Combs v. Sun-Up Coal Co., Inc.Combs v. Sun-Up Coal Co., Inc.
- Reporters:
- ,
- Before:
- Greene
MEMORANDUM ORDER
Plaintiffs, the trustees of the United Mine Workers of America 1950 and 1974 Pension Plans, brought this action pursuant to the Employee Retirement Income Security Act (ERISA), as amended by the Multi-employer Pension Plan Act Amendments (MPPAA),
The three individual defendants have filed a motion to quash service of process and to dismiss the complaint against them for lack of personal jurisdiction.
1
In support of their motion, defendants argue that, in the absence of any claim that the corporate identity of Sun-Up should be disregarded, they cannot be considered employers for purposes of assessing withdrawal liability under subehapter III of ERISA, and that they are therefore not subject to the Court’s jurisdiction. Plaintiffs maintain that these defendants are employers within the meaning of section 3(5) of ERISA,
The crux of this matter is who, in addition to the signatory company, can be considered an “employer” for purposes of assessing withdrawal liability. Title IV of the ERISA, which governs an employer’s withdrawal liability,
2
does not define the term employer. However, this term is de
*15
fined in section 3(5) of Title I of ERISA,
any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employee in such capacity.
It is this definition upon which plaintiffs rely to support their claim that defendants, as officers and sole shareholders of SunUp, are employers because they “acted directly or indirectly in the interest of SunUp Coal.” Opposition Brief at 3, 9-10.
As plaintiffs themselves concede, however, the definition of “employer” set forth in section 3(5) is limited by the introductory phrase to section 3 “For purposes of this subchapter....” Thus, the definition quoted above applies only to subchapter I of the ERISA, and not to subchapter III — the subchapter at issue here, and the cases cited by plaintiffs which construe the term “employer” in the context of actions to collect delinquent contributions under collective bargaining agreements and under Title I of the ERISA are arguably inapposite. 3
Indeed, in one of the cases cited by plaintiffs where the personal liability of a dominant corporate officer and shareholder was at issue, the court expressly distinguished between actions to collect delinquent contributions under a collective bargaining agreement and under Title I and actions to collect withdrawal liability under Title IV. See
Massachusetts State Carpenters Pension Fund v. Atlantic Diving Co.,
It should be noted that in a subsequent opinion letter supplied by plaintiffs in this action, the PBGC, while noting that “Title IV does not define ‘employer’ for purposes of assessing withdrawal liability,” stated that it viewed the definition contained in section 3(5) of Title I as “an appropriate definition for determining whether a business is liable under Title IV under the circumstances [described in the request for PBGC’s opinion].” 5 Opinion letter by Hen *16 ry Rose, General Counsel for PBGC dated December 27, 1984 (emphasis supplied). The PBGC explained its reasoning in a footnote as follows:
Title I definitions are limited “[fjor purposes of this title”; thus, they are not necessarily applicable to Title IV. See Nachman v. PBGC,446 U.S. 359 , 370 and n. 14 [100 S.Ct. 1723 , 1730 and n. 14,64 L.Ed.2d 354 ] (1980). However, in the absence of an express Title IV definition or regulatory guidance by PBGC, guidance may be sought in Title I where it does not conflict with the purposes of Title IV.
Id.
Defendants suggest that applying the broad definition of “employer” in section 3(5) to Title IV may, in fact, be inconsistent with the purposes of that Title. Withdrawal liability, they allege, is governed not only by different statutory language but also by different policy considerations than those underlying the pension contributions provisions of Title I. Unlike the actions brought to collect delinquent pension contributions or unpaid wages, withdrawal liability situations often occur in the absence of any nonfeasance or misfeasance by any individual with fiduciary responsibilities. Accordingly, the rationale for holding individuals personally liable as employers for unpaid wages or pension contributions is often inapplicable.
In further support of their argument that section 3(5)’s definition of “employer” is inapplicable, defendants cite to section 4225 of ERISA,
(c) Property not subject to enforcement of liability; precondition. To the extent that the withdrawal liability of an employer is attributable to his obligation to contribute to or under a plan as an individual (whether as a sole proprietor or as a member of a partnership), property which may be exempt from the estate under section 522 of Title 11, or under similar provisions of law, shall not be subject to enforcement of such liability.
