*3 liability” to Central States. HIGGINBOTHAM, Before WIENER DENNIS, Judges. Circuit I. WIENER, Circuit Judge. BACKGROUND Plaintiffs/Appellants/Cross-Appellees A. Statutory Framework States, Southeast and Southwest Fund, multiemployer Areas Pension pen- Central States is a multiemployer fund, sion (collectively its trustees pension plan within meaning States”), 3(37) 4001(a)(3) “Central appeal §§ from the district of ERISA.5 Cen judgment court’s that dismissed Central tral brought States this suit to recover pension States’s plan withdrawal liability liability” “withdrawal from Creative Devel against claims Defendants/Appel- opment and its individual under lees/Cross-Appellants Develop- MPPAA. The term liability” “withdrawal (“Creative Company ment Development”), refers to the share of unfunded vested a Louisiana partnership, partners,, benefits, i.e., and its the difference between the Smith, Terry Smith, Sandra Theriot present Jack pension value of a plan’s assets Rome, Jr., and Suzanne Rome.1 present McCraine and the value of the benefits it will Disagreeing with the district obligated future, court as a be pay in the that an law, matter of we conclude that a employer written owes to multiemployer pension (“the Agreement”) plan unam- governed by ERISA when the em biguously provided for and ployer effectuated the “withdraws” plan.6 from the An Hereafter, 1. and its Id. partners are sometimes referred to collective- ly 1002(37) 1301(a)(3). as “Creative.” §§ 5. 29 U.S.C. seq. 1381(a)("If 2. 29 U.S.C. 1001 et 6. 29 employer U.S.C. an with- ..., multiemployer plan draws from a then §§ 29 U.S.C. 1381-1453. employer plan is liable to the such, jointly all are employer.” As to have withdrawn deemed employer is liable for the with- plan severally (solidarily) when pension multiemployer from “(1) by any ceases member permanently liability incurred employer drawal under obligation contribute of liabil- have This form group.11 the controlled covered ceases all permanently plan, “control commonly to as ity is referred im- ERISA plan.”7 under the operations liability.12 group” employer on an poses particular whether The determination fi- “the situations ensure in these group mem- are in fact entities controlled vested employees’ of his nancial burden Treasury to several requires resort bers shifted to will pension benefits among which is regulations, Department and, ultimate- plan employers other a trade business specifies one that Corpo- Guaranty to the Pension Benefit ly, *4 controlled belongs to “brother-sister” ration, insures such benefits.”8 which if: group officially with employer an When pension plan, multiemployer (i) persons from a who
draws five or fewer the same (1) determine must then plan sponsor individuals, estates, or trusts own are if liability, employer’s amount of the organi- in each controlling ... a of this employer any, notify (ii) zation, into account the taking and from the amount, the sum and collect person to ownership of each such withdrawing employer If the employer.9 ownership is identical the extent such withdrawal pay to its assessed is unable organization, to such respect with each full, plan may recover liability in control are in persons such effective are entities that deficiency from other organization.13 “common under businesses” “trades or that is of a trade or business In the case withdrawing employer.10 with the control” “controlling interest” or busi all such trades Consequently, percent at 80 “ownership of least means nesses, withdrawing employ including the interest of 'profits under “com er, to be that are determined and ‘effective control’ partnership,14 such meaning of within the control” mon own persons” five or when fewer exists are deemed regulations, and its MPPAA percent 50 of more than aggregate group” of trades belong to a “controlled capital interest such interest or “single profits are treated as and businesses Teamsters Western part to be the Trustees this determined under amount Conference 892, Lafrenz, 837 F.2d Fund v. Pension Trust liability.”). withdrawal Cir.1988)). (9th 893-94 1383(a). § 7. 29 U.S.C. States, and Southwest Ar- Southeast 11. Central 451, Koder, 969 F.2d 452 Fund v. States, eas Pension Ar- and Southwest 8. Central Southeast Cir.1992) (7th (citing Lafrenz, at 1369, 837 F.2d Slotky, F.2d v. 956 Pension Fund eas 893). group” is used inter- The term Cir.1992). "control (7th group.” changeably term "controlled with the opinion, we will refer the balance of this For § 29 U.S.C. 1382. 9. being the more com- group,” to "controlled monly term. used 1301(b)(l)(”For purposes of § 29 U.S.C. 10. title, by the regulations prescribed under this States, and Ar- Southwest Central Southeast Guaranty Cjorporation, all Benefit [Pension 887, Ditello, F.2d Fund v. eas Pension (whether employees of trades or businesses Cir.1992). (7th are under common incorporated) which employed shall be treated control 1.414(c)-2(c)(l)(emphasis add- 26 C.F.R. trades and busi- single employer and all such ed). single add- employer.”)(emphasis nesses States, ed); Southeast see also Central Inc., 1.414(c)-2(b)(2)(i)(C)(emphasis Personnel, 14. 26 C.F.R. v. Pension Fund Southwest added). Cir.1992) 789, (7th (citing Board 974 F.2d partnership.15 year, In the same Inc. W.B.C. (“WBC”) formed was Sheldon case, In Rouge, Baton deceased, Rome, appellee now Jack bakery Baking business known as Wolf Co. Salmon, Jr., acquire Harold the stock of (“Wolf Baking”) signatory Inc. had been a recently emerged two bakeries that had bargaining agreement to a collective bankruptcy. of those from One bakeries (“CBA”) pursuant Baking to which Wolf Baking; was Wolf the other was Wm. Wolf required was to make contributions to (“Wm. Bakery, Bakery”). Inc. Wolf At all Central States. December Wolf case, times relevant to this those two bak Baking bankruptcy filed discontin- wholly eries were owned subsidiaries of operations, thereby permanently ued its holding company, WBC.16 Further terminating obligation to make contri- more, times, Bey- at all relevant Sheldon result, to Central As a butions States. appellee chok collectively Jack Rome Baking Wolf was deemed to with- have percent owned 85 of the issued and out Accordingly, drawn from Central States. standing capital holding stock of the com calculated Baking’s States Wolf WBC, pany, Beychok owning 61.45 determined percent and owning percent.17 Rome 23.55 $1,352,710.73. bankrupt- Because of its Thus, Beychok Rome, through their however, cy, Baking pay Wolf able *5 controlling parent corpora the $289,858 obligation of this to Central tion, WBC, owned controlled more than States, leaving deficit excess of $1 percent 80 stock of its Wolf million. Central States now seeks to re- Baking and Wm. Bakery Wolf subsidiar coup Baking the Wolf through shortfall actually, percent by control virtue ies— assessment and recov- percent of their combined 85 control of ery against partnership the and the indi- WBC, which percent owns 100 of the stock Creative, vidual comprising as- subsidiary. of each was, serting the at all times, pertinent a member of a brother- mid-1980s, During wholly the the owned sister group Baking. controlled with Wolf subsidiary bakeries of WBC were chroni- This, posits, Central States resulted from cally cash, in need of so made (1) among three-cornered transaction loans to from By time to time. June (2) affiliates, Baking Beychok, Wolf and its 1, 1986, outstanding balance of these individually, and Develop- Creative $324,000. aggregated loans ment, as Agree- formalized the 1986 ment. C. Development’s Creative Initial In- volvement with the Bakeries: The B. The Brother-Sister Entities: Creative Bakery Sale and Leaseback De- Development and the Bakeries pots Creative was formed as a by understanding For better of the 1986 appellees transaction, above-named individual to devel- which is at the vortex of the op case, a residential dispute subdivision near Baton briefly this we review how Rouge. The initial Creative first became direct- $5,000, ship consisting equal contri- ly involved with the Beychok. bakeries and founding partners. 1980s, butions from the early In the completion after of 1986, 15. 1.414(c)-2(c)(2)(iii)(emphasis C.F.R. remaining 17'. As of December added). percent outstanding of WBC’s stock was Salmon, (10 by percent) owned Harold Jr. wholly Hereafter WBC and its owned sub- (5 Sehring percent). and Robert sidiaries, Baker, Baking Wolf and Wm. Wolf collectively are sometimes referred to as "the bakeries.” ($) his undivided one-third origi- which it was venture for real estate formed, depots. interest in the Development decid- Creative nally “bakery depots”18 in two to invest ed Development’s purchase of the Creative Bakery. In March Wolf by owned Wm. 1982, coupled in March bakery depots two Development purchased Creative letter, provisions with the of the counter $250,000, price bakery depots for two joint produced a venture between Creative depots to immediately leased both then financial state- Beychok. Subsequent Bey- affiliates.” Baking Wolf “and/or for or prepared ments and tax returns Salmon, who, pre- Harold had chok— Romes, Smiths, by filed Creative bakery depots two other viously purchased Development, Creative/Beychok and the Bakery Wolf from Wm. —confirmed venture, joint two-thirds reflect Creative’s March 1982 sale purpose of this 0&) (%) Beychok’s ownership one-third obtain cash Development was to Creative depot venture. interests Baking and its affili- injection into Wolf for could continue ates so that the bakeries 1986 Transaction D. The operate. Bey- By spring of Rome and Develop- for financing subsidiary bakeries chok knew WBC’s bakery depots purchase
