Pension Plan of Local Union 786 Ret. Fund v. Lee Lumber & Bldg. Material Corp

PENSION PLAN OF LOCAL UNION 786 RETIREMENT FUND, et al., Plaintiffs, v. LEE LUMBER & BUILDING MATERIAL CORP, et al., Defendants.

No. 19-cv-06933

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

March 12, 2021

Judge Franklin U. Valderrama

MEMORANDUM OPINION AND ORDER

Plaintiffs, a multiemployer pension benefit plan, a multiemployer welfare benefit plan, and members of their respective boards of trustees,¹ have brought suit against Defendants, Lee Lumber & Building Material Corp. (Lee Lumber), Richard Baumgarten, Arthur Rand Baumgarten (together with Richard Baumgarten, the Baumgartens), the Richard Lee Baumgarten Child's Separate Trust (Richard Trust), the A. Rand Baumgarten Child's Separate Trust (Arthur Trust, and together with the Richard Trust, the Child Trusts), DEE-Illinois, LLC (DEE-Illinois) and unnamed other controlled group members of Lee Lumber (collectively, all Defendants), under various provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA), 29 U.S.C. §§ 1001-1461, as amended by the MultiemployerPension Plan Amendments Act of 1980 (MPPAA), 29 U.S.C. § 1381 et seq. Plaintiffs seek over $4.7 million in withdrawal liability that they allege Lee Lumber incurred by exiting the Plaintiff Pension Fund, and over $2,800 in delinquent contributions to the Plaintiff Welfare Fund. Plaintiffs also seek to hold the Baumgartens, as the owners of Lee Lumber, personally liable for Lee Lumber's withdrawal liability, along with DEE-Illinois as the alter-ego of the Child Trusts and/or the Baumgartens. R. 31, SAC.²

Before the Court are Defendants Lee Lumber, the Baumgartens, the Child Trusts' (collectively, Lee Defendants) Motion to Dismiss Plaintiffs' Second Amended Complaint (Lee Motion to Dismiss), R. 39, Lee Mot. Dismiss, and Defendant DEE-Illinois' Motion to Dismiss the Second Amended Complaint (DEE Motion to Dismiss), R. 38, DEE Mot. Dismiss. Both motions are brought pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, both Motions to Dismiss are denied.

Background

Lee Lumber operated at 633 West Pershing Road, in Chicago, Illinois (the Property).³ SAC ¶ 13. Before withdrawal on or about November 1, 2018, Lee Lumber was an employer engaged in an industry affecting commerce and was subject to a collective bargaining agreement with the Building Material, Lumber, Box, Shaving, Roofing and Insulating Chauffeurs, Teamsters, Warehousemen and Helpers UnionNo. 768 (the Union). Id. ¶ 66. Under the terms of the collective bargaining agreement, Lee Lumber was required to make contributions to the Pension Fund on behalf of certain of its employees. Id.

Lee Lumber was owned by the Baumgartens and operated on property owned by the Child Trusts. SAC ¶¶ 15, 19, 22. Richard Baumgarten is the sole beneficiary, sole trustee, and representative of the Richard Lee Baumgarten Child's Separate Trust. Id. ¶ 16. Arthur Rand Baumgarten is the sole beneficiary, sole trustee and representative of the A. Rand Baumgarten Child's Separate Trust. Id. ¶ 20.

On or about March 1, 2017, Lee Lumber requested from the Pension Fund an estimate of its withdrawal liability. SAC ¶ 31. On or about June 1, 2017, Lee Lumber contacted the Pension Fund to negotiate a pre-payment of its withdrawal liability based on the March 17, 2017 estimated liability by the Pension Fund's actuary. Id. ¶ 32.

In response, on or about June 1, 2017, the Pension Fund sent Lee Lumber a statement of business affairs (SOBA) to determine its controlled group and any entities that could be subject to joint and several liability. SAC ¶ 33. Lee Lumber returned the SOBA to the Pension Fund on or about June 17, 2017. Id. ¶ 34. On or about November 20, 2017, the Pension Fund informed Lee Lumber that based on the information provided on the SOBA, Lee Lumber and the Baumgartens were in a controlled group and the Baumgartens were personally liable for the withdrawal liability. Id. ¶ 35.

On July 18, 2018, Lee Lumber signed a non-binding Letter of Intent (LOI) with Kodiak Building Partners, Inc., (Kodiak), whereby Kodiak would acquire certain assets and assume certain liabilities of Lee Lumber. SAC ¶ 37. On or about July 25, 2018, Lee Lumber contacted the Pension Fund regarding the potential sale of assets to Kodiak pursuant to the LOI. Id. ¶ 38. Lee Lumber again requested a settlement of its estimated withdrawal liability. Id.

On or about September 1, 2018, the Pension Fund informed Lee Lumber that it would not accept Lee Lumber's offer to settle the estimated withdrawal liability before Lee Lumber triggered such liability. SAC ¶ 39.

