Cent. States Se. & Sw. Areas Pension Fund v. Messina Products, LLC, 2013 WL 466196 (7th Cir. Feb. 8, 2013)

Facts: Central States, Southeast and Southwest Areas Pension Fund (Plaintiff), a multiemployer pension plan as defined under ERISA, sued Messina Trucking (“Corporation”), a closely held corporation owned by Stephen and Florence Messina (Defendants). For several years, the Corporation was required to contribute to the Fund for its employees’ retirement benefits under a collective bargaining agreement. In 2007, however, the Corporation completely withdrew from the Fund, and, therefore, incurred roughly $3.1 million in potential liability. Plaintiff, under ERISA, sued the corporation, its owners, and several other companies also owned by the Defendants, claiming that they were all jointly and severally liable for the withdrawal liability as “trades or businesses” under “common control” with the Corporation. The district court held the Defendants, who owned and leased the property from which the Corporation operated, were not engaged in a “trade or business” under ERISA or the Multiemployer Pension Plan Amendments Act of 1980  (“MPPAA”).

Issue: Because Defendants conceded that they were under common control with the Corporation, the only issue is whether Defendants were involved in “trade or business” under ERISA or the MPPAA.

Holding: Exercising de novo review, the court found that Defendants were involved in trade or business.

Reasoning: To define the term “trade or business,” the court looked to a test adopted by the Supreme Court for tax purposes known as the “Groetzinger test.” This Test requires that, in order to be considered the operation of trade or business, economic activity must be performed (1) for the primary purpose of income or profit; and (2) with continuity and regularity. In Central States, Southeast and Southwest Areas Pension Fund v. SCOFBP LLC, 668 F.3d 873 (7th Cir. 2011), this court held that renting property to a withdrawing employer is categorically a trade or business. Here, Defendants rented their property to the Corporation, which they owned. While the general rule is that there is no liability for a withdrawing employer that engages in purely passive investments like real estate, where, like here, the real estate in question is rented to or used by the withdrawing employer, and there is common ownership, the activity is unlikely to be considered truly passive. Moreover, Defendants’ activity is sufficient to satisfy the Groetzinger test because, first, Defendants’ real estate rental activity was for the primary purpose of income or profit and, second, the Corporations’ employees were agents of the Defendants, and their continuous and regular economic activities are imputed to Defendants. Therefore, the Defendants rental activity is considered “trade or business.”

Briefed By: John Gionis

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