ment’s 1982 and that as a bankruptcy were headed (1) cash, obtained came from two sources: insider, would never result $200,000 City Fed- loan from River from a $824,000 by owed to him recover the (“River City”), evi- Savings & Loan eral also knew that bakers. promis- Development’s denced $50,000 promissory given note a first note, sory which was secured Bakery as the Development to Wm. Wolf depot properties, and mortgage on the *6 partnership’s pur- portion credit $50,000 credit, unsecured by evidenced bakery depots the was still out- chase of given note purchase money promissory and become an asset of the standing would vendor, Wm. Development to the Creative of the bakeries. bankruptcy estate Bakery. Wolf to “save” Creative apparent In an effort additional, for inducement Crea- As an $50,000,the bakeries’ bank- Development’s the two purchase to Development tive suggested that these two ruptcy counsel par- to become a Beychok agreed depots, and possible to the extent debts be offset personally depot the leases and ty to disclosed to the the transaction be payments the lease Crea- guarantee Accordingly, at Rome’s bankruptcy court. In consideration Development. tive Agree- caused the 1986 request, Beychok per- to and Beychok’s becoming party a signed It on leases,19 prepared. was Rome ment to be sonally guaranteeing (on by Terry Smith behalf a counter letter to June executed Smith (as Jack Rome Development), in truth acknowledging that Creative Beychok, Bakery, Wolf President and CEO Wm. only an un- Development owned Creative Inc.) and (%) Baking Company, Inc. two and Wolf divided two-thirds individually. Beychok, Bakery Sheldon purchased from Wm. Wolf depots (%) first acknowl- parties Agreement, in- 1986 remaining one-third and that (1) Creative Devel- edged the existence account of purchased was for the terest $50,000 note owed to promissory opment’s de- letter further Beychok. counter (2) Baker, would, the bakeries’ Wolf when Wm. clared that Rome and Smith $324,000 Bey- owed to debt of so, title cumulative transfer record upon called to do being surety of the obli- a drop-off point 19. In addition “bakery depot” for the A is a lease, Beychok on the gations of the bakeries bakery of bread localized distribution guarantor the note to River on was also products. City. agreed Development by Agree- then fol- virtue of the 1986 parties chok. The (1) (3) ment?; authorized the if lowing: Beychok Beychok baker- the interest $324,000 debt, ies to reduce the amount of their acquired capital and not does was $50,000; interests, to him the Beychok’s indebtedness percentage bakeries, turn, in- agreed to credit the percentage or the combined interests of them De- debtedness owed to Creative Rome, Beychok and in both Creative De- ($50,000), velopment by the amount same velopment and the bakeries meet the two- extinguishing obligation “forever [on pronged test for “common control” under promissory from Creative to note] applicable Treasury Regulation?22 Company”; Baking Wolf and/or agreed II. sell, hereby assign does transfer and PROCEEDINGS Beychok
unto an interest in that nership equal Fifty to said [Creative] filed the instant action in States ($50,000) Thousand Dollar offset as de- September alleging Baking that Wolf hereinabove, added). (emphasis scribed Development constitute a group controlled and should be treated as legal effects of this robin round for, single employer purposes of assess- crux comprise transaction ing and un- recovering litigation: threshold issue of the instant der MPPAA. The district court denied whether Sheldon the now-de- summary judgment, cross notions for find- majority ceased former owner of WBC and subsidiaries, ing that the ambigu- was acquired equi- ous, inquiry and that further into the in- ty transaction, required. tent of the merely result of the 1986 After trial, day one became If district court reaffirmed its creditor. acquired interest, its earlier determination that capital interest and such either Agreement is Rome’s, ambiguous. The court then alone or in combination with eq- held, evidence, based on extrinsic ualed or minimum percent- exceeded the ages solely was entered into “controlling needed to constitute in- $50,000 make terest” and creditor of Crea- purposes “effective control” for which, extent, tive to that Treasury Regulation,20 of the relevant then *7 simply replaced Beychok’s the bakeries as Development Creative and the bakeries control,” Beychok would debtor. The court concluded that have been under “common i.e., neither acquired became a nor members of the same brother-sister group Creative trades or businesses under the merely but became its creditor. common control of Rome Accord- Beychok. Creative, such, ingly, judgment As was entered for Creative would be liable to Cen- If, dismissing however, tral States under Central States’s claims at its MPPAA.21 Beychok merely costs. As it decided the case on that became a creditor reasoning, the district court liability never reached no such would attach. questions of common control or con- As analysis shall be seen group liability trolled purposes of as- follows, this case turns on the to answers sessing liability. withdrawal questions: three subject provi- Is the Victorious, sion of the Agreement ambiguous?; filed a urg- Creative motion (2) regardless provision ing of whether that is the district court to amend judg- its ambiguous, what is the “in- costs, nature of the ment to an include award of ex- acquired by Beychok terest” penses, Creative attorneys’ fees under 1.414(c)-2. 1.414(c)-2. 20. 26 C.F.R. 22.26 C.F.R. §§
21. 29 U.S.C. 1381-1453. equity “capital” veyed Beychok considered district court ERISA.23 equal to an interest Creative such affecting entitlement the factors $50,000, Beychok and Rome a giving thus appro- not be that it would and held award in that combined or asset timely appealed States priate. Central percent. more than 80 As partnership of dismiss- judgment court’s the district from Beychok also owned together Rome against claims ing the and thus of percent than 80 of WBC Creative, cross-appealed more and Creative concludes Cen- Baking subsidiary, its re- its Wolf court’s denial of the district from States, ownership interest tral a combined costs, attorneys’ expenses, and quest for Develop- percent or more of Creative fees. Rome “com- placed ment This mon control” both businesses. III. subjected Development and turn ANALYSIS solidary liability for the its withdrawal lia- Baking’s remainder of Wolf A. Standard ofRevietu bility under MPPAA.25 principal thrust Central Creative, course, rejects view of is that appeal contention on States’s in the 1986 the transaction memorialized finding language court erred district that the dis- Agreement. Creative insists ambiguous on Agreement to be of the 1986 determined, correctly vis-a-vis trict court Beychok acquired a question whether transaction amounted to Beychok, interest in Creative De capital ownership exchange than an of debt- nothing more merely became its creditor. velopment or Development for the baker- ors—Creative of a writ interpretation A court’s district such, $50,000 him. As owed to ies'—on the its initial deter including agreement, ten substituted for the bakeries Beychok was am mination whether $50,000 of Creative Devel- as the creditor questions of law biguous, presents essence, Beychok only made a opment; in novo subject to our de review.24 thus is of, to, a creditor loan and became are historical or discrete facts Findings of Creative, This, pre- Development. asserts error. reviewed for clear that Creative Devel- possibility cludes the com- Baking were under opment and Wolf Ambig- Not Agreement B. The 1986 Was mon control. Conveyed Capital Interest uous and Development in Creative carefully reading Agree- the 1986 After words their giving the ment as whole States insists agree meaning,26 we generally prevailing Agreement among meaning of the 1986 the extent position to and the with Central States’s Development, bakeries, that it characterizes the *8 Beychok acquired cap plain: is unambiguously transferring any as Development; in Creative ital interest Bey- Development to in Creative disregards what the reading simply other chok, admitting him as a albeit without actually says. Agreement 1986 that, as We therefore conclude partner. transaction con- argues that the States (West and>1451(e). 