The policy behind this limitation is explained in the legislative history:
Limitations on withdrawal liability—
******
c. Individual employers: The Committees recognize that some employers that are obligated to contribute to multiemployer plans are individuals, i.e., sole proprietors, or partners. The Committees believe that if such an employer withdraws from a multiemployer plan, some of the employer’s personal assets, such as his residence, should be shielded from employer liability. A special rule provides that where the withdrawn employer is an individual, the employer’s personal assets that would be exempt under bankruptcy law will be protected from employer liability.
126 Cong.Rec. S 10117 (daily ed. July 29, 1980).
The references to “sole proprietors” and “partners” and the limitation of personal liability for such individuals further indicates that Congress did not intend to have corporate officers and shareholders held *17 personally liable for their corporation’s withdrawal liability.
Based on these provisions, the Court finds defendants’ argument persuasive. To be sure, the legislative history reveals that Congress was concerned that the term “employer” be construed in a manner consistent with the Act and its purpose, and that employers not be able to evade or avoid withdrawal liability through changes in identity, form of control, or through transactions which were not bona fide or at arms’ length. See 126 Cong.Rec. H 7898 (daily ed. August 26, 1980); 126 Cong.Rec. S 10105 (daily ed. July 29, 1980). However, to accomplish this goal, Congress adopted specific provisions to guard against such maneuvers. See,
e.g.,
section 4212(c),
Notwithstanding the differences in statutory language and the different policy considerations underlying Titles I and IV, plaintiffs argue that the broad definition of “employer” in Title I applies here.
6
In fact, several courts have applied the definitions of terms listed in section 3, including that for “employer,” to govern the construction of those same terms used in other titles of ERISA. See,
e.g., Central Pennsylvania Teamster’s Pension Fund v. Service Group, Inc.,
6 EBC 1491, 1492 (E.D.Pa.1985), and cases cited therein.
7
See also
Nachman Corp. v. Pension Benefit Guaranty Corp.,
However, even assuming that the definition of “employer” urged by plaintiffs does apply, the complaint against the individual defendants would still have to be dismissed. Despite the broadly inclusive definition of “employer” set forth in section 3(5), no court has construed it literally. If it were given such an expansive meaning, every agent or employee with some supervisory power over other employees could be included within such term. Indeed, there is a split in authority over whether corporate officers and dominant shareholders can ever be considered “employers” within the meaning of section 3(5). While some courts have expressly held that they are not,
8
other courts, relying on
Donovan
*18
v. Agnew,
For example, the Ninth Circuit in
Operating Engineers Pension Trust v. Reed,
By contrast, other courts have adopted a more expansive definition of the term “employer,” rejecting the argument that officers in a bona fide corporation can never be held personally liable for unpaid contributions. Thus, in
Donovan v. Agnew, supra,
the court found that corporate officers could be held personally accountable for the corporation’s backpay liability absent circumstances equivalent to those that would justify piercing the corporate veil at common law.
In the context of imposing withdrawal liability, the Court finds that the standard applied by the Ninth Circuit is the more appropriate one. However, even under the more inclusive “economic reality” approach used by the
Donovan
court, plaintiffs have failed to allege any facts which would support their claim that the individual defendants here are “employers” within the meaning of section 3(5). Plaintiffs have alleged only that these defendants were the officers and sole shareholders of SunUp. There is nothing in the record to suggest that they were the alter ego of the corporation or were otherwise personally responsible for the corporation’s withdrawal from the Plans. The Court also notes that these defendants were not given any notice or an opportunity to individually appeal and arbitrate the assessment as required under sections 4219 and 4221 of ERISA,
Moreover, dismissal of the individual defendants from this action will not leave plaintiffs without a remedy — they may still prosecute their claim against Sun-Up and they may proceed under state law in state court against the individual defendants for an appropriate remedy, see Solomon v. Klein, 6 EBC 1368, 1369-70 (E.D.Pa.1985). In addition, plaintiffs may, if they discover any facts indicating that defendants were personally responsible for the decision to withdraw from the Plan which might justify the imposition of personal liability, move to amend their complaint.
