14‐2487
UFCW Local One Pension Fund v. Enivel Properties, LLC
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
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August Term, 2014
(Submitted: April 24, 2015 Decided: July 1, 2015)
Docket No. 14‐2487
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UFCW LOCAL ONE PENSION FUND, AND ITS TRUSTEES: FRANK C.
DERISO, JOHN P. BARRETT, ERIC GLATHAR, RAYMOND WARDYNSKI,
ROBERT BOEHLERT, AND KRISTINE WYDRO,
Plaintiffs‐Appellants,
–v.–
ENIVEL PROPERTIES, LLC,
Defendant‐Appellee.*
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Before:
WESLEY, LIVINGSTON, AND CHIN, Circuit Judges.
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* The Clerk of the Court is directed to amend the caption of this case as set forth above.
Appeal from the United States District Court for the Northern District of
New York (Suddaby, J.). Plaintiffs‐Appellants United Food and Commercial
Workers Local One Pension Fund and its Trustees brought an action under the
Employee Retirement Income Security Act of 1974, as amended by the
Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. §§ 1381–1453,
against Defendant‐Appellee Enivel Properties, LLC, seeking to recover a
withdrawal liability assessment of a business under common control with Enivel.
After a bench trial, the district court determined that Enivel was not a “trade or
business” and that withdrawal liability did not attach, and entered judgment for
Enivel. For the reasons that follow, we AFFIRM the district court’s judgment.
Jeffrey S. Swyers, Barry S. Slevin, Paul E. Knupp, III,
Slevin & Hart, P.C., Washington, D.C., for Plaintiffs‐
Appellants.
Glenn E. Pezzulo, William S. Levinson, Culley, Marks,
Tanenbaum & Pezzulo, LLP, Rochester, NY, for
Defendant‐Appellee.
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WESLEY, Circuit Judge:
The issue in this appeal is whether a separate business organization can be
held responsible for the liabilities of another commonly controlled entity under
the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by
the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), 29 U.S.C.
§§ 1381–1453.
Steven Levine was the sole shareholder of Empire Beef Co., Inc.
(“Empire”), a food‐processing company. Empire was party to a collective
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bargaining agreement that required it to contribute to the United Food and
Commercial Workers Local One Pension Fund (the “Fund”) for retirement and
related benefits for its employees. In November 2007, Empire effected a
“complete withdrawal” from the Fund pursuant to 29 U.S.C. § 1383(a) and
incurred a withdrawal liability assessment to the Fund of $1,235,644.00. The
Fund sued Empire under the MPPAA for the assessment, as well as liquidated
damages, interest, costs, and attorneys’ fees, and secured a judgment against
Empire for $1,790,343.90. Empire has not paid any portion of the judgment.
In addition to Empire, Steven and his wife, Lori, owned an investment
company, Enivel Properties, LLC (“Enivel”).1 Steven held forty percent of
Enivel’s stock; Lori owned the remainder and was solely responsible for Enivel’s
business operations.2 The Fund sued Enivel to recover on its judgment against
Empire, alleging that Enivel is a trade or business under common control with
Empire such that it is jointly and severally liable for Empire’s withdrawal
liability.
1 “Enivel” is Levine spelled backwards.
2 Lori is a licensed real estate broker. In addition to managing Enivel, Lori works for a
separate entity, “Enivel Commercial Reality.” J.A. 76.
3
To ensure the viability of multiemployer pension plans against the failure
of a contributing employer, the MPPAA has broad provisions that disregard the
usual legal barriers between affiliated, but legally distinct, businesses. All
“trades or businesses” under “common control” are treated as a single employer
for the purpose of collecting withdrawal liability, and each is jointly and
severally liable for the withdrawal liability of another. See 29 U.S.C. § 1301(b)(1);
Corbett v. MacDonald Moving Servs., Inc., 124 F.3d 82, 86 (2d Cir. 1997) (citing 29
U.S.C. § 1301(b)(1) and 26 C.F.R. §§ 1.414(c)‐1 to ‐5).
Enivel was formed as a limited liability company, had an Employer
Identification Number and a business checking account, and filed New York
State tax returns. In its 2007 New York State tax return, Enivel reported a net loss
in the amount of $2,275.00. Enivel owned three investment properties. The
district court (Glenn T. Suddaby, Judge) found that Enivel was formed for the
purpose of shielding the Levines from liability in case someone was injured on
one of their properties. In addition, the court found it likely that Lori did not
spend more than a few hours per year attempting to sell these properties or
managing their leasing. There is no evidence in the record that any other
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individuals spent more than a negligible amount of time acting on behalf of
Enivel.