2050 La. Civ. Code Ann. art. 1132(g)(1) §§ See 23. See 29 U.S.C. 26. 1987)("Each provision must be in a contract Exploration Co. v. 24. See Land and provisions interpreted light other so of the 967, Inc., (5th Tugs, 23 F.3d 969 Offshore meaning suggested by given each is the that Co., 1994); v. Inc. Cir. American Totalisator added) ”)(emphasis as a whole. the contract 810, (5th Corp., 3 F.3d 813 Fair Grounds (West Ann. art 2047 and La. Civ.Code Cir.1993). 1987)("The given of a contract must be words meaning.”). prevailing generally their 1301(b)(1) 26 C.F.R. 29 U.S.C. See 1.414(c)-2(c). 414 $50,000 Beychok’s produce any by does not sible reduction interpretation given $324,000 it ef- consequences,
absurd must be then owed to him the baker- fect without resort to extrinsic evidence.27 ies.29 ambiguous merely A contract is endeavoring In to determine whether parties disagree upon the cor because partnership” in that the “interest determining In interpretation.28 rect sold, transferred, expressly non, ambiguity vel we both presence of assigned Beychok could have more than question parse provision con meaning ambigu- one and thus be sensible in the context of the provision strue that ous, in that helpful engage we find particular provision entire document. The deductive exercise known as the venerable Agreement of the 1986 that we examine we process doing, elimination. so ambiguity today for states: identify possible all first kinds of sell, hereby transfer, and Creative does that the words themselves could interests Beychok assign unto an interest in that conceivably refer to the context of the equal to said Fif- [Creative] Agreement. entire 1986 We then examine ($50,000) ty Dollar offset as Thousand if possibility each such to see it withstands (Emphasis add- described hereinabove. analysis legal and remains a sensible read- ed). ing agreement. If two more of or purpose provision The functional of this viable, possibilities remain is am- there identify Bey-
is to the consideration that if biguity; standing, but one is left Development chok received from Creative ambiguity. there is no in exchange for the bakeries’ cancellation $50,000 parties Like the district court and the owed to debt theretofore us, noted, we possibili- them that As before discern but three (a) pos- membership cancellation the bakeries was made ties: as Crea- Totalisator, 813; First, 27. See American 3 F.3d at fact and law. in Louisiana "consider- (West 1987)("When signified exchange La. Civ.Code Ann. art 2046 ation” has never explicit equivalents quid pro quo words of contract are clear and but causa or when, consequences, and lead to no absurd no fur- Particularly cause. as in the 1986 interpretation may ther be made in Agreement, search totally the contract bereft of added). parties' intent.”)(emphasis intent, language of donative then cause or So, consideration is akin to motivation. D.E.W., 93, law, Inc. v. Local Laborers’ Int'l matter of the 1986 reflects Amer., 196, (5th presence Union N. F.2d 957 199 of consideration for Cir.1992); Second, Ridgeway Wards v. Co. and the other as well. if we Stamford Assocs., 117, (2d Cir.1985) (" 761 F.2d ‘A go beyond plain language were import consideration, Court will not words torture ambi agreement regarding did guity ordinary meaning court, where the leaves no district we would find that even Com- ambiguity, room for and words do not be present Bey- mon Law consideration was ambiguous simply lawyers come because Apparently disregarded chok. was the fact laymen meanings.’") contend for different joint was an ventur- undisclosed Co., (quoting Downs v. National Cas. er in the bread 494, 316, (1959)). Conn. 152 A.2d depot purchase Develop- for which Creative Days $50,000 See also Ideal Mut. Ins. Co. v. Last given ment's note was to the baker- Assoc., Inc., Evangelical F.2d ies. If the note had remained in the owner- (5th Cir.1986)("As necessity is the mother of ship of the bakeries and become an asset of invention, ambiguity estate, so is the father of multi bankrupt constructions, ple reasonable and where law pay would have had to it to the trustee *9 involved, yers holder, eager are one never lacks an Beychok eventual and would have parent gender.”). of either payment owed one-third of that to Creative So, Development-by way of contribution. not $50,000 Beychok's Beychok 29. only The district court characterized did receive a interest in by role in the transaction as that of a 1986 then-viable virtue of the elimina- and— friendly gratuitously exchanged creditor who tion of its debt to the bakeries —solvent nership, instantly one debtor for another without "consider- he was of a relieved $16,667 obligation. ation.” This conclusion erroneous in both contribution (b) short, In by owed ers.31 as the unanimous con Development; debt Crea- tive (c) an Development partners or sent of the was not in tive evidenced (income, capi- financial interest Agreement, innominate then as a matter of both) tal, which or that Beychok law could not have been admit nor membership interest is neither debt Moreover, partner.32 phrase ted as a analyze proceed We in that partnership” clearly “interest es possibility in order. each sale, chews contention trans fer, assignment of such an interest Beychok as a Partner Creative Beychok partner: somehow admitted as a Development sold, Memberships partnerships are not the district court found the
After
rather,
assigned;
transferred or
persons
ambiguity,
difficulty
it had no
presence of
are
partnerships
“admitted”
into
partner
eliminating membership as
then,
“made” partners. Obviously,
Development
possi
as one of the
Creative
possibilities
first of the three
—member
Bey
bilities of the kind of interest
ship
Development
Creative
—must
And,
acquired.
appeal,
chok
on
neither
eliminated.33
appellees seriously
nor
appellants
urge
Agreement
the 1986
admitted
Beychok
as a Creditor
Beychok
Development
into Creative
Development
partner. Clearly it did not. As Creative
court,
Differing
the district
we hold
correctly explains,
part
Louisiana
under
that,
“in a
as matter of law
whether read
(1)
nership
law
unanimous action
vacuum” or in context of the entire 1986
required
partner
to amend a
parties is
Agreement,
quoted
the above
contractual
ship agreement
purpose
for the
of admit
provision neither transferred to
ting
partner
a new
unless otherwise
promissory
the old
note that Creative De-
nor the
agreed,30
neither
number
given
had
to the bakeries in
velopment
identity
had
acquisition
connection with
of the bread
changed since it was formed in
nor
a new
owed
Agreement
signed by depots
was not
created
debt
the 1986
First,
Beychok.
partners qua partn
on behalf of all four
1994).
(West
Hargrave,
W. Lee
16 Louisiana Civil Law
30. La. Civ.Code Ann. art. 2807
8:10,
(West 1989).
at 395 & 398
Treatise
addition,
sign
did not
and her
Mrs. Rome
earlier,
Agreement
31. As noted
the 1986
was
sign
partner
did not
as a
of Creative
husband
Smith,
signed
at
Rome
all Mrs.
or Mrs.
solely
Development, but
as an executive of the
signed by
Jack Rome
on behalf
was
bakeries, the interests of the Romes in Crea-
bakeries; only Terry
signed
Smith
on
represented
tive
were not
at all
Development.
behalf of Creative
Agreement.
in the 1986
spouses can-
32. Central States's assertion that
"sell,
phrases,
transfer
33.The
choice of the
partnership agreements, thus
not enter into
partner-
assign,"
in that
and "interest
necessity
eliminating the
the wives of
for
ship”
cannot be ascribed to inadvertence
given
Rome
Smith to
their assent to
have
Agreement.
sloppiness
drafting
the 1986
the inclusion of
tive,
in Crea-
judicial
the fact that the
We take
notice of
disposed
byof
had been
attorneys
represented all
to the
legislature’s
who
1980 revisions of the Civil Code
enjoy superlative reputations
governing
regimes.
articles
matrimonial
See
(West 1985)
Rouge and State bars in the
in the Baton
Code arts.
