Who Is Liable for Withdrawal Liability? — The Seventh Circuit Explains An Expansive Definition

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[co-author: James Nasiri]

Seyfarth Synopsis: In a recent decision highlighting the potential for far-reaching responsibility for withdrawal liability payments, the Court of Appeals for the Seventh Circuit affirmed a judgment against two individuals contending that their ownership interest in the contributing company’s principal place of business was a purely passive investment.

In February 2018, a trucking company ceased all operations and withdrew from the Local 705 Teamsters Multi-Employer Pension Fund.  The fund sent the company, and the individuals who owned its principal place of business, a demand for payment of withdrawal liability.

The company and the individuals did not request review of the demand.  The fund then commenced litigation to collect on its demand.

The Seventh Circuit affirmed a judgment in favor of the fund and against the contributing company and individuals.  The decision is reported as Local 705 International Brotherhood of Teamsters Pension Fund v. Pitello, 2021 WL 2818326 (7th Cir. July 7, 2021).

The court explained that withdrawal liability extends to all “trades or businesses” under common control with the withdrawing employer, on a joint and several liability basis.  The court said that joint and several liability does not extend, however, to parties with purely “passive or personal investments.”

The individuals argued that their ownership of the at-issue property should not be deemed a trade or business because they: (1) never received any rent or tax benefits as a result of the company’s use of the property, (2) purchased the property 18 years earlier and held it purely as an investment, (3) did not lease it to anyone after the company ceased operations, and (4) never employed anyone to manage the property.

The court found that another company the individuals owned did charge rent for the property after the contributing company ceased operations.  The court thus reasoned that “whatever value the[y] received through their rent-free arrangement with [the company] had been lost,” and the decision to generate replacement rental income thereafter made clear that their ownership of the property was a business venture.

Moving forward, this decision should serve as a reminder that courts are willing to entertain expansive definitions of who may be jointly and severally liable for withdrawal liability. See our articles that address the complexity of judicial review on the scope of liability.  No Partnership, No Common Control, No Withdrawal Liability: Private Equity Funds Not Liable for Portfolio Company’s Multiemployer Plan Withdrawal Liability | Beneficially Yours and The Ninth Circuit Hammers Out A New Successorship Liability Test Under The MPPAA | Beneficially Yours.  All companies and individuals in this space also should become familiar with the PBGC’s interim final rule on the Special Financial Assistance provisions of the American Rescue Plan Act, which sets forth rules on employer withdrawals and withdrawal liability settlements.  See PBGC Issues Much Anticipated Interim Final Rule on Special Financial Assistance Under American Rescue Plan Act | Beneficially Yours.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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