included a cursory explanation of the process
for initiating a review of the liability by the sponsor and the
possible consequences of failing to make payment. No mention
was made of the statutory requirement that disputes be
arbitrated or of the time limit for initiating such
arbitration. A second letter was sent on October 20, 1989 to
inform the Corporation that its withdrawal liability had been
recalculated to be $1,431,546.65.
The Corporation failed to respond to these notices and failed
to make any payments on its liability. It is currently
insolvent. On December 11, 1989, following the default on the
first payment, the Fund notified the Saltzes that, because of
their rental of the Property to the Corporation, it considered
them to be members with the Corporation of a common control
group, and that it would seek to collect the entire amount of
the Corporation's withdrawal liability — which had been
accelerated by the Corporation's default — from them
personally. The Saltzes refused to pay anything and did not
seek arbitration. The Fund filed suit on February 6, 1990.
This case is clearly one in which summary judgment is
appropriate. The parties agree on all of the relevant facts,
with the only disputed issue being whether the Saltzes were, by
virtue of their rental of the Property to the Corporation,
engaged in a trade or business under common control with the
Corporation, such that they must share the Corporation's
withdrawal liability. As this is purely a question of law,
there is no genuine issue of material fact which would require
a trial. Fed.R. Civ.P. 56.
The Saltzes do not dispute that they controlled the
Corporation, so that there was common control over the
Corporation and the rental activity. The necessary inquiry,
therefore, is narrowed to the question of whether that rental
activity constituted a "trade or business" within the meaning
of § 1301(b)(1). The Saltzes assert that the lack of any
activity on their part with respect to the management or
maintenance of the Property precludes characterizing their
involvement as a trade or business.
Two courts have previously considered questions similar to
that presented here. Both have determined that for ERISA
purposes the rental of property to a corporation under common
control with the property owner/lessor is sufficient to make
the rental a trade or business. United Food v. Progressive
Supermarkets, 644 F. Supp. 633 (D.N.J. 1986); Pension Benefit
Guaranty Corporation v. Center City Motors, Inc., 609 F. Supp. 409
(S.D.Cal. 1984). In
both cases, the issue was whether a net lease of property was
a "trade or business" sufficient to make the lessor liable for
the lessee corporation's withdrawal liability under §
1301(b)(1)'s common control group definition. Both courts
discussed the fact that "trade or business" is not defined in §
414(c), that the term is used throughout the Internal Revenue
Code without definition and that it is subject to varying
interpretation depending on the context in which it is used. As
the United Food court stated
ERISA itself authorizes attention only [to] §
414(c) of the Internal Revenue Code and to
regulations promulgated thereunder. Nothing
prevented Congress from authorizing attention to
other sections and regulations had Congress wanted
to do so. Since the meaning of "trade or business"
varies somewhat from one Code section to another, a
suggestion that courts should look anywhere in the
Code for guidance is an invitation to mass
644 F. Supp. at 638 (citations omitted); accord Center City
Motors, 609 F. Supp. at 411.
In light of the absence of statutory guidance as to how to
determine when an activity should be considered a "trade or
business," both the United Food and Center City Motors courts
held that it was necessary to look to the purposes of ERISA and
Because one of Congress' overriding concerns when
it enacted ERISA was to ensure that workers'
retirement benefits would actually be available
during retirement, the language of ERISA should be
construed liberally to provide the maximum amount
of protection to workers covered by pension plans.
When Congress defined all members of a controlled
group as a single "employer," it clearly intended
to prevent a business from limiting its
responsibilities under ERISA by the
fractionalization of its business operations.
In light of this intent, the court finds that
Congress did not intend to exclude from its
definition of a "trade or business" in § 1301, a
rental proprietorship which leases property, under
a net lease, to an entity that is under common
Center City Motors, 609 F. Supp. at 412 (citations omitted);
accord United Food, 644 F. Supp. at 638-39.
The Saltzes argument in support of their position that their
lease of the Property was not a "trade or business" for ERISA
purposes is unpersuasive. They do not distinguish Center City
Motors or United Food, but rather argue simply that both cases
were wrongly decided. Notwithstanding the explicit findings of
both courts that the term "trade or business" has no single,
well-established meaning in the Internal Revenue Code, they
argue that it should be construed by reference to Code and case
law decided under it, without considering the different
concerns which underlie ERISA. Particularly to the extent that
they claim that the Center City Motors court did not consider
the legislative history of ERISA or § 1301(b)(1), their
argument is incorrect as well as unpersuasive. See Center City
Motors, 609 F. Supp. at 412.
In summary, because both Center City Motors and United Food
appear to be based on sound reasoning, and because the Saltzes
have not offered compelling reasons to disregard those cases,
their net lease arrangement with the Corporation is held to
have been a "trade or business" for the purposes of §
1301(b)(1). The Saltzes are therefore liable as members of a
common control group for the Corporation's withdrawal liability
to the Fund.
Because notice to one member of the control group is
considered as notice to all members, Teamsters Pension Trust
Fund v. Allyn Transportation Co., 832 F.2d 502, 506-07 (9th
Cir. 1987); IUE AFL-CIO Pension Fund v. Barker & Williamson,
Inc., 788 F.2d 118 (3d Cir. 1986), the Saltzes' time to contest
the Fund's assessment of withdrawal liability, either by
responding to the Fund itself or by seeking arbitration,
appears to have expired. Cf. ILGWU National Retirement Fund v.
Levy Bros. Frocks, Inc., 846 F.2d 879 (2d Cir. 1988); ILGWU
National Retirement Fund v. B.B. Liquidating Corp., 759 F. Supp. 128
(S.D.N.Y. 1991) (failure to initiate timely arbitration,
even where employer contested characterization as employer
subject to liability, warranted summary judgment against
employer). Therefore, the Saltzes have no further defense to
the Fund's action, and summary judgment is warranted.
For all of the foregoing reasons, the Fund's motion for
summary judgment is granted.
Submit judgment on notice.
It is so ordered.
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