Joseph P. CONNORS, Sr., et al., Appellants, v. INCOAL, INC., a/k/a Incoal Coal Co., et al., Appellees.
No. 92-7023.
United States Court of Appeals, District of Columbia Circuit.
Argued April 16, 1993. Decided June 4, 1993.
995 F.2d 245
John R. Woodrum, Washington, DC, argued the cause for appellees. With him on the brief were Lynn M. Rausch and Kenneth G. Robbett, Washington, DC.
Carol Connor Flowe, General Counsel, Pension Benefit Guar. Corp., Jeffrey B. Cohen, Deputy General Counsel and Paula J. Connelly, Senior Counsel, Washington, DC, filed a brief for amicus curiae Pension Benefit Guar. Corp.
Before: EDWARDS, RUTH B. GINSBURG and SILBERMAN, Circuit Judges.
Opinion for the Court filed by Circuit Judge EDWARDS.
Opinion concurring in the judgment filed by Circuit Judge SILBERMAN.
The issue in this case is whether a partnership known as Double A Farms is liable for payments to pension plans under the Employee Retirement Income Security Act of 1974 (“ERISA“). Specifically, the parties dispute whether Double A Farms, which the appellees own, is a “trade or business” under section 4001(b)(1) of ERISA,
I. BACKGROUND
A. Incoal‘s Withdrawal Liability
Until 1985, Incoal was a Kentucky coal mining corporation, owned in equal shares by Orville Adkins, his spouse Dixie, their son Adam and his spouse Sally. Incoal was signatory to the National Bituminous Coal Wage Agreements of 1978 and 1981, under which it was required to contribute, on behalf of its employees, to the United Mine Workers of America 1950 Pension Plan and 1974 Pension Plan (the “Plans“). The Plans are multiemployer pension plans within the meaning of sections 3(37) and 4001(a)(3) of ERISA,
In February 1985, Incoal ceased operations, and stopped contributing to the Plans. By letters dated July 5, 1985 (the “Letters“), the Plans assessed withdrawal liability against Incoal in the amount of $810,610.41.1 See
In a letter dated July 16, 1985, Incoal advised the Plans that it had depleted its
On November 17, 1986, after Incoal had failed to make any payment, the Plans filed this suit to collect withdrawal liability and interest against both Incoal and S & H Manufacturing, Inc. (“S & H“),4 as a “trade or business” under “common control” with Incoal. Through discovery, the Plans learned of the existence of Double A Farms, a partnership formed by the owners of Incoal. The Plans subsequently filed an amended complaint alleging that Double A Farms was a “trade or business” under “common control” with Incoal, and was therefore jointly and severally liable for Incoal‘s withdrawal liability.
The Adkinses established the Double A Farms partnership in 1979, after acquiring five tracts of land, totalling several hundred acres, in and around Harrison County, Kentucky. Orville, Dixie, Adam and Sally Adkins, the owners of Incoal, each owned a 25% partnership interest in Double A Farms. The Adkinses allege that they bought the land both for hunting (and other recreational purposes) and because they believed it was a “good investment.” Deposition of Orville Adkins at 68, reprinted in A. 157.
In addition to hunting, the Adkinses grew tobacco and raised cattle on the land. They allege that they grew tobacco because they would otherwise lose the tobacco allotments that came with the land, thereby lowering the land‘s value. See Second Deposition of Willis D. Newsome at 56-57, reprinted in A. 214-15. The Adkinses hired a sharecropper to grow the tobacco, a task he performed for perhaps a dozen other neighbors as well. See Second Deposition of Adam Adkins at 135, 139, reprinted in A. 245, 249. The Adkinses also raised 25 or 30 head of cattle on their land. See Deposition of Orville Adkins at 70, reprinted in A. 159.
Willis D. Newsome, the accountant for the Double A Farms partnership, confirmed that the partnership was created because the Adkinses “were doing business.” First Deposition of Willis D. Newsome at 26-27, reprinted in A. 128-29. In the accountant‘s view, a partnership was “the proper way to handle” the tax consequences of the business.5 Second Deposition of Willis D. Newsome at 38, reprinted in A. 196. For eight consecutive years, from 1980 through 1987, Double A Farms sold goods produced on the Adkinses’ land, and Double A Farms’ tax records reveal that sales during that period totalled $346,444. For the years 1981 through 1987, combined sales of cattle and tobacco reached a high of $69,530 (1987), and a low of $28,754 (1985). Further, from 1980 through 1987, Double A Farms represented to the Internal Revenue Service (“IRS“) that its principal business activity was farming and that its principal products were cattle and tobacco.
