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LOCAL 478 v. JAYNE

October 18, 1991

LOCAL 478 TRUCKING AND ALLIED INDUSTRIES PENSION FUND, FRANCIS PRAINITO, DONALD PAOLELLA, DANIEL MCFALL, ROBERT KORTENHAUS, ANDY THREATT AND LOUIS SALZ, AS TRUSTEES OF LOCAL 478 TRUCKING AND ALLIED INDUSTRIES PENSION FUND, PLAINTIFFS,
v.
WILLARD D. JAYNE, DOUGLAS W. JAYNE, GARY J. JAYNE, ELIZABETHPORT REALTY CO., A PARTNERSHIP AND ANY AND ALL MEMBERS OF TRADES OR BUSINESSES UNDER COMMON CONTROL (EXCLUDING JAYNE'S MOTOR FREIGHT, INC.), DEFENDANTS.



The opinion of the court was delivered by: Lechner, District Judge.

        CORRECTED OPINION

This is an action brought by plaintiffs Local 478 Trucking and Allied Industries Pension Fund ("Fund"), and Francis Prainito, Donald Paolella, Daniel McFall, Robert Kortenhaus, Andy Threatt and Louis Salz as trustees (the "Trustees") of the Fund (collectively, the "Plaintiffs") against defendants Willard D. Jayne ("Willard Jayne"), Douglas W. Jayne ("Douglas Jayne"), Gary J. Jayne ("Gary Jayne") (collectively, the "Individual Defendants"), Elizabethport Realty Company ("Elizabethport") and Bro-Jen*fn1 ("Bro-Jen") (collectively, the "Partnership Defendants," with the Individual Defendants, collectively, the "Defendants"). Because Douglas Jayne is undergoing personal bankruptcy proceedings, Plaintiffs have specifically excluded Douglas Jayne individually from this motion for summary judgment. Pls.' Br. at 19 n. 10; see also Defs.' Br. at 2 n. 1.

Plaintiffs commenced this action to compel Defendants to make payments to the Fund for the withdrawal liability of Jayne's Motor Freight ("Jayne's Motor Freight") under a retirement welfare benefit plan (the "Plan") established pursuant to the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. Plaintiffs seek the amount of withdrawal liability and other relief authorized by ERISA, including interest, liquidated damages, attorneys' fees and costs.

Plaintiffs' complaint (the "Complaint") was originally filed 27 June 1990 in the United States District Court for the Eastern District of Pennsylvania. On 26 March 1991, this case was transferred to the District of New Jersey pursuant to the order of Herbert J. Hutton, United States District Judge. Jurisdiction is alleged pursuant to 29 U.S.C. § 1132(a)(3)(B), (d)(1), (e) and (f) and 1451(a)(1), (b) and (c) and 28 U.S.C. § 1331 and appears to be appropriate.

Facts

Jayne's Motor Freight was a trucking company incorporated in the State of New Jersey. W. Jayne Aff., ¶ 6. Willard Jayne, Douglas Jayne and Gary Jayne are shareholders of Jayne's Motor Freight and copartners of other family businesses including two partnerships, Elizabethport and Bro-Jen.

Elizabethport is a New Jersey real estate partnership formed in June 1986. Id., ¶ 3; D. Jayne First Aff., ¶ 6; G. Jayne Aff., ¶ 3. Elizabethport owns and leases property located at 860 North Avenue, Elizabeth, New Jersey (the "Elizabeth Property"), where Jayne's Motor Freight was a tenant.*fn3 W. Jayne Aff., ¶ 3; D. Jayne First Aff., ¶ 5, 6; G. Jayne Aff., ¶ 3. Bro-Jen is another New Jersey real estate partnership also formed in June 1986. W. Jayne Aff., ¶ 4; D. Jayne First Aff., ¶ 7; G. Jayne Aff., ¶ 4. Bro-Jen does not engage in any other business except owning and leasing one parcel of real property located in Southampton Township, New Jersey (the "Southampton Property"). W. Jayne Aff., ¶ 5; D. Jayne First Aff., ¶ 7; G. Jayne Aff., ¶ 4.*fn4

