Central States, Southeast & Southwest Areas Pension Fund v. Creative Development Co.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 96-30570

CENTRAL STATES, SOUTHEAST
AND SOUTHWEST AREAS PENSION
FUND, a pension trust; and
MARION M. WINSTEAD; R. JERRY
COOK; HOWARD MCDOUGALL; ROBERT
J. BAKER; R.V. PULLIAM, SR.;
ARTHUR H. BUNTE, JR.; HAROLD D.
LEU, present trustee, and
RAYMOND CASH, present trustee,

Plaintiffs/Appellants/Cross-
Appellees,

versus

CREATIVE DEVELOPMENT COMPANY,
a Louisiana Partnership, TERRY
SMITH, partner; SANDRA THERIOT
SMITH, partner; JACK ROME, JR.,
partner; SUZANNE MCCRAINE ROME,

Defendants/Appellees/Cross-
Appellants.

Appeals from the United States District Court
for the Middle District of Louisiana

November 1, 2000

Before HIGGINBOTHAM, WIENER, and DENNIS, Circuit Judges.

WIENER, Circuit Judge.

Plaintiffs/Appellants/Cross-Appellees Central States, South-

east and Southwest Areas Pension Fund, a multiemployer pension
fund, and its trustees (collectively “Central States”), appeal from

the district court’s judgment that dismissed Central States’s

pension plan withdrawal liability claims against

Defendants/Appellees/Cross-Appellants Creative Development Company

("Creative Development”), a Louisiana partnership, and its

partners,, Terry Smith, Sandra Theriot Smith, Jack Rome, Jr., and

Suzanne McCraine Rome.1 Disagreeing with the district court as a

matter of law, we conclude that a written agreement ("the 1986

Agreementv) unambiguously provided for and effectuated the transfer

of a capital interest in Creative Development to Sheldon Beychok,

the majority owner of a different business organization which had

ceased making pension fund contributions to Central States. We

therefore reverse the district court's judgment for Creative and

remand for the limited purpose of affording that court the initial

opportunity to determine whether, by virtue of such acquisition of

a capital interest in Creative Development, Beychok (either alone

or in combination with appellee Jack Rome, Jr.) owned both a

"controlling interest" and "effective control" of each business,

within the intendment of the Employment Retirement Income Security

Act (“ERISA”)2 as amended by the Multiemployer Pension Plan

Amendment Act (“MPPAA”),3 thereby placing Creative Development and

1
Hereafter, Creative Development and its partners are sometimes
referred to collectively as "Creative."
2
29 U.S.C. § 1001 et seq.
3
29 U.S.C. §§ 1381 - 1453.

2
Beychok’s other business organization under “common control”4 and

subjecting Creative to responsibility for the other business’s

“withdrawal liability” to Central States.

I.

BACKGROUND

A. Statutory Framework

Central States is a multiemployer pension plan within the

meaning of §§ 3(37) and 4001(a)(3) of ERISA.5 Central States

brought this suit to recover “withdrawal liability" from Creative

Development and its individual partners under MPPAA. The term

"withdrawal liability" refers to the share of unfunded vested

benefits, i.e., the difference between the present value of a

pension plan's assets and the present value of the benefits it will

be obligated to pay in the future, that an employer owes to a

multiemployer pension plan governed by ERISA when the employer

“withdraws” from the plan.6 An employer is deemed to have

withdrawn from a multiemployer pension plan when the employer “(1)

permanently ceases to have an obligation to contribute under the

plan, or (2) permanently ceases all covered operations under the

4
Id.
5
29 U.S.C. §§ 1002(37) and 1301(a)(3).
6
29 U.S.C. § 1381(a)(“If an employer withdraws from a
multiemployer plan..., then the employer is liable to the plan in
the amount determined under this part to be the withdrawal
liability.").

3
plan.”7 ERISA imposes withdrawal liability on an employer in these

situations to ensure that “the financial burden of his employees’

vested pension benefits will not be shifted to the other employers

in the plan and, ultimately, to the Pensin Benefit Guaranty

Corporation, which insures such benefits.”8

When an employer officially withdraws from a multiemployer

pension plan, the plan sponsor must then (1) determine the amount

of the employer’s liability, if any, (2) notify the employer of

this amount, and (3) collect the sum from the employer.9 If the

withdrawing employer is unable to pay its assessed withdrawal

liability in full, the plan may recover the deficiency from other

entities that are “trades or businesses” under “common control”

with the withdrawing employer.10 Consequently, all such trades or

businesses, including the withdrawing employer, that are determined

to be under “common control” within the meaning of MPPAA and its

7
29 U.S.C. § 1383(a).
8
Central States, Southeast and Southwest Areas Pension Fund v.
Slotky, 956 F.2d 1369, 1371 (7th Cir. 1992).
9
29 U.S.C. § 1382.
10
29 U.S.C. § 1301(b)(1)(“For purposes of this title, under
regulations prescribed by the [Pension Benefit Guaranty
C]orporation, all 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.")(emphasis added); see also Central States
Pension Fund v. Personnel, Inc., 974 F.2d 789, 792 (7th Cir. 1992)
(citing Board of Trustees of Western Conference of Teamsters
Pension Trust Fund v. Lafrenz, 837 F.2d 892, 893-94 (9th Cir.
1988)).

4
regulations, are deemed to belong to a “controlled group” of trades

or businesses and are treated as a “single employer.” As such, all

are jointly and severally (solidarily) liable for the withdrawal

liability incurred by any member of the controlled group.11 This

form of liability is commonly referred to as “control group”

liability.12

The determination whether particular entities are in fact

controlled group members requires resort to several Treasury

Department regulations, among which is one that specifies that a

trade or business belongs to a "brother-sister" controlled group

if:

(i) the same five or fewer persons who are individuals,
estates, or trusts own...a controlling interest in each
organization, and (ii) taking into account the ownership of
each such person only to the extent such ownership is
identical with respect to each such organization, such persons
are in effective control of each organization.13

In the case of a trade or business that is a partnership, a

“controlling interest" means “ownership of at least 80 percent of

the profits interest or capital interest of such partnership,14 and

11
Central States, Southeast and Southwest Areas Pension Fund v.
Koder, 969 F. 2d 451, 452 (7th Cir. 1992) (citing Lafrenz, 837 F.2d
at 893). The term "control group" is used interchangeably with the
term "controlled group." For the balance of this opinion, we will
refer to "controlled group," being the more commonly used term.
12
Central States. Southeast and Southwest Areas Pension Fund v.
Ditelo, 974 F.2d 887, 889 (7th Cir. 1992).
13
26 C.F.R. § 1.414(c)-2(c)(1)(emphasis added).
14
26 C.F.R. § 1.414(c)-2(b)(2)(i)(C)(emphasis added).

5
“effective control” exists when five or fewer persons “own an

aggregate of more than 50 percent of the profits interest or

capital interest of such partnership.15

In this case, a Baton Rouge, Louisiana bakery business known

as Wolf Baking Co. Inc. (“Wolf Baking”) had been a signatory to a

collective bargaining agreement (“CBA”) pursuant to which Wolf

Baking was required to make contributions to Central States. In

December 1986, Wolf Baking filed for bankruptcy and discontinued

its operations, thereby permanently terminating its obligation to

make contributions to Central States. As a result, Wolf Baking was

deemed to have withdrawn from Central States. Accordingly, Central

States calculated Wolf Baking’s withdrawal liability and determined

it to be $1,352,710.73. Because of its bankruptcy, however, Wolf

Baking was able to pay only $289,858 of this obligation to Central

States, leaving a deficit in excess of $1 million. Central States

now seeks to recoup the Wolf Baking shortfall through a withdrawal

liability assessment and recovery against the partnership and the

individual partners comprising Creative, asserting that the

partnership was, at all pertinent times, a member of a brother-

sister controlled group with Wolf Baking. This, Central States

posits, resulted from the three-cornered transaction among (1) Wolf

Baking and its affiliates, (2) Beychok, individually, and (3)

Creative Development, as formalized in the 1986 Agreement.

15
26 C.F.R. § 1.414(c)-2(c)(2)(iii)(emphasis added).

6
B. The Brother-Sister Entities: Creative Development and the
Bakeries

Creative Development was formed as a Louisiana partnership in

1981 by the above-named individual appellees to develop a

residential subdivision near Baton Rouge. The initial capital of

the partnership was $5,000, consisting of equal contributions from

the founding partners.

In the same year, 1981, W.B.C. Inc. (“WBC”) was formed by

Sheldon Beychok, now deceased, appellee Jack Rome, and Harold

Salmon, Jr., to acquire the stock of two bakeries that had recently

emerged from bankruptcy. One of those bakeries was Wolf Baking;

the other was Wm. Wolf Bakery, Inc. (“Wm. Wolf Bakery”). At all

times relevant to this case, those two bakeries were wholly owned

subsidiaries of the holding company, WBC.16 Furthermore, at all

relevant times, Sheldon Beychok and appellee Jack Rome collectively

owned 85 percent of the issued and outstanding capital stock of the

holding company, WBC, with Beychok owning 61.45 percent and Rome

owning 23.55 percent.17 Thus, Beychok and Rome, through their

controlling interest in the parent corporation, WBC, owned or

controlled more than 80 percent of the capital stock of its Wolf

Baking and Wm. Wolf Bakery subsidiaries —— actually, 100 percent

16
Hereafter WBC and its wholly owned subsidiaries, Wolf Baking
and Wm. Wolf Baker, are sometimes referred to collectively as “the
bakeries.”
17
As of December 1986, the remaining 15 percent of WBC’s
outstanding stock was owned by Harold Salmon, Jr. (10 percent) and
Robert Sehring (5 percent).

7
control by virtue of their combined 85 percent control of WBC,

which owns 100 percent of the stock of each subsidiary.

During the mid-1980s, the wholly owned subsidiary bakeries of

WBC were chronically in need of cash, so Beychok made loans to each

from time to time. By June 1, 1986, the outstanding balance of

these loans aggregated $324,000.

C. Creative Development’s Initial Involvement with the
Bakeries: The Sale and Leaseback of the Bakery Depots

For a better understanding of the 1986 transaction, which is

at the vortex of the dispute in this case, we briefly review how

Creative Development first became directly involved with the

bakeries and Beychok. In the early 1980s, after completion of the

real estate venture for which it was originally formed, Creative

Development decided to invest in two "bakery depots"18 owned by Wm.

