Teamsters Local 469 Pension Fund v. J.H Reid Gen. Contractors

TEAMSTERS LOCAL 469 PENSION FUNDAND THE BOARD OF TRUSTEES THEREOF, Plaintiff(s), v. J.H REID GENERAL CONTRACTORS,J.H REID CONSTRUCTION, INC.,J.H. REID-ONSITE RECYCLING, INC., Defendant(s).

Civ. No. 15-06185 (KM) (JBC)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

October 16, 2020

OPINION

KEVIN MCNULTY, U.S.D.J.:

Plaintiffs Teamsters Local 469 Pension Fund and the Board of Trustees Thereof ("Pension Fund" or "the Fund") initiated an action for collection of withdrawal liability, interests, and penalties allegedly incurred by defendants J.H. Reid General Contractors ("General Contractors"), J.H. Reid Construction, Inc. ("Reid Construction"), and J.H. Reid-Onsite Recycling, Inc. ("Reid Recycling") as a result of their withdrawal from the Pension Fund.¹ (Compl. at 1-2) The Fund's action arises under the Employment Retirement Income Security Act of 1974 ("ERISA") as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"), 29 U.S.C. § 10001 et seq. (1982). (Compl. at 2)

The Pension Fund moves for summary judgment on the grounds that the employer, General Contractors, failed to make the required payments, and that Reid Recycling and Reid Construction, as members of a controlled group with the employer at the time the Fund served the employer with notice of its withdrawal liability, are jointly liable. (DE 102-2) Defendants do not dispute the liability of General Contractors. They submit, however, that summary judgment should be denied as Reid Recycling and Reid Construction because they were not parties to a collective bargaining agreement and were not members of a controlled group at the time General Contractors withdrew from the pension plan. (DE 105 at 2)

For the reasons explained in this opinion, I find that there are material issues of fact as to controlled group liability and will deny the Fund's motion as to Reid Recycling and Reid Construction.

I. Summary

a. Facts

Pension Fund is a multi-employer pension plan within the meaning of 29 U.S.C. §§ 1002(37) and 1301(a)(3), and an employee benefit plan within the meaning of 29 U.S.C. § 1002(3). (Compl. ¶4); (DE 43-1 ¶2) In a certification to this Court, Frederick P. Potter, Jr., the President of Teamsters Local Union 469 ("the Union") and Chairman of the Board of Trustees for the Pension Fund, submitted that defendants "and the Union were parties to a series of collective bargaining agreements over a period in excess of 10 years." (DE 43-1 ¶¶1-2) Pursuant to those agreements, General Contractors "was required to remit, on a monthly basis, pension contributions to the Fund on behalf of the bargaining unit employees that it employed." (DE 43-1 ¶7) In August 2009, General Contractors permanently ceased the operations that were covered by the collective bargaining agreements. (DE 43-1 ¶3) That cessation "and failure to employ people represented by the Union resulted it in no longer having an obligation to contribute to the Fund on behalf of employees" covered by the collective bargaining agreements. (DE 43-1 ¶8) Thereafter, the Pension Fund"determined that Reid had [e]ffected complete withdrawal from the Fund." (DE 43-1 ¶9)

In August 2012, "the Fund, by and through its attorneys gave notice to the Reid companies of the Fund's claim for withdrawal liability owed by the Reid companies to the Fund." (DE 43-1 ¶3); (DE 43-1 at 6-8) That letter stated that the net amount of withdrawal liability amounted to $1,239,857.00, to be paid in eighty quarterly payments of $15,479.00. (DE 43-1 ¶11)

After that notice, on December 28, 2012, General Contractors made the first quarterly payment of withdrawal liability in the sum of $15,479.00. (DE 43-1 ¶4) General Contractors simultaneously "invoked arbitration . . . to contest the Fund's calculation of withdrawal liability as well as to contest whether or not a withdrawal had taken place as well as whether Reid was entitled to a construction industry exemption." (DE 43-1 ¶4) No defendant made any further quarterly payment, which, according to the Fund, "eliminate[d] any right to arbitration that Reid may have had under ERISA." (DE 43-1 ¶5) Further, on February 14, 2014, General Contractors withdrew from arbitration. (DE 43-1 ¶13); (DE 43-1 at 14) Pursuant to the Pension Fund's Trust Agreement, failure to pay withdrawal liability payments entitles the Fund to collect: "[a]. Unpaid contributions; [b]. Interest at eighteen percent (18%) per annum; [c]. Liquidated damages of twenty percent (20%) of the principal debt; and [D]. Attorney's fees of 25% of the delinquent principal amount and court costs." (DE 43-1 ¶15)

Mr. Potter also certifies that defendants "constitute a 'controlled group' under ERISA Section 4001(b)(1), 20 U.S.C. 1301(b)(1) and Section 4219(a) of ERISA, 20 U.S.C. 1399(a) and Sections 414 and 1563 of the Internal Revenue Code." (DE 43-1 ¶3) The implication is that the withdrawal liability of General Contractors extends to Reid Recycling and Reid Construction.