Between 1957 and October 1988, Jayne's Motor Freight maintained the Plan which provides retirement income to qualified employees. The Fund had collected and held contributions from Jayne's Motor Freight in trust for the employees of Jayne's Motor Freight (the "Employees") and had been disbursing the contributions in monthly pension benefits to the Employees upon their attaining a specified retirement age.*fn5 Vaccaro Aff., ¶¶ 4, 8. The Fund is managed by the Trustees who were appointed in equal numbers by Jayne's Motor Freight and Local 478, the union representing the Employees (the "Union"). The Union is the certified and exclusive bargaining representative of the Employees who are participants in the Fund. Id., ¶ 6.

Wasserman was retained solely to represent Jayne's Motor Freight in the bankruptcy proceedings and was not retained to represent Elizabethport or Bro-Jen in any matter. G. Jayne Aff., ¶ 6, 8-9. Wasserman also did not represent Gary Jayne, Douglas Jayne or Willard Jayne in any other proceeding or matter. Id.; D. Jayne First Aff., ¶ 10; W. Jayne Aff., ¶ 18.

The Fund owned a security interest in assets belonging to Jayne's Motor Freight. At the time of the Chapter 11 Bankruptcy, the assets of Jayne's Motor Freight consisted primarily of tractors and trailers (the "Assets"). G. Jayne Aff., ¶ 12. Pursuant to an Order of United States Bankruptcy Judge Daniel Moore, dated 30 December 1987, the Fund enforced the security interest it had against the Assets. Wasserman Aff., ¶ 6. The Fund, however, delayed in removing the Assets, apparently depriving Elizabethport rentable space at the Elizabeth Property. G. Jayne Aff., ¶ 12.

On 29 January 1988, the Chapter 11 Bankruptcy was converted into a Chapter 7 liquidation proceeding ("Chapter 7 Bankruptcy"). 11 U.S.C. § 1112. Wasserman Aff., ¶ 4; W. Jayne Aff., ¶ 16. Robert Levitt, Esq. ("Levitt"), was appointed Trustee in Bankruptcy. Wasserman Aff., ¶ 7. After the conversion, Wasserman's role was limited to reviewing and evaluating Levitt's requests with respect to the Chapter 7 Bankruptcy. Id., ¶ 5.

According to the submissions, on 17 October 1988, Jayne's Motor Freight ceased contributing to the Fund, ceased "covered operations" under the Fund and completely withdrew from the Fund. Vaccaro Aff., ¶ 8. According to the Fund, the withdrawal of Jayne's Motor Freight from the Plan subjected it to withdrawal liability under 29 U.S.C. § 1381(a). Id., ¶ 7.

Proceeding under the ERISA scheme pertaining to employers who cease contributions to pension plans, the Fund calculated the amount of withdrawal liability owed by Jayne's Motor Freight. Id., ¶ 9. The Fund's actuaries calculated the initial amount to be $1,483,628.00.*fn6 Id., This represented the proportionate share of unfunded vested liabilities owed by Jayne's Motor Freight. Id. After applying the de minimis reduction provisions of ERISA, 29 U.S.C. § 1389, the amount was later recalculated by the actuaries to be $1,390,077.00. Id.

Although addressed to Jayne's Motor Freight at its business address at the Elizabeth Property, the Demand Letter was rerouted and received by Levitt. D. Jayne Second Aff., ¶ 2. The parties disagree over how the letter was rerouted. Id. Plaintiffs contend they sent the Demand Letter to Jayne's Motor Freight at the Elizabeth Property. Pls.' Reply Br. at 4. According to Plaintiffs, sometime after Vaccaro had placed the Demand Letter in the mail, a sticker was placed over the Elizabeth Property address, redirecting the Demand Letter to Levitt. Id. Plaintiffs surmise that either the Post Office or Douglas Jayne may have redirected the Demand Letter. Id. at 4-5.