Wolf Bakery. In March 1982, Creative Development purchased the two

bakery depots for a price of $250,000, then immediately leased both

depots to Wolf Baking “and/or its affiliates.” Beychok —— who,

with Harold Salmon, had previously purchased two other bakery

depots from Wm. Wolf Bakery —— confirmed that the purpose of this

March 1982 sale to Creative Development was to obtain cash for

injection into Wolf Baking and its affiliates so that the bakeries

could continue to operate.

18
A “bakery depot” is a drop-off point for the localized
distribution of bread and bakery products.

8
 The financing for Creative Development’s 1982 purchase of the

bakery depots came from two sources: (1) cash, obtained from a

$200,000 loan from River City Federal Savings & Loan (“River

City”), evidenced by Creative Development’s promissory note, which

was secured by a first mortgage on the depot properties, and (2)

credit, evidenced by an unsecured $50,000 purchase money promissory

note given by Creative Development to the vendor, Wm. Wolf Bakery.

As an additional, inducement for Creative Development to

purchase the two depots, Beychok agreed to become a party to the

depot leases and personally guarantee the lease payments to

Creative Development. In consideration for Beychok’s becoming a

party to and personally guaranteeing the leases,19 Rome and Smith

executed a counter letter to Beychok, acknowledging that in truth

Creative Development owned only an undivided two-thirds (2/3)

interest in the two depots purchased from Wm. Wolf Bakery and that

the remaining one-third (1/3) interest was purchased for the

account of Beychok. The counter letter further declared that Rome

and Smith would, when called upon to do so, transfer record title

to Beychok of his undivided one-third (1/3) interest in the depots.

Creative Development’s purchase of the two bakery depots in

March 1982, coupled with the provisions of the counter letter,

produced a joint venture between Creative and Beychok. Subsequent

19
In addition to being a surety of the obligations of the
bakeries on the lease, Beychok was also a guarantor on the note to
River City.

9
financial statements and tax returns prepared for or filed by the

Romes, the Smiths, Creative Development, and the Creative/Beychok

joint venture, reflect Creative’s two-thirds (2/3) and Beychok’s

one-third (1/3) ownership interests in this depot venture.

D. The 1986 Transaction

By the spring of 1986, Rome and Beychok knew that WBC’s

subsidiary bakeries were headed for bankruptcy and that as a result

Beychok, an insider, would never recover the $324,000 owed to him

by the bakers. The parties also knew that the $50,000 promissory

note given by Creative Development to Wm. Wolf Bakery as the credit

portion of the partnership’s purchase of the bakery depots was

still outstanding and would become an asset of the bankruptcy

estate of the bakeries.

In an apparent effort to “save” Creative Development’s

$50,000, the bakeries’ bankruptcy counsel suggested that these two

debts be offset to the extent possible and that the transaction be

disclosed to the bankruptcy court. Accordingly, at Rome’s request,

Beychok caused the 1986 Agreement to be prepared. It was signed on

June 1, 1986 by Terry Smith (on behalf of Creative Developemnt),

Jack Rome (as President and CEO of Wm. Wolf Bakery, Inc. and Wolf

Baking Company, Inc.) and Sheldon Beychok, individually. In the

1986 Agreement, the parties first acknowledged the existence of (1)

Creative Development’s $50,000 promissory note owed to Wm. Wolf

Baker, and (2) the bakeries’ cumulative debt of $324,000 owed to

Beychok. The parties then agreed to the following: (1) Beychok

10
authorized the bakeries to reduce the amount of their $324,000

indebtedness to him by $50,000; (2) the bakeries, in turn, agreed

to credit the indebtedness owed to them by Creative Development by

the same amount ($50,000), “forever extinguishing the obligation

[on the promissory note] from Creative to Wolf and/or Baking

Company”; and (3) Creative agreed that it

does hereby sell, transfer and assign unto Beychok an interest
in that partnership [Creative] equal to said Fifty Thousand
($50,000) Dollar offset as described hereinabove. (emphasis
added).

The legal effects of this round robin transaction comprise the

crux of the threshold issue of the instant litigation: whether

Sheldon Beychok, the now-deceased former majority owner of WBC and

its subsidiaries, acquired a capital or equity interest in Creative

Development as a result of the 1986 transaction, or merely became

its creditor. If Beychok acquired a capital interest and such

interest, either alone or in combination with Rome’s, equaled or

exceeded the minimum percentages needed to constitute “controlling

interest” and “effective control” for purposes of the relevant

Treasury Regulation,20 then Creative Development and the bakeries

would have been under “common control,” i.e., members of the same

brother-sister group of trades or businesses under the common

control of Rome and Beychok. As such, Creative would be liable to

20
26 C.F.R. § 1.414(c)-2.

11
Central States under MPPAA.21 If, however, Beychok merely became

a creditor of the partnership, no such liability would attach.

As shall be seen in the analysis that follows, this case turns

on the answers to three questions: (1) Is the subject provision of

the 1986 Agreement ambiguous?; (2) regardless of whether that

provision is ambiguous, what is the nature of the “interest”

acquired by Beychok in Creative Development by virtue of the 1986

Agreement?; and (3) if the interest Beychok acquired was capital

and not debt, does Beychok’s percentage of capital interests, or

the combined percentage interests of Beychok and Rome, in both

Creative Development and the bakeries meet the two-pronged test for

“common control” under the applicable Treasury Regulation?22

II.

PROCEEDINGS

Central States filed the instant action in September 1992,

alleging that Wolf Baking and Creative Development constitute a

controlled group and should be treated as a single employer for,

purposes of assessing and recovering withdrawal liability under

MPPAA. The district court denied cross notions for summary

judgment, finding that the 1986 agreement was ambiguous, and that

further inquiry into the intent of the parties was required. After

a one day trial, the district court reaffirmed its earlier

21
29 U.S.C. §§ 1381-1453.
22
26 C.F.R. § 1.414(c)-2.

12
determination that the 1986 Agreement is ambiguous. The court then

held, based on extrinsic evidence, that the 1986 Agreement was

entered into solely to make Beychok a $50,000 creditor of Creative

Development which, to that extent, simply replaced the bakeries as

Beychok’s debtor. The court concluded that Beychok neither became

a partner nor acquired a capital interest in Creative Development

but merely became its creditor. Accordingly, judgment was entered

for Creative, dismissing Central States’s claims at its costs. As

it decided the case on that reasoning, the district court never

reached the questions of common control or controlled group

liability for purposes of assessing withdrawal liability.

Victorious, Creative filed a motion urging the district court

to amend its judgment to include an award of costs, expenses, and

attorneys’ fees under ERISA.23 The district court considered the

factors affecting entitlement to such an award and held that it

would not be appropriate. Central States timely appealed from the

district court’s judgment dismissing the withdrawal liability

claims against Creative, and Creative cross-appealed from the

district court’s denial of its request for costs, expenses, and

attorneys’ fees.

III.

ANALYSIS

A. Standard of Review

23
See 29 U.S.C. §§ 1132(g)(1) and 1451(e).

13
 The principal thrust of Central States’s contention on appeal

is that the district court erred in finding the language of the

1986 Agreement to be ambiguous on the question whether Beychok

acquired a capital ownership interest in Creative Development or

merely became its creditor. A district court’s interpretation of

a written agreement, including its initial determination whether

that agreement is ambiguous, presents questions of law and thus is

subject to our de novo review.24 Findings of historical or discrete

facts are reviewed for clear error.

B. The 1986 Agreement Was Not Ambiguous and Conveyed a Capital
Interest in Creative Development to Beychok

Central States insists that the meaning of the 1986 Agreement

among Beychok, Creative Development, and the bakeries, is plain:

Beychok acquired a capital interest in Creative Development; any

other reading simply disregards what the 1986 Agreement actually

says. Central States argues that the transaction conveyed to

Beychok an equity or “capital” interest in Creative Development

equal to $50,000, thus giving Beychok and Rome a combined capital

or asset interest in that partnership of more than 80 percent. As

together Rome and Beychok also owned more than 80 percent of WBC

and thus of its Wolf Baking subsidiary, concludes Central States,

a combined ownership interest of 80 percent or more of Creative

Development placed Rome and Beychok in “common control” of both

24
See Louisiana Land and Exploration Co. v. Offshore Tugs, Inc.,
23 F3d 967, 969 (5th Cir. 1994); American Totalisator Co., Inc. v.
Fair Grounds Corp., F.3d 810, 813 (5th Cir. 1993).

14
businesses. This in turn subjected Creative Development and its

partners to solidary liability for the remainder of Wolf Baking’s

withdrawal liabiity under MPPAA.25

Creative, of course, rejects this view of the transaction

memorialized in the 1986 Agreement. Creative insists that the

district court correctly determined, vis-à-vis Beychok, the

transaction amounted to nothing more than an exchange of debtors ——

Creative Development for the bakeries —— on the $50,000 owed to

him. As such, Beychok was substituted for the bakeries as the

$50,000 creditor of Creative Development; in essence, Beychok only

made a loan to, and became a creditor of, Creative Development.

This, asserts Creative, precludes the possibility that Creative

Development and Wolf Baking were under common control.

After carefully reading the 1986 Agreement as a whole and

giving its words their generally prevailing meaning,26 we agree with

Central States’s position to the extent that it characterizes the

1986 Agreement as unambiguously transferring a capital interest in

Creative Development to Beychok, albeit without admitting him as a

partner. We therefore conclude that, as this interpretation does

25
See 29 U.S.C. § 1301(b)(1) and 26 C.F.R. § 1.414(c)-2(c).
26
See LA. CIV. CODE ANN. art. 2050 (West 1987)(“Each provision
in a contract must be interpreted in light of the other provisions
so that each is given the meaning suggested by the contract as a
whole.”)(emphasis added) and LA. Civ. Code Ann. art 2047 (West
1987)(“The words of a contract must be given their generally
prevailing meaning.”).

15
not produce any absurd consequences, it must be given effect

without resort to extrinsic evidence.27

“A contract is not ambiguous merely because the parties

disagree upon the correct interpretation.28 In determining the

presence of ambiguity vel non, we both parse the provision in

question and construe that provision in the context of the entire

document. The particular provision of the 1986 Agreement that we

examine for ambiguity today states:

Creative does hereby sell, transfer, and assign unto Beychok

an interest in that partnership [Creative] equal to said Fifty

Thousand ($50,000) Dollar offset as described hereinabove.

