In UFCW Local One Pension Fund v. Enivel Properties, LLC, No. 14-2487 (2nd Cir. 2015), the Second Circuit Court of Appeals (the “Court”) faced the issue of whether a separate business organization can be held responsible for the liabilities of another commonly controlled entity under ERISA.
In this case, Steven Levine was the sole shareholder of Empire Beef Co., Inc. (“Empire”), a food-processing company. Empire was party to a collective bargaining agreement that required it to contribute to the United Food and Commercial Workers Local OnePension 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 ERISA 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”). Steven held forty percent of Enivel’s stock; Lori owned the remainder and was solely responsible for Enivel’s business operations. 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.
In analyzing the issue, the Court said that, 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 Court continued by saying that the courts employ the Supreme Court’s reasoning in a tax case, Groetzinger, for guidance in determining the types of conduct that constitute engaging in a “trade or business.” Based on that case, 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. The district court had found that, based on the facts of the case, Enivel’s primary purpose in any leasing and sales activity it undertook was “personal” for the owners, and that profit was only a secondary purpose. Any activity was not continuous or regular, because it was likely that any time spent managing, leasing, and trying to sell the properties Enivel held was negligible. 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. As such, the Court concluded that Enivel did not engage in any trade or business, and therefore could not be held responsible for Empire’s withdrawal liability.