Central States Areas v. Pioneer Ranch Limite

In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 06-3757

HOWARD MCDOUGALL and CENTRAL

STATES, SOUTHEAST AND SOUTHWEST

AREAS PENSION FUND,

Plaintiffs-Appellees,

v.

PIONEER RANCH LIMITED PARTNERSHIP

and ROBERT S. WHITING,

Defendants-Appellants.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 05 C 5908—Suzanne B. Conlon, Judge.

____________

ARGUED MAY 25, 2007—DECIDED JULY 12, 2007

____________

Before BAUER, CUDAHY, and FLAUM, Circuit Judges.

FLAUM, Circuit Judge. Elaine and Robert Whiting

owned Pioneer Ranch Limited Partnership, a vacation

property on which they farmed and raised cattle. The

Whitings also owned a trucking company, which, after

several years of operation, became bankrupt and ceased

doing business. The Central States, Southeast and South-

west Areas Pension Fund (“the Fund”), a multi-employer

pension fund, assessed substantial withdrawal liability

on the trucking company, but could not collect any of

2 No. 06-3757

the amount owed. The Fund sued Pioneer Ranch and

Robert Whiting for the withdrawal liability. The district

court granted the Fund’s motion for summary judgment,

concluding that Pioneer Ranch was responsible for the

trucking company’s liability under the Multiemployer

Pension Plan Amendments Act of 1980 (“MPPAA”), 29

U.S.C. §§ 1381-1461 (1980). Pioneer Ranch appeals. For

the following reasons, we affirm.

I. BACKGROUND

A. Statutory Background

Congress passed the MPPAA as an amendment to the

Employee Retirement Income Security Act (“ERISA”), 29

U.S.C. §§ 1001-1371. Under ERISA, the Pension Benefit

Guaranty Corporation (“PBGC”), a government corpora-

tion, protects covered employees by insuring their bene-

fits against fund insolvency or premature termination.

Prior to 1980, ERISA’s contingent liability provisions

gave employers an incentive to withdraw from financially

weak multi-employer plans to avoid liability if the plan

terminated in the future. As a result, the PBGC reported

to Congress that the premiums paid to it were insufficient

to cover its expected future liabilities. Congress then

passed the MPPAA, seeking to discourage voluntary

withdrawals from multi-employer plans by imposing a

mandatory liability on all withdrawing employers. See

Cent. States, Se. and Sw. Areas Pension Fund v. Ditello,

974 F.2d 887, 888 (7th Cir. 1992). The Act holds such

employers liable for their proportionate share of “un-

funded vested benefits.” 29 U.S.C. § 1381.

Upon an employer’s withdrawal from a plan, the trustees

of the fund must promptly determine the amount of an

employer’s liability and create a payment schedule. Within

90 days of notification, the employer may request that

No. 06-3757 3

the trustees review their determination. 29 U.S.C.

§ 1399(b)(2)(A). If either party is dissatisfied with the

outcome of the review, the MPPAA mandates arbitration

proceedings. 29 U.S.C. § 1401(a)(1) (“Any dispute between

an employer and the plan sponsor . . . shall be resolved

through arbitration.”). After arbitration, or if no arbitra-

tion proceeding has been initiated, either party may

bring an action in federal district court “to enforce, vacate,

or modify the arbitrator’s award.” 28 U.S.C. § 1401(b)(2).

Section 1301(b)(1) provides that all “employees of trades

or businesses (whether or not incorporated) which are

under common control shall be treated as employed by a

single employer and all such trades and businesses as

a single employer.” 29 U.S.C. § 1301(b)(1). Under this

section, each trade or business under common control is

jointly and severally liable for the withdrawal liability of

the others. See Ditello, 974 F.2d at 889.

B. Facts

In 1970, Robert and Elaine Whiting1 purchased property

located in Cheboygan County, Michigan to use as a

vacation home. The Whitings kept a number of cattle and

other livestock on the property and conducted some

farming and ranching activities. In 1973, the Whitings

hired David McCormick to care for the property and assist

with the farming and livestock. Over the next twenty

years, the Whitings used the property as a vacation home

and developed a small cattle herd by buying and selling

a few cattle each year.

In 1993, the Whitings established the Pioneer Ranch

Limited Partnership. Elaine and Robert were both general

1

Elaine Whiting died on January 5, 2005, and Robert Whiting

died on February 4, 2006.