(Emphasis added).

The functional purpose of this provision is to identify the

consideration that Beychok received from Creative Development in

27
See American Totalisator, 3 F.3d at 813; La. Civ. Code Ann.
art 2046 (West 1987)(“When the words of a contract are clear and
explicit and lead to no absurd consequences, no further
interpretation may be made in search of the parties’
intent.”)(emphasis added).
28
D.E.W., Inc. v. Local 93, Laborers’ Int'l Union of N. Amer.,
957 F.2d 196, 199 (5th Cir. 1992); Wards Co. v. Stamford Ridgeway
Assocs., 761 F.2d 117, 120 (2d Cir. 1985) (“‘A Court will not
torture words to import ambiguity where the ordinary meaning leaves
no room for ambiguity, and words do not become ambiguous simply
because lawyers or laymen contend for different meanings.’”)
(quoting Downs v. National Cas. Co., 146 Conn. 490, 494, 152 A.2d
316, 319 (1959)). See also Ideal Mut. Ins. Co. v. Last Days
Evangelical Assoc., Inc., 783 F.2d 1234, 1238 (5th Cir. 1986)(“As
necessity is the mother of invention, so is ambiguity the father of
multiple reasonable constructions, and where lawyers are involved,
one never lacks an eager parent of either gender.”).

16
exchange for the bakeries’ cancellation of the $50,000 debt

theretofore owed to them by that partnership. As noted, that

cancellation by the bakeries was made possible by Beychok’s $50,000

reduction of the $324,000 then owed to him by the bakeries.29

In endeavoring to determine whether the “interest in that

partnership” that Creative expressly sold, transferred, and

assigned to Beychok could have more than one sensible meaning and

thus be ambiguous, we find it helpful to engage in that venerable

deductive exercise known as the process of elimination. In so

doing, we first identify all of the possible kinds of interests

that the words themselves could conceivably refer to in the context

29
The district court characterized Beychok's role in the 1986
transaction as that of a friendly creditor who gratuitously
exchanged one debtor for another without "consideration.” This
conclusion is erroneous in both fact and law. First, in Louisiana
"consideration" has never signified an exchange of equivalents or
quid pro quo but causa or cause. Particularly when, as in the 1986
Agreement, the contract is totally bereft of language of donative
intent, then cause or consideration is akin to motivation. So, as
a matter of law, the 1986 Agreement reflects the presence of
consideration for Beychok and the other parties as well. Second,
if we were to go beyond the plain language of the agreement
regarding consideration, as did the district court, we would find
that even Common Law consideration was present for Beychok.
Apparently disregarded was the fact that Beychok was an undisclosed
joint venturer with Creative Development in the bread depot
purchase for which Creative Development's $50,000 note was given to
the bakeries. If the note had remained in the ownership of the
bakeries and become an asset of the bankrupt estate, Creative
Development would have had to pay it to the trustee or the eventual
holder, and Beychok would have owed one-third of that payment to
Creative Development by way of contribution. So, not only did
Beychok receive a $50,000 interest in a then-viable and —— by
virtue of the elimination of its debt to the bakeries —— solvent
partnership, he was instantly relieved of a $16,667 contribution
obligation.

17
of the entire 1986 Agreement. We then examine each such

possibility to see if it withstands legal analysis and remains a

sensible reading of the agreement. If two or more of the

possibilities remain viable, there is ambiguity; but if only one is

left standing, there is no ambiguity.

Like the district court and the parties before us, we discern

but three possibilities: (a) membership as a partner in Creative

Development; (b) debt owed by Creative Development to Beychok, or

(c) an innominate financial interest (income, capital, or both) in

that partnership, which interest is neither debt nor membership in

the partnership. We proceed to analyze each possibility in order.

1. Beychok as a Partner in Creative Development

After the district court found the presence of ambiguity, it

had no difficulty eliminating membership as a partner in Creative

Development as one of the possibilities of the kind of interest

that Beychok acquired. And, on appeal, neither the appellants nor

the appellees seriously urge that the 1986 Agreement admitted

Beychok into Creative Development as a partner. Clearly it did

not. As Creative correctly explains, under Louisiana partnership

law (1) unanimous action by the parties is required to amend a

partnership agreement for the purpose of admitting a new partner

unless otherwise agreed,30 (2) neither the number nor the identity

of the partners of Creative had changed since it was formed in

30
LA. CIV. Code ANN. art. 2807 (West 1994).

18
1981, and (3) the 1986 Agreement was not signed by or on behalf of

all four partners qua partners.31 In short, as the unanimous

consent of the partners was not evidenced in the 1986 Agreement,

then as a matter of law Beychok could not have been admitted as a

partner.32 Moreover, the phrase “interest in that partnership”

clearly eschews the contention that the sale, transfer, and

assignment of such an interest somehow admitted Beychok as a

partner: Memberships in partnerships are not sold, transferred or

assigned; rather, persons are “admitted” into partnerships or

“made” partners. Obviously, then, the first of the three

31
As noted earlier, the 1986 Agreement was not signed at all by
Mrs. Rome or Mrs. Smith, and was signed by Jack Rome only on behalf
of the bakeries; only Terry Smith signed on behalf of Creative
Development.
32
Central States’s assertion that spouses cannot enter into
partnership agreements, thus eliminating the necessity for the
wives of Rome and Smith to have given their assent to the inclusion
of Beychok as a partner in Creative, had been disposed of by the
Louisiana legislature's 1980 revisions of the Civil Code articles
governing matrimonial regimes. See LA. CIV. CODE arts. 2325-2437
(West 1985) and former LA. CIV. CODE art. 1790 of the 1870 Code,
repealed by 1979 La. Acts. No. 711, § 1 (West 1972 Compiled Ed.).
As leading commentators have noted, these revisions made it
possible for spouses to contract with each other with virtually no
impediments and thus permit spouses to enter, inter alia,
partnership agreements. See Katherine S. Spaht & W. Lee Hargrave,
16 Louisiana Civil Law Treatise § 8:10, at 395 & 398 (West 1989).
In addition, Mrs. Rome did not sign and her husband did not sign as
a partner of Creative Development, but solely as an executive of
the bakeries, the interests of the Romes in Creative Development
were not represented at all in the 1986 Agreement.

19
possibilities —— membership in Creative Development —— must be

eliminated.33

2. Beychok as a Creditor of Creative Development

Differing with the district court, we hold as a matter of law

that, whether read “in a vacuum” or in context of the entire 1986

Agreement, the above quoted contractual provision neither

transferred to Beychok the old promissory note that Creative

Development had given to the bakeries in connection with

acquisition of the bread depots nor created a new debt owed by

Creative Development to Beychok. First, only the bakeries, as

payee and holder of the old promissory note, had the legal capacity

to transfer it, yet there is no record evidence, much less any

provision in the agreement, reflecting such a transfer by the

bakeries. Conversely, Creative Development was the maker of the

old note, not the payee or the holder, so it had no legal capacity

to transfer the note. In fact, the 1986 Agreement states that it

“expressly extinguished” the obligation, which under Louisiana law

33
The choice of the phrases, “sell, transfer and assign," and
"interest in that partnership" cannot be ascribed to inadvertence
or sloppiness in drafting the 1986 Agreement. We take judicial
notice of the fact that the attorneys who represented all parties
to the 1986 Agreement enjoy superlative reputations in the Baton
Rouge and State bars in the fields of commercial transactions in
general, and both bankruptcy and partnership law in particular.
Indeed, we speculate that the language was carefully chosen in an
effort to avoid any possibility of Beychok’s being deemed to be
either a partner in Creative Development or a creditor of that
partnership.

20
voids the note as well. Thus, neither the bakeries nor Creative

ever purported to transfer or assign the old Creative Development

note to Beychok.

Second, there is neither record evidence nor any language in

the 1986 Agreement to indicate that a new or replacement note was

made by Creative when that agreement was executed. There is simply

no evidence that a new note was issued and made payable either to

Beychok or to “Bearer,” then delivered to Beychok.

Absent express transfer or assignment of the old note or

creation and delivery of a new note, only the above quoted language

of the 1986 Agreement itself remains as a potential candidate for

evidencing the creation or acknowledgment of debt owed by Creative

Development to Beychok or the transfer or assignment to Beychok of

an old debt owed by Creative to the bakeries. Yet absolutely

nothing in that provision sounds in debt. Elsewhere in the 1986

Agreement the parties correctly employed such terms as

“indebtedness,” “loan,” “debt,” and “obligation,” and did so with

the professional facility we would expect of learned counsel who

drafted it, thereby confirming the understanding of these terms and

concepts by the parties and their scrivener. Unlike other portions

of the 1986 Agreement, the particular provision that we now review

for ambiguity employs none of these terms of indebtedness. In

fact, none of the traditional objective indicia of a loan or credit

21
relationship are anywhere to be found in the subject provision.34

Notably, there is (1) no reference to a promissory note

representing the purported loan or credit obligation, (2) no

maturity date for the purported loan, (3) no provision for

repayment of the purported loan, (4) no specification of a rate of

interest or a way to calculate it, (5) no reference to a due date

or “payment on demand," and (6) no provision concerning default.