Finally, with respect to the complaint against the corporate defendant Sun-Up Coal Company, plaintiffs have taken no action to prosecute their claims against it since they filed the complaint. Accordingly, unless the plaintiffs either move to have a default entered against Sun-Up or otherwise show cause why their claims against the company should not be dismissed, the Court will dismiss their complaint against Sun-Up for lack of prosecution.
For the reasons stated, it is this 5th day of June, 1985
ORDERED that the motion of defendants Murry Webb, Clement Webb, Jr., and Harry J. Aldridge to dismiss for lack of personal jurisdiction be and it is hereby granted; and it is further
ORDERED that the complaint against defendants Murry Webb, Clement Webb, Jr., and Harry J. Aldridge be and it is hereby dismissed; and it is further
ORDERED by the Court sua sponte that if plaintiffs do not move to have a default entered against Sun-Up Coal Company by June 28, 1985, this action will be dismissed for failure to prosecute.
Notes
. To date, Sun-Up, the corporate defendant, has neither filed an answer nor otherwise responded to the complaint.
. Withdrawal liability is an employer’s long term debt to a plan for any unfunded vested benefits attributed to its employees once that employer ceases its participation.
. See
Massachusetts State Carpenters Pension Fund
v.
Atlantic Diving Co.,
C.A. No. 83-2872-MA (D. Mass. Oct. 12, 1984).
Alman v. Servall Manufacturing Co.,
No. 82-0746-MA (D. Mass. April 9, 1984);
Amalgamated Cotton Garment & Allied Industries Fund v. JBC Co. of Madera,
No. 81-1610 (W.D.Pa. Oct. 20, 1982); See also,
Donovan v. Agnew,
. If an employer does not pay its liability, PBGC will satisfy the employer’s benefit obligations to the fund and lodge a claim against the delinquent employer.
. The requester sought PBGC’s opinion concerning the meaning of "employer" as that term is used in Title IV — the precise issue here — but in *16 the context of the garment industry where a contractor is generally the common law employer of employees covered under the pension plan, but where a jobber or manufacturer who contracts with the contractor often has the obligation under its collective bargaining agreement to contribute to the pension plan based on the contracted for work. The Court notes that the advice requested did not concern whether an individual, i.e., a shareholder or corporate officer, could be held personally liable, but rather concerned the joint or several liability of particular business entities.
. Plaintiffs argue that section 3(5)’s definition of “employer” applies to this case since the withdrawal liability provisions of Title IV refer specifically to Title I provisions. Thus, section 4301(b) provides that
In any action under [Title IV] ... to compel an employer to pay withdrawal liability, any failure of the employer to make any withdrawal liability payment within the time prescribed shall be treated in the same manner as a delinquent contribution (within the meaning of section 1145 [of Title I]).
. The Court notes that in Central Pennsylvania Teamster's, supra, the issue was not whether a stockholder or corporate officer could be considered an “employer,” but rather involved a dispute between two separate contracting companies over which company was responsible for the withdrawal liability allegedly due.
. See,
e.g., Combs v. Indyk,
. Section 3(d) of the Fair Labor Standards Act defines “employer" to mean “any person acting directly or indirectly in the interest of an employer.”
. Alman v. Servall Manufacturing Co., No. 82-0746-MA (D.Mass. April 9, 1984); Amalgamated Cotton Garment & Allied Industries Fund v. JBC Co. of Madera, No. 81-1610 (W.D.Pa. October 20, 1982).
. See also,
Moyers v. Frank P. Bauer Marble Co.,
. In reaching this conclusion, the court in
Donovan
stated that it did not think “too much weight can be put on the Act’s broadly inclusive definition of ‘employer.’ Taken literally and applied in this context it would make any supervisory employee, even those without any control over the corporation’s payroll, personally liable for the unpaid or deficient wages of other employees. It makes more sense ... to interpret the language as intended to prevent employers from shielding themselves from responsibility for the acts of their agents.”
. See
Massachusetts State Carpenters Pension Fund
v.
Atlantic Diving Co.,