Douglas Jayne "strenuously and categorically" denied having redirected the letter. D. Jayne Second Aff., ¶¶ 2, 3. Douglas Jayne leases an office at the Elizabeth Property. D. Jayne First Aff., ¶¶ 22. In the past, Douglas Jayne received mail on behalf of Jayne's Motor Freight at the Elizabeth Property and currently continues to do so. Id., ¶¶ 22, 24. According to Douglas Jayne, he has been at the Elizabeth Property daily, except for weekends, holidays and vacations, since 1978. Id., ¶ 22. Douglas Jayne contends he would have received the Demand Letter had it been sent to the Elizabeth Property address. D. Jayne Second Aff., ¶¶ 4, 5.

After receiving the Demand Letter, Levitt wrote to Vaccaro on 23 November 1988 informing him "to the extent your letter asserts a claim against the Estate [Jayne's Motor Freight], you should have filed a Proof of Claim. . . ." Letter to Vaccaro from Levitt, dated 23 November 1988. The following day, Levitt forwarded to Wasserman a copy of the Demand Letter and a copy of his letter to Vaccaro. Wasserman Aff., ¶¶ 7. On 23 February 1989, the Fund filed an amended proof of claim ("Proof of Claim") in the Chapter 7 Bankruptcy for $1,390,077.00, the amount of withdrawal liability which the Fund alleges Jayne's Motor Freight owed to the Fund. Proof of Claim att. as Ex. A to Pls.' Reply Br.

Upon receiving a copy of the Demand Letter, Wasserman filed the Demand letter and did nothing with it. Wasserman Aff., ¶ 7. Wasserman did not immediately forward the Demand Letter to Jayne's Motor Freight because the Demand Letter was "not a bankruptcy document and . . . because only the Trustee [Levitt] was then empowered to act on behalf of Debtor's estate." Id., ¶¶ 7-9. Additionally, Wasserman contended he had no authority to accept notices on behalf of Defendants. Id., ¶ 11. According to Wasserman, he was precluded by the Bankruptcy Code and relevant case law from representing the principals or potentially related entities of a debtor corporation. Id.

For unstated reasons, on or about 2 March 1990, Wasserman finally forwarded a copy of the Demand Letter to the attorneys for the Individual Defendants. Willard Jayne, Douglas Jayne and Gary Jayne admit receiving a copy of the Demand Letter on 8 March 1990 when their attorney forwarded a copy of the Demand Letter to them. W. Jayne Aff., ¶ 24; D. Jayne First Aff., ¶¶ 18, 19; G. Jayne Aff., ¶ 17.

The Trustees claim they did not discover that Willard Jayne, Douglas Jayne and Gary Jayne owned Elizabethport until Jayne's Motor Freight was undergoing Chapter 7 Bankruptcy proceedings. Vaccaro Aff., ¶ 13. Accordingly, on 23 April 1990, the Fund Administrator, Edward J. Geiger, sent certified letters to Elizabethport and each of its three general partners*fn8 notifying them that Jayne's Motor Freight was delinquent in making its withdrawal liability payments and that each is responsible for the withdrawal liability. Id., ¶ 14. The certified letters were claimed by Douglas Jayne on 24 April 1990. Id., ¶ 15.*fn9

On 1 May 1990, Willard Jayne, as a creditor of Jayne's Motor Freight, filed a motion in the Bankruptcy Proceeding objecting to Plaintiffs' Proof of Claim. W. Jayne Aff., ¶ 27. Willard Jayne contended the amount asserted in the Proof of Claim was excessive for failing to apply reductions provided to insolvent employers undergoing liquidation pursuant to 29 U.S.C. § 1405. Id.

On 27 June 1990, the Fund and the Trustees commenced a suit against Defendants in the United States District Court for the Eastern District of Pennsylvania. Plaintiffs excluded Jayne's Motor Freight from their suit.