Perhaps most significantly, the subject provision of the 1986

Agreement contains no stipulation that, in the event of termination

or liquidation of the purported debt, assets of that partnership

would be paid to Beychok as a creditor in preference to monies due

to its partners. The complete absence of these objective

indicators of a debtor-creditor relationship far outweighs the

subjective testimonial evidence proffered by Creative —— and relied

on by the trial court —— to support the contention that the

transaction's purpose was to convey an old creditor’s interest or

create a new one.35

34
See Texas Farm Bureau v. United States, 725 F.2d 307, 311 (5th
Cir. 1984), cert. denied, 469 U.S. 1106 (1985)(tax case setting
forth a number of factors, largely objective, that may be usefully
considered in resolving debt-versus-equity controversies);
Retirement Benefit Plan v. Standard Bindery, Co., 654 F. Supp. 770,
772-73 (E.D. Mich. 1986)(applying traditional debt/equity factors
to resolve debt/equity controversy in an MPPAA withdrawal liability
case).
35
Creative has urged that if our inquiry were to venture beyond
the four corners of the Agreement, we should follow the Eleventh
Circuit’s decision in Conners v. Ryan's Coal Co., Inc., 923 F.2d
1461 (11th Cir. 1991), which states that “[t]he true focus of the
inquiry [into whether a business relationship qualifies as a

22
 Furthermore, were we to have found ambiguity and considered

extrinsic evidence, we would be compelled to observe the presence

of four sworn documents, executed respectively by Jack Rome,

Beychok and Rome, the bakeries’ bankruptcy counsel, and Wolf

Baking's comptroller, each of which was prepared for admission in

various bankruptcy proceedings, and all of which uniformly state

that Beychok was either a partner in or an owner of Creative

Development. This is far too uniform and consistent to be

explained away by press of the lawyers’ business. As a minimum,

this independent sworn documentation would cast serious doubt on

the subjective, self-serving testimonial evidence relied on by

Creative and the district court to support the conclusion of debt,

and would further support our conclusion that the 1986 Agreement

was not intended to transfer a note to Beychok or to create a

partnership for purposes of assessing withdrawal liability] must be
on whether the alleged partners really and truly intended to join
together in the present conduct of the enterprise.” Id. at 1467
(emphasis added). The Eleventh Circuit went on to say, however,
that parties’ intention with respect to the formation of a
partnership “may be determined with reference to an express
agreement or from the circumstances surrounding the purported
partnership agreement.” Id. (emphasis added). Notwithstanding
that under ERISA, Central States need not prove that Beychok became
a member of Creative Development (see infra text accompanying notes
43 and 44), here the 1986 Agreement and the circumstances
surrounding its confection —— principally the absence of any
objective indicia of a debtor-creditor relationship —— indicate
that the parties “truly intended” for Beychok to acquire a capital
interest in Creative.

23
debtor-creditor relationship between Beychok and the partnership.36

It follows inescapably that, like membership in Creative

Development, debt too must be eliminated as the type of

consideration that Beychok received in the transaction memoralized

by the 1986 Agreement.

3. Beychok as the Owner of a “Capital Interest” in Creative
Development

Having determined that the “interest in that partnership”

sold, transferred, and assigned to Beychok was neither membership

for him in Creative Development nor debt owed to him by that

partnership, all remains to be done is to identify precisely what

interest Beychok did acquire from Creative Development in the 1986

transaction, and whether identifying the interest as such would

lead to “absurd consequences.”37

Creative takes the position that the process of elimination

supports the district court’s determination that the “interest”

36
When the 1986 Agreement was confected in June, there was no
short fuse or mad scramble to rationalize the absence of debt
terminology —— the excuse proffered for the references to Beychok
as a partner in bankruptcy documents. And, despite the district
court’s reliance on the shaky extrinsic evidence, even it depicts
the financial vice-president of Creative Development testifying
that Beychok had an interest in Creative Development, and neither
Rome nor Beychok unequivocally denying that Beychok had an interest
in the partnership —— only that he was not a partner, thus begging
the question. Even if the extrinsic evidence were admissible, the
conclusion of the district court made in reliance on it —— in the
face of all other testimony and documentation —— would be clearly
erroneous to the extent it characterized Beychok’s interest as that
of a creditor.
37
LA. CIV. CODE ANN. art. 2046 (West 1987).

24
Beychok received was that of a creditor. Creative does so first by

eliminating the possibility that the Agreement made Beychok a

partner (with which we and the district court —— and, presumably,

Central States —— all agree). But Creative then asserts that, as

a matter of state law, the “in that partnership” that Creative

Development transferred to Beychok could not have been a capital

interest. Creative insists that Louisiana law does not permit a

non-partner to acquire and own a capital or equity interest in a

partnership without first being or becoming a partner. In this

contention Creative badly misapprehends —— or consciously

mischaracterizes —— Louisiana partnership law.

In a number of circumstances, Louisiana law does in fact

permit persons who are not partners to acquire capital or equity

interests in the partnership. Perhaps the most commonly

encountered example occurs when a partner dies. Although the heirs

or legatees of the deceased partner do not themselves become

partners, they nevertheless do, in the absence of a contrary

provision in the partnership agreement, “inherit the interest of

the deceased partner, which entitles them to be paid as provided in

Civil Code Article 2823 et seq.”38 The same holds true in the

instances of (1) a creditor who seizes the interest of a partner,

38
LA. CIV. CODE ANN. art. 2818 rev. cmt. c (West 1994) (emphasis
added); see also LA. Civ. CODE ANN. art. 2823 (West 1994) (The
successor of a partner is “entitled to an amount equal to the value
that the share of the former partner had at the time membership
ceased.”).

25
(2) a partner who voluntarily withdraws or is expelled from the

partnership, and (3) a partner whose membership in the partnership

terminates pursuant to provisions of the partnership agreement.39

In each of these variations, there exists “an interest in the

partnership” that has value and must be accounted for, even though

the successor to such interest never was or has ceased to be a

partner.

The point is even more vividly demonstrated by the situation

contemplated in article 2812 which provides that “partner may share

his interest in the partnership with a third person without the

consent of his partners, but he cannot make [the third person] a

member of the partnership....”40 This code article, which follows

the approach of the French Civil Code, recognizes that, “[i]n the

absence of an express prohibition in the partnership agreement, a

partner may associate a third person in his interest in the

partnership [even though] the association would not make the third

person a partner.”41 And we are aware of nothing in Creative

Development’s partnership agreement that prohibits the total or

partial sale, transfer, or assignment of an interest to a non-

partner third person. Obviously, it would be sophistry for

Creative to argue that a partnership cannot “transfer, and assign”

39
See LA. CIV. CODE ANN. arts. 2818 and 2823.
40
LA. CIV. CODE ANN. arts. 2812 (West 1994) (emphasis added).
41
Id. rev. cmt.

26
that which can be alienated by a partner. Moreover, as such a

disposition does not require admission of a new partner or

amendment of the partnership agreement, nothing in the Louisiana

Civil Code or the partnership agreement mandates unanimous consent

of the partners.

In sum, these examples confirm that Louisiana partnership law

anticipates and expressly provides for the possibility that a third

person may acquire and possess (at least for a time) “an interest

in a partnership” —— capital or income or both —— without being a

partner. We are satisfied that our interpretation of the 1986

Agreement as unambiguously transferring to Beychok a capital

interest in Creative Development (and conceivably, though

unimportantly, an income interest as well) does not produce any

consequences that are impossible under Louisiana partnership law or

either nonsensical or absurd. Therefore this reading must be given

effect without exiting the four corners of the 1986 Agreement to

conduct further inquiry into the intentions of the parties.42 It

follows that the district court’s resort to extrinsic evidence of

intent was unwarranted and eventually led to reversible error in

both methodology and substance.43

42
See LA. CIV. CODE art. 2046; American Totalisator, 3 F.3d at
813.
43
Even if the determination of ambiguity had not been erroneous
and consideration of extrinsic evidence of intent had been
admissible, we would have found the court’s “debt” conclusion to be
clearly erroneous.

27
C. Withdrawal Liability

1. Membership as a Partner is Not a Prerequisite

As a final observation in the circuitous and arcane route to

the determination of withdrawal liability of all members of a

controlled group, we underscore the truism that, to recover for

withdrawal liability under MPPAA, an ERISA multiemployer pension

plan need not prove that one who, with others, owns a “controlling

interest” in, and exercises “effective control” over, a partnership

that is one organization in a purported controlled group of trades

or businesses, actually satisfies all of the state law requirements

to be a partner in such partnership.44 Rather, all that MPPAA and

its implementing regulations require is that such person own the

requisite percentage of a “profits interest” or a “capital interest”

in that partnership.45 As we have determined that the interest in

Creative Development that Beychok acquired by virtue of the 1986

Agreement was a “capital interest” within the meaning of 26 C.F.R.

§ 414(c)-2, there can be no serious disagreement with the

proposition that the interests of Beychok and Rome in both Creative

Development and the bakeries are such that they must be tested to

determine whether the requisite percentages —— over 50 percent for

“effective control” and 80 percent or more for the “controlling

interest” —— are present, irrespective of the fact that Beychok’s

44
See 26 C.F.R. §§ 1.414(c)-2(c)(b)(2)(I)(c) (“controlling
interest”) and 1.414(c)-2(c)(2)(iii) (“effective control”).
45
Id.

28
capital interest in Creative Development was not owned by him as a

partner. If those capital interests are found to be present in such

percentages, Creative Development and its partners cannot avoid

solidary liability for the deficiency in the bakeries, withdrawal

liability to Central States simply because Beychok was not a full-

fledged partner in Creative Development.

If there are some who feel that controlled group rules produce

unduly harsh results or set traps for the unwary, they should not

turn a blind eye to all the facts that Rome and Beychok, as well as

able counsel, knew or should have known when they confected the plan

to salvage what they could from the impending bankruptcy of the

bakeries. They had to have known, for example, that the bakeries

(1) employed union labor, (2) were parties to a CBA, (3) were

participating employers in a multiemployer pension plan pursuant to

the CBA, (4) were approaching imminent bankruptcy, and (5) would,

by virtue of bankruptcy, cease to participate in that multiemployer

plan, leaving a substantial deficit in funding and thus withdrawal

liability. As such, Rome, Beychok, and their counsel also knew or

should have known that opting to confect and enter into the 1986

Agreement, which purposefully employed carefully crafted language

that clearly eschews partner status for Beychok but just as clearly

eschews debtor-creditor relationship between Creative and Beychok,

was a high-risk endeavor. It amounted to flying perilously close

to the flame that always burns brightly when super-majority

interests in two separate entities are vested in five or less

29
individuals and one of those entities is a participating employer

in a multiemployer pension plan.