2325-2437
La. Civ.
general,
commercial transactions in
fields of
and former La. Civ. Code art. 1790 of the 1870
Code,
bankruptcy
law in
repealed by
and both
1979 La. Acts. No.
Indeed,
(West
Ed.).
speculate
lan-
particular.
we
that the
Compiled
leading
As
com-
noted,
guage
carefully
in an effort to
chosen
made it
mentators have
these revisions
being
any possibility
Beychok's
avoid
possible
spouses
to contract with
in Creative
deemed to be either a
virtually
impediments and thus
other with
no
enter,
alia,
partner-
Development or a creditor of that
permit spouses inter
Spaht
ship.
ship agreements.
&
See Katherine S.
*10
ness,” “loan,” “debt,”
“obligation,”
bakeries,
holder of
payee
the
as
note,
legal
facility
the
professional
had
did so with the
we
promissory
the old
it, yet
there is no
capacity
expect
to transfer
of learned counsel who
would
evidence,
any provision
it,
much less
thereby confirming
record
under-
drafted
reflecting
such a trans-
agreement,
concepts by
standing of these terms
by
Conversely, Creative
fer
the bakeries.
parties and their scrivener.
Unlike
Development was the maker of the old
portions
Agreement,
of the 1986
other
holder,
note,
payee
not the
or the
so it had
provision that we now review
particular
In
legal capacity to transfer the note.
no
ambiguity employs none of these
for
fact,
that
Agreement
the 1986
states
fact,
none of
terms of indebtedness.
obligation,
“expressly extinguished”
objective
the traditional
indicia of
loan
law voids the note
which under Louisiana
relationship
anywhere
are
to be
or credit
Thus,
well.
neither the bakeries nor
as
subject provision.34 Notably,
in the
found
purported to transfer or as-
Creative ever
(1)
promissory
there is
no reference to a
Development note to
sign the old Creative
purported
loan or
representing
note
Beychok.
(2) maturity
for
obligation,
credit
no
date
(3)
Second,
loan,
provision
there is neither record evidence
no
for
purported
(4)
Agreement
loan,
any language
nor
the 1986
no
repayment
purported
replacement
that a
note
to indicate
new
specification
way
a rate of
or a
by
agree-
when that
was made
it,
to calculate
no reference to a due
simply no
ment was executed. There is
demand,”
“payment
date or
on
no
evidence that a new note was issued and
Perhaps
provision concerning default.
Beychok
payable
made
either to
or to
subject
significantly,
provision
most
“Bearer,”
Beychok.
then delivered to
no
Agreement
stipula-
the 1986
contains
that,
in the
termination or
tion
event of
express
assignment
Absent
transfer or
debt,
liquidation
purported
assets
delivery
of the old note or creation and
paid Bey-
of that
would be
to
note, only
quoted
a new
the above
lan-
in preference
chok as a creditor
to monies
guage
Agreement
of the 1986
itself re-
complete
to
ab-
partners.
due
potential
mains
candidate for
as
evidenc-
objective
indicators of a
sence
these
acknowledgment
ing the creation or
relationship
outweighs
far
debtor-creditor
by
debt owed
subjective
prof-
testimonial evidence
assignment
or the transfer or
relied on
fered
Creative —and
debt owed
old
support
trial court—to
the contention that
absolutely
nothing
to the bakeries. Yet
convey
purpose
the transaction’s
was to
provision
sounds
debt. Elsewhere
cor-
an old creditor’s interest or create a new
rectly
as
one.35
employed such terms
“indebted-
States,
Ryan’s
34. See
Bureau v.
v.
Texas Farm
United
Circuit's decision in Connors
Coal
Co., Inc.,
307,
denied,
(11th
1991),
(5th Cir.1984),
Furthermore, have found owed to him that partnership, were we to debt all identify precisely remains to be done to ambiguity and considered extrinsic evi- dence, Beychok acquire what interest did from compelled we would be to observe Development in the documents, Creative 1986 transac- presence of four sworn tion, and identifying whether the interest Rome, Bey- respectively by executed Jack to as such would lead “absurd conse- Rome, bankruptcy the bakeries’ chok quences.” counsel, Baking’s comptroller, and Wolf of which was for admission prepared position pro- Creative takes the that the in all bankruptcy proceedings, various supports cess of elimination the district uniformly Beychok of which state that was court’s that determination the “interest” partner either a or an owner of Creative Beychok received was that aof creditor. Development. This is far too uniform and by eliminating Creative does so first explained away by press consistent to be possibility Agreement Bey- that the made minimum, lawyers’ As a business. (with partner chok a which we independent sworn documentation and, presumably, district court— subjective, would cast serious doubt on the agree). But States —all Creative then as- self-serving testimonial evidence relied on that, law, serts as a matter of state the “in sup- and the district court to that partnership” Develop- that Creative debt, port the conclusion of and would Beychok ment transferred to could not support further our that conclusion a in- have been interest. Creative not Agreement was intended to trans- that law permit sists Louisiana does not a Beychok fer note to or to create debt- non-partner acquire and own a relationship Beychok or-creditor between equity without It partnership.36 inescapa- being becoming partner. and the follows first In this that, bly membership like badly misappre- Creative De- contention Creative mischaracterizes— n velopment, consciously must eliminated as hends —or debt too be type Beychok of consideration that law. received in the transaction memorialized circumstances, In a number of Lou Agreement. the 1986 permit persons isiana law does in fact who acquire capital equi are not Beychok “Capital as the Owner of ty partnership. Perhaps interests Development Interest’’ in Creative commonly example the most encountered
Having determined that Although the “interest partner occurs when a dies. sold, transferred, partnership” legatees that and as- heirs or deceased Beychok signed partners, they was neither member- do not themselves become do, him in a con- ship nor nevertheless absence of ERISA, ing shaky under need on the extrinsic evi- Central States court’s reliance dence, prove Beychok vice-presi- became a member of depicts even it the financial (see text accom- Development testifying that dent of Creative infra 44), panying 43 and *12 or partner of a new require admission partnership agree- in the trary provision agreement, ment, partnership interest of the deceased amendment “inherit paid them to be as or the nothing which entitles in the Louisiana Civil Code partner, Article 2823 et in Civil Code unani- provided agreement mandates partnership in the in- holds true seq.”38 The same partners. consent of the mous (1) who seizes a creditor stances of sum, examples confirm these that (2) who partner a partner, of a interest anticipates law partnership expelled from voluntarily withdraws or provides possibility for the that expressly (3) partner a whose (at possess person may acquire and a third terminates membership partnership in the time) in partner- interest a least for a “an partnership provisions of pursuant or income or both—without ship” capital— variations, these In each of agreement.39 that our are satisfied being partner. a We partner- “an interest there exists of 1986 interpretation be account- ship” has value and must that Beyehok a transferring to unambiguously for, though the successor to such even ed in Creative a has ceased to be never was or (and an conceivably, though unimportantly, partner. well) produce interest as does income vividly demon- point is even more un- any consequences impossible that are contemplated the situation strated partnership law either der Louisiana “partner that provides article which Therefore this nonsensical absurd. may partnership in the share his interest exit- reading given must be effect without of person a third without consent with Agree- of the 1986 ing the four corners make third partners, [the but he cannot his inquiry into the ment to conduct further a member person] parties.42 It follows intentions that article, fol- ship ....”40 This which code resort to extrinsic evi- the district court’s approach the French Civil lows intent unwarranted and even- dence of that, Code, recognizes absence “[i]n tually led to error both meth- reversible partnership express prohibition an odology and substance.43 may associate a third agreement, partner a person in his interest Liability C. Withdrawal would not though] the [even association person partner.”41 a And the third make Membership 1. as a Partner is Not a are aware of Creative Devel- nothing we Prerequisite pro- that opment’s partnership a final the circu As observation sale, transfer, or partial the total or hibits and arcane to the determina itous route nonpartner an interest to a assignment of liability of all tion of withdrawal members person. Obviously, it would be so- third group, we underscore the controlled argue that a phistry Creative to that, to recover for withdrawal lia “transfer, truism nership assign” cannot MPPAA, an bility under ERISA multiem partner. can .a which be alienated Moreover, prove need not disposition ployer pension plan does not as such Id. rev. cmt. art. 2818 rev. cmt. c 38. La. Civ. Code 41. Ann. 1994) added); (West (emphasis see also La. (West 1994) (The art. Code Ann. Civ. art.2046; American See Tota- La. Civ. Code partner of a is "entitled to successor lisator, F.3d at equal that the share of to the value amount at the time former had member- the ship ambiguity had 43. Even the determination if ceased."). and consideration of ex- not been erroneous admissible, evidence of been trinsic intent had 39. See La. Civ.Code Ann. arts. 2818 and 2823. we have the court's "debt” would found con- (West 1994) arts. 40. La. Civ. Code Ann. clearly clusion to be erroneous. added). (emphasis (2) labor, others, “controlling ployed union were to a who, owns one CBA, participating employers were in, “effective con and exercises interest” multiemployer pension plan pursuant over, orga that is one trol” CBA, approaching were imminent group controlled purported in a nization (5) would, businesses, all virtue of actually bankruptcy, satisfies trades participate cease to bankruptcy, to be requirements law of the state Rather, multiemployer plan, leaving a substantial all partnership.44 in such *13 in and thus lia- regula funding deficit withdrawal implementing MPPAA and its that such, Rome, Beychok, person bility. own the As and their is that such require tions have counsel also knew or should known “profits of a interest” requisite percentage that and enter into the partners opting in that to confect “capital interest” or a Agreement, purposefully which em- that the hip.45 As we have determined carefully language crafted that Development ployed that interest in Creative clearly Beychok for virtue of the 1986 eschews status Beychok acquired just clearly interest” within but eschews debtor-creditor “capital was a 414(c)-2, Bey- and relationship there between Creative meaning of 26 C.F.R. chok, It high-risk with the was a endeavor. disagreement be no serious can Beychok flying perilously amounted to close that the interests proposition always brightly flame that burns when su- Development in both and Rome Creative they per-majority separate must interests two enti- are such that and bakeries are vested in five or less individuals requi whether the ties be tested to determine participating and one of those entities is a percent for “ef percentages site —over multiemployer pension plan. percent employer and or more for fective control” ir present, interest” —are “controlling history of inter- Neither should the Beychok’s capi fact that respective of the dealings among Rome and twined business Development was tal interest Creative organizations they Beychok and If partner. him as a those not owned disregarded. owned and controlled present in capital interests are found to be encounter; Agreement was no chance Development percentages, such Creative had been in busi- these two businessmen solidary lia and its cannot avoid prior ness with each other on number of bakeries, bility deficiency in the for the occasions, bakery business and both sim to Central States And on at least the real estate business. full-fledged not a ply because bakery depot one occasion—the 1982 Development. Creative well as transaction —both individuals as bakeries, Development, con- If there are some who feel that directly harsh were involved. group produce unduly trolled rules Smiths regretta- unwary, they hindsight, may prove well to be traps results or set for the they if web tangled all ble for eye should not turn a blind the facts entering by confecting weave helped that Rome and as well as able counsel, Agreement, possibly should have known when into the 1986 knew or well, joint venture as ulti- plan salvage bakery depot what they confected distinct bankruptcy mately traps its weavers. Yet that they impending could from the known, at have They possibility was—or least should of the bakeries. had to have example, the bakeries em- been—a known risk.46 1.414(c)-2(b)(2)(i)(C) argument §§ 46.Creative made an alternative 44. See 26 C.F.R. First, 1.414(c)- never reached. interest”) which the district court ("controlling following the 1982 sale Creative notes that control”). 2(c)(2)(iii) ("effective involving the bak- and leaseback transaction ery depots, demanded and ob- Central States Id. Bakery a collateral tained from Wm. Wolf mortgage position superior to Creative Devel- conjunctive test for prongs of two 2. Render or Remand? per- the 80 Although “common control.”47 post- again Time and in its briefs and interest,” “controlling cent test determines submittals, ex- Central States argument that is one-half of “common con- Beychok’s presses implies if $50,000 in Creative The other half—“effective trol” calculus.48 to be a interest and not is found control”—is determined under the second interest, is fore- creditor’s the conclusion for common control prong of the test together and Rome gone that For the brother-sister context.49 percent owned at least 80 “an “effective control” is defined as ships, in both percent than 50 aggregate of more question, at the time bakeries partnership.”50 ... interest of such organizations would be un- that those two second, “effective con- Importantly, per der common control se. Central prong trol” takes into account the “owner- *14 implicit finds this same conclusion States person [singular] only each such to ship of well. opinion in the district court’s is [person’s] ownership the extent such juncture the though presence Even at this respect organi- with to each such identical irre- percent” of the “at least 80 factor is only zation.” need consider the rel- One bakeries, presence as to the is futable example regulation52 forth in the evant set Develop- than certain as to Creative less prong control” ment. to realize the “effective simple of the common control test is no (and curious) significant is the ob- More exercise; all, were, if it arithmetic after servation that nowhere does Central always than there would “more per- advert to the fact that the 80 States percent” persons one interest when the “controlling cent interest” factor is but opment bakery depots, express pur- obligation on its sessed under MPPAA after pose payment of which was to secure to Cen- make contributions has ended. Creative’s re- portion bakery’s pension argument tral States of two lease confounds these obli- obligation. gations, though contribution The documentation even the document at issue contributions, arrangement De- of this states only was concerned velopment personal liability would have no liability. estoppel withdrawal Creative’s security provide and that the would claim that Central States release Creative only depot liability States with an in rem claim on from withdrawal fails. properties. argues that Central estopped seeking States should be from 1.414(c)-2(b)(2). § 47. 26 C.F.R. make Creative liable in this ac- personam argument estoppel But suf- tion. Creative’s group "The term 'brother-sister of trades fers from two fatal defects: The release under common control' means businesses agreement was drafted and executed before organizations conducting two or more trades liability triggered as- withdrawal was (i) if the same or fewer businesses five sessed, and thus cannot be construed as re- persons who are individuals ... ... a own leasing a claim that at the was at best time organization controlling interest in each [first contingent, inchoate and see 66 Am.Jur.2d Re- (ii) taking prong], and into account the own- (“A § at 710-11 release which in lease ership person of each such to the extent only present right terms covers will not be ownership respect such is identical with discharge construed to demand which persons such are in organization, each such contingent.”); then uncertain and prong].... [second control effective expressly text of the relevant document re- added).” 1.414(c)-2(c)(l)(emphasis C.F.R. leased Creative from "delinquent pension welfare and health and ” Id. added), (emphasis not from contributions liability. withdrawal The "contributions” re- 1.414(c)-2(c)(2)(iii). § 50. 26 C.F.R. simply employer’s ongoing, ferred to are an periodic payments pension plan to a trust on 1.414(c)-2(c)(l)(ii)(emphasis 51. 26 C.F.R. participant employees; behalf of added). hand, liability, on the other a well-defined is rata, pro employer’s of art for an un- term 1.414(c)-2(e) (4). obligation vested benefit that is as- 52. 