Case: 17-14752 Date Filed: 11/26/2018 Page: 1 of 11
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 17-14752
________________________
D.C. Docket No. 1:16-cv-23231-FAM
WHIRLPOOL CORPORATION,
Plaintiff - Appellee,
versus
FREIGHT REVENUE RECOVERY OF MIAMI, INC.,
Defendant - Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(November 26, 2018)
Case: 17-14752 Date Filed: 11/26/2018 Page: 2 of 11
Before JILL PRYOR and BRANCH, Circuit Judges, and REEVES, * District
Judge.
REEVES, District Judge:
Whirlpool Corporation obtained a judgment in the amount of $176,749
against Freight Revenue Recovery of Miami, Inc., in the United States District
Court for the Western District of Michigan. Whirlpool discovered during litigation
that Freight Revenue had deposited checks payable to Whirlpool into Freight
Revenue’s bank accounts in Florida, so it filed an action to enforce the judgment in
the United States District Court for the Southern District of Florida. Whirlpool
sought to garnish several accounts, including a Charles Schwab account valued at
more than $800,000, which Freight Revenue asserted was a profit-sharing plan
containing assets Freight Revenue had contributed for the benefit of its owner,
Richard Dawson. Freight Revenue argues on appeal that the district court erred by
permitting Whirlpool to garnish the account containing Dawson’s assets to satisfy
the judgment against Freight Revenue. Because the district court did not
adequately explain why the funds held in the profit-sharing account could be
imputed to Freight Revenue, we vacate and remand.
I. BACKGROUND
*
The Honorable Danny C. Reeves, United States District Judge for the Eastern District of
Kentucky, sitting by designation.
2
Case: 17-14752 Date Filed: 11/26/2018 Page: 3 of 11
Freight Revenue is a freight bill auditor, which audits its clients’ freight and
logistics records for overcharges. It had an agreement with Whirlpool under which
Freight Revenue would recover freight fees that Whirlpool had been overcharged,
and would retain thirty-nine percent of those funds as payment for its services.
Whirlpool alleged that Freight Revenue stopped remitting payments at some point,
even though it had continued collecting overcharges on Whirlpool’s behalf.
Whirlpool sued Freight Revenue and Richard Dawson in the Western District of
Michigan in October 2014, alleging that Freight Revenue had breached the parties’
contract and that both defendants had engaged in civil racketeering and had been
unjustly enriched. Freight Revenue counterclaimed, alleging that Whirlpool had
not paid commissions due under the parties’ contract for certain work Freight
Revenue had already performed.
The Michigan district court referred the matter to a case evaluation panel,
which found in favor of Whirlpool and against Freight Revenue in the amount of
$208,487. The panel also found in favor of Freight Revenue on its counterclaim in
the amount of $31,738. The parties accepted the case evaluation award and the
Michigan district court entered judgment in favor of Whirlpool and against Freight
Revenue in the amount of $176,749.
Whirlpool then sought to collect the judgment by registering it in the
Southern District of Florida and garnishing various accounts, including a Charles
3
Case: 17-14752 Date Filed: 11/26/2018 Page: 4 of 11
Schwab Account called “Freight Revenue Recovery Sys Inc. Profit Sharing
Plan/Schwab One Pension PT-PPLAN.” Freight Revenue filed a motion to
dissolve the writ of garnishment, arguing that the Schwab account was a profit
sharing account belonging to Dawson and was exempt from garnishment under
Florida Statutes § 222.21. This provision, “Exemption of pension money and
certain tax-exempt funds or accounts from legal processes” provides, in relevant
part:
. . . any money or other assets payable to an owner, a participant, or a
beneficiary from, or any interest of any owner, participant, or
beneficiary in, a fund or account is exempt from all claims of creditors
of the owner, beneficiary, or participant if the fund or account is . . .
[m]aintained in accordance with a master plan, volume submitter plan
. . . or any other plan or governing instrument that has been preapproved
by the [IRS] as exempt from taxation . . . under [26 U.S.C. § 401(a) and
other provisions of the Internal Revenue Code.]
Fla. Stat. § 222.21(2)(a) (emphasis added).
The United States magistrate judge assigned to the case conducted
evidentiary hearings in May and June 2017. Dawson is the president, board of
directors, and sole shareholder of Freight Revenue, and has been the sole trustee of
the Plan since its inception. Dawson testified that he founded Freight Revenue in
the 1970s and established the profit sharing plan (the “Plan”) in 1981. Dawson
had been the only participant in the Plan since at least 2012.
Freight Revenue employees did not make contributions to the Plan. Instead,
the only moneys that went into the Plan were Freight Revenue’s contributions that
4
Case: 17-14752 Date Filed: 11/26/2018 Page: 5 of 11
purportedly were deposited for the benefit of Freight Revenue employees. Freight
Revenue made contributions to the Plan in 2008 through 2014, but did not
contribute any funds in 2015 or 2016. Dawson acknowledged that he utilized this
arrangement to reduce Freight Revenue’s tax liability and to plan for his own
retirement.