Neither should the history of intertwined business dealings

among Rome and Beychok and the organizations that they owned and

controlled be disregarded. The 1986 Agreement was no chance

encounter; these two businessmen had been in business with each

other on a number of prior occasions, in both the bakery business

and the real estate business. And on at least one occasion —— the

1982 bakery depot transaction —— both individuals as well as the

bakeries, Creative Development, and the Smiths were directly

involved. In hindsight, it may well prove to be regrettable for

Creative if the tangled web they helped weave by confecting and

entering into the 1986 Agreement, and possibly the bakery depot

joint venture as well, ultimately traps its weavers. Yet that

distinct possibility was —— or at least should have been —— a known

risk.46

46
Creative made an alternative argument which the district court
never reached. First, Creative notes that following the 1982 sale
and leaseback transaction involving the bakery depots, Central
States demanded and obtained from Wm. Wolf Bakery a collateral
mortgage position superior to Creative Development on its bakery
depots, the express purpose of which was to secure payment to
Central States of a portion of the bakery’s pension contribution
obligation. The documentation of this arrangement states that
Creative Development would have no personal liability and that the
security would provide Central States with only an in rem claim on
the depot properties. Creative argues that Central States should
be estopped from seeking to make Creative liable in personam in
this action. But Creative’s estoppel argument suffers from two
fatal defects: (1) The release agreement was drafted and executed
before withdrawal liability was triggered and assessed, and thus
cannot be construed as releasing a claim that at the time was at

30
 2. Render or Remand?

Time and again in its briefs and post-argument submittals,

Central States expresses or implies that if Beychok’s $50,000

interest in Creative Development is found to be a capital interest

and not a creditor’s interest, the conclusion is foregone that

Beychok and Rome together owned at least 80 percent of the capital

interest in both Creative Development and the bakeries at the time

in question, and that those two organizations would be under common

control per se. Central States finds this same conclusion implicit

in the district court’s opinion as well. Even though at this

juncture the presence of the “at least 80 percent” factor is

irrefutable as to the bakeries, its presence is less than certain

as to Creative Development.

More significant (and curious) is the observation that nowhere

does Central States advert to the fact that the 80 percent

best inchoate and contingent, see 66 AM. JUR. 2D RELEASE § 33, at 710-
11 (“A release which in terms covers only a present right will not
be construed to discharge a demand which was then uncertain and
contingent.”); and (2) the text of the relevant document expressly
released Creative Development from liability for “delinquent
pension and health and welfare contributions” (emphasis added), not
from withdrawal liability. The “contributions” referred to are
simply an employer’s ongoing, periodic payments to a pension plan
trust on behalf of participant employees; withdrawal liability, on
the other hand, is a well-defined term of art for an employer’s pro
rata, unfunded vested benefit obligation that is assessed under
MPPAA after the obligation to make contributions has ended.
Creative’s release argument confounds these two obligations, even
though the document at issue was only concerned with contributions,
not withdrawal liability. Creative’s estoppel claim that Central
States release Creative from withdrawal liability fails.

31
“controlling interest” factor is but one of two prongs of the

conjunctive test for “common control.”47 Although the 80 percent

test determines “controlling interest,” that is only one-half of the

“common control” calculus.48 The other half —— “effective control”

—— is determined under the second prong of the test for common

control in the brother-sister context.49 For partnerships,

“effective control” is defined as “an aggregate of more than 50

percent of the...capital interest of such partnership.”50

Importantly, this second, “effective control” prong takes into

account the “ownership of each such person [singular] only to the

extent such [person’s] ownership is identical with respect to each

such organization.”51 One need only consider the relevant example

set forth in the regulation52 to realize that the “effective

control” prong of the common control test is no simple arithmetic

47
26 C.R.F. § 1.414(c)-2(b)(2).
48
“The term ‘brother-sister group of trades or businesses
under common control’ means two or more organizations conducting
trades or businesses if (i) the same five or fewer persons who are
individuals . . . own . . . a controlling interest in each
organization [first prong], and (ii) taking into account the
ownership of each such person only to the extent such ownership is
identical with respect to each such organization, such persons are
in effective control [second prong] . . . . 26 C.F.R. 1.414(c)-
2(c)(1)(emphasis added).
49
Id.
50
26 C.F.R. § 1.414(c)-2(c)(2)(iii).
51
26 C.F.R. § 1.414(c)-2(c)(1)(ii)(emphasis added).
52
26 C.F.R. S 1.414(c)-2(e) Example (4).

32
exercise; after all, if it were, there would always be a “more than

50 percent” capital interest when the persons in question satisfy

the controlling interest “at least 80 percent” prong of the test.

But in the “effective control” second prong there is a tricky factor

lurking just beneath the surface of the facially murky phrase, “only

to the extent such ownership is identical with respect to each such

organization....”53

The turbidity of that phrase, especially the operative word

“identical,” clears up considerably, however, when the “effective

control” test is applied to actual examples. In this second prong

test, the ownership of each person must be examined separately,

focusing on one person’s ownership in each organization under

consideration to find his or her ownership only to the extent it is

identical in each organization. Practical application of this test

reveals, every time, that the identity of ownership for each person

is the smallest percentage that he or she owns in any of the

targeted organizations.

Purely for purposes of illustration, we will employ Central

States’s post-argument approach to ascertaining the percentages for

Rome and Beychok, i.e., determining the percentages of capital

ownership in Creative Development on the basis of the parties’

respective capital contributions. Thus we begin this hypothetical

example by assuming that, of the total capital contribution of

53
26 C.F.R. § 1.414(c)-2(c)(1)(ii) .

33
$55,000,54 Rome’s $2,500 represented 4.545 percent and Beychok’s

$50,000 represented 90.9 percent. As for the bakeries, it is

undisputed that Rome’s percentage of the stock in WBC was 23-55

percent and Beychok’s was 61.45 percent. In this example, then,

Rome’s “identical” ownership in the two businesses would be 4.54

percent, i.e., his percentage of ownership interest in the capital

of Central States; the difference between that percentage and his

larger percentage of ownership in the bakeries drops out as non-

identical. In like manner, Beychok’s “identical" ownership in the

two businesses would be 61.45 percent, i.e., his percentage of

ownership interest in WBC; the difference between that percentage

and his larger hypothetical percentage of ownership in Creative

Development drops out as non-identical.

In this illustration, the “identical” ownerships of Rome and

Beychok —— 4.54 percent for Rome and 61.45 for Beychok, for a total

of 65.99 percent —— obviously satisfy the second prong, “effective

control” test which only requires an aggregate of more than 50

percent. Indeed, Beychok alone satisfies that test, as he is “five

or fewer persons” and his “identical” ownership in each organization

is more than 50 percent.

Additionally, in this hypothetical example, the first prong,

“controlling interest” test for common control would be satisfied

because the first prong examines seriatim the capital owners’

54
$2,500 from the Roses, $2,500 from the Smiths, and $50,000
from Beychok.

34
combined percentage in each separate trade or business. Based on

his hypothetical 90.9 percent capital interest in Creative

Development, Beychok alone would satisfy the “at least 80 percent

of the...capital interest” test for the partnership. And together,

Beychok’s 61.45 percent and Rome’s 23.55 percent of the stock of

WBC, totaling 85 percent, would satisfy the “at least 80 percent”

test of both the voting power and the total value of all shares of

all classes in the bakeries.

As the district court concluded that the 1986 Agreement (which

it found ambiguous) neither admitted Beychok into Creative

Development as a partner nor conveyed “an interest in” Creative

Development to him, but instead made him a creditor to the extent

of $50,000, the court never reached or addressed the crucial MPPAA

question whether separately or jointly Rome and Beychok had

“controlling interest” in and “effective control” of both Creative

Development and the bakeries. Moreover, the status of the record

on appeal is such that —— without engaging in substantial appellate

fact finding regarding matters that at this juncture are not

uncontested, stipulated, or otherwise clear beyond cavil —— we

cannot determine whether Rome and Beychok had controlling interest

and effective control.55 And, as we decline to engage in such

55
Following oral argument to this panel, Creative and Central
States were asked to file joint stipulations that could have
provided factual information sufficient for the panel to determine
the elements of controlling interest and effective control.
Regrettably, the parties failed in this cooperative effort, thereby
depriving us of the opportunity to render a judgment and end this

35
inappropriate fact finding, we are not able to render a judgment in

this case, one way or the other. Instead, we are constrained to

remand it to the district court for the limited purpose of adducing

the evidence that it needs to make such indispensable factual

determinations and calculations.

Inasmuch as the governing regulation on this point expresses

“controlling interest” and “effective control” in percentages,56 the

fundamental factual determination that the district court must make

on remand is the percentage of the capital interest in Creative

Development that Beychok owned at the time the bakeries “withdrew”

from Central States. This will require the court to adduce

sufficient evidence to enable it to convert Beychok’s $50,000

capital interest into a percentage. More specifically, the court

must first convert that dollar amount to a percentage as of June 1,

1986, and then find whether, between that date and the effective

date of the bakeries’ withdrawal from Central States, Beychok’s

percentage changed or remained the same. The district court must

also ascertain the percentage of Rome’s capital ownership in

Creative Development as of the relevant time or times, presumably

one-half of the figure derived by subtracting Beychok’s percentage

from 100 percent. Then, with those percentages firmly established,

the court must proceed to determine whether Beychok and Rome (or

litigation.
56
26 C.F.R. § 1.414(c)-2(b)(2)(C) and (c)(2)(iii).

36
Beychok alone) owned at least 80 percent of the capital interest in

the partnership for purposes of “controlling interest.” Thereafter,

taking into account Beychok’s and Rome’s respective ownerships “only

to the extent such ownership is identical” in both the partnership

and the bakeries, the court must ascertain whether those two

individuals (or one of them alone) owned more than 50 percent of the

capital interest —— and thus “effective control” —— in both

Creative Development and the bakeries.57

Should the district court ultimately conclude that both prongs

of the common control test are satisfied, it must then render a

judgment assessing Creative’s responsibility (and that of its

partners) for the delinquency in the withdrawal liability owed by

the bakeries to Central States. If, however, the court concludes

that either prong of that test is not satisfied, it must render a

judgment dismissing Central States’s action against Creative and its

partners.

In the interest of judicial economy and to avoid the need for

another panel of this court to “reinvent the wheel” if either or

57
26 C.F.R. § 1.414(c)-2(c)(1)(ii) and (c)(2)(iii). The court
must also test the bakery depot joint venture’s ownership against
the bakeries as of the latter’s withdrawal for the presence of
“controlling interest” and thus controlled group status, once the
percentage of Beychok’s capital interest in Creative Development is
determined. Even though it appears counterintuitive that Beychok
and Rome could fail to have controlling interest in Creative
Development and the bakeries, while having a controlling interest
in the joint venture and the bakeries, it is also counterintuitive
that such a situation is beyond the realm of mathematical
possibility, thus the need for testing.