4 No. 06-3757

and limited partners, and their four children, R. Scott

Whiting, Daniel Whiting, Jo Ann Skandalaris, and Jane

Whiting were limited partners. Pioneer Ranch’s partner-

ship agreement stated that the partnership’s purpose

was as follows:

a) acquiring and holding certain real property located

in the Township of Aloha, Cheboygan County,

Michigan, heretofore owned and managed as a

cattle farm by the General Partners.

(b) acquiring additional real and personal property to

be used in operating, managing, and expanding the

Property, and to engage in the business of farming,

ranching, and any agricultural pursuit or under-

taking; and

(c) doing any and all things and carrying on any and

all other activities necessary, convenient, or inci-

dental to accomplish any of the preceding pur-

poses and powers or to protect and benefit the

Partnership.

After the Whitings established the partnership, they

handled the livestock on the ranch the same way they

handled it before 1993.

From 1994 through 2003, Pioneer Ranch filed tax

returns that contained a schedule listing profits and

losses from farming. The schedule indicated that Pioneer

Ranch lost money every year after the Whitings estab-

lished the partnership. On its tax returns, the partner-

ship listed “cattle farm” as its principal business activity,

claimed farm expenses, and certified that it was entitled

to an agricultural production exemption.

The Whitings also owned a trucking company called

Whiting Distribution Services (“WDS”), which operated

in Detroit, Michigan. In 2003, WDS, which had been

experiencing financial difficulties, entered bankruptcy

No. 06-3757 5

and wound up its operations. WDS was subject to a series

of collective bargaining agreements requiring pension

contributions to the Fund. On December 6, 2003, WDS

withdrew from the Fund. On January 30, 2004, the Fund

demanded that the Whiting Controlled Group pay

$3,708,184.81 worth of withdrawal liability pursuant to

ERISA, 29 U.S.C. §§ 1382(2) and 1399(b). On August 23,

2005, the Fund issued another notice and demand to the

Whiting Controlled Group that was served on Pioneer

Ranch and Robert Whiting. On February 15, 2006, the

Whiting Controlled Group, through Pioneer Ranch,

received a notice that the withdrawal liability payments

were past due. When the Whiting Controlled Group failed

to pay the withdrawal liability, the Fund filed suit in

federal district court, arguing that it could collect the

withdrawal liability from Pioneer Ranch and Robert

Whiting because Pioneer Ranch was a “trade or business”

under § 1301(b)(1).

On June 15, 2006, the parties filed cross-motions for

summary judgment. On July 20, 2006, the district court

granted the plaintiffs’ motion for summary judgment

and denied the defendants’ motion, holding that Pioneer

Ranch was a trade or business under § 1301(b)(1).

II. DISCUSSION

A. Standard of Review

The initial question presented in this case is the stan-

dard by which we review the district court’s decision. We

ordinarily review a district court’s grant of summary

judgment in an ERISA case de novo. Santaella v. Metro.

Life Ins. Co., 123 F.3d 456, 460 (7th Cir. 1997). However,

in Central States, Southeast and Southwest Areas Pension

Fund v. Slotky, 956 F.2d 1369, 1373-74 (7th Cir. 1992),

this Court held that the clearly erroneous standard of

6 No. 06-3757

review applies when the only issue before the district

court is the characterization of undisputed subsidiary

facts and where a party does not have the right to a jury

trial. In Slotky, the Court stated that although the fact of

whether or not an enterprise is a trade or business is not

ordinarily resolved on summary judgment, “[delaying

judgment] does not make sense in a case in which the only

factual issue is one of characterization, . . . and the

opponent of summary judgment claims no right to a jury

trial.” Id. at 1374. In that scenario, “both the record and

the fact-finder are the same in the summary judgment

proceeding as they would be in a trial. There is no more

evidence to put in and no different trier to evaluate it.” Id.