In May 2007, Enivel purchased a residential condominium unit in
Rochester, New York (the “Rochester Condo”). The unit was originally
purchased for the Levines’ daughter. After the Levines’ daughter moved out of
New York, Enivel held the unit from 2007 to 2010 as an investment, leasing it
periodically to tenants who responded to advertisements Lori posted on
Craigslist. Lori testified that her purpose in leasing the property was to offset its
carrying costs (including condominium association fees, property taxes, and
insurance premiums) and that her hope was to “get rid of it” after it became clear
that her daughter was not going to move in. J.A. 103. Enivel sold the Rochester
Condo at a loss in 2010.
Enivel purchased a 5.2‐acre parcel of unimproved land in Walworth, New
York in 2004 (the “Walworth Property”). Enivel attempted to sell the Walworth
Property by erecting a “For Sale” sign on the property, listing it with various
brokers and websites, and cold‐calling developers. The Walworth Property has
not been leased or sold.
5
The third Enivel property is a 42‐acre parcel of unimproved land in Ogden,
New York (the “Ogden Property”). Enivel listed the Ogden Property for sale on
LoopNet.com, a web‐based commercial real estate marketplace, and leased it to a
farmer to preserve the land against erosion and to offset its tax burden.
Applying the standard articulated in Commissioner v. Groetzinger, 480 U.S.
23, 35 (1987), the district court determined that for an entity to be a “trade or
business,” it must operate “(1) for the primary purpose of income or profit, and
(2) with continuity and regularity.” UFCW Local One Pension Fund v. Enivel
Props., LLC (Enivel), No. 6:11‐CV‐1144 (GTS/ATB), 2014 WL 2711660, at *5
(N.D.N.Y. June 16, 2014). Enivel failed both prongs of the “trade or business”
definition, the district court concluded, first, because “while the secondary
purpose of Enivel was for income or profit, the primary purpose of Enivel was
personal.” Id. at *8. In the alternative, the court concluded “that any income or
profit activities engaged in by Enivel were not continuous and regular, but were
interrupted and/or sporadic.” Id. at *9. The Fund appealed.
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DISCUSSION
We will not disturb findings of fact made by the district court unless they
are clearly erroneous. Fed. R. Civ. P. 52(a); Puma Indus. Consulting, Inc. v. Daal
Assocs., Inc., 808 F.2d 982, 985–86 (2d Cir. 1987). “Where there are two
permissible views of the evidence, the factfinder’s choice between them cannot
be clearly erroneous.” Banker v. Nighswander, Martin & Mitchell, 37 F.3d 866, 870
(2d Cir. 1994) (internal quotation marks omitted). “However, the district court’s
application of those facts to draw conclusions of law . . . is subject to de novo
review.” Travellers Int’l, A.G. v. Trans World Airlines, Inc., 41 F.3d 1570, 1575 (2d
Cir. 1994).
Under the MPPAA, an employer incurs withdrawal liability when it
withdraws from a multiemployer pension plan. See 29 U.S.C. § 1381(a). “The
purpose of withdrawal liability ‘is to relieve the funding burden on remaining
employers and to eliminate the incentive to pull out of a plan which would result
if liability were imposed only on a mass withdrawal by all employers.” ILGWU
Nat’l Ret. Fund v. Levy Bros. Frocks, Inc., 846 F.2d 879, 881 (2d Cir. 1988) (quoting
H.R. Rep. No. 96‐869, pt. 1, at 67 (1980), as reprinted in 1980 U.S.C.C.A.N. 2918,
2935). The MPPAA thus “protect[s] the interests of participants and beneficiaries
7
in financially distressed multiemployer plans and . . . encourage[s] the growth
and maintenance of multiemployer plans.” T.I.M.E.–DC, Inc. v. Mgmt.‐Labor
Welfare & Pension Funds, of Local 1730 Int’l Longshoremen’s Ass’n, 756 F.2d 939, 943
(2d Cir. 1985). Withdrawal liability discourages employers from evading their
obligations to pension funds by fractionalizing or balkanizing their operations.
See Bd. of Trs. of the W. Conf. of Teamsters Pension Tr. Fund v. H.F. Johnson, Inc., 830
F.2d 1009, 1013 (9th Cir. 1987).
In order to impose withdrawal liability on an organization other than the
one obligated to the pension fund, two conditions must be satisfied: the second
organization must be (1) under common control with the obligated entity; and (2)
a “trade or business.” See 29 U.S.C. § 1301(b)(1). Enivel does not dispute that
Steven Levine controlled both Empire and Enivel. The only question in this
appeal is whether Enivel is a “trade or business.”