On 30 November 1990, Judge Hutton issued a scheduling order (the "Scheduling Order") which set 10 May 1991 as a deadline for the completion of discovery. Scheduling Order of Judge Hutton, dated 30 November 1990. During the discovery period, Defendants served a document request and interrogatories on Plaintiffs. Pls.' Objections to Defs.' Req. to Reopen and to Take Further Disc. at 2. Plaintiffs served timely responses to the requests and included objections to some of the discovery requests. Id. The parties exchanged correspondence concerning the validity of the objections to the discovery requests.*fn10 In the meantime, Judge Hutton transferred the action to the District of New Jersey on 26 March 1991.

Following the close of the discovery period, as set by Judge Hutton, Defendants moved before Ronald J. Hedges, United States Magistrate Judge, to reopen and to take discovery and to compel discovery. In a conference call with Magistrate Judge Hedges on 16 July 1991, Defendants' counsel identified two general areas in which they sought discovery. These areas included the calculation of withdrawal liability and the knowledge of the Trustees as to the existence and whereabouts of other entities which may be jointly liable for the withdrawal liability of Jayne's Motor Freight. Id. at 3.

The parties' counsel appeared for oral argument before Magistrate Judge Hedges on 30 July 1991 on Defendants' request for discovery. Defs.' Req. to Reopen and Take Further Disc. Magistrate Judge Hedges issued an order (the "First Discovery Order") on 9 August 1991 rescinding the Scheduling Order issued by Judge Hutton. First Discovery Order. Additionally, Magistrate Judge Hedges ordered Plaintiffs to respond and produce certain documents pertaining to the assessment and calculation of withdrawal liability*fn11 and to respond to interrogatory thirty of the Defendants' First Set of Interrogatories. Id. Defendants were ordered to submit an expert's report (the "Expert's Report") assessing the calculations made by Plaintiffs. Id.

On 4 September 1991, Magistrate Judge Hedges informed counsel he intended to rescind the First Discovery Order because he did not believe the broad discovery which he had previously ordered was necessary. Spadoro Aff., ¶ 6. In a conforming order, dated 17 September 1991 (the "Second Discovery Order"), Magistrate Judge Hedges stayed all discovery in the case pending a decision on the cross-motions for summary judgment. Second Discovery Order, ¶ 2. Discovery was limited to documents setting forth the contribution histories for employers who contributed to the Fund from 1978. Id. Magistrate Judge Hedges retained the requirement that an Expert's Report be submitted by 13 September 1991. Id., ¶ 5.

On 13 September 1991, Defendants filed a copy of their Expert's Report. In an affidavit submitted with the Expert's Report, George Spadoro ("Spadoro"), Defendants' attorney, asserted that some of the documents ordered by Magistrate Judge Hedges to be produced were withheld from production. Spadoro Aff., ¶ 5. Defendants' expert, Morton Dickstein ("Dickstein") reviewed the available documents and concluded several aspects of Plaintiffs' calculations may be incorrect. Id., ¶ 8. Dickstein, in his Expert's Report, decided he could not compute the withdrawal liability of Jayne's Motor Freight without the withdrawal liability reports (the "Withdrawal Liability Reports"). Expert's Report, ¶¶ 3, 5.*fn12 According to Dickstein, the Withdrawal Liability Reports would provide specific information regarding how the Fund determined the unfunded vested benefits on which they based withdrawal liability. Id., ¶ 4.

Discussion

Plaintiffs move for summary judgment for the failure of the Defendants to make withdrawal liability payments. Plaintiffs contend that Defendants are jointly and severally liable for the withdrawal liability of Jayne's Motor Freight. Plaintiffs argue that the Partnership Defendants are liable because they are in common control with Jayne's Motor Freight under ERISA. Plaintiffs also argue the Individual Defendants are liable as partners in the Partnership Defendants.

Defendants cross-move for summary judgment and alternatively for a stay of the litigation pending the completion of the bankruptcy proceedings. Defendants argue they are not liable because Plaintiffs have failed to notify them of their withdrawal liability as required by ERISA. 29 U.S.C. § 1399(b)(1). The Defendants also argue that Plaintiffs' summary judgment motion should be denied because they did not have a chance to conduct discovery. In the alternative, Defendants argue the time which they had to request review or arbitration under ERISA should be extended under the equitable tolling doctrine. Moreover, Defendants argue that if liability is imposed, the amount should be reduced under ERISA for employers who are insolvent.