As we explain below, there is no dispute over the under-

lying facts in this case. Thus, to determine the appropr-

iate standard of review, we must analyze whether the

defendants are entitled to a jury trial.2

The Seventh Amendment provides that “[in] Suits at

common law, where the value in controversy shall exceed

twenty dollars, the right of trial by jury shall be pre-

served.” U.S. Const. amend. VII. The Supreme Court has

long understood “ ‘suits at common law’ to refer not merely

to suits that the common law recognized among its old

and settled proceedings, but to suits in which legal rights

were to be ascertained and determined, in contrast to

those where equitable rights and remedies were recog-

nized.” Feltner v. Columbia Pictures Television, Inc., 523

U.S. 340, 348 (1998) (quoting Parsons v. Bedford, 28 U.S.

2

The appellants stated that they were entitled to a jury trial

while the appellees contended that they were not entitled to one,

but neither party explained why the appellants were or were

not entitled to a jury trial. Indeed, both parties presented

deficient arguments for their preferred standard of review.

Accordingly, it falls to us to reach the merits of the jury trial

issue in order to determine the appropriate standard of review.

No. 06-3757 7

433, 447 (1830)). The general rule in ERISA cases is that

there is no right to a jury trial because “ERISA’s anteced-

ents are equitable,” not legal. Matthews v. Sears Pen-

sion Plan, 144 F.3d 461, 468 (7th Cir. 1998). However,

§ 4301(a)(1) permits plan fiduciaries, employers, partici-

pants, or beneficiaries to bring civil suits under Title IV of

ERISA and seek appropriate legal or equitable relief with

respect to a multi-employer plan. 29 U.S.C. § 1451(a)(1).

Though § 4301(a)(1) provides for both legal and equitable

remedies in the case of multi-employer pension plan

disputes, the few courts that have considered the ques-

tion have determined that the Seventh Amendment does

not guarantee a jury in these types of cases. See Connors

v. Ryan’s Coal Co., 923 F.2d 1461 (11th Cir. 1991); Bd. of

Trs. of W. Conference of Teamsters Pension Trust Fund v.

Thompson Bldg. Materials, Inc., 749 F.2d 1396 (9th Cir.

1984).

In Thompson Building Materials, Inc., the Ninth Circuit

held that Congress did not violate the Seventh Amendment

by requiring employers and plan sponsors to resolve

disputes about withdrawal liability through arbitration.

749 F.2d at 1405. The court held that the MPPAA’s

statutory scheme was not known to the common law, and

that Congress may delegate fact-finding functions to non-

jury bodies in cases involving newly created statutory

rights. Id. Likewise, in Connors, the Eleventh Circuit held

that the defendant was not entitled to a jury in a with-

drawal liability collection action brought by multi-em-

ployer plan trustees. 923 F.2d at 1465. The court stated

that the MPPAA’s mandatary arbitration provisions did

not unconstitutionally deprive the liable employer of its

right to a jury trial. Id.

We agree with the reasoning of our sister circuits. If

Pioneer Ranch had proceeded to arbitration to challenge

its status as an employer it would not have been entitled

8 No. 06-3757

to a jury. It is anomalous then to allow the defendants to

have a jury trial simply because they avoided the dispute

resolution scheme that Congress contemplated in the

statute. Because the defendants are not entitled to a jury

trial, the Court must review the district court’s grant of

summary judgment for clear error.

B. Trade or Business

To impose withdrawal liability on an organization other

than the one obligated to the Fund, two conditions must

be satisfied: 1) the organization must be under “common

control” with the obligated organization, and 2) the

organization must be a trade or business. Cent. States, Se.

and Sw. Areas Pension Fund v. Fulkerson, 238 F.3d 891,

895 (7th Cir. 2001). The defendants do not dispute that

the Whitings controlled both WDS and Pioneer Ranch. The

only question, therefore, is whether Pioneer Ranch consti-

tutes a trade or business.

Although the MPPAA does not define “trade or busi-

ness,” this Court has adopted the test established in

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987), to

determine whether an enterprise constitutes a trade or

business. See Cent. States, Se. and Sw. Areas Pension

Fund v. White, 258 F.3d 636, 642 (7th Cir. 2001);

Fulkerson, 238 F.3d at 895. Under Groetzinger, the Court

must consider whether the person engaged in an activity

1) for the primary purpose of income or profit and 2) with

continuity and regularity. 480 U.S. at 35. The phrase

“trade or business” “does not encompass purely personal

activities no matter how continuous or extended the

activity may be nor how profitable . . . .” White, 258 F.3d

at 642 (internal quotation omitted). Additionally, “a

sporadic activity, a hobby, or an amusement diversion

does not qualify.” Groetzinger, 480 U.S. at 35.