On June 6, 1991, the Plans moved for summary judgment against Incoal, S & H and Double A Farms. Incoal and S & H did not oppose the motion. Double A Farms, however, cross-moved for summary judgment, asserting that it did not qualify as a “trade or business” under
On January 15, 1992, the District Court granted the Plans’ motion for summary judgment against Incoal and S & H, on the ground that they had conceded liability by failing to oppose the Plans’ motion. Incoal, 781 F.Supp. at 52. The District Court then granted Double A Farms’ cross-motion for summary judgment, holding that it was not a “trade or business.” Id. at 54-56. In reaching this conclusion, the trial court found that (1) the tobacco farming at Double A Farms was “incident to maintaining the value of the property as an investment,” (2) the “cattle grazing” at Double A Farms was too minimal “to raise the operation to a ‘trade or business,” and (3) there was no economic “nexus” between Double A Farms and Incoal. Id. at 56 (emphasis in first quotation omitted).
The Plans appeal the District Court‘s decision granting summary judgment in favor of Double A Farms.
II. DISCUSSION
A. Statutory Background
Congress enacted ERISA,
The statutory provision at issue in this case,
The “common control” element of
In deciding that Double A Farms did not constitute a “trade or business” under
It is altogether irrelevant, under
Our decision today does not break new ground; indeed, it accords with most of the circuit court opinions that have discussed the question now before us. See Personnel, 974 F.2d at 793 (”
Although we conclude that the District Court erred in holding that an economic nexus must be established between Incoal and Double A Farms before the latter can qualify as a “trade or business” under
We reach this decision based on the nature of the inquiry that a court must undertake to determine whether an enterprise is a “trade or business” under
In the absence of further congressional direction on the interpretation of
Although we think this approach is generally appropriate, we believe a recent decision by the Supreme Court provides significant additional guidance in ascertaining the contours of the term “trade or business.” See Commissioner v. Groetzinger, 480 U.S. 23 (1987). In Groetzinger, the Court considered the meaning of the phrase “trade or business” as it appears in
We acknowledge that the Court in Groetzinger “confined” its construction of the term “trade or business” to the statutory provision at issue in that case, and that the Court “[did] not purport to construe the phrase where it appears in other places.” Id. at 27 n. 8. Nevertheless, the Court‘s construction of “trade or business” is the most authoritative pronouncement available, and we therefore rely on it, as has at least one panel of the Seventh Circuit. See Personnel, 974 F.2d at 794 (“Although the Groetzinger court considered a provision of the tax code, we find its definition helpful in distinguishing trades or businesses [under ERISA] from purely personal activities or investments.“). Indeed, the parties have offered no better interpretation, and we can imagine none. But see Ditello, 974 F.2d at 889-90 (declining to rely on Groetzinger because the term “trade or business” has different meanings “‘depending upon the [statutory] provision in which it is used’ “) (citation omitted).8
This conclusion carries important implications for the tasks of both the district court and the court of appeals in cases involving the application of
where findings are infirm because of an erroneous view of the law, a remand is the proper course unless the record permits only one resolution of the factual issue . . . [T]his is elementary.
Second, as Judge Posner observed in Slotky:
Factual disputes are not supposed to be resolved on summary judgment. The purpose of the summary judgment procedure is to determine whether there is a (material) factual dispute, in which event there must be a trial.
FED.R.CIV.P. 56 . That is the general rule, all right, but it doesn‘t make much sense in a case in which the only “factual” issue is one of characterization, that is, of application of [a legal standard to] undisputed lay facts, and the opponent of summary judgment claims no right to a jury trial. For then both the record and the factfinder are the same in the summary judgment proceedings as they would be in a trial. There is no more evidence to put in and no different trier to evaluate it. When both these conditions are satisfied, the formally “factual” dispute is properly resolved on summary judgment.
956 F.2d at 1373-74.9 Thus, if this case were not infected by legal error, and if all of the material facts underlying the ultimate fact of whether the operation at issue rises to the level of a “trade or business” were undisputed, then the case might have been ripe for disposition on summary judgment. If anything, the record in this case favors summary judgment for plaintiffs. But, as we indicate below, the record is not entirely clear on certain points, so we will remand for the District Court to address these issues in the first instance.
