DOL Pierced the Corporate Veil to Enforce Withdrawal Liability

On September 8, 2015, in Public Policy, by Jacob Hitt

Multiemployer Pension and Welfare plans exploit ERISA legislation to eviscerate the livelihoods of small business entrepreneurs.[1]   Through the Employee Retirement Income Security Act of 1974 (ERISA), the Department of Labor pierced the corporate veil, holding Charles F. Nagy personally liable for withdrawal liability because he ceased employing Teamsters labor. This complex regulation, faced by […]

Nagy

Multiemployer Pension and Welfare plans exploit ERISA legislation to eviscerate the livelihoods of small business entrepreneurs.[1]

 

Through the Employee Retirement Income Security Act of 1974 (ERISA), the Department of Labor pierced the corporate veil, holding Charles F. Nagy personally liable for withdrawal liability because he ceased employing Teamsters labor. This complex regulation, faced by all businesses participating in multiemployer pension plans, personally penalized Nagy for his entrepreneurial spirit, stole the fruits of his labor, and punished him for taking risks to provide jobs. Nagy was a serial entrepreneur, owner of Nagy Ready Mix, Inc., and other businesses. After employing teamster labor for several years, Nagy decided to discontinue the use of their services for transporting Ready Mix, Inc.’s concrete, incurring $3.6 million in withdrawal liabilities. The withdrawal liability dwarfed Nagy Ready Mix, Inc.’s assets and Nagy’s other businesses as well, an amount he disputed.

Despite initiating arbitration to challenge the Fund’s computation of $3.6 million in withdraw liability; an action that incurred the Teamster Fund’s wrath, Nagy was forced to pay the arbitrary sum and dispute the liability later as enforced by 29 U.S.C. § 1401(d). The Fund compelled Nagy to pay the full amount through ERISA’s enforcement mechanism.[2] Using Mr. Nagy’s personal lease of property to Nagy Ready Mix, Inc. against him, the Teamsters successfully pierced the corporate veil, holding Mr. Nagy personally liable for withdraw liability along with the other businesses he controlled.[3] Also, the Teamsters argued Nagy worked as an independent contractor managing a country club’s assets. The court found the management of the country club’s assets as an unincorporated business, which solidified his personal withdrawal liability.[4] The Teamsters Fund, armed with ERISA’s statutory presumptions and obligations, annihilated another job creator, destroyed multiple businesses in its path, and punished the productive use of resources.

 

Decision: Central States, Southeast and Southwest Areas Pension Fund and Arthur H. Bunte, Jr., Trustee, Plaintiffs-Appellees, v. Charles F. Nagy, Defendant-Appellant

Additional Information: Multiemployer Plan Withdrawal Liability Can be Trap for the Unwary by James P. McElligott Jr. and Robert B. Wynne – McGuireWoods

 

End Notes

[1]ERISA shifted power to pension and welfare plans in 1989 when the Central States, Southeast and Southwest Areas Pension Fund sued Gerber Truck Services, Inc. In that case the court of appeals rejected all contract defenses an employer might have under its contract. It held, “If the employer simply points to a defect in its formation – such as fraud in the inducement, oral promises to disregard the text, or the lack of majority support for the union and the consequent ineffectiveness of the pact under labor law – it must still keep its promise to the pension plans.” Central States, Southeast & Southwest Areas Pension Fund v. Gerber Truck Services, Inc., 714 F.3d 545 (7th Cir. 2013) (Central States, Southeast and Southwest Areas Pension Fund, a pension trust, et al., Plaintiffs-Appellants v. Gerber Truck Services, Inc., Defendant-Appellee, 1989)

[2] The pension or welfare fund is treated like a holder in due course in commercial law, see Bonded Financial Services v. European American Bank, 838 F.2d 890, 892-93 (7th Cir. 1988), or like the receiver of a failed bank, see Langley v. FDIC, 484 U.S. 86, 108 S Ct. 396, 98 L.ED.2d 340 (1987) – entitled to enforce the writing without regard to understandings or defenses applicable to the original parties. (Central States, Southeast and Southwest Areas Pension Fund, a pension trust, et al., Plaintiffs-Appellants v. Gerber Truck Service, Inc. Defendant-Apellee, 1989)

[3] Liquidated damages compensate the plans for delay and give employers and incentive to be forthcoming with payments. The structure of the multi-employer amendments of 1980, of which §502(g)(2) is a part, is pay-now-argue-later. (Central States, Southeast and Southwest Areas Pension Fund, a pension trust, et al., Plaintiffs-Appellants v. Gerber Truck Service, Inc. Defendant-Apellee, 1989)

[4] Awards of liquidated damages are “mandatory in an action in which judgment in favor of the plan is awarded”. Gilles v. Burton Construction Co., 736 F.2d 1142, 1144 (7th Cir.1984). (Central States, Southeast and Southwest Areas Pension Fund, a pension trust, et al., Plaintiffs-Appellants v. Gerber Truck Service, Inc. Defendant-Apellee, 1989)

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