26 C.F.R. Example funded satisfy the question controlling ownership “identical” in the two busi- prong the test. percent” i.e., “at least 80 nesses would be percent, 61.45 his But in the “effective control” second prong percentage ownership tricky lurking just WBC; factor there is be- the difference per- between that facially murky neath the surface centage larger and his hypothetical per- phrase, “only ownership to the extent such centage of ownership Creative Devel- respect identical with orga- to each such opment drops out as non-identical. nization .53 illustration, In this the “identical” own- erships of Beychok- Rome and per- —4.54 turbidity phrase, of that espe cent for Rome and 61.45 for Beychok, for a “identical,” cially operative word clears total of 65.99 percent obviously satisfy however, — up considerably, when the “effec prong, the second “effective control” test applied tive control” test is to actual exam only requires which aggregate of more test, ples. In this second own prong Indeed, than percent. Beychok alone ership of each person must be examined test, satisfies that as he is “five or fewer separately, focusing person’s on one own persons” and his “identical” ownership ership in organization each under consid organization is more than 50 percent. eration ownership only to find his or her it is organi extent identical in each Additionally, in hypothetical exam- Practical application zation. of this test ple, the first prong, “controlling interest” *15 reveals, time, every that identity the of test for common control would be satisfied ownership for person each is the smallest prong because the first examines seriatim in percentage any he or she owns of capital the owners’ percentage combined in targeted organizations. the separate trade or business. on Based hypothetical his percent capital 90.9 inter- illustration, Purely for of purposes we in est Development, Beychok employ will post-argu- Central States’s satisfy alone would the “at percent least 80 ment approach ascertaining per- the ... capital interest” test for the i.e., centages for Rome and de- together, And Beychok’s termining percentages capital of percent 61.45 percent Rome’s 23.55 of ownership in Development on WBC, the stock of totaling percent, of the parties’ respective capi- basis satisfy percent” would the “at least 80 test begin tal contributions. Thus we this voting power of both and the total that, hypothetical example by assuming value of all shares all in of classes $55,- capital of the total contribution of bakeries. 000,54 -$2,500 represented Rome’s 4.545 $50,000 percent Beychok’s represent- As the district court concluded that bakeries, (which ed 90.9 percent. As for the it the 1986 it found am- undisputed percentage biguous) that Rome’s of Beychok neither admitted into in percent stock WBC was 28-55 Development nor Beychok’s percent. conveyed was 61.45 “an in” interest Creative Devel- then, example, him, opment this Rome’s “identical” but made him a instead ownership $50,000, in the two businesses would creditor to the extent of i.e., percent, percentage be 4.54 his of court never reached or addressed the ownership capital interest of Cen- crucial question sepa- MPPAA whether States; tral rately the difference between that jointly Beychok Rome and had percentage and in larger percentage “controlling his interest” and “effective in ownership drops the bakeries out as control” both Creative manner, Moreover, Beychok’s nonidentical. In like and the bakeries. the status $2,500 Roses, 1.414(c) 2(c)(l)(ii). $2,500 53. 26 C.F.R. from the from the — Smiths, $50,000 Beychok. from Beychok’s figure by subtracting derived is such that— appeal of the record on Then, percent. engaging appellate percentage from 100 without substantial established, that at finding regarding percentages firmly matters fact those uncontested, stipu- juncture are not proceed this court must to determine whether (or alone) lated, beyond clear cavil— or otherwise Beychok and Rome determine whether Rome and we cannot percent at least 80 owned controlling interest and ef- Beychok had for purposes And, as we decline Thereafter, fective control.55 taking “controlling interest.” finding, fact engage inappropriate such respec Rome’s Beychok’s into account judgment we are not able to render “only to the extent such ownerships tive case, Instead, way the other. this one ownership partner is identical” both it to the are constrained to remand we bakeries, the court must as ship and the purpose the limited district court for (or two individuals certain whether those it needs to adducing the evidence alone) of them owned more than 50 one factual determi- indispensable make such thus interest —and percent nations and calculations. “effective control”—in both Creative De velopment and the bakeries.57 governing regulation on
Inasmuch as point “controlling interest” expresses ultimately the district court con- Should percentages,56 and “effective control” of the common prongs clude that both that the fundamental factual determination satisfied, control test are it must then ren- district court must make on remand is the judgment assessing Creative’s re- der Crea percentage (and partners) that of its sponsibility at tive owned delinquency the time the bakeries “withdrew” from owed the bakeries to Central States. require States. This will the court If, however, that either the court concludes adduce sufficient evidence to enable it to satisfied, prong that test is not must *16 $50,000 Beychok’s capital interest convert judgment dismissing a Central render percentage. specifically, into a More against action and its States’s Creative first that dollar amount court must convert partners. 1, 1986, percentage to a as of June and judicial economy In the interest of and whether, then find between that date and panel for another of to avoid the need this of the bakeries’ the effective date with court to the wheel” if either or States, “reinvent Beychok’s drawal from Central disappointed both sides are so with the changed or remained the same. percentage findings rulings district court’s and on re- also The district court must ascertain the they appeal, panel mand that this retains percentage capital ownership of Rome’s jurisdiction limited Development appellate pending as of the relevant this times, Consequent- one-half to the court. presumably time or of remand district Following argument panel, depot joint ownership against oral to this venture’s Creative and States were asked to file bakeries as of the latter’s withdrawal for joint stipulations provided that could have "controlling presence and thus of interest” panel factual information sufficient for status, group percentage controlled once the controlling determine the of interest elements Beychok’s in Creative De- of Regrettably, and effective control. though ap- velopment is determined. Even it effort, thereby cooperative failed in this de- pears counterintuitive and priving opportunity us of the to render controlling could interest in Rome fail to have judgment litigation. and end this bakeries, Development and while having controlling joint interest in the ven- (b)(2)(i) (c) (C) C.F.R. 1.414 —2 bakeries, ture and the it is also counterintui- (c)(2)(iii). beyond tive that such a situation is the realm (c) (c)(1)(ii) possibility, thus the need for mathematical 57. 26 1.414 C.F.R. —2 (c)(2)(iii). testing. bakery The court must also test the reason, whether ly, regardless or not the dis- For the same are trict court finds on remand that the re- we unable to determine the extent of Beychok’s either joint aggregate percentages ownership Rome’s in- quired organizations terests those two business “controlling interest” and “effective con- they to the extent that are “identical with trol” are sufficient to constitute “common each,” respect to so we cannot say wheth- impose group control” and thus controlled er those two MPPAA, individuals had “effective under liability any on Creative control” of the bakeries and appellate review will be conducted this ship. It follows that neither we nor the panel.
district court can tell whether
the two
organizations
business
were under “com-
IV.
purposes MPPAA,
mon control” for
CONCLUSION
determination that
is critical
to either
ability
court’s
to decide whether Creative
reversibly
The district court
erred
Development and
its
have soli-
Agreement
that the
am-
holding
dary withdrawal liability to Central States.
biguous,
compounded
the error
Accordingly,
considering
par-
extrinsic evidence of the
we reverse the district
judgment
intent
court’s
basing
judgment
ties’
on that
dismissed Central
de
claims,
novo that the
liability
States’s withdrawal
evidence. We conclude
and we
remand
was not
the case to that court
ambiguous and
for the
(1)
conveyed capital
purpose
that it
limited
determining
Crea-
the sev-
Development
Beychok.
ownership
tive
to Sheldon
eral
percentages required to
control;
Consequently,
presence
if in
test for the
combination the inter-
of common
applying
percentages
ests of
Rome
both Crea-
thus deter-
Development
prongs
tive
and the
mined to both
bakeries are
common con-
test;
ultimately found to be
trol
if
sufficient
consti-
common control is
present,
found to have been
assessing
tute Creative
member of
quantum
the same controlled
of Creative’s withdrawal
group
of trades and
Baking,
rendering
judg-
businesses as Wolf
then
Central States and
partners,
accordingly.
judi-
and its
ment
In the interest of
Romes
Smiths,
economy,
cial
panel
and the
will be liable in solido
retains appellate
jurisdiction
purpose
reviewing
for the
for the
outstanding
Central States
balance
Baking’s
liability.
judgment
of Wolf
determinations and
*17
remand,
district court on
par-
should the
Only
prong
one facet of one
of the two-
any
appeal.
ties or
of then elect to
prong common control test
is discernible
REVERSED and REMANDED with in-
In
appeal:
from the record on
both com-
structions; appellate jurisdiction retained
value,
voting power
bined
and total
panel.
Beychok’s
Rome’s and
shares
stock in
WBC were sufficient to vest
those two
DENNIS,
Judge, dissenting:
Circuit
a “controlling
shareholders with
interest.”
