In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13‐1308
JAMES T. SULLIVAN, ET AL.,
Plaintiffs‐Appellees,
v.
RUNNING WATERS IRRIGATION, INC.,
AND JV EQUIPMENT LEASING, LLC,
Defendants‐Appellants.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 09‐CV‐2329 — Elaine E. Bucklo, Judge.
____________________
ARGUED OCTOBER 1, 2013 — DECIDED JANUARY 9, 2014
____________________
Before CUDAHY, RIPPLE, and HAMILTON, Circuit Judges.
CUDAHY, Circuit Judge. This case is about two interrelated
companies that challenge the application of successor liabil‐
ity under ERISA, pursuant to a Rule 25(c) motion that substi‐
tuted the companies as judgment debtors, without an evi‐
dentiary hearing. On appeal, RWI and JV challenge (1)
whether the district court properly applied the multifactor
ERISA successorship test to find that an “interest” had been
2 No. 13‐1308
transferred within the meaning of Fed. R. Civ. P. 25(c); and
(2) whether the district court’s resolution of the 25(c) substi‐
tution without an evidentiary hearing was proper. We now
affirm.
I.
The predecessor business entity, Alpine Irrigation Com‐
pany (Alpine), was a residential irrigation business owned
by Robert Zeh (Robert) from 1961 until it closed in 2009. In
the years preceding its closing, Alpine was in arrears on pen‐
sion fund payments to the Chicago Journeyman Plumbers
Union (the Union). After a Joint Arbitration Board awarded
it $56,269.97, the Union filed suit to compel the award under
both the Labor Management Relations Act of 1947 (LMRA),
29 U.S.C. § 185, and the Employee Retirement Security Act of
1974 (ERISA), 29 U.S.C. §§ 1132(e)(1). In order to enforce the
judgment against Alpine, the Union’s trustee James Sullivan
sought citations to discover Alpine’s assets.
The discovery citations proved fruitful. During his depo‐
sition, Robert admitted that his son, Jeffery Zeh (Jeffery),
knew more about Alpine’s assets and operations than Rob‐
ert. Jeffery was then deposed and revealed his sole owner‐
ship of two companies that were established contemporane‐
ously with Alpine’s closing, Running Waters Irrigation, Inc.
(RWI) and JV Equipment Leasing, LLC (JV) (collectively the
Appellants). RWI primarily services, but occasionally in‐
stalls, lawn irrigation systems. JV’s sole business is leasing to
RWI six pieces of equipment, which it purchased from Al‐
pine. The remainder of Alpine’s unsold equipment remains
on RWI’s property.
No. 13‐1308 3
Alpine and RWI share a number of undisputed similari‐
ties: RWI operates out of Jeffery’s home, Alpine’s prior busi‐
ness address; RWI utilizes Alpine’s office and storage space;
all but one of RWI’s employees worked for Alpine; and final‐
ly, with very few exceptions, RWI relies on Alpine’s custom‐
er list to service Alpine’s past customers. Almost all of RWI’s
customers are former Alpine customers.
For these reasons, Sullivan moved to impose judgment
against RWI and JV as successors. When the magistrate
judge denied the motion for lack of a procedural mechanism
through which to substitute the parties, Sullivan filed a mo‐
tion under Federal Rule of Civil Procedure 25(c). In his Sec‐
ond Report and Recommendation (Second R&R), the magis‐
trate judge determined that the Appellants were successors
under ERISA and that Rule 25(c) provided an appropriate
procedure to enable the substitution of the Appellants for
Alpine. The district court adopted the Second R&R and
granted Sullivan’s motion to substitute. The court deter‐
mined that the Appellants’ objections to the Second R&R
failed to successfully rebut the magistrate judge’s key find‐
ings that: Jeffery exercised control over all entities; RWI
hired five out of six former Alpine employees; all entities
operated out of Jeffery’s house; there was substantial over‐
lap in customer lists; and, the timing of Alpine’s closure and
RWI’s incorporation suggested its intention to take over Al‐
pine’s operations.