The district court correctly noted that section 1301(b)(1) does not define
“trade or business.” In light of the interpretive difficulties that arise with that
phrase in cases such as this, several of our sister circuits, and the district court,
have seen fit to employ the Supreme Court’s reasoning in a tax case, Groetzinger,
480 U.S. at 35, for guidance in determining the types of conduct that constitute
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engaging in a “trade or business.” See Connors v. Incoal, Inc., 995 F.2d 245, 250–51
(D.C. Cir. 1993); Cent. States, Se. & Sw. Pension Fund v. Personnel, Inc. (Personnel),
974 F.2d 789, 794 (7th Cir. 1992); Enivel, 2014 WL 2711660, at *5.
In Groetzinger, the Court considered the meaning of the phrase “trade or
business” as it appears in section 162(a) of the Internal Revenue Code. 480 U.S.
at 33–35; see 26 U.S.C. § 162(a) (1988) (providing for income tax deductions for
“ordinary and necessary expenses paid or incurred . . . in carrying on any trade
or business”). Groetzinger explained that, “to be engaged in a trade or
business, . . . the taxpayer’s primary purpose for engaging in the activity must be
for income or profit. A sporadic activity, a hobby, or an amusement diversion
does not qualify.” 480 U.S. at 35. The Court in Groetzinger confined its
construction of the term “trade or business” to the tax statute at issue in that case
and the Court “[did] not purport to construe the phrase where it appears in other
places.” Id. at 27 n.8. However, Groetzinger is useful to “distinguish trades or
business from investments, which are not trades or business and thus cannot
form a basis for imputing withdrawal liability under § 1301(b)(1).” Cent. States,
Se. & Sw. Areas Pension Fund v. Fulkerson (Fulkerson), 238 F.3d 891, 895 (7th Cir.
2001); see also Personnel, 974 F.2d at 794. Groetzinger’s construction of “trade or
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business” is the most helpful authoritative pronouncement available, and worthy
of reliance here. See Connors, 995 F.2d at 251. Accordingly, for an activity to be a
“trade or business” under section 1301(b)(1), a person or entity must engage in
the activity: (1) for the primary purpose of income or profit; and (2) with
continuity and regularity. Groetzinger, 480 U.S. at 35.3
The district court found that Enivel’s primary purpose was “personal” and
that profit was only a secondary purpose. Judge Suddaby noted that the
Rochester Condo was originally purchased as a residence for the Levines’
daughter and only after she moved away did Enivel lease the unit to tenants to
offset the investment’s carrying costs. Similarly, the district court found that the
Walworth and Ogden properties were personal investments. There was no
evidence that the Walworth Property was ever leased and Enivel’s decision to
lease the Ogden Property was simply to offset its carrying costs. For all three
properties, the district court further found that the Levines’ activity was not
3 The relevant time period for evaluating whether an entity is a trade or business is the
period before the employer withdraws from the pension fund. See, e.g., McDougall v.
Pioneer Ranch Ltd. P’ship, 494 F.3d 571, 578 (7th Cir. 2007) (analyzing the business
activity of the partnership the year it was established through the year of the employer’s
withdrawal); Fulkerson, 238 F.3d at 895–96 (same). Evidence from after the employer
withdraws from the pension fund is relevant only insofar as it reveals the character of
the entity at the time that it withdrew from the fund.
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continuous or regular because it was likely that Lori’s time spent managing,
leasing, and trying to sell the properties was negligible.
On appeal, the Fund contends that Enivel’s status as a separate juridical
entity prohibited any conclusion that Enivel’s purpose is “something other than
the generation of income or profit.” Appellant’s Br. 20. In Central States,
Southeast & Southwest Areas Pension Fund v. White (White), 258 F.3d 636 (7th Cir.
2001), the Seventh Circuit determined that renting two over‐the‐garage
apartments on residential property was not a “trade or business” that could be
held to account for the withdrawal liability of a commonly controlled trucking
company that went bankrupt, even though the owners obtained tax benefits,
satisfied their mortgage, and increased the equity in their property through
rental income. See id. at 643.
The Fund contends that White is distinguishable because, unlike this case
where the Levines formed a separate legal entity that owned the three properties
(Enivel), the owner of the failed trucking company did not form a limited
liability company to own and manage the rental units. We are unpersuaded.
The Fund would have us hold that because Enivel is organized in a particular
way, its primary purpose is inherently to generate income or profit without
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regard for the entity’s actual purpose. To the contrary, Groetzinger presents a
holistic, fact‐dependent inquiry that requires courts to examine the actions taken
by the entity in addition to its formal status. While the organizational form of an
entity is highly relevant to this inquiry, it is not always dispositive. Moreover,
separate legal entities, even those not exempted from federal taxation by section
501(c) of the Internal Revenue Code, 26 U.S.C. § 501(c), can have legitimate
purposes other than the generation of income, such as protecting personal assets
from liability. Here, while Enivel was formally incorporated, the district court
found that Enivel was not organized as a profit‐making enterprise. Its activities
were exceedingly limited and it operated at a loss. The district court’s finding
that Enivel is not a “trade or business” despite its juridical form is not legal error.