Third, where any so-called subsidiary facts material to the ultimate question regarding “trade or business” are in dispute, the district court cannot resolve these factual disputes on summary judgment. As we said in Sherwood v. Washington Post, 871 F.2d 1144 (D.C. Cir. 1989) (per curiam),
the trial court [is not] free to make critical findings of fact in deciding a motion for summary judgment. In acting on a motion for summary judgment, “[t]he court‘s function is limited to ascertaining whether any factual issue pertinent to the controversy exists; it does not extend to resolution of any such issue.”
Id. at 1147 (quoting Nyhus v. Travel Management Corp., 466 F.2d 440, 442 (D.C. Cir. 1972)).
Fourth, because a district court‘s finding that an enterprise is (or is not) a “trade or business” constitutes a factual determination, that factual determination is reviewable after trial only for clear error. See Swint, 456 U.S. at 287 (“[
We do not suggest, as the concurring opinion contends, that the court of appeals should review a district court‘s factual findings de novo. And there is nothing in Sherwood to this effect. Furthermore, we cannot fathom the claim in the concurring opinion that the holding in Sherwood is merely dicta. The court‘s subsequent decision in Abourezk, which was joined by our concurring colleague, clearly adopts the holding of Sherwood, as follows:
Our inquiry on review is thus two-fold: first, we must be sure that the district court has not overlooked or impermissibly resolved any disputed material facts; and second, we must ensure that the judge correctly applied the relevant law to these undisputed facts.
895 F.2d at 1458. This is the law of the circuit and nothing in our decision today strays from that law. In short, ensuring that disputed facts have not been impermissibly
In this instance, even if there had been no legal error, the case could not be decided on summary judgment for Double A Farms. The parties on both sides have pointed to evidence in the record that supports their position. On the one hand, the Plans note that among other things, (1) the Adkinses’ accountant conceded that the Double A Farms partnership was set up “because [the Adkinses] were doing business,” First Deposition of Willis D. Newsome at 27, reprinted in A. 129; (2) for seven consecutive years, from 1981 through 1987, Double A Farms reported tobacco and cattle sales of no less than $28,754, with an eight-year total (including 1980) of $346,444; and (3) the Adkinses represented to the IRS during each of those eight years that they were engaged in the business of tobacco and/or cattle farming. On the other hand, Double A Farms contends that, among other things, (1) the partnership was created purely for tax purposes, see Second Deposition of Willis D. Newsome at 37-39, reprinted in A. 195-97; (2) the tobacco was grown only to maintain the value of the property as an investment, see id. at 56-57, reprinted in A. 214-15; and (3) the Adkinses purchased the property primarily for recreational purposes, and secondarily, as an investment. See id. at 22-23, reprinted in A. 180-81; Deposition of Orville Adkins at 68, reprinted in A. 157. On this record, we would be inclined to think that summary judgment should have been granted in favor of the plaintiffs. The parties claim to be in disagreement, however, over the precise details of certain of the facts (e.g., the intended size and purpose of the breeding herd, and the continuity and regularity of the alleged businesses) and over the weight to be attributed to those subsidiary facts that are otherwise undisputed. We are not sure what this means in the context of this case; but we are satisfied that, in these circumstances (especially in a case of first impression), the trial court should be left to “find the facts,”
D. Factors Relevant to the “Trade or Business” Inquiry
This case presents a difficult issue of first impression in this circuit, so we feel that some guidance is due the District Court on remand. In addition, because the parties have raised a number of questions regarding the legal relevance of, and weight to be accorded, to certain facts, we feel that it is appropriate to pause to consider the factors that may be relevant to the “trade or business” inquiry.
First, it is not dispositive that the land on which an alleged “trade or business” sits is used partly for recreational purposes, such as hunting. A recreational use may often show nothing more than that the land has a dual purpose. Indeed, counsel for the Adkinses conceded at oral argument that Double A Farms would qualify as a “trade or business” if the facts in this case remained the same except that Double A Farms’ cattle
Second, the District Court must base its determination of a defendant‘s purpose on something other than a self-serving statement of intention. A defendant‘s stated declaration that she or he did not intend to engage in a trade or business, without more, is hardly probative of whether an enterprise constitutes a “trade or business.” A party must point to objective evidence demonstrating that he or she did not intend to create a business. On the other hand, a defendant‘s stated intention of forming a “business” is highly relevant, because it constitutes a declaration against interest. Cf. MCCORMICK ON EVIDENCE 819 (Edward W. Cleary et al. eds., 3d ed. 1984) (declarations against interest are “believed to furnish the safeguard of special trustworthiness“).