A. Summary Judgment Standard of Review

To prevail on a motion for summary judgment, the moving party must establish "there is no genuine issue as to any material fact and that [it] is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The present task is to determine whether disputed issues of fact exist; a district court may not, however, resolve factual disputes in a motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986); see Nathanson v. Medical College of Pennsylvania, 926 F.2d 1368, 1380 (3d Cir. 1991) ("Summary judgment may not be granted . . . if there is a disagreement over what inferences can be reasonably drawn from the facts even if the facts are undisputed."). All evidence submitted must be viewed in a light most favorable to the party opposing the motion. Boyle v. Governor's Veterans Outreach & Assistance Center, 925 F.2d 71, 75 (3d Cir. 1991); Weldon v. Kraft, Inc., 896 F.2d 793, 797 (3d Cir. 1990); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Todaro v. Bowman, 872 F.2d 43, 46 (3d Cir. 1989); Joseph v. Hess Oil, 867 F.2d 179, 182 (3d Cir. 1989). "`Any "unexplained gaps" in material submitted by the moving party . . . if pertinent to material issues of fact, justify denial of a motion for summary judgment.'" Ingersoll-Rand Fin. Corp. v. Anderson, 921 F.2d 497, 502 (3d Cir. 1990) (quoting O'Donnell v. United States, 891 F.2d 1079, 1082 (3d Cir. 1989) ).

Although the summary judgment hurdle is a difficult one to overcome, it is by no means insurmountable. As the Supreme Court has stated, once the party seeking summary judgment has pointed out to the court the absence of a genuine issue of material fact,

  its opponent must do more than simply show that
  there is some metaphysical doubt as to the
  material facts. . . . In the language of the Rule,
  the nonmoving party must come forward with
  `specific facts showing that there is a
  genuine issue for trial.' . . . Where the record
  taken as a whole could not lead a rational trier of
  fact to find for the nonmoving party, there is no
  `genuine issue for trial.'

Matsushita, 475 U.S. at 586-87, 106 S.Ct. at 1356 (emphasis in original, citations and footnotes omitted). In other words, the inquiry involves determining "`whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Brown v. Grabowski, 922 F.2d 1097, 1111 (3d Cir. 1990) (quoting Anderson v. Liberty Lobby, 477 U.S. at 251-52, 106 S.Ct. at 2512), cert. denied, ___ U.S. ___, 111 S.Ct. 2827, 115 L.Ed.2d 997 (1991).

The Supreme Court elaborated on the summary judgment standard in Anderson: "If the evidence [submitted by a party opposing summary judgment] is merely colorable . . . or is not significantly probative . . . summary judgment may be granted." 477 U.S. at 249-50, 106 S.Ct. at 2511 (citations omitted). The Supreme Court went on to note in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986): "One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and we think it should be interpreted in a way that allows it to accomplish this purpose." Id. at 323-24, 106 S.Ct. at 2553 (footnote omitted).

Once a case has been made in support of summary judgment, the party opposing the motion has the affirmative burden of coming forward with specific facts evidencing a need for trial. see Fed.R.Civ.P. 56(e); see also Maguire v. Hughes Aircraft Corp., 912 F.2d 67, 72 (3d Cir. 1990) (non-moving party may not rest upon mere allegations); Schoch v. First Fidelity Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990) (neither unsupported allegations in pleadings and memoranda of law nor conclusory allegations in affidavits will establish genuine issue of material fact); Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1165 (3d Cir. 1990) (cannot create issue of fact merely by questioning credibility of movant's witnesses. circumstantial evidence may raise issue of fact); Aronow Roofing Co. v. Gilbane Bldg. Co., 902 F.2d 1127, 1128 (3d Cir. 1990) ("Summary judgment will be granted where the non-moving party fails to `establish the existence' of an element essential to the case"); Carlson v. Arnot-Ogden Memorial Hosp., 918 F.2d 411, 413 (3d Cir. 1990) ("`nonmoving party must adduce more than a mere scintilla of evidence in its favor,'" quoting Williams v. Borough of West Chester, 891 F.2d 458 (3d Cir. 1989) ).