Upon certification to this Court, Daniel Culnen submits that he is presently "the sole Member and Manager of J.H. Reid Holdings II, LLC ("Reid Holdings"), which is the sole owner of [Reid Recycling]." (DE 85-1 ¶1) Reid Holdings purchased Reid Recycling on November 30, 2012 (DE 85-1 ¶3) andowns one hundred percent of Reid Recycling's stock shares. (DE 85-1 ¶4). Since the purchase in 2012, Reid Recycling has been owned solely by Reid Holdings. (DE 85-1 ¶5)

According to Mr. Culnen's certification "Reid Holdings was not provided notice that Reid Recycling may be subject to withdrawal liability for allegedly withdrawing from Plaintiff's pension fund." (DE 85-1 ¶6) Further, since being purchased by Reid Holdings, Reid Recycling has remained a separate and distinct entity from General Contractors and Reid Construction. (DE 85-1 ¶8) Reid Recycling is also not a party to the relevant collective bargaining agreements. (DE 85-1 ¶10) Mr. Culnen submits that "Reid Recycling is not part of a control group with Reid Contractors and Reid Construction because it has separate ownership." (DE 85-1 ¶13)

During his deposition, James H. Reid testified that he owned one hundred percent of the interest in General Contractors when it was originally formed. (DE 102-1 at 19) Over the years, two other individuals, Ken Lindstrom and John Leslie, acquired an interest of less than ten percent collectively. (DE 102-1 at 19) In short, Mr. Reid continuously had control over the company. (DE 102-1 at 19)

Mr. Reid further testified that when Reid Recycling was created, he owned the entirety of its shares. (DE 102-1 at 20) He then sold that company to Mr. Culnen in November 2012. (DE 102-1 at 20) Mr. Reid testified that at the time of sale, he owned one hundred percent of Reid Recycling's shares and sold one hundred percent of those shares to Mr. Culnen.² (DE 102-1 at 20) Mr. Reid conceded that, at the time of his deposition, he was taking medication that impairs his ability to recall events or facts in the past. (DE 102-1 at 18)

Mr. Culnen testified during his deposition that he and Mr. Reid began discussing Mr. Culnen's acquisition of Reid Recycling in August or September 2012. (DE 102- at 6) Mr. Reid approached Mr. Culnen because Reid was havingfinancial problems. (DE 102-1 at 6) Mr. Culnen and Mr. Reid's business relationship preceded the acquisition: Culnen wrote Reid's insurance policies and bonds, and leased equipment to him. (DE 102-2 at 6)

Regarding his due diligence prior to the sale, Mr. Culnen testified that he "had the attorneys do a search on all of the records . . . to see if there were any liens filed, and see if the taxes were current." (DE 102-1 at 7) He stated that he "had the attorneys do everything that they were supposed to do to clarify the title." (DE 102-1 at 7) Mr. Culnen and Mr. Reid then entered into a written contract for the sale of Reid Recycling for 2.6 million dollars. (DE 102-1 at 7) Mr. Culnen testified that he never learned, either through his own attorneys or Mr. Reid's attorneys, of the liabilities of Mr. Reid or his companies to the Fund. (DE 102-1 at 8) According to Mr. Culnen, he first learned that General Contractors "owed some union money" in 2016. (DE 102-1 at 8)

b. Procedural History

On August 13, 2015, Pension Fund filed its Complaint against defendants seeking $1,224,378 in withdrawal liability. (Compl. ¶18) Further, the Fund alleged that defendants' failure to pursue arbitration entitled it to the following relief: (1) $1,224,378 in withdrawal liability principal; (2) pre-judgment interest on the entire amount; (3) an amount equal to or greater of the interest on the withdrawal liability of liquidated damages of 20% of the unpaid withdrawal liability; (4) attorney's fees of 25% of the principal and costs; (5) post-judgment interest at an annualized rate of 18%; (6) that the Court retain jurisdiction; and (7) further relief as may be proper and just. (Compl. ¶16, 18)

On October 5, 2015, the Clerk's Office filed an entry of default as to defendants. Thereafter, the Court entered an order denying the Fund's motion for default and granting defendant's cross-motion to vacate default. (DE 20) Defendants then filed their Answer to the Complaint on April 8, 2016. (DE 21)

On June 26, 2017, Pension Fund moved for summary judgment. (DE 43) On June 13, 2019, the Court denied that motion without prejudice and further ordered the parties to engage in additional discovery as to whether defendantsare or formerly were joint members of a controlled group. (DE 92) The Court authorized Pension Fund to file a supplemental motion for summary judgment within sixty days. (DE 92) The Fund resubmitted its summary judgment motion on November 12, 2019. (DE 102)

On April 7, 2020, the Court entered a text order acknowledging counsels' request that judgment be withheld while the parties explored other options and administratively terminating the motion without prejudice. (DE 109) On May 11, 2020, the Fund requested to restore its motion for summary...