Lee Lumber closed on or about November 1, 2018 and auctioned its assets shortly thereafter. SAC ¶ 40. Lee Lumber is no longer engaged in business activities involving Union employees. Id. When Lee Lumber closed, it ceased making contributions to the Pension Fund and triggered withdrawal liability on or about November 1, 2018.⁴ Id. ¶ 41.

On or about November 14, 2018, the Pension Fund sent Lee Lumber a revised statement of business affairs (Revised SOBA) to determine its controlled group and any entities that could be subject to joint and several liability. SAC ¶ 42. Lee Lumber returned the Revised SOBA letter to the Pension Fund, in which Lee Lumber stated that it had recovered more than $260,000 in cash from the auction of its assets. Id. ¶ 43.

Lee Lumber, during all relevant times up to and including the date of withdrawal, leased an office and warehouse facility on the Property. SAC ¶ 48. The parties to the Lease were Lee Lumber and the Baumgartens and/or Child Trusts. Id. ¶ 49. During all relevant times, the Property was an asset of the Child Trusts and the Child Trusts allowed Lee Lumber to conduct business operations on the Property. Id. ¶¶ 54-55.

Some time prior to January 7, 2019, the Child Trusts mortgaged the Property. SAC ¶ 84. On or prior to January 7, 2019, DEE-Illinois purchased the note under which the Child Trusts had mortgaged the Property. Id. ¶ 85. The Child Trusts never made a payment on the note purchased by DEE-Illinois. Id. ¶ 87.

On January 7, 2019, the Child Trusts executed a "Deed in Lieu of Foreclosure Agreement" conveying the Property to DEE-Illinois, in partial satisfaction of a note that DEE-Illinois purchased from the mortgagee from whom the Child Trusts had mortgaged the Property. SAC ¶¶ 44, 86. In consideration of the transfer of the Property from the Child Trusts to DEE-Illinois, DEE-Illinois agreed to reduce the debt owed by Lee Lumber to DEE-Illinois by $800,000. Id. ¶ 88.

Shortly thereafter, on January 10, 2019, the Pension Fund issued a notice and demand for withdrawal liability (Demand Letter). SAC ¶ 45. No payment was received by the Pension Fund regarding the withdrawal liability assessed against Lee Lumber in the Demand Letter. Id. ¶ 72. On March 22, 2019, the Pension Fund sent a notice of default letter to Lee Lumber informing Lee Lumber that it had missed its first payment and that it had 60 days to correct its missed payment or the PensionFund would default Lee Lumber and all amounts would become immediately due. SAC ¶ 73.

On April 2, 2019, Lee Lumber's counsel timely filed a request for review in accordance with Section 4219(b)(2)(A) of ERISA, 29 U.S.C. § 1399(b)(2)(A). SAC ¶¶ 46, 74. On May 31, 2019, the Pension Fund notified Lee Lumber that its Trustees had reviewed Lee Lumber's request for review and had confirmed the withdrawal, but modified the amount of the withdrawal liability owed to $4,789,377. Id. ¶¶ 47, 75. The Pension Fund granted Lee Lumber additional time to cure its default from its original deadline of March 22, 2019, to June 7, 2019. Id. ¶ 76. Neither Lee Lumber, nor any member of its controlled group has made any payments to the Pension Fund for withdrawal liability. Id. ¶ 77.

The Property is currently for sale by DEE-Illinois and the asking price is $3,200,000. SAC ¶ 89.

The Pension Fund subsequently filed suit against Lee Lumber and the Defendants. The complaint has been amended and the operative complaint is the Second Amended Complaint (SAC). Count I asserts that pursuant to Sections 502(g) and 4301(e) of ERISA, 29 U.S.C. § 1132(g) and 1451 (e), all Defendants are jointly and severally liable for the Withdrawal liability. Count II asserts that all Defendants are liable for the delinquent contributions.

Lee Defendants and DEE-Illinois move separately to dismiss the SAC pursuant to Federal Rule of Civil Procedure 12(b)(6). Lee Mot. Dismiss; DEE Mot. Dismiss.

Legal Standard

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint. Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). Under Rule 8(a)(2), a complaint must include only "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). To survive a motion to dismiss, a complaint need only contain factual allegations, accepted as true, sufficient to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The allegations "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. The allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 678-79.

Analysis

ERISA was enacted "to protect employee pension plans from underfunding." Loc. 705 Int'l Bhd. of Teamsters Pension Fund v. Gradei's Express Co., 2020 WL 1530737, at *3 (N.D. Ill. Mar. 31, 2020) (citing Cent. States. Se. & Sw. Areas Pension Fund v. Midwest Motor Exp., Inc., 181 F.3d 799, 803 (7th Cir. 1999)). As amended by the MPPAA, it "requires an employer to make...