Whirlpool introduced a variety of evidence to show that the Plan was not a
qualified profit sharing plan as defined by the Internal Revenue Code and therefore
was not exempt from garnishment under Florida Statutes § 222.21. For example,
Whirlpool’s pension expert suggested that Freight Revenue had failed to meet
minimum coverage requirements and that it had discriminated in favor of highly
compensated employees, in violation of 26 U.S.C. §§ 401(a)(3) and 401(a)(4).
Whirlpool also sought to show that Freight Revenue exceeded permissible yearly
contributions to the Plan, in violation of §§401(a)(16) and 415. Dawson
acknowledged that he caused the Plan to purchase property that he and his wife
owned, which Whirlpool argued constituted impermissible self-dealing. See 26
U.S.C. § 4975.
The magistrate judge held evidentiary hearings [DE 86-1; 88] and then
recommended denying the motion to dissolve the writ of garnishment because the
Schwab account was not maintained in accordance with the provisions of the
Internal Revenue Code (“IRC”) mentioned in Florida Statutes § 222.21. Freight
5
Case: 17-14752 Date Filed: 11/26/2018 Page: 6 of 11
Revenue objected to the magistrate judge’s recommendation but conceded that the
Schwab account was not maintained in accordance with the IRC, and therefore was
not exempt from garnishment under Florida law. Instead, Freight Revenue’s sole
objection was that—despite the Plan’s shortcomings—the Plan assets belong to
Dawson and cannot be garnished to satisfy a judgment against Freight Revenue.
Whirlpool presented the following arguments in favor of garnishment to the
district court: (1) the Schwab account is not an employee benefits plan and is simply
an account holding Freight Revenue assets; (2) the funds are recaptured income of
Freight Revenue; (3) even if Dawson owns the funds, he is personally liable as
Freight Revenue’s director and sole shareholder; and (4) the fund transfers should
be avoided as fraudulent conveyances. The district court reached only the first
argument, concluding that “the Charles Schwab account is simply an account
holding Freight Revenue assets,” which may be garnished to satisfy Whirlpool’s
judgment.
II. DISCUSSION
The magistrate judge held evidentiary hearings and made factual findings
adopted by the district court. We “review a district court’s conclusions of law de
novo and its findings of fact for clear error.” Wexler v. Anderson, 452 F.3d 1226,
1230 (11th Cir. 2006). “Yet, the clearly erroneous standard does not govern an
appellate court’s review of district court findings made under a mistaken view of
6
Case: 17-14752 Date Filed: 11/26/2018 Page: 7 of 11
controlling legal principles. Such questions involve interpretations of law or
applications of law to particular facts and are subject to de novo review.” Flagship
Marine Servs., Inc. v. Belcher Towing Co., 966 F.2d 602, 604 (11th Cir. 1992)
(internal citations omitted).
We begin with the basic proposition that a judgment creditor generally may
not satisfy its judgment by garnishing property of an entity that was not a party to
the underlying judgment. See Alejandre v. Telefonica Larga Distancia, de Puerto
Rico, Inc., 183 F.3d 1277, 1285 (11th Cir. 1999) (citing Live Supply, Inc. v. C & S
Plumbing, Inc., 402 So. 2d 505, 506-07 (Fla. Dist. Ct. App. 1981)). Additionally,
there is a rebuttable presumption that a corporation and its owner are distinct
entities and generally are not liable for one another’s debts. See Molinos Valle Del
Cibao, C. or A. v. Lama, 633 F.3d 1330, 1349 (11th Cir. 2011); Ramaria
Familienstiftung v. United States, 643 F. Supp. 139, 146 (S.D. Fla. 1986) (citing
Shearson Hayden Stone, Inc. v. Lumber Merchants, Inc., 500 F. Supp. 491, 501-02
(S.D. Fla. 1980)); Murphy v. Murphy, 170 So. 856, 871 (Fla. 1936).
The district court concluded that the Plan is subject to Whirlpool’s writ of
garnishment because it is not an employee benefit plan as defined under the
Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.
Title I of ERISA protects employees by providing minimum standards for the
administration and investment of employee benefit plans. Raymond B. Yates,
7
Case: 17-14752 Date Filed: 11/26/2018 Page: 8 of 11
M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 6, 124 S. Ct. 1330, 1335,
158 L. Ed. 2d 40 (2004). Title II of ERISA amended the IRC, conditioning the
eligibility of employee benefit plans for preferential tax treatment on compliance
with the requirements of Title I. Central Laborers’ Pension Fund v. Heinz, 541
U.S. 739, 746, 124 S. Ct. 2230, 2236-37, 159 L. Ed. 2d 46 (2004).
An “employee benefit plan,” as defined under ERISA, does not include any
plan “under which no employees are participants.” 29 C.F.R. § 2510.3-3(b).
ERISA’s implementing regulations provide that an individual is not an employee
of a business he wholly owns. § 2510.3-3(c). Here, the district court determined
that because Dawson, Freight Revenue’s owner and the Plan’s only participant
since 2012, is not an employee, the Plan is not an employee benefit plan under
ERISA.
The district court’s analysis was incomplete. The first problem was its
failure to examine the instrument creating the plan. Such an examination is
necessary to determine whether a valid plan exists and the legal character of the
account.