On appeal, the Appellants assert that the district court’s
factual findings fell short of satisfying ERISA’s successorship
test. The Appellants specifically refute that Jeffery ever had
notice of Alpine’s liability and reject factual findings con‐
tributing to the substantial continuity determination. The
4 No. 13‐1308
Appellants also assert that they were denied Due Process
because the Rule 25(c) motion was granted without a full ev‐
identiary hearing.
The district court had jurisdiction pursuant to 28 U.S.C §
1331. This court has jurisdiction under 28 U.S.C. § 1291. We
review the district court’s adoption of the magistrate judge’s
findings of fact for clear error and the substitution of a trans‐
feree under Federal Rule of Civil Procedure 25(c) for abuse
of discretion. However, because this discretion is only trig‐
gered upon the determination that an entity has transferred
an interest within the meaning of Rule 25(c), which requires
applying law to the facts, we review the district court’s find‐
ing of substantial continuity de novo. See Luxliner P.L. Export
Co. V. RDI/Luxliner, Inc., 13 F.3d 69, 72 (3d Cir. 1993)(“A Rule
25(c) decision is generally within the district court’s discre‐
tion. To determine whether an entity is a transferee of inter‐
est so as to trigger this discretion, however, a district court’s
mission is one of applying law to facts.”)(citations omitted).
II.
Rule 25(c) allows the substitution of parties if an “inter‐
est” is transferred, but relies on other substantive law to de‐
fine “interest.” Normally, a corporation purchasing the as‐
sets of another corporation does not assume the obligations
of the transferor. Panther Pumps & Equipment Co., Inc. v. Hy‐
drocraft Inc., 566 F.2d 8, 24 (7th Cir. 1977). However, there are
several important exceptions. One such exception has devel‐
oped in the context of ERISA actions, like this one, to recover
delinquent pension fund contributions. See Upholsterers’ Int’l
Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d
1323, 1327–29 (7th Cir. 1990).
No. 13‐1308 5
The Appellants assert that only a substantial transfer of
assets can trigger substitution under Rule 25(c), and because
JV acquired only six pieces of equipment from Alpine and
RWI acquired no assets directly from Alpine, no interest has
been transferred. However, Artistic Furniture does not re‐
quire a formal purchase of assets to establish successor liabil‐
ity in the ERISA context. See id.
The ERISA test specifically allows the plaintiff to proceed
against the subsequent purchaser of the violator’s business,
even if it is a true sale, provided that two conditions are sat‐
isfied: (1) the successor had notice of the claim before the ac‐
quisition; and (2) there is substantial continuity of operation
of the business before and after the sale. See Artistic Furni‐
ture, 920 F.2d at 1329. It was through this test that the district
court determined an “interest” was transferred from Alpine
to RWI and JV, justifying this Rule 25(c) substitution.
Notice
Notice can be proven by showing actual knowledge, as
well as evidence that allows the fact finder to imply
knowledge from the circumstances. See Golden State Bottling
Co. v. NLRB, 414 U.S. 168, 173 (1973). Notice can be implied
from variety of circumstances, such as common control or
proximity. See Artistic Furniture, 920 F.2d at 1329. Plenty of
such evidence exists here. The district court found that Jef‐
fery—as the holder of a leadership position in each compa‐
ny, the son of Alpine’s owner and the owner of the property
on which all these companies were located—had enough
knowledge to satisfy this notice requirement. In fact, during
Richard’s deposition, he indicated that Jeffery would have
more information concerning the assets and status of Alpine
than he would—a clear indication that Jeffery was intimately
6 No. 13‐1308
familiar with Alpine’s operations. The facts adopted by the
district court provide ample circumstances from which to
imply Jeffery was aware of Alpine’s delinquency. The dis‐
trict court did not clearly err by adopting these factual find‐
ings and concluding that notice existed.
Substantial Continuity
Substantial continuity requires a fact‐centered analysis.
The facts in this case point clearly toward continuity of busi‐
ness. The Appellants’ primary contention regarding the dis‐
trict court’s substantial continuity finding relies on viewing
the alleged successors as isolated entities. RWI contends that
it never purchased any of Alpine’s assets, while JV contends
that its purchase of Alpine’s assets was merely part of a
piecemeal sale, insufficient to establish continuity. JV further
rejects the continuity finding on the basis that it is a leasing
company rather than an irrigation company. The purported
independence of these three entities is contradicted by the
facts adopted by the district court, which taken as a whole,
show that RWI, JV and Alpine had similar leadership, em‐
ployees, customers, office space, equipment and services.