Third, the purpose of an enterprise cannot be determined by referring to the defendant‘s purported understanding of ERISA and the MPPAA. It is irrelevant that a defendant might have acted differently had he understood the consequences of his actions. As the Ninth Circuit said, in holding the principals of a joint venture personally liable for the joint venture‘s withdrawal liability,
the decision to forgo the benefits of incorporation and to establish [the] joint venture was presumptively made for business reasons and for the personal benefit of [defendants]. They . . . are responsible for whatever legal consequences attach to their own choice of business organization.
H.F. Johnson, 830 F.2d at 1015; accord Connors v. Ryan‘s Coal Co., Inc., 923 F.2d 1461, 1468 (11th Cir. 1991). In imposing withdrawal liability on any “trade or business” under common control with the signatory employer, Congress made no exception for those who did not foresee the potential extent of that liability, either in setting up the “trade or business” or in choosing a particular form for that “trade or business.”
Fourth, the legal form of the disputed enterprise—be it a “partnership,” “corporation,” “joint venture,” “individual owner” or some other type of organization—is not dispositive of whether the enterprise is a “trade or business.” Indeed, the plain language of
Finally, as we have already held, there is no “economic nexus” requirement that an enterprise must meet in order to qualify as a “trade or business.” Indeed, it is not even relevant, let alone dispositive, that there is, or is not, an economic nexus between Double A Farms and Incoal. The proper characterization of the Double A Farms partnership must be made with reference to other factors.
III. CONCLUSION
For the foregoing reasons, we hold that the District Court erred in finding that Double A Farms was not a “trade or business” under
So Ordered.
SILBERMAN, Circuit Judge, concurring in the judgment:
I agree with my colleagues that the case should be remanded to the district court. I write separately, however, to set forth what I think is the proper relationship between the nature of the issue before the district court, our scope of review, and the anomaly created by the district court‘s grant of summary judgment.
As the majority correctly observes, the ultimate issue in the case—whether an enterprise is a “trade or business“—is properly described as a question of fact. The majority also rightly looks to Commissioner v. Groetzinger, 480 U.S. 23 (1987), which interprets that same phrase under §§ 62(1) and 162(a) of the Internal Revenue Code. The Supreme Court there defined a trade or business as one where: (1) “the taxpayer‘s primary purpose for engaging in the activity must be for income and profit“; and (2) “the taxpayer must be involved in the activity with continuity and regularity.” Id. at 35 (emphasis added).1 That standard requires the district court to make a finding, inter alia, of intent or purpose. And as the Supreme Court has said, “[t]reating issues of intent as factual matters for the trier of fact is commonplace.” Pullman-Standard v. Swint, 456 U.S. 273, 288 (1982). This is true even though the determination of intent—a question of ultimate fact—rests upon other, subsidiary material facts. Id. at 287-90.
Of course, it follows that our standard of review of a district court finding on this issue is quite deferential; it is the clearly erroneous test. Courts of Appeals have been admonished by the Supreme Court to be particularly careful when applying that standard not to encroach on the district court‘s domain.
“In applying the clearly erroneous standard to the findings of a district court sitting without a jury, appellate courts must constantly have in mind that their function is not to decide factual questions de novo.” Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123 (1969). If the district court‘s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently.
Anderson v. Bessemer City, 470 U.S. 564, 573-74 (1985). Such findings are entitled to deference “even when [they] do not rest on credibility determinations, but are based on physical or documentary evidence or inferences from other facts.” Id. at 574.
In this case, however, we do not have before us a district judge‘s findings under
The district judge‘s memorandum accompanying his grant of summary judgment does discuss, sift, and evaluate those subsidiary facts in such a fashion as to appear very similar to findings entered after trial. We thus are faced with the anomaly that the Seventh Circuit recently encountered.
Factual disputes are not supposed to be resolved on summary judgment. The purpose of the summary judgment procedure is to determine whether there is a (material) factual dispute, in which event there must be a trial.
FED.R.CIV.P. 56 . That is the general rule, all right, but it doesn‘t make much sense in a case in which the only “factual” issue is one of characterization, that is, of application of undisputed lay facts, and the opponent of summary judgment claims no right to a jury trial. For then both the record and the factfinder are the same in the summary judgment proceeding as they would be in a trial. There is no more evidence to put in and no different trier to evaluate it. When both these conditions are satisfied, the formally “factual” dispute is properly resolved on summary judgment.