But even if the district court’s analysis thus far is correct (and we do not
decide whether it is),1 it is still unclear why the Plan’s failure to qualify as an
1
Freight Revenue contends that the Plan is not a “plan without employees” because there were
other participants besides Dawson prior to 2012. While this Court has not addressed the issue,
8
Case: 17-14752 Date Filed: 11/26/2018 Page: 9 of 11
ERISA plan would result in Freight Revenue’s ownership of the funds. Florida’s
garnishment statute explicitly states that a “fund or account” need not “be
maintained in accordance with a plan or governing instrument that is covered by
any part of the Employee Retirement Income Security Act for money or assets
payable from or any interest in that fund or account to be exempt from claims of
creditors.” Fla. Stat. § 222.21(2)(b). So the account’s non-compliance with
ERISA is not dispositive as to whether Freight Revenue versus Dawson is the
account’s true owner or whether the account is shielded from garnishment under
Florida law. Again, a fundamental factual determination regarding the character of
the account is necessary to answer that question.
Freight Revenue concedes that there may be “severe tax consequences”
based on the Plan’s failure to comply with ERISA and/or the IRC. However, there
must be some additional legal basis for imputing assets to an employer once the
some courts have concluded that the status of a pension plan is determined based on its
composition at the time of the events at issue before the court. See In re Lowenschuss, 171 F.3d
673, 680 (9th Cir. 1999); Bar-David v. Econ. Concepts, Inc., 48 F. Supp. 3d 759, 771-72 (D.N.J.
2014); Meiszner v. Suburban Bank & Trust Co., 397 F. Supp. 2d 952, 956-57 (N.D. Ill. 2005).
Other courts have come out the other way. See, e.g., Int’l Res., Inc. v. N.Y. Life Ins. Co., 950
F.2d 294, 298 (6th Cir. 1991) (“[T]he mere fact the company no longer has several employees
does not transform what was already an ERISA plan into a non-ERISA plan.”) That there is a
split is unsurprising. ERISA has elaborate, statutorily-mandated termination procedures. See
Beck v. PACE Int’l Union, 551 U.S. 96, 102-03, 127 S. Ct. 2310, 2316-17, 168 L. Ed. 2d 1
(2007) (internal citations omitted). But a Department of Labor regulation, 29 C.F.R. § 2510.3-
3(c)(1), states that individuals are not “employees” for ERISA purposes if they wholly own their
business, which may mean that a plan could become disqualified under the regulations. Whether
a plan may “temporarily terminate” reveals a tension between the statute and the regulation that
we need not (and do not) resolve here. Should it prove necessary to do so, the district court
should address it in the first instance.
9
Case: 17-14752 Date Filed: 11/26/2018 Page: 10 of 11
employer has transferred ownership of them to another individual or entity, as
Freight Revenue ostensibly did in this case. If the Charles Schwab account is part
of an ERISA plan, it is protected from garnishment, under both Florida law and
ERISA, until it satisfies all liabilities to the beneficiaries. See Fla. Stat. §
222.21(2)(a)(2); 26 C.F.R. § 1.401-1(a)(3)(iv). If it is a nonexempt trust under IRC
§ 402(b), it may owe the IRS for deductions it illegally claimed. But in neither
situation is it clear that the owner of the assets could or would have changed.
The district court alluded to alternative bases for attributing the Plan assets
to Freight Revenue when it remarked that Dawson directed the actions that formed
the basis of the underlying judgment in favor of Whirlpool. But the court stopped
short of making the necessary factual findings to conclude that the account had
been misused or that the corporate form was not observed. See Molinos Valle Del
Cibao, C. por A., 633 F.3d at 1349 (citing Gasparini v. Pordomingo, 972 So.2d
1053, 1055 (Fla. Dist. Ct. App. 2008)) (to disregard corporate fiction and hold
corporation’s owners liable, plaintiff must prove elements for veil-piercing). The
court also failed to make findings necessary to consider Whirlpool’s argument that
Dawson held the assets in a constructive trust. See Citizens’ State Bank v. Jones,
131 So. 369, 372 (Fla. 1930) (holding that constructive trust must be proven by
clear and convincing evidence).
Whirlpool’s remaining arguments are based on Florida statutes prohibiting
10
Case: 17-14752 Date Filed: 11/26/2018 Page: 11 of 11
certain transfers of assets. Whirlpool contends that Dawson is personally liable
under Florida Statutes §§ 607.06401 and 607.0834, which prevent a board of
directors of a corporation from authorizing a distribution to shareholders if the
corporation would be unable to pay its debts in the usual course of business.
Likewise, Whirlpool argues that Dawson is liable under §§ 222.30 and 726.105,
because he fraudulently converted Freight Revenue’s assets to the Plan with the
intent to prevent Whirlpool from collecting its judgment. Because the district court
failed to address either of these fact-intensive inquiries, we are not equipped to do
so in the first instance.
III. CONCLUSION
Based on the foregoing discussion, we VACATE and REMAND this case
to the district court for further proceedings consistent with this opinion. The
district court should expressly determine the legal owner of the assets in the
Charles Schwab account.
11