37
both sides are so disappointed with the district court’s findings

and rulings on remand that they appeal, this panel retains appellate

jurisdiction pending this limited remand to the district court.

Consequently, regardless of whether or not the district court finds

on remand that the required joint or aggregate percentages of

“controlling interest” and “effective control” are sufficient to

constitute “common control” and thus impose controlled group

liability on Creative under MPPAA, any appellate review will be

conducted by this panel.

IV.

CONCLUSION

The district court reversibly erred in holding that the 1986

Agreement was ambiguous, and it compounded the error by considering

extrinsic evidence of the parties’ intent and basing its judgment

on that evidence. We conclude de novo that the 1986 Agreement was

not ambiguous and that it conveyed a capital interest in Creative

Development to Sheldon Beychok. Consequently, if in combination the

interests of Beychok and Rome in both Creative Development and the

bakeries are ultimately found to be sufficient to constitute

Creative Development a member of the same controlled group of trades

and businesses as Wolf Baking, then Creative Development and its

partners, the Romes and the Smiths, will be liable in solido to

Central States for the outstanding balance of Wolf Baking’s

withdrawal liability.

38
 Only one facet of one prong of the two-prong common control

test is discernible from the record on appeal: In both combined

voting power and total value, Rome’s and Beychok’s shares of stock

in WBC were sufficient to vest those two shareholders with a

“controlling interest.” Without engaging in inappropriate appellate

fact finding, however, we cannot convert Beychok’s dollar interest

in Creative Development to a percentage interest. And without that

indispensable piece of the puzzle before us, we are unable to

determine whether Beychok’s and Rome’s combined capital ownership

in Creative Development equaled at least 80 percent and thus

constituted a controlling interest in that partnership. For the

same reason, we are unable to determine the extent of either

Beychok’s or Rome’s ownership interests in those two business

organizations to the extent that they are “identical with respect

to each,” so we cannot say whether those two individuals had

“effective control” of the bakeries and the partnership. It follows

that neither we nor the district court can tell whether the two

business organizations were under “common control” for purposes of

MPPAA, a determination that is critical to either court’s ability

to decide whether Creative Development and its partners have

solidary withdrawal liability to Central States.

Accordingly, we reverse the district court's judgment that

dismissed Central States’s withdrawal liability claims, and we

remand the case to that court for the limited purpose of (1)

determining the several ownership percentages required to test for

39
the presence of common control; (2) applying the percentages thus

determined to both prongs of the common control test; and (3) if

common control is found to have been present, assessing the quantum

of Creative’s withdrawal liability to Central States and rendering

a judgment accordingly. In the interest of judicial economy, this

panel retains appellate jurisdiction for the purpose of reviewing

the determinations and judgment of the district court on remand,

should the parties or any of then elect to appeal.

REVERSED and REMANDED with instructions; appellate jurisdiction

retained by this panel.

40
DENNIS, Circuit Judge, dissenting:

I respectfully dissent because (1) the Central States

plaintiffs failed to establish the necessary factual basis under

Louisiana partnership law to prove that Terry Smith was authorized

to amend the Creative partnership contract so as to change the

proportionate share of each partner’s capital interest and to

transfer an interest in the capital of Creative to a third person;

(2) under Louisiana law a partnership agreement is a simple

contract, and the unanimous consent of the partners is required to

amend the partnership contract; (3) the majority concedes that

plaintiffs failed to prove that Terry Smith was authorized by

unanimous consent of the Creative partners to act for them in his

transaction with Beychok; (4) because an amendment of the

partnership contract is required to change or affect any partner’s

capital or profit interest, Terry Smith was not authorized to grant

or transfer to Beychok an interest in the capital of the Creative

partnership; (5) under Louisiana law a partner may agree between

himself and a third person to share that partner’s interest in the

partnership, but such an agreement cannot give the third person any

interest in the partnership or affect the other partners’ interests;

and a partner’s heirs, assigns, or seizing creditors are entitled

to an amount equal to the value that the share of the former partner

had at the time membership ceased; but, a third person cannot

acquire, succeed to, or seize a partner’s membership or interest in

the capital of the partnership without amendment of the partnership

41
contract, which requires unanimous consent of the other partners;

therefore, lacking unanimous consent of the partners to amend the

partnership contract, Beychok could not acquire an interest in the

capital of the partnership; (6) contrary to the majority’s

assumption, the federal laws and regulations do not consider that

anyone other than a partner has an interest in the profits or

capital of a partnership.

I. Determinative Issue on Appeal

In order to hold the individual Creative partners liable for

the $1.35 million withdrawal liability of Wolf Baking, Central

States must prove (1) that Creative was under “common control” with

Wolf Baking and (2) that both Creative and Wolf Baking were “trades

or businesses.” See 29 U.S.C. § 1301(b)(1). See, e.g., Central

States v. Personnel, Inc., 974 F.2d 789, 792 (7th Cir. 1992);

Central States v. White, 2000 WL 690346, *4 (N.D. Ill.); Central

States v. Stroh Brewery Co., 220 B.R. 959 (Bankr. N.D. Ill. 1997).

The district court found that the two entities involved, Creative

and Wolf Baking, were never under common control, and therefore that

the Creative partners were not liable for Wolf Baking’s debt under

the MPPAA. Because the district court apparently did not reach the

issue of “trades or businesses,” we are called upon to decide only

whether Creative and Wolf Baking were under common control under the

MPPAA, applicable Treasury regulations, and Louisiana partnership

law.

42
 II. The MPPAA and the Treasury Regulations
under section 414(c) of Title 26

The MPPA provides that “under regulations prescribed by the

[Pension Benefit Guaranty Corporation], all employees of trades or

businesses (whether or not incorporated) which are under common

control shall be treated as a single employer. The regulations

prescribed under the preceding sentence shall be consistent and

coextensive with regulations prescribed for similar purposes by the

Secretary of the Treasury under section 414(c) of Title 26.” 29

U.S.C. § 1301(b)(1). In the absence of independent regulations

promulgated by the corporation, we refer to the pertinent Secretary

of the Treasury’s regulations, 26 CFR § 1.414(c).

The criteria for determining whether there is common control

of a “brother-sister group of trades or businesses” is provided by

26 CFR § 1.414(c)-2(c). The definition of such a group requires,

inter alia, that the same persons own a controlling interest in each

of the trades or businesses in question. With respect to

partnerships, § 1.414(c)-4(a) states: “In determining the ownership

of an interest in an organization for purposes of § 1.414(c)(2) .

. . the term ‘interest’ means: in the case of . . . a partnership,

an interest in the profits or capital.” 26 C.F.R. § 1.414(c)-4(a).

43
 The majority apparently assumes that the regulation implicitly

recognizes that an “interest in the profits or capital” of a

partnership may be transferred by a single partner to a third party

who is not a partner. The majority does not cite any authority for

that proposition, and I have found no indication of such a

phenomenon. In the common usage of the Internal Revenue Code, the

Secretary of the Treasury’s regulations, tax law scholars, and tax

law practitioners, “capital interest” refers, in the partnership

context, to a partner’s capital interest. In fact, the Internal

Revenue Code and regulations evidently presume that only the

partners own interests in the capital of the partnership.58 See 26

U.S.C. §§ 706(b)(1), 706(b)(3), 707(b)(1)(A), 707(b)(2)(A),

708(b)(2)(A), 708(b)(2)(B), 743(b); 26 C.F.R. §§ 1.721-1(b)(1),

1.704-1(e). Regulation § 1.704-1(e), which “defines a capital

interest as any interest in the assets of the partnership to which

the partner is entitled upon withdrawal from the partnership or upon

58
The same is true with respect to a “profits interest” in a
partnership. See cited material in the text accompanying note 4;
ARTHUR B. WILLIS, ET. AL, PARTNERSHIP TAXATION ¶ 1.07[4] at 1-114 (6th Ed.
1999) (“Neither the Code nor the Regulations contains a definition
of a profits interest in a partnership. However, Regulation §§
1.721-1(b)(1) and 1.704-1(e)(1)(v) discuss partnership capital
interests in such a way as to indicate that a profits interest is
one which does not entitle the partner to share in partnership
assets upon the partner’s withdrawal from the partnership or upon
the partner’s liquidation.”) (emphasis added). However, the
majority opinion focuses on whether Beychok acquired a “capital
interest” (presumably because it is indisputable that he had no
right to share in the profits of Creative), so that is the focus of
my dissent as well.

44
the liquidation of the partnership and distinguishes that interest

from a mere right to participate in the earnings and profits of the

partnership[, provides an] . . . appropriate definition for most,

if not all, purposes of the Code.” ARTHUR B. WILLIS, ET. AL, PARTNERSHIP

TAXATION ¶ 1.07[3], at 1-112 (6th Ed. 1999)(hereinafter

“Willis”)(emphasis added).59 Consequently, I believe the majority

is mistaken in its apparent assumption that the Federal tax laws and

Treasury regulations suggest the existence of substantive

partnership laws permitting a single partner to favor third persons

with free-floating interests in the profits and capital of the

partnership without the consent of the other partners.

III. Louisiana Law of Partnerships

Proceeding under the false conception that someone other than

a partner can hold a capital interest in a partnership under the

applicable Federal Tax laws and Treasury regulations, the majority

opinion mistakenly concludes that such an arrangement is possible

under Louisiana partnership law. The majority concludes that (1)

under Louisiana law any partner of a partnership, without either

authorization by the partnership agreement or the unanimous consent

of the partners, has the legal power to create and transfer to a

59
In explaining the significance of the terms “capital interest”
vs. “profits interest” in a partnership for tax purposes, Willis
states that “[i]n several areas of partnership tax law, important
consequences turn on the measurement of the partners’ interests in
capital, profits, or both.” Id. at 1-110 (emphasis added).