As to RWI, the Appellants concede that it operates out of
the same location as Alpine, is in the same or similar busi‐
ness, uses Alpine’s employees and office equipment and has
almost all of the same clients. Moreover, the district court
found that Jeffery held a leadership position in each compa‐
ny. The Appellants dispute this finding, claiming that Jeffery
was never an officer of Alpine. However, the court based its
decision on tax returns, company credit cards in Jeffery’s
name and Robert’s depositions concerning Jeffery’s in‐
volvement. This evidence does not support a conclusion that
No. 13‐1308 7
the court clearly erred in finding that Jeffery held leadership
positions at each company.
RWI contends that it does not conduct the same business
as Alpine. It argues that Alpine “serviced and installed” irri‐
gation systems, while RWI services and consults for irriga‐
tion systems. This distinction is wholly artificial, highlighted
by the fact that almost every one of RWI’s customers is a
former customer of Alpine and receives similar services. The
district court did not err in finding that both Alpine and RWI
are in the same or a substantially similar business.
JV characterizes the equipment transfer from Alpine to
JV as a piecemeal sale of assets, which under Tweed v. Thom‐
as & Betts Power Solutions, LLC, is insufficient to establish
continuity. 711 F.3d 763, 768 (7th Cir. 2013). In a similar vein,
RWI contends that it is not a successor because it acquired
no assets or equipment from Alpine. Viewed in isolation,
these assertions as to the unrelated nature of these entities
might be persuasive. However, these are artificial distinc‐
tions, which do not mask the substantial interrelatedness of
RWI, JV and Alpine. The factual basis for substantial conti‐
nuity is quite clear in this case. In fact, the Appellants do not
contest the district court’s finding that “Jeffery Zeh struc‐
tured his companies such that JV would buy Alpine’s assets
and lease them back to RWI in servicing Alpine’s former cli‐
ents.”
Despite the Appellants’ assertions that these entities are
wholly distinct, it is clear that together JV and RWI took on
every aspect of Alpine’s former business. On the facts availa‐
ble, we find nothing which would suggest that the district
court improperly concluded that there was substantial con‐
tinuity between RWI, JV and Alpine.
8 No. 13‐1308
III.
The Appellants assert denial of Due Process because the
Rule 25(c) motion was granted without a hearing. They rely
on Golden State Bottling Company, Inc. v. National Labor Rela‐
tions Board, 414 U.S. 168 (1973), and Panther Pumps & Equip‐
ment Co., Inc. v. Hydrocraft, Inc., 566 F.2d 8 (7th Cir. 1977), to
argue that a Rule 25(c) motion entitles a potential successor
to an evidentiary hearing per se. But, the Appellants fail to
show how such precedent applies in the absence of a request
for a hearing or a showing of what such a hearing would
disclose.
Initially, it is worth noting that the cases relied upon by
the Appellants do not hold that an evidentiary hearing is
mandatory to resolve every Rule 25(c) substitution. In nei‐
ther Golden State nor Panther Pumps was there an absence of
an evidentiary hearing—neither court was required to re‐
solve such an issue. The Appellants are asking us to deny a
court’s discretion to require an evidentiary hearing and in‐
stead make such a hearing mandatory. We decline to impose
such a requirement on the basis of dicta. This is especially
true when the language of Rule 25(c) contemplates resolu‐
tion solely on motion. Fed. R. Civ. P. 25(c). In any event, for
the following reasons, this case does not meet the generally
accepted conditions for a mandatory rule.
A court has discretion to deny an evidentiary hearing if
the Appellants cannot show that an evidentiary hearing
would have an articulable bearing on the material issues in
dispute. Cf. U.S. v. 8136 S. Dobson St., Chicago Ill., 125 F.3d
1076, 1086 (7th Cir. 1997) (denying an evidentiary hearing for
a Rule 60(b) motion); Duncan Foundry & Mach. Works, Inc. v.
