[co-author: James Nasiri]
Synopsis of Seyfarth: In a recent ruling highlighting the potential for far-reaching liability for withdrawal liability payments, the Seventh Circuit Court of Appeals upheld a judgment against two people claiming their stake in the company’s primary establishment contributor was a purely passive investment.
In February 2018, a trucking company ceased all operations and pulled out of the Teamsters Local 705 Multi-Employer Pension Fund. The fund sent the company, and individuals who owned their main place of business, a request for payment of the withdrawal liability.
The company and the individuals did not request a review of the claim. The fund then took legal action to recover its claim.
The seventh circuit confirmed a judgment in favor of the fund and against the contributing company and individuals. The decision is reported as Local 705 International Brotherhood of Teamsters Pension Fund c. Pitello, 2021 WL 2818326 (7th Cir. July 7, 2021).
The court explained that the responsibility for withdrawal extends to all “trades or businesses” under common control with the relinquishing employer, on a joint and several liability basis. The court said that joint and several liability does not extend to parties with “purely passive or personal investments”, however.
The individuals argued that their ownership of the subject property should not be considered a trade or business because they: (1) never received rent or tax benefits as a result of using the owned by the company, (2) bought the property 18 years earlier and held it only as an investment, (3) did not rent it out to anyone after the company ceased to operate, and (4) never employed anyone to manage the property.
The court found that another company owned by the individuals had charged rent for the property after the contributing company ceased to operate. The court thus considered that “whatever the value of the[y] received as part of their rent-free agreement with [the company] had been lost ”, and the decision to generate replacement rental income thereafter made it clear that their ownership of the property was a business enterprise.
Moving forward, this decision should serve as a reminder that courts are prepared to consider extended definitions of who may be jointly and severally liable for the liability for withdrawal. See our articles which discuss the complexity of judicial review on the extent of liability. No Partnership, No Common Control, No Withdrawal Responsibility: Private Equity Funds Not Responsible for Withdrawal Responsibility for Holding Company Multi-Employer Scheme | Yours truly and The ninth circuit hammers a new test of succession responsibility under the MPPAA | Yours truly. All businesses and individuals in this space should also familiarize themselves with the PBGC’s Interim Final Rule on Special Financial Assistance Provisions of the American Rescue Plan Act, which sets out rules on employer withdrawals and withdrawal liability regulations. See PBGC Issues Long-Awaited Interim Final Rule on Special Financial Aid Under American Rescue Plan Act | Yours truly.