In the recently decided case of Central States, Southeast and Southwest Areas Pension Fund v. Nagy (7th Cir. 2013), an individual was determined to be personally liable for approximately $3.6 million of withdrawal liability owed to a multiemployer pension plan by a contributing corporation owned by that same individual. The question of personal liability was dependent on whether the individual was engaged in unincorporated “trades or businesses.” Affiliated companies under common control, including unincorporated trades of businesses, are jointly and severally liable for the assessment of withdrawal liability. If the individual who owned the contributing corporation was found to be engaged in unincorporated trades or businesses, that could render the owner personally liable for the assessed withdrawal liability. In this case, the Court of Appeals for the Seventh Circuit found there were two unincorporated businesses that formed the basis for personal liability. First, the individual owned the property on which the contributing employer operated and leased that property back to the contributing employer. The court found the leasing activity to be an active trade or business rather than a passive investment. Second, the individual provided and was compensated for management services to a country club as an independent contractor and not as an employee. These two unincorporated business activities were sufficient to render the individual personally liable for the contributing employer’s withdrawal liability.
There was a similar outcome in the recent case of Sheet Metals Workers’ National Pension Fund v. Delaware Valley Sign Corp. (E.D. Va. 2013), where the court ruled that an individual who owned 100 percent of a corporation that contributed to a multiemployer pension plan was personally liable for more than $1.2 million of withdrawal liability. The individual owned the property that served as the principal place of business for the contributing employer and leased that property to the contributing employer. As in the Nagy case, the court ruled that the owner’s leasing activity qualified as a trade or business under common control that rendered the owner of contributing employer personally liable for withdrawal liability.
The results in both these cases serve as a reminder that individuals who own a business contributing to multiemployer pension plans and have other active businesses run a risk of personal liability if they are the sole proprietor or a general partner in those other businesses. Structuring those other business activities in a different form (corporation, limited liability company, etc.) may be helpful in averting risk of personal liability.