No. 06-3757 9

The parties focus their dispute on whether the Whit-

ings engaged in ranching and farming primarily for the

purpose of income or profit. The defendants contend that

the Whitings operated Pioneer Ranch for purely personal

reasons, as a vacation home and retreat, and created the

partnership for estate planning purposes.3 Additionally,

they point out that the Whitings owned the land that

became Pioneer Ranch for twenty-two years prior to

establishing the partnership and that the manner in

which they handled the livestock and farming on the

ranch did not change in any way from the manner in

which it was handled before 1993. They also emphasize

that the Whitings suffered significant losses for nine

straight years after they established the partnership, and

that the property’s tennis courts, shuffleboard court, and

trout pond all demonstrate that the Whitings intended

Pioneer Ranch to be a vacation home because those things

have nothing to do with ranching or farming. Finally, they

allege that the Whitings acquired land that was largely

unsuitable for either ranching or farming because Pioneer

Ranch was an investment, not a trade or business.

By contrast, the Fund emphasizes the partnership

agreement, which stated that the business purpose of

Pioneer Ranch was “to engage in the business of farming,

ranching, and any agricultural pursuit or under-

taking . . . .” Courts have held that “a defendant’s stated

intention of forming a business is highly relevant, because

3

The four Whiting children each testified that their parents told

them that they established Pioneer Ranch Limited Partnership

on the advice of their accountants and lawyers. Though the

children’s testimony is inadmissible hearsay, there is admissible

evidence that the Whitings established Pioneer Ranch for

estate planning purposes. Each year the Whitings gave their

children un-taxable gifts of land, which is consistent with estate

planning.

10 No. 06-3757

it constitutes a declaration against interest.” See, e.g.,

Connors, 995 F.2d at 254. The Fund also points out that

the Whitings constructed fences to hold cattle, sold

livestock and grains, employed one full-time employee and

two part-time employees, and provided the employees

with health, retirement, and workers’ compensation

benefits. They also highlight the fact that the Whitings’

tax returns claimed business exemptions and deductions

for farming expenses each year. Moreover, from 1994

through 2003, Pioneer Ranch represented that its prin-

cipal business activity was cattle farming and that it

generated an annual income of $20,000.

On these undisputed underlying facts, the district court

held that Pioneer Ranch is a trade or business. Even if

this Court might have interpreted the facts differently, a

fact finder could reasonably consider the documentary

evidence of the Whitings’ intent and conclude that they

engaged in the activities on Pioneer Ranch for the prim-

ary purpose of income or profit and simply derived in-

cidental personal benefit from Pioneer Ranch.

The defendants maintain that it would be fundamentally

unfair to impose withdrawal liability on Pioneer Ranch.4

They argue that, as in Fulkerson and White, this Court

should reverse summary judgment. Fulkerson and White

are readily distinguishable from this case because they

addressed legal errors about whether the activities in

those cases were sufficiently regular and continuous, an

issue that is undisputed in this case.

Because there are no disputed facts and the defendants

are not entitled to a jury trial, if the Court remands the

4

We note that parties are responsible for whatever legal

consequences attach to their own choice of business organization.

See Connors, 995 F.2d at 254.

No. 06-3757 11

case for a trial, the same trier of fact will consider the

same evidence on which it already concluded that no fact-

finder could reasonably find that Pioneer Ranch was not

a trade or business. Because the district court committed

no errors of law, and a reasonable fact finder could con-

clude that Pioneer Ranch was a trade or business, the

district court did not commit clear error.

III. CONCLUSION

For the above reasons, we AFFIRM the district court’s

grant of summary judgment to the plaintiffs.

CUDAHY, Circuit Judge, concurring in the judgment. It

is somewhat doubtful whether Congress’s intent as to

the legitimate purposes of withdrawal liability under the

Multiemployer Pension Plan Amendments Act is being

properly served here. The majority correctly states that

a “trade or business,” as defined in Commissioner of

Internal Revenue v. Groetzinger, requires as its “primary

purpose” the realization of “income or profit.” 480 U.S. 23,

35 (1987). There is no clear error in the district court’s

conclusion that Pioneer Ranch was primarily intended to

make a profit, but the continued existence of the “ranch”

in the face of relentless losses suggests otherwise, its

founding agreement and tax filings notwithstanding. A

reasonable jury could conclude that Pioneer Ranch was

a vacation home enhanced by a few livestock and inflated

to the status of a “ranch” for tax purposes.