N.L.R.B., 458 F.2d. 933, 935 (7th Cir. 1972) (same in the con‐
No. 13‐1308 9
text of NLRB review). Here, the district court found that the
Appellants’ objections to the Second R&R did not rebut its
material factual findings, nor did the objections address the
applicable legal test. The Appellants do not identify what
they believe would have been revealed on cross‐
examination, what questionable evidence there was or what
credibility determinations needed to be made. Thus, it is un‐
clear why the briefing process was insufficient to present or
rebut material facts such that an evidentiary hearing was
necessary to adequately resolve this motion. Therefore, it
was within the district court’s discretion to resolve the Rule
25(c) motion by reviewing and adopting the Second R&R,
promulgated without an evidentiary hearing. See e.g., Pink‐
ston v. Madry, 440 F.3d 879, 983–94 (7th Cir. 2006).
Moreover, it was the Appellants’ responsibility to request
an evidentiary hearing. Pursuant to Fed. R. Civ. Pro. Rule
72(b), the Appellants did file objections to the Second R&R.
However, these objections need to be specific enough to alert
the district court as to what issues are actually in dispute.
Johnson v. Zema Systems Corp., 170 F.3d 734, 741–42 (7th Cir.
1999).
At no point in the Appellants’ objections do they specifi‐
cally object to the absence of an evidentiary hearing. The
Appellants’ objections are not based on the procedural suffi‐
ciency of a fully briefed motion, but on substantive questions
of law and fact.
The Appellants come closest to such an objection in their
conclusion:
RWI and JV are entitled to their day in court and not
via substitution under Rule 25C(c) … . RWI and JV
10 No. 13‐1308
have the right to answer the allegations against them,
conduct discovery and have a trial, all of which will
be washed away if the R&R is adopted. It is not as if
Plaintiffs are without a remedy; they can simply file a
complaint to pursue their claim.
Such a conclusory statement, however, is not a request for an
evidentiary hearing. More importantly, it is insufficient to
show what such a hearing would produce or why the pro‐
ceedings before the magistrate judge were inadequate.
By this we are not requiring heightened specificity in re‐
questing an evidentiary hearing. We simply believe that un‐
der any standard the objections made here do not sufficiently
convey the Appellants’ dissatisfaction with the sufficiency of
the procedures below as opposed to general dissatisfaction
with the outcome. Thus, the Appellants never made clear to
the district court what an evidentiary hearing would have
disclosed.
Finally, at oral argument, the Appellants challenged the
sufficiency of the proceedings below because the magistrate
judge’s Second R&R contained credibility observations with
respect to Jeffery, which were based on transcripts of a depo‐
sition that was taken before Sullivan brought the 25(c) mo‐
tion. Thus, the Appellants argue that a decision maker’s
credibility assessment based on the cold record is not appro‐
priate—an evidentiary hearing is required for such determi‐
nations. While the credibility conclusions have been inap‐
propriately included in the Second R&R, two factors per‐
suade us that this argument is not determinative. First, as
discussed above, there is ample evidence showing substan‐
tial continuity, it is unlikely that the absence of the credibility
observations would disturb this. Second, the Appellants
No. 13‐1308 11
never objected to these observations; they have thus waived
appellate review of this issue. See Zema Systems, 170 F.3d at
739 (“If a party objects in the district court on some issues
and not others, he waives appellate review of the issues to
which he has not objected.”). Unlike the foregoing discus‐
sion, specificity is not at issue here. The Appellants’ objec‐
tions to the Second R&R were devoid of any reference to the
magistrate judge’s observations on Jeffery’s credibility.
IV.
Taken as a whole, the facts adopted by the district court
create a clear picture of notice and continuity, satisfying the
ERISA test. The district court did not err in concluding that
an interest had been transferred from Alpine to RWI and JV
within the meaning of Rule 25(c). The district court did not
abuse its discretion when it resolved the 25(c) motion with‐
out an evidentiary hearing when the Appellants made no
request for such a hearing or showed why such a hearing
was necessary. We AFFIRM.