45
third person a capital or an income interest in the partnership; and

that (2) Central States proved by a preponderance of the evidence

that the undefined “interest” in Creative which Terry Smith

transferred to Beychok was intended by them to be an interest in the

capital of the partnership. In my opinion, the majority’s

interpretation of the Louisiana partnership law provisions is

contrary to the plain meaning of the law, and its finding that Terry

Smith intended and was authorized to transfer a capital interest in

Creative to Beychok in the June 1, 1986 agreement is not supported

by the contract or the record as a whole.60

60
I also disagree with the majority opinion’s statement of the
law with respect to releases of future liability. The majority,
supra n.46, summarily dispenses with Creative’s estoppel argument
by concluding, in part, that the release agreement could not be
construed as releasing the withdrawal liability claim as the
agreement was executed before withdrawal liability was triggered
and assessed.
Louisiana law clearly allows releases of future actions before
they arise if the parties clearly so intend. La. Civ. Code art.
3073; Brown v. Drillers, Inc., 630 So.2d 741, 744, 753 (La.
1994); Ritchey v. Azar, 383 So.2d 360, 363 (La. 1980); Bogalusa
Community Med. Ctr. v. Batiste, 603 So.2d 183, 188 (La. App. 1 Cir.
1992). See also America’s Favorite Chicken Co. v. Suryoutomo,
889 F.Supp. 916, 918 (E.D. La. 1995)(assignment agreement released
all past, present, or future claims arising under franchise
agreement). Relinquishing future rights of action is not against
public policy unless such rights arise from physical injury or from
the gross fault or intentional wrong of another party. Daigle v.
Clemco Industries, 613 So.2d 619, 623 (La. 1993). Such releases,
however, will be narrowly construed to assure the parties
understand the agreement and its consequences. Brown, 630 So.2d at
753.
Furthermore, as I read all of the passages of the authority
cited by the majority opinion, the common law is consistent with
Louisiana law in this respect. American Jurisprudence Second
provides, in pertinent part,

46
 A. Terry Smith Was Not Authorized to Enter
the Transaction on Behalf of Creative

For proof that Beychok owned a capital interest in Creative,

Central States relies upon the June 1, 1986 written contract whereby

Terry Smith professed to transfer to Sheldon Beychok an undefined

“interest” in the Creative partnership. Smith was the only

signatory or party who claimed that he acted in behalf of Creative.

Jack S. Rome, Jr., a partner in Creative, professed to act and sign

the contract only on behalf of Wolf Baking. Beychok signed only for

himself individually. Central States failed to introduce any

evidence to prove that the other partners of Creative, Jack S. Rome,

Jr., Suzanne McCraine Rome, and Sandra Theriot Smith, authorized or

ratified Smith’s transfer of the undefined “interest,” much less an

interest in the capital of Creative, to Beychok. Even if it could

be assumed without supporting evidence that Rome, as a partner in

The scope of a release is determined by the intention of
the parties as expressed in the terms of the particular
instrument, considered in the light of all the facts and
circumstances.

66 AM. JUR. 2D Release §30, p. 706.

[R]eleases of rights which have not yet matured under
contracts have been held valid and are self-operative,
and discharge the future rights or claims when they
arise. A release which covers only a present right will
not be construed to discharge a demand which was then
uncertain and contingent.

66 AM. JUR. 2D Release § 33, p. 710. (emphasis added). The ultimate
effect of the release, therefore, depends on the parties’ intent.
Accord C.J.S. Release § 66, p. 617.

47
Creative, by signing the contract only for Wolf Baking, consented

for himself to Smith’s transfer of an undefined “interest” to

Beychok, there is still no evidence of consent by the other partners

and none that Rome intended for Smith to transfer an interest in the

capital of Creative to Beychok.

B. Such Unauthorized Transfer Is Not
Allowed Under Louisiana Law

Under Louisiana law, a partnership is a juridical person,

distinct from its partners. La. Civ. Code art. 2801. The

legislative decision to establish a partnership as a separate and

distinct entity, different from its partners, expressly reflected

in Article 2801, permeates all of the Louisiana Civil Code’s

partnership provisions. Max Nathan, Jr., Reporter, Partnership Law

Revision Committee, Introduction: 1980 Partnership Revision, 12

West’s LSA Louisiana Civil Code pp. 3, 5 (1994). When partners

create a partnership, they utilize contract law to create a new,

separate and distinct legal entity. Id.

Unless the partners have agreed otherwise in the partnership

agreement or subsequently, each partner participates equally in the

profits, commercial benefits, and losses of the partnership. La.

Civ. Code art. 2803. Unanimous agreement of the partners is

required to amend the partnership agreement, to admit new partners,

or to terminate the partnership. La. Civ. Code art. 2807. Major

decisions of this type obviously are of sufficient importance to

48
require the unanimous agreement of the partners. Id., comment(b).

In the absence of an express prohibition in the partnership

agreement, a partner may share or associate a third person in his

own interest in the partnership without the consent of his partners,

but this association in the single partner’s interest does not make

the third person a member of the partnership. La. Civ. Code art.

2812 and comment.

A partner is a mandatary or agent of the partnership for all

matters in the ordinary course of its business, except for the

alienation, lease, or encumbrance of the partnership’s immovables.

La. Civ. Code art. 2814. The scope of authority of the mandate

created by this article is limited to acts within the ordinary

course of the business of the partnership. Id., comment (a).

The Civil Code provides for the cessation of a partner’s

membership in the partnership due to certain causes and for the

effects of that cessation of membership. A partner ceases to be a

member of a partnership upon any of the following: his death or

interdiction; his being granted an order for relief under Chapter

7 of the Bankruptcy Code; his interest in the partnership being

seized under a writ of execution and not released within thirty

days; his expulsion from the partnership; or his withdrawal from the

partnership. La. Civ. Code art. 2818. The occurrence of any of

the enumerated events terminates the membership of the partner, not

the partnership itself. Id., comment(a). Upon such a cessation of

49
membership, the former partner, his successors, or the seizing

creditor is entitled to an amount equal to the value that the former

partner’s share had at the time membership ceased, and the

partnership must pay in money that amount as soon as it is

determined. La. Civ. Code arts. 2823, 2824. This amount bears

interest from the time the party ceases to be a partner. La. Civ.

Code 2824 and comment (b). The former partner, his successor, or

his seizing creditor is not entitled to an interest in the assets

of the partnership, but is only entitled to be paid an amount equal

to the value of his interest as of the time his membership ceased.

La. Civ. Code art. 2823, comment (a); La. Civ. Code art. 2824.61

The term “successors” includes heirs, assigns, or anyone standing

in the shoes of the former partner. La. Civ. Code art. 2823,

comment (b).

Applying the legal principles of partnerships to the present

case, it is clear that Terry Smith’s act in entering the 1986

agreement did not have the legal effect of granting Beychok a right

to a share in the capital, profits, benefits or assets of the

Creative partnership. Obviously, Terry Smith’s actions exceeded a

61
The rule that the partnership need only make a payment in
money protects the partnership in that it does not have to
partition its assets in order to make a payment. La. Civ. Code
art. 2824, comment (a). The value of the interest may be set by
the partnership agreement or by separate agreement, or it may be
judicially determined pursuant to the provisions of Article 2825.
La. Civ. Code art. 2823, comment (a).

50
partner’s scope of authority to act as an agent for the partnership,

which is limited to acts within the ordinary course of business of

the partnership. La. Civ. Code art. 2814, comment (a). No one

contends that Smith’s action was within the ordinary course of

business. Creative’s partnership agreement expressly provided for

equal participation by the partners and did not authorize any

partner to grant a third person a share in the capital, profits,

income, benefits, or assets of the partnership or to effect a change

in the equal one-fourth share of each of the four partners in the

capital, profits, benefits, and assets of the partnership. In fact,

Creative’s articles of partnership expressly provide the following:

“The net profits of the partnership shall be divided equally among

the partners and the net losses shall be borne equally among the

partners,” Articles of Partnership of Creative Development Company,

Article IV; “[t]he relationship between [the partners] can be varied

only by agreements in writing signed by [the partners] concurrently

herewith or subsequent hereto,” Id., Article XVII; and “[t]his

agreement is subject to amendment only with the consent of all

partners, and such amendment shall be effective as of such date as

may be determined by them.” Id., Article XVIII.

Even in the absence of these stipulations in the partnership

agreement, Louisiana Civil Code articles 2803 and 2807 would mandate

equal participation by the partners and prohibit amendment of the

partnership agreement unless there had been unanimous consent

51
thereto by the partners.62 La. Civ. Code art. 2803, comment (a);

La. Civ. Code art. 2807.

The parties introduced no evidence that the partners

unanimously agreed, either by amendment of the articles or by

separate agreement, to grant Beychok an interest in the capital,

assets, or profits of the partnership, to change the relationships

of the partners, or to modify the right of each of the four partners

to share equally in the capital, profits, benefits, and assets of

the partnership. In rejecting Central State’s contention that

Beychok had been admitted as a partner in Creative Development, the

majority opinion correctly concludes that “[i]n short, as the

unanimous consent of the partners was not evidenced in the 1986

Agreement, then as a matter of law Beychok could not have been

admitted as a partner.” Maj. Op. at 18. For the same reason, as

there was no unanimous consent of the partners to amend the

partnership contract to grant an interest in the capital of the

partnership to Beychok, or to change the relationships of the

partners, Beychok, as a matter of law, could not have been granted

an interest in the capital, income, benefits, or assets of the

Creative partnership by Terry Smith. Partnership agreements are

62
See GLENN G. MORRIS AND WENDELL H. HOLMES, 7 LOUISIANA CIVIL LAW
TREATISE—BUSINESS ORGANIZATIONS § 2.08 at 69 (“Partnership law . . .
has . . . guarded carefully the right of each partner to approve of
the identity of all those with whom he is to associate as a
coowner.”).

52
contracts which cannot be changed without the consent of the

partners.63

The majority opinion’s conclusion that each partner of a

partnership, without the consent of the other partners, can legally

transfer to a third person an interest in the capital of the

partnership is based on faulty reasoning, i.e., that if a partner

can unilaterally act so as to affect his own individual interest he

can also act alone to affect the other partners’ interests in the

capital of the partnership.64 As noted supra, however, such

autonomous action by Terry Smith was expressly prohibited by the

63
See GLENN G. MORRIS AND WENDELL H. HOLMES, 7 LOUISIANA CIVIL LAW
TREATISE—BUSINESS ORGANIZATIONS § 2.16 at 95-96 (1999)(“The unanimity
requirement is imposed by the Code or by ancillaries with respect
to five decisions apparently considered to be fundamental:
amending the contract of partnership, admitting new partners,
terminating partnership, . . . allowing a partner to withdraw from
the partnership if the partnership has been constituted for a term,
and merging the partnership with another partnership or business
organization. In a sense, every one of the listed decisions may be
considered simply variations on the same theme: to amend the
contract of partnership . . . requires the unanimous consent of the
parties to the contract, i.e., the partners. . . . [P]artnership
agreements are considered simple contracts, not subject to change
without the approval of the affected parties.”)(footnotes and
citations omitted).
64
The fallacy of the majority’s position is that Louisiana law
clearly does not allow a single partner to transfer to a non-
partner an interest in the capital of a partnership that all of the
partners own in common. Each of the provisions of Louisiana
partnership law relied upon by the majority involve the specific
effects upon a single partner’s interest in the partnership caused
by the death or act of that partner with regard to his own
creditors or assignees. The other partners’ interests in the
partnership are not affected by those acts or events.