(1)
engaging
inappropriate appel-
Without
I respectfully dissent because
however,
finding,
late fact
we
con-
plaintiffs
cannot
Central States
failed to establish
Beychok’s
vert
necessary
dollar interest
factual
under
basis
Louisi-
percentage
partnership
Terry
to a
interest.
ana
law to
that
prove
indispensable
And without
that
piece of Smith was authorized to amend the Crea-
us,
puzzle
partnership
before
we are unable to
tive
change
contract so as to
Beychok’s
determine whether
proportionate
partner’s
Rome’s
share of each
capital ownership
capital
combined
in Creative
and to
an
interest
transfer
interest
Development equaled at least
a third
percent
capital
person;
of Creative to
(2)
a controlling
partnership
thus constituted
under Louisiana law a
Co.,
agreement simple is (N.D.Ill.1997). found re- The district court partners of the is unanimous consent contract; involved, entities quired partnership to amend the that the two majority plaintiffs concedes that never under common Baking, were Wolf au- Terry Smith was prove control, failed to the Creative and therefore of the unanimous consent Baking’s thorized not liable for Wolf partners were in his to act for them partners the MPPAA. Because the dis debt under Beychok; with because transaction not reach the apparently trict court did partnership of the contract amendment businesses,” we are of “trades or issue any partner’s change or affect required to only whether Crea upon called to decide interest, Terry Smith capital profit under common Baking and Wolf were tive Bey- or transfer to grant not authorized to MPPAA, applicable under control of the capital an interest in the Crea- chok part Treasury regulations, and Louisiana (5) under Louisiana law partnership; tive nership law. may agree himself partner between in- partner’s third to share that person Treasury and the II. The MPPAA but such an in the terest under section Regulations person the third give cannot 414(c) of Title 26 or affect any partnership in the interests; and a partners’ the other regu- provides The MPPAA that “under heirs, seizing creditors assigns, ner’s by the Benefit prescribed [Pension lations equal to an amount to the are entitled Guaranty Corporation], employees all former value that the share (whether or incor- trades or businesses but, ceased; membership had at the time are under common control porated) which to, acquire, cannot succeed person third single employer. shall be treated as membership or interest partner’s seize a prescribed preced- under the regulations without partnership of the ing shall be consistent and coex- sentence contract, amendment of the regulations prescribed tensive of the requires which unanimous consent Secretary purposes by similar therefore, unani- partners; lacking other 414(c) 26.” Treasury under section of Title amend the mous consent of the 1301(b)(1). § the absence of U.S.C. contract, Beychok could not independent regulations promulgated acquire an interest pertinent corporation, we refer to the (6) contrary majority’s partnership; to the Secretary Treasury’s regulations, assumption, regula- the federal laws and 1.414(c). CFR anyone other tions do not consider determining whether The criteria for prof- than a has an interest of a there is common control “brother- its or of a of trades or businesses” is group sister Appeal I. Determinative Issue on 1.414(c)-2(c). provided by 26 CFR *18 group requires, a inter definition of such In the order to hold individual alia, persons that the same own a con- million with partners liable for the $1.35 in trolling interest each of the trades or Baking, of Central drawal Wolf question. respect businesses in With (1) prove States must that Creative was 1.414(c)-4(a) § “In partnerships, states: Baking under “common control” with Wolf (2) determining ownership the of interest and and Bak that both Creative Wolf of organization purposes in an ing were “trades or businesses.” See 29 1.414(e)-2 1301(b)(1). See, § ... ‘interest’ the term e.g., § U.S.C. Central Personnel, Inc., 789, in the of ... a 792 means: case States v. 974 F.2d (7th White, Cir.1992); profits capital.” an interest in the v. Central States 1.414(c)-4(a). (N.D.Ill.); *4 C.F.R. 2000 WL partnership a majority apparently permitting assumes that substantive laws that an implicitly recognizes single partner persons to favor third regulation the a profits capital” of “interest free-floating profits interests the by single a may transferred partnership capital partnership of the without the con- who is not a party to a third partner partners. sent of the other majority any not cite does partner. I have proposition, that authority for Partnerships III. Louisiana Law of a phenomenon. no indication of such
found Proceeding under the false conception Internal Reve- usage In of the the common partner that someone other than a can Code, Treasury’s Secretary of the nue the capital partnership hold a interest in a scholars, and tax law regulations, tax law under the Tax applicable Federal laws and refers, “capital interest” practitioners, Treasury majority the regulations, opinion context, partner’s cap- to a partnership the mistakenly that an ar- concludes such fact, In the Internal Revenue ital interest. rangement possible Louisiana under evidently presume regulations Code majority law. The partnership concludes own interests that any that under law capital partnership.1 of the See U.S.C. a partnership, without either authoriza- 706(b)(3), 707(b)(1)(A), 706(b)(1), §§ tion partnership agreement or the 708(b)(2)(B), 707(b)(2)(A), 708(b)(2)(A), partners, unanimous consent of the has the 1.721-l(b)(l), 743(b); §§ 1.704- 26 C.F.R. legal power to create and transfer to a 1(e). 1.704-l(e), which “de- Regulation person capital third a or an income inter- any interest as interest fines a partnership; est and that Cen- partnership to which the the assets proved by preponderance tral a States upon withdrawal from is entitled the evidence that the undefined “interest” upon liquidation partnership Terry in Creative which Smith transferred distinguishes in- partnership that was intended them to be an right participate terest from a mere partnership. earnings profits my opinion, majority’s In interpreta- appropriate ... defini- ship^ provides an] pro- tion of the Louisiana law most, all, purposes tion for if not contrary plain meaning visions is to the B. Willis, Code.” ARTHUR al, et. Partner- law, finding Terry ¶ and its Smith (6th ship 1.07[3], 1-112 at Taxation a and was authorized to transfer intended Ed.l999)(hereinafter “Willis”)(emphasis in Creative to added).2 I the ma- Consequently, believe sup- is not the June jority apparent assump- is mistaken in its or the record as a ported Trea- the contract tion that the Federal tax laws and sury regulations suggest the existence of whole.3 respect putable right "profits he had no to share in the
1.The same is true with Creative), my partnership. profits so that is the focus of in a See cited material interest” 4; accompanying B. dissent as well. in the text note Arthur ¶ at 1.07[4] Partnership Willis, Taxation et. al. (6th Ed.1999) ("Neither significance explaining of the terms the Code nor 1-114 "profits "capital interest” vs. interest” in Regulations contains definition of However, purposes, partnership for tax Willis states profits interest in law, 1(b)(1) partnership tax several areas of Regulation §§ ”[i]n 1.704- 1.721— (e)(l)(v) important consequences on the measure- partnership capital turn discuss interests ’ capital, prof- partners interests in way profits ment of the its, to indicate that a in such added). (emphasis or both.” Id. at 1-110 does not entitle the interest is one which upon *19 ner to share in assets opinion’s disagree majority partner’s partnership 3. I also with the withdrawal from the respect liquidation.”) (emphasis to releases upon partner’s statement of the law with 46, However, added). liability. majority, supra majority opinion n. fo- future estoppel dispenses Beychok acquired "capi- summarily with Creative's on whether a cuses concluding, part, argument by (presumably it is indis- tal interest” because 426 in the of Creative Authorized an interest Terry Not
A. Smith Was Beychok. on to Enter the Transaction of Creative Behalf Transfer Is Not B. Such Unauthorized a owned proof For Louisiana Law Allowed Under Creative, relies Central States 1, contract 1986 written upon the June law, partnership is Under Louisiana to trans-
whereby Terry
professed
Smith
juridical person,
partners.
distinct from its
“in-
undefined
Beychok an
fer to Sheldon
legislative
art. 2801. The
La. Civ.Code
partnership.
in the Creative
Smith
terest”
as
decision to establish
party
who
only signatory
was
entity,
distinct
different from
separate and
that he acted
behalf of Creative.
claimed
reflected in Article
partners, expressly
Creative,
Rome, Jr., S.
Jack
2801,
all of the Louisiana Civil
permeates
only
sign
act
the contract
professed to
Max Na-
partnership provisions.
Code’s
Beychok signed
Baking.
on behalf of Wolf
than, Jr.,
Revi-
Reporter, Partnership Law
individually.
only
for himself
Committee,
Part-
sion
Introduction: 1980
any evidence to
failed to introduce
States
Revision,
nership
12 West’s
LSA
Creative,
partners
other
prove that the
(1994).