See Central States, Southeast & Southwest Areas Pension Fund v. Slotky, 956 F.2d 1369, 1373-74 (7th Cir. 1992) (emphasis in original).
The majority thinks Judge Posner‘s analysis is incoherent; I do not. It certainly cannot be suggested seriously that a busy district judge faced with this sort of situation must require the parties to put on redundant testimonial evidence to have an uncontested kabuki-like trial. If the judge does not conduct a trial and instead simply sets forth his analysis, characterization, or inferences from the undisputed subsidiary facts as part of the explanation accompanying his grant of summary judgment, our scope of review of the ultimate issue of fact cannot possibly be broadened. It is simply not our role to weigh, sift, and balance those subsidiary facts; it is the district court‘s job. I agree, therefore, with the Seventh Circuit that no matter how this sort of case comes to us, whether after trial or on a grant of summary judgment, the scope of review (clear error) cannot change.
The majority nevertheless assumes—mistakenly, I believe—that when a summary judgment motion is appealed, review is always de novo, even if the ultimate issue, as here, is a question of fact. The authority upon which the majority relies, however, does not deal with this sort of case, so it is not instructive, let alone binding. Sherwood v. Washington Post, 871 F.2d 1144 (D.C. Cir. 1989), does say that “[t]he ‘clearly erroneous’ standard of Rule 52(a) is not applicable in connection with a review of summary judgment.” Id. at 1145. But Sherwood‘s opening language is dicta. In that case summary judgment was granted improperly precisely because genuine issues of orthodox material fact remained. Similarly, the case Sherwood relies upon, Tygrett v. Washington, 543 F.2d 840 (D.C. Cir. 1974), also states that fact findings made on summary judgment “are not really findings of fact” and that “such findings are not protected by the ‘clearly erroneous’ standard of [Rule] 52(a).” Id. at 844 n. 17. Again, the quoted passage is dicta, because in Tygrett the lower court was reversed for making an error of law.
To be sure, when a district judge grants a Rule 56 motion, he is not required to set forth findings of fact or conclusions of law. This means, of course, as Judge Harris recently reminded us, that the judge is not obliged to say or write anything in support of his decision. Fairhead v. Deleuw, Cather & Co., 817 F.Supp. 153 (D.D.C. 1993);
Be that as it may, under no circumstances are we entitled to examine the evidence de novo. The majority‘s discussion of the evidence, therefore—including its view that “these factors [of continuity and regularity] are fulfilled in this case,” Maj. Op. at 250 n. 7, and that “[o]n this record, we would be inclined to think that summary judgment should have been granted in favor of plaintiffs,” id. at 253—is not only dicta, it is dicta that the district judge is entitled to (indeed, under Anderson, is obliged to) disregard because it encroaches into his fact-finding domain. The latter observation—that the majority actually would have granted summary judgment for the plaintiffs—seems, moreover, quite inconsistent with its view that summary judgment is inappropriate in such a case.
I concur in the judgment remanding to the district court, however, because I agree with the majority that the district court should not have considered, as a matter of law, the lack of economic nexus between the coal company and the farm as a factor to be weighed in determining no liability. The majority goes too far in unequivocally stating that the economic nexus question is always “irrelevant.” Id. at 249. As the Seventh Circuit found in Slotky, using nexus as a factor to suggest liability may prevent owners of trades or businesses from fractionalizing their assets to escape ERISA. See Slotky, 956 F.2d at 1374. Still, I agree with the majority‘s basic legal point that an unrelated trade or business is nonetheless a trade or business under the Act, and, therefore, that the district judge should not have weighed the nexus factor in favor of appellees. I also believe that the judge, on remand, should make his findings explicitly in the context of the Groetzinger framework.
Although the district judge was not entirely clear on this point, he may well have believed that appellees’ investment in the farm was not a trade or business without regard to the nexus factor. If so, the judge, of course, can make appropriate findings to that effect on remand. I will not offer my own evaluation of the evidence at this stage, but I will say that I do not believe, as does the majority, that the statutory standard the judge is obliged to apply, even with Groetzinger as an aid, is all that “plain.” And in a close case, of which this may very well be one, a district judge‘s evaluation of the evidence may not be legitimately reversed.
GOLD COAST RESTAURANT CORPORATION D/B/A Bryant & Cooper Steakhouse, Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent. No. 91-1533. United States Court of Appeals, District of Columbia Circuit. Argued Oct. 19, 1992. Decided June 11, 1993.