53
Creative partnership agreement. Furthermore, even without the

express prohibitions in the Creative articles of partnership, the

law prohibits such solo action by a partner affecting the interests

of the other partners. La. Civ. Code art. 2807. Otherwise, any

partner acting alone and contrary to the wishes of the other

partners could dilute each partner’s right to receive his or her

original share of the capital, profits, benefits, and assets of the

partnership, and thus single-handedly change the relationships

between the partners and amend the partnership agreement.

The majority opinion mistakenly relies on Louisiana Civil Code

articles 2818 and 2823, governing the causes and effects of

cessation of partnership membership, in its attempt to show that one

partner without consent of the others may amend the partnership

agreement to grant an interest in the capital of the partnership to

a third person. When a partner ceases to be a member for one of the

reasons stated in Article 2818, and the partnership continues to

exist, the former partner, his successor, or the seizing creditor

does not acquire an interest in the capital of the partnership as

the majority opinion assumes. Instead, the partnership is obliged

to pay such person an amount equal to the value that the share of

the former partner had at the time the membership ceased. La. Civ.

Code art. 2823 and comment (a); La. Civ. Code art. 2818 and

comments. That amount draws interest from the time that the former

partner’s membership ceased. La. Civ. Code art. 2824. Thus, a

54
debtor-creditor relationship between the partnership and the former

partner, his successor, or the seizing creditor is established and

fixed as of the time of the cessation of membership. The Code

clearly does not provide that a former partner’s interest in the

capital may continue after the cessation of his membership in the

partnership so as to appreciate or depreciate with the value of the

partnership. The cessation of partnership membership has only the

specific effects provided for by the Code. Thus, the partnership’s

obligation to a former partner, successor, or seizing creditor is

expressly provided by law and only in certain specific instances.

Articles 2823 et seq. do not expressly or implicitly authorize a

partner to amend the partnership agreement to grant capital, equity,

or profits interests in the partnership to third persons.

Furthermore, although the majority opinion accurately quotes

from Article 2812 and its comment regarding a partner sharing his

or her interest with a third person, the majority draws the

incorrect inference that a partner can make a third person a direct

owner of an interest in the capital of the partnership by sharing

his interest. That inference is at odds with Article 2812, which

adopts the approach of the French Civil Code. See id., comment.

Planiol explains French Civil Code art. 1861 as follows:

[T]he law permits each partner to join with him
someone to share with him the risks and benefits of his
share. There is then formed a little partnership of a
subordinate character between such partner and the third
person with whom he contracts, without the other partners

55
 being entitled to benefit from, or being liable on such
contract as to which they are strangers (Art. 1861). The
third person thus associated in a subordinate way with
the operations of the partnership is called a “croupier.”
[fn.16]
[fn.16:] The use of this word in card or dice
games is very old. It is an allusion to the
habit which people who formerly travelled by
horse had, when carriages were rare and the
roads bad, of picking up riders on the crupper
to render them a service.

2 PLANIOL, CIVIL LAW TREATISE NO. 1975 (La. State Law Institute transl.

1959). When a partner elects to share his interest in the

partnership with a third person, he cannot thereby establish any

relationship between the third person and the partnership or the

other partners. The latter remain “strangers” to and insulated from

liability due to the fact that the little subordinate partnership

is formed strictly between the partner and the third person. In

short, the third person is taken on as a “croupier” only by the

partner with whom he contracts and he rides only on that partner’s

“crupper.” Consequently, Article 2812 does not authorize a partner

to create partnership obligations to a third person by sharing his

partnership interest with a third party. See MORRIS AND HOLMES § 2.08

at 68-74. Thus, the majority opinion errs in relying on Article

2812 to support its theory that Terry Smith created and transferred

a capital interest in Creative Development because Article 2812

56
contemplates merely the sharing of a partner’s existing share in the

partnership.65

Thus, it is clear that under Louisiana law a single partner

cannot amend the partnership contract or grant an interest in the

capital of the partnership to an outsider without the authorization

of the other partners, and that Central States failed to adduce

evidence or proof that Terry Smith was vested with authority to

transfer any interest in Creative to anyone. Moreover, Central

States failed to prove that the undefined “interest” which Terry

Smith professed to transfer to Beychok was intended even between

them to be a capital interest in the Creative partnership.

The law is well settled in Louisiana, this circuit, and

generally that a plaintiff who claims that a defendant is legally

subjected to a contractual obligation has the burden of proving

every fact essential to establish the obligation and that the

defendant was a party to and bound by the obligation. E.g., National

By-Products, Inc. v. United States, 405 F.2d 1256, 1264 (Ct.Cl.

1969); Bell v. Ralston Purina Co., 257 F.2d 31, 32 (10th Cir.

1958); Carp v. California-Western States Life Ins. Co., 252 F.2d

337, 339 (5th Cir. 1958); La. Civ. Code arts. 1831 (1987) and 2232

65
See also Black’s Law Dictionary p. 1121 (6th ed.
1990)(“Subpartnership. One formed where one partner in a firm makes
a stranger a partner with him in his share of the profits of that
firm. It is not a partnership but an arrangement in which the
subpartner shares in the profits and losses of a partner.”)

57
(1870); Kilpatrick v. Kilpatrick, 660 So.2d 182, 185 (La. App. 2

Cir.), writ denied, 664 So.2d 444 (La. 1995); Pennington Const. Inc.

v. R A Eagle Corp., 652 So.2d 637 (La. App. 1 Cir. 1995); Bordlee

v. Pat’s Const. Co. 316 So.2d 16, 17 (La. App. 4 Cir. 1975); Hunter

Co. v. Bossier Levee Dist. of La., 115 So.2d 226, 227 (La. App. 2d

Cir. 1959).

Consequently, even if Central States had proved that Terry

Smith was authorized by all of the partners of Creative to transfer

an undefined “interest” to Beychok, the record is devoid of any

evidence that the transfer of a capital interest was authorized or

intended. Because there is no evidence in the record that the

partners of Creative vested any authority in Smith to transfer any

interest in Creative to Beychok, Smith unquestionably did not have

authority to transfer a capital or profits interest to him. There

is no evidence in the record that the undefined interest which Smith

intended to transfer and which Beychok intended to receive was a

capital or profits interest in Creative. The written contract

itself does not define the interest intended to be transferred.

According to the testimony of Rome and Beychok, the intent of the

parties was not to transfer a capital or profits interest in

Creative to Beychok, and the trial court which saw and heard the

witnesses found that the parties indeed did not have such an

58
intention.66 Central States has fallen far short of carrying its

burden to prove that a transfer of an interest in the capital of

Creative was authorized, intended or effected.

III. Issues Which Must Be Decided On Remand

I would affirm the district court’s judgment dismissing Central

States’ claims for the reasons I have stated, and I also

respectfully disagree with the majority’s limitation of the issues

that the district court may consider and decide on remand. Given

the majority decision, it must remand the case. But it should send

the case back for further proceedings and decision on all of the

issues which the district court did not reach in its first judgment.

For example, Central States must prove that Creative was a “trade

or business” in order to hold it liable under a “brother-sister” or

“common control” theory. See 29 U.S.C. § 1301(b)(1). Cf.

Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23 (1987);

Central States v. Personnel, Inc., 974 F.2d 789 (7th Cir. 1992);

Susan C. Glen, Central States v. Personnel, Inc.: When Real Estate

Investments Create Personal Liability Under the Multiemployer

Pension Plan Amendments Act of 1980, 78 Minn.L.Rev. 501 (1964).

Therefore, the district court should be directed on remand to hear

66
The trial court found that the “June 1986 agreement was
entered into in order to substitute Bechok [sic] as the creditor of
the partnership in lieu of the bakery.”

59
and decide that issue, as well as any other essential element of the

case not reached previously, unless of course the parties have

already stipulated or admitted such issues.

IV. Conclusion

The majority opinion is at odds with both federal law and

Louisiana law, as well as the concept and purposes of partnership

as a juridical entity. The majority decides, in effect, that any

partner in a partnership has the autonomous legal power to transfer

an interest in the capital of a partnership to third persons, which

in effect allows any party to the partnership contract to

unilaterally amend the contract to affect the interests, rights, and

obligations of the other non-consenting partners, change the

partners’ relationships, and dilute each partner’s interest in the

capital, profits, benefits, and distribution of assets of the

partnership. All of these major decisions and changes require the

unanimous consent of the partners. La. Civ. Code arts. 2803 and

2807. If this were not the law, each partner would have the

autonomous power to create unlimited additional capital and profits

interests; each partner would be tempted or forced in self-defense

to feather his or her own nest by granting additional interests to

family or cronies; and the entire law of partnerships would fall

into disarray and probably become defunct. As if this were not

enough, the majority’s reading of the Louisiana partnership law, as

60
this case demonstrates, would empower any partner in any partnership

to subject all other partners to massive, unforeseeable personal

liability, without their consent.

The Central States plaintiffs failed to demonstrate a legal

basis under federal law or Louisiana partnership law for Terry

Smith’s authority to transfer ownership of either a “profits

interest” or “capital interest” in the Creative partnership to

Sheldon Beychok. Lacking proof that Smith legally effected the

grant or transfer of an interest in the capital or profits of the

Creative partnership to Beychok, Central States has also failed to

prove that Creative and Wolf Baking were trades or businesses under

the “common control” of Beychok. Because the Central States

plaintiffs failed to prove either of these elements of their case,

their claims against Creative and its partners individually for

payment of Wolf Baking’s $1.35 million withdrawal liability were

properly dismissed by the district court.

61