3,
partners
pp.
Civil Code
5
When
Jr.,
Rome,
Suzanne McCraine
Jack S.
they utilize
create a
contract
Rome,
Smith, autho-
and Sandra Theriot
new, separate and distinct
law to create a
transfer of the
rized or ratified Smith’s
legal entity. Id.
“interest,” much
an interest
undefined
less
Creative,
other-
Beychok.
partners
agreed
Unless the
have
in the
agreement
or sub-
sup-
if it
without
wise
Even
could be assumed
Rome,
partner participates equal-
sequently,
porting evidence
benefits,
Creative,
only ly
profits,
commercial
by signing
the contract
partnership.
himself to
of the
La. Civ.Code
Baking,
for Wolf
consented for
losses
agreement
of an undefined “interest”
art. 2803. Unanimous
Smith’s transfer
partners
required
to amend the
there is still no evidence of
is
ship agreement,
partners,
other
and none
to admit new
consent
La. Civ.
that Rome intended for Smith to transfer
terminate
Furthermore,
agreement
passages
not be construed as
as I read all of the
release
could
releasing
liability
as the
the withdrawal
claim
majority opinion,
authority
cited
agreement was executed before withdrawal
law consistent with Louisiana
the common
triggered
and assessed.
respect.
Jurisprudence
law in this
American
clearly
Louisiana law
allows releases of fu
provides,
pertinent part,
Second
they
parties
before
arise if the
ture actions
scope
a release is determined
3073;
clearly
La. Civ.Code art.
so intend.
parties
expressed
intention of the
Drillers, Inc.,
741, 744,
Brown v.
630 So.2d
instrument,
particular
consid-
terms
Azar,
(La.1994); Ritchey
So.2d
753
360,
v.
383
light
of all the
circum-
ered in
facts and
(La.1980); Bogalusa Community
stances.
Batiste,
183,
(La.
v.
603 So.2d
Med. Ctr.
§
Cir.1992).
30,
66 Am.Jur.2d Release
App. 1
p. 706.
See also America’s Favor
[Rjeleases
Suryoutomo,
F.Supp.
yet
rights
ite Chicken Co. v.
916,
which have not ma-
(E.D.La.1995)(assignment agree
tured under contracts have been held valid
past, present,
ment released all
or future
self-operative,
discharge
and are
arising
agreement).
claims
Relinquishing
against
under franchise
rights
they
A
future
or claims when
arise.
rights
of action is not
future
present right
release which covers
rights
public policy
arise
unless such
or from the
discharge a de-
will not be construed to
gross
physical injury
from
fault
mand which was then uncertain and con-
party.
wrong
another
Dai
or intentional
tingent.
Industries,
gle
613 So.2d
v. Clemco
33, p.
(emphasis
66 AmJur.2d Release
releases, however,
(La. 1993). Such
will be
release,
added). The ultimate effect of the
narrowly
construed to assure the
un
therefore, depends
parties'
on the
intent. Ac-
conse
and its
derstand
quences.
Brown,
p.
ners could dilute each
Furthermore,
although
majority
the
original
or her
share of the
receive his
accurately quotes
opinion
from Article
benefits,
profits,
and assets of the
capital,
regarding
partner
2812 and its comment
a
single-handedly
and thus
his or
sharing
her interest with a third
relationships
part-
between the
change the
person,
majority
the
draws the incorrect
partnership agree-
ners and amend the
partner
inference that a
can make a third
ment.
person a
owner of an
direct
interest
the
by
capital
partnership
sharing his
majority opinion mistakenly
The
relies
interest. That inference is at odds with
on Louisiana Civil Code articles 2818 and
2812,
adopts
approach
Article
which
the
2823,
the causes and effects of
governing
id.,
the French Civil Code. See
comment.
membership, in its
partnership
cessation of
explains
Planiol
French Civil Code art.
attempt
partner
to show that one
without
1861 as follows:
may
amend the
consent of the others
permits
partner
join
law
to
[T]he
to
an interest in
nership
grant
with him someone to
with him
share
the
capital
partnership
to a third
risks and benefits of his share. There is
to be a
person.
partner
When
ceases
then
a little
of a
partnership
formed
reasons
member for one of the
stated
subordinate
character
such
2818,
between
partnership
Article
and the
continues
partner
person
and the third
with whom
exist,
successor,
partner,
the former
his
contracts,
he
partners
without the other
seizing
acquire
or the
creditor does not
from,
being
being
entitled to
benefit
partnership
interest
as
they
liable
contract
to which
on such
Instead,
majority opinion
assumes.
(Art. 1861).
strangers
are
The third
obliged
pay
per-
is
such
partnership
person thus associated
a subordinate
equal
son an amount
to the value that the
way
operations
partner-
with the
partner
share of the former
had at the
“croupier.”
ship
is called a
[fn.16]
membership
time the
ceased. La. Civ.
of this
in card or
(a);
[fn.16:]
use
word
art. 2823 and comment
La. Civ.
Code
very old. It is an allu-
games
dice
is
art.
and comments. That
Code
2818
who
people
sion to the habit which
amount draws interest from the time that
had,
formerly
travelled
horse
when
partner’s membership
the former
ceased.
and the
carriages were rare
roads
Thus,
La. Civ.Code art. 2824.
a debtor-
bad,
picking up
crup-
riders on the
relationship
partner-
creditor
between the
per to render them a service.
successor,
ship
partner,
and the former
his
seizing
or the
creditor is established and 2
Law Treatise No. 1975
Planiol,
Civil
transl.1959).
(La.
fixed as of the time of the cessation of
Law Institute
State
clearly
membership.
Code
does
his
partner elects to share
When
provide
partner’s
that a former
interest in in
he
partnership
person,
with
third
may
continue after the cessa-
thereby
any relationship
cannot
establish
membership
partnership
tion of
person
his
the third
and the
between
appreciate
depreciate
ship
partners.
so as to
with
or the other
The latter
“strangers”
value of the
The cessation of
remain
to and insulated from
only
to the fact that the little sub-
partnership membership
spe-
has
due
strictly
partnership
cific
ordinate
is formed
be-
provided
effects
Code.
Thus,
person.
and the third
partnership’s obligation
partner
to a for-
tween
successor,
short,
taken on as a
seizing
person
creditor
the third
is
partner,
mer
only by
with whom
expressly provided by
only
“croupier”
law and
and he rides
on that
Articles 2823 et
he contracts
specific
certain
instances.
(LaApp.
Eagle Corp.,
cides, effect, any partner in a
nership legal power has the autonomous
transfer an interest of a persons, to third which ef- any
fect allows to the party unilaterally
contract to amend the contract interests,
to affect the rights, and obli-
gations non-consenting part- of the other
ners, change partners’ relationships, partner’s
and dilute each benefits,
capital, profits, distribution
assets of the All of these
major changes require decisions and La. partners.
unanimous consent of the
Civ.Code arts. 2803 and 2807. If this were law,
not the each would have the power
autonomous create unlimited ad- interests; profits
ditional tempted would be or forced in self-
defense to feather his or her own nest
granting family additional interests to
cronies; partnerships and the entire law of notes here Develop- Beychok in Creative had Agreement and the circumstances surround- ment, Beychok and neither Rome nor un- ing principally the absence of confection— equivocally denying Beychok had an in- any objective indicia of a debtor-creditor rela- partnership only that terest in the he — tionship parties "truly that the in- —indicate partner, begging question. not a thus acquire tended" for in- were Even if the extrinsic evidence admissi- terest in Creative. ble, made the conclusion of the district court of all other in reliance on it—in face 36. When the 1986 was confected testimony and documentation —would June, mad there was no short fuse or clearly erroneous to the extent it character- scramble to rationalize the absence of debt Beychok's interest as that of a creditor. ized terminology proffered excuse for the ref- —the bankrupt- erences to And, (West 1987). cy despite art. 2046 documents. the district 37. La. Civ. Code Ann.