B. Overview of MPPAA

The Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. § 1381-1461, under which Plaintiffs bring their claims, was enacted as an amendment to ERISA. The MPPAA was intended, in part, to discourage employers from withdrawing from multiemployer pension plans and leaving plans with inadequately funded liabilities. United Retail & Wholesale Employees Teamsters Union Local No. 115 Pension Plan v. Yahn & McDonnell, Inc., 787 F.2d 128, 130 (3d Cir.), aff'd, 481 U.S. 735, 107 S.Ct. 2171, 95 L.Ed.2d 692 (1987); Trustees of Amalgamated Ins. Fund v. Sheldon Hall Clothing, Inc., 862 F.2d 1020, 1021 (3d Cir.), cert. denied, 490 U.S. 1082, 109 S.Ct. 2104, 104 L.Ed.2d 665 (1989); Colteryahn Dairy, Inc. v. W. Pennsylvania Teamsters & Employees Pension Fund, 847 F.2d 113, 116 (3d Cir.), cert. denied, 488 U.S. 1041, 109 S.Ct. 865, 102 L.Ed.2d 989 (1989); Flying Tiger Line v. Teamsters Pension Trust Fund, 830 F.2d 1241, 1243 (3d Cir. 1987).*fn13 The MPPAA attempts to do so by imposing upon the employer a mandatory liability, defined in the statute as the employer's adjusted "allocable amount of unfunded vested benefits." 29 U.S.C. § 1381(b)(1). "ERISA also established the Pension Benefit Guaranty Corporation ("PBGC"), a government corporation, to insure employees' benefits against a plan's termination for insufficient funds." Yahn & McDonnell, 787 F.2d at 130.

Under MPPAA's statutory scheme, once an employer withdraws from a pension plan, the plan's trustees determine the amount of withdrawal liability. 29 U.S.C. § 1381. The trustees are then required to notify the employer of the liability, provide a schedule for payments and otherwise formally demand payment. 29 U.S.C. § 1399(b)(1). Within ninety days after receiving notice, the employer has the option of requesting review of the liability by the plan's trustees. Id., § 1399(b)(2)(A). Either party may initiate arbitration proceedings if the dispute over the existence or amount of liability persists after review. Id., § 1401(a)(1).

"Provisions for the quick and informal resolution of withdrawal liability disputes are an integral part of MPPAA's statutory scheme." Flying Tiger, 830 F.2d at 1244; see also Colteryahn Dairy, 847 F.2d at 117. Therefore, regardless of whether an employer requests review of the liability amount, initiates arbitration or does nothing at all, the employer must begin making interim payments of the withdrawal liability in accordance with the plan's schedule within sixty days of notice. 29 U.S.C. § 1399(c)(2), 1401(d). This has been characterized as a "pay now, dispute later" procedure. Flying Tiger, 830 F.2d at 1244 (quoting Robbins v. Pepsi-Cola Metro Bottling Co., 636 F. Supp. 641, 677 (N.D.Ill. 1986)).

C. Joint and Several Liability of Elizabethport and Bro-Jen

Section 1301(b)(1) provides, in part, that:

  [A]ll employees of trades or businesses (whether
  or not incorporated) which are under common
  control shall be treated as employed by a
  single employer and all such trades and businesses
  as a single employer.

29 U.S.C. § 1301(b)(1) (emphasis added). The threshold question for determining withdrawal liability under ERISA, therefore, is determining which entities form the single employer ("Single Employer") subject to withdrawal liability. A finding that Elizabethport and Bro-Jen are trades or businesses under common control with Jayne's Motor Freight will subject them to joint and several liability as a Single Employer with Jayne's Motor Freight for the withdrawal liability. Id., § 1399(b)(1); see also Sheldon Hall, 862 F.2d at 1024; Flying Tiger, 830 F.2d at 1244; IUE AFL-CIO Pension Fund v. Barker & Williamson, 788 F.2d 118, 123 (3d Cir. 1986); O'Connor v. DeBolt Transfer, Inc., 737 F. Supp. 1430, 1442 (W.D.Pa. 1990); United Food & Commercial Workers Union v. Progressive Supermarkets, 644 F. Supp. 633, 636 (D.N.J. 1986).