Next, the Fund argues that Enivel’s activities could not have had a
personal purpose because “there was no evidence or finding of any other
purpose for Enivel’s activities other than ‘investments.’” Appellant’s Br. 21.
Clearly, most entities that acquire property do so as a way to make money. See
SEC v. W. J. Howey Co., 328 U.S. 293, 298 (1946) (defining “investment” as “the
placing of capital or laying out of money in a way intended to secure income or
profit from its employment” (internal quotation marks omitted)). But the Fund’s
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argument has no limiting principle. The Fund would have us hold that every
entity that owns investment property necessarily satisfies the first prong of
Groetzinger. To the contrary, the Seventh Circuit’s decisions engage in searching
explorations of the facts to discover what, exactly, was the entity’s objective
behind its investment choices. See, e.g., White, 258 F.3d at 643; Fulkerson, 238 F.3d
at 896–97. Here, the district court found that the Levines made real estate
investments not to earn a living but for personal reasons or to further private
wealth management objectives: housing for the Levines’ daughter (Rochester
Condo) and long‐term personal investments (Walworth Property and Ogden
Property).
Finally, the Fund contends that the district court’s conclusion that Enivel
had a personal and not‐for‐profit purpose was clearly erroneous in light of
Enivel’s admission that its purpose was to earn a profit. Enivel stipulated that its
objective is to buy properties and later sell them at a higher price, realizing a
profit. And, during the bench trial, Lori testified that Enivel was formed for the
purpose of buying real estate to resell it at a profit. The Fund’s argument is
unpersuasive for two reasons. First, despite a profit motive, the facts show that
Enivel made little or no effort to make money from the parcels it owned. While
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Enivel’s “intent” may have been clear, its efforts more accurately reflect the
nature of its investments. Second, clear error is not shown by contrary evidence.
The district court weighed and considered these “admissions.” See Enivel, 2014
WL 2711660, at *2 (noting that “Enivel’s purpose was to buy properties at one
price and later sell them at a higher price, in order to realize a profit”). Yet the
district court still concluded that Enivel’s primary purpose was personal. The
presence of competing evidence is insufficient to demonstrate clear error. See
United States v. Yellow Cab Co., 338 U.S. 338, 342 (1949) (holding no clear error
“where the evidence would support a conclusion either way but where the trial
court has decided to weigh more heavily for the defendants”).
The second prong of Groetzinger asks whether the putative trade or
business operates regularly and continuously. “[P]ossession of a property, be it
stocks, commodities, leases, or something else, without more is the hallmark of
an investment” and not a trade or business activity. Fulkerson, 238 F.3d at 895.
“Thus, mere ownership of a property (as opposed to activities taken with regard
to the property) cannot be considered in determining whether conduct is regular
or continuous.” Id. at 895–96. The district court found that the Fund had not
proved that Enivel did anything more than de minimis business activities. Judge
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Suddaby noted that he was “left merely with discrete and vague pieces of
testimony regarding property management” from which he was “unable to draw
the reasonable inferences necessary to render a finding that any income or profit
activities engaged in by Enivel were continuous and regular.” Enivel, 2014 WL
2711660, at *8.
On appeal, the Fund challenges the district court’s factual conclusions on
two grounds. First, the Fund contends that “Enivel’s status and activities as a
formal business entity demonstrate that its activities were not those of a passive
investor.” Appellant’s Br. 26. This is a repackaging of the Fund’s argument on
prong one, and it fails for the same reasons. Second, the Fund argues that “the
undisputed facts establish specific real estate activities performed by Enivel as to
the properties it owned that . . . readily distinguish it from a passive investor.”
Id. at 26–27. The district court considered this argument and the evidence to
which the Fund points and determined that the time Lori expended on these
activities was de minimis. Enivel, 2014 WL 2711660, at *8. Nor is there evidence in
the record that any other individuals spent more than a negligible amount of
15
time doing work for Enivel. The Fund’s competing interpretation of this
evidence does not show clear error.4
CONCLUSION
The MPPAA prevents employers from avoiding their pension obligations
by balkanizing their business operations. Although Enivel and Empire are
commonly controlled, Enviel’s limited leasing and sales activity was personal in
nature—not primarily for profit—and Enivel did not operate continuously and
regularly. The Levines did not fragment their business operations over several
entities. Rather, Enivel’s mission was primarily personal and any profit it
derived was incidental. We conclude that Enivel is not a “trade or business” for
the purposes of the MPPAA. The judgment of the district court is AFFIRMED.
4 “Owning property can be considered a personal investment, at least where the owner
spends a negligible amount of time managing the leases, although a more substantial
investment of time may be considered regular and continuous enough to rise to the
level of a ‘trade or business.’” Cent. States, Se. & Sw. Areas Pension Fund v. SCOFBP, LLC,
668 F.3d 873, 878–79 (7th Cir. 2011) (citations omitted).
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