1. Common Control

ERISA uses the "controlled group" standards of the Internal Revenue Code to determine whether two entities are within a controlled group and liable as a Single Employer.*fn14 Flying Tiger, 830 F.2d at 1244 n. 2; Barker & Williamson, 788 F.2d at 123; Debolt Transfer, 737 F. Supp. at 1440. Under the Internal Revenue Code, individuals are held to be in common control if: (1) they own a controlling interest in the relevant organizations; and (2) if they are in effective control of each organization. Businesses are deemed to be under common control where

  (i) the same five or fewer persons . . . own . . .
  a controlling interest in each organization, and
  (ii) taking into account the ownership of each such
  person only to the extent [that it] is identical
  with respect to each such organization, such
  persons are in effective control of each
  organization.

26 C.F.R. § 1.414(c)-2(c) (emphasis added). The term "organization" includes partnerships and corporations. Id., § 1.414(c)-2(a). Although the tests for controlling interest and effective control overlap, the former goes to the issue of a controlling ownership interest whereas the latter focuses on effective voting control.

a. Controlling Interest

Under the first of the two-part test for common control, the same five or fewer individuals must own a controlling interest in each of the organizations to be held liable. In the case of a corporation, a controlling interest is defined as "ownership of stock possessing at least 80 percent of total combined voting power of all classes of stock entitled to vote of such corporation. . . ." Id., § 1.414(c)-2(b)(2)(A). In the case of a partnership, a controlling interest is defined as "ownership of at least 80 percent of the profits interest or capital interest of such partnership. . . ." Id., § 1.414(c)-2(b)(2)(C) (emphasis added).

Willard Jayne, Douglas Jayne and Gary Jayne own a controlling interest in three organizations — Jayne's Motor Freight, Elizabethport and Bro-Jen. Jayne's Motor Freight issued one hundred shares of common stock. First Set at 8. On 8 December 1977, shares owned by Willard Jayne's brother, William Jayne, and his wife Virginia Jayne, were transferred back to the corporation, were not reissued and therefore became treasury stock ("Treasury Stock").*fn15 Id. In 1988, at the time Jayne's Motor Freight withdrew from the Fund,*fn16 Willard Jayne owned forty-five shares, his wife, Josephine Jayne, owned one share, Douglas Jayne owned two shares and Gary Jayne owned two shares. For purposes of determining control, the ownership of the share owned by Josephine Jayne is attributed to her husband, Willard Jayne.*fn17 The controlling interest of Jayne's Motor Freight can be characterized as follows:

                 Number      Percent
                   of          of
                 Shares      Shares
                 ------      ------
  Willard Jayne    46          92%
  Douglas Jayne     2           4%
  Gary Jayne        2           4%

Together, the three individuals owned a controlling interest in more than eighty percent of the corporation's combined voting power at the time of its withdrawal from the Fund.

Willard Jayne, Douglas Jayne and Gary Jayne also own at least eighty percent of the profits interest or capital interest — and therefore own a controlling interest — in the Partnership Defendants, Elizabethport and Bro-Jen. See Elizabeth Partnership Agreement att. as Ex. H to Pls.' Motion for Summary Judgment at 2; Bro-Jen Partnership Agreement att. as Ex. J to Pls.' Motion for Summ.J. (collectively, the "Partnership Agreements"). The controlling interest of each of the Partnership Defendants can be characterized as follows:

                             Annual Share
                            of Net Profits
                            --------------
  Willard Jayne                   80%
  Douglas Jayne                   10%
  Gary Jayne                      10%

b. Effective Control

Persons satisfy the effective control part of the common control test if, in the case of a corporation, such persons own stock possessing more than fifty percent of the total combined voting power of all classes of stock.*fn18 26 C.F.R. § 1.414(c)-2(c). In the case of a partnership, such persons must own an aggregate of more than fifty percent of the profits interest or capital interest of the partnership. Id.

Willard Jayne, Douglas Jayne and Gary Jayne's controlling interest in the common stock of Jayne's Motor Freight is sufficient to establish effective control. The Partnership Agreement for each Partnership Defendant divides the profits interests per partner as follows: Willard Jayne, eighty percent; Douglas Jayne, ten percent; and Gary Jayne, ten percent. The Internal Revenue Service 1065 Forms ("U.S. Partnership Return of Income") prepared for each Partnership Defendant for the tax year 1988 reflect the same percentages of profit and loss sharing as set forth in the partnership agreements. U.S. Partnership Return of Income att. as Exs. I and K to Pls.' Motion for Summ.J. Defendants' ownership interests thus satisfy the "effective control" test established by treasury regulations.

2. Elizabethport and Bro-Jen as Trades or Businesses

Under ERISA, the meaning of "trade or business" is the same as its meaning under the Internal Revenue Code, 26 U.S.C. § 414(c), and the regulations issued thereunder. 29 C.F.R. § 2612.2; see also Progressive Supermarkets, 644 F. Supp. at 637. Although there are numerous references to the phrase "trade or business" in the Internal Revenue Code, the phrase has "not been defined by either the Code or the Treasury regulations, nor has any authoritative judicial definition of the terms evolved." Id.

Courts have held that two entities engaged in a leasing relationship could be held to be trades or business under common control within the meaning of 29 U.S.C. § 1301(b)(1). Progressive Supermarkets, 644 F. Supp. at 638-39; Pension Benefits Guar. Corp. v. Center City Motors, 609 F. Supp. 409, 412 (S.D.Cal. 1984) (holding that rental property under a net lease constitutes a trade or business); Teamsters Pension Trust Fund v. Malone Realty Co., 82 B.R. 346, 350 (Bankr.E.D.Pa. 1988) (holding that a partnership or proprietorship that does no more than lease real estate, even on a net lease basis, constitutes a trade or business within the meaning of 29 U.S.C. § 1301(b)(1) ). Under a leasing relationship, joint and several withdrawal liability would be imposed on both the lessor and lessee even if one of the entities bore nearly all of the responsibilities under the lease. Progressive Supermarkets, 644 F. Supp. at 639. The two entities would therefore be considered a single employer and be held jointly liable for withdrawal liability. Id.; see also Sheldon Hall, 862 F.2d at 1024; Board of Trustees of the W. Conference of Teamsters Pension Trust Fund v. Lafrenz, 837 F.2d 892, 893 (9th Cir. 1988); Center City Motors, 609 F. Supp. at 412.

In this case, although an economic relationship is not necessary to find a "trade or business," there is an economic relationship between Elizabethport and Jayne's Motor Freight. At the time of withdrawal, Elizabethport leased its sole asset, the Elizabeth Property, to Jayne's Motor Freight. W. Jayne Aff., ¶¶ 12-14; G. Jayne Aff., ¶ 3. The leasing relationship between Jayne's Motor Freight and Elizabethport is not required to hold that Elizabethport is a "trade or business" within the meaning of 29 U.S.C. § 1301(b)(1), but is an additional reason to do so. Progressive Supermarkets, 644 F. Supp. at 638-39; Center City Motors, 609 F. Supp. at 412; Malone Realty, 82 B.R. at 350. Common ownership is the test.

Bro-Jen owns and leases one property, the Southampton Property. W. Jayne Aff., ¶ 5; D. Jayne First Aff., ¶ 7; G. Jayne Aff., ¶ 4. Plaintiffs do not contend that Bro-Jen leases the Southampton Property to Jayne's Motor Freight or that it is otherwise economically related to Jayne's Motor Freight. Common ownership, however, is all that is required for joint and several liability to attach. Lafrenz, 837 F.2d at 894-95; DeBolt Transfer, 737 F. Supp. at 1443-44. As mentioned, no showing of an ...


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