12 No. 06-3757

As the majority notes, this makes the case turn on

whether Pioneer Ranch is entitled to a jury trial on the

fund’s claim for withdrawal liability. (Op. at 6-8.) The

centrality of this issue entitles it to a degree of rigorous

attention to which neither the majority nor, it should be

noted, the parties have subjected it. (Although Central

States has asserted that Pioneer Ranch is not entitled to

a jury trial, and Pioneer Ranch has asserted the con-

trary, neither has done much to explain why such a right

should or should not exist.)

The majority concludes that Pioneer Ranch is not

entitled to a jury because it “avoided the dispute resolu-

tion scheme that Congress contemplated in the statute,”

that is, private arbitration described in 29 U.S.C.

§ 1401(a)(1). (Op. at 8.) But, whatever it would mean for

Congress to “contemplate” arbitration, this court has

determined that Congress has not always required that

every issue in a dispute between a fund and an employer

be arbitrated. In Central States, Se. & Sw. Areas Pension

Fund v. Slotky, we held that “the issue of membership in

a controlled group,” the very issue that Pioneer Ranch

disputes in this case, “cannot be within exclusive arbitral

jurisdiction. For then people who had absolutely no

reason to believe that they might be deemed members of a

controlled group would be foreclosed from litigating the

issue in any forum.” 956 F.2d 1369, 1373 (7th Cir. 1992).

We suggested that some defendants might still be required

to arbitrate the issue, for instance “if the pension plan

explicitly notifies the person of his potential liability,”

dispelling any notice concerns, but the issue is sometimes

properly decided by courts in the first instance. Id.; cf.

Central States, Se. & Sw. Pension Fund v. Personnel, Inc.,

974 F.2d 789, 792 n.1 (7th Cir. 1992) (suggesting that

a defendant is never required to arbitrate employer

status).

No. 06-3757 13

If Pioneer Ranch has not evaded any congressionally-

required arbitration, it is not clear why its failure to

pursue arbitration barred it from jury trial; Pioneer Ranch

could have plausibly argued that it has a Seventh Amend-

ment right to a jury trial in the federal courts, and the

availability of a jury trial often depends on the litigants’

choice of the forum in which their dispute will be resolved.

See, e.g., Langenkamp v. Culp, 498 U.S. 42, 44-45 (1990)

(per curiam); Statland v. United States, 178 F.3d 465, 472-

73 (7th Cir. 1999). When Congress “provides for enforce-

ment of statutory rights in an ordinary civil action in the

district courts,” the Seventh Amendment applies and “a

jury trial must be available if the action involves

rights and remedies of the sort typically enforced in an

action at law.” Curtis v. Loether, 415 U.S. 189, 195 (1974);

cf. Granfinanceria, S.A. v. Norderg, 492 U.S. 33, 52-53

(1989) (explaining that the Seventh Amendment does not

apply to disputes that Congress assigns “to a forum in

which jury trials are unavailable”). While it may not be

entirely clear whether an action for MPPAA withdrawal

liability involves such rights and remedies, it is certainly

a respectable candidate for them. Money damages are

a typically legal remedy, and we have previously held

that the Seventh Amendment provides a jury right when

a union trust fund seeks contractually required contribu-

tions from an employer. See Bugher v. Feightner, 722 F.2d

1356, 1357-60 (7th Cir. 1983).

This is not to say that the majority’s reasoning is

incorrect. It might be that Central States’ suit is not an

“ordinary civil action,” even though it is heard in the

district courts, Curtis, 415 U.S. at 195 (emphasis added),

or it might be that the Seventh Amendment does not

ensure a jury trial even if it applies. But I think the

issue remains somewhat obscure and need not be re-

solved in the present case. Pioneer Ranch seems to have

forfeited the jury trial issue on appeal by failing to support

14 No. 06-3757

it with any sort of citation to authority or argument.

Central States, Se. & Sw. Areas Pension Fund v. Schilli

Corp., 420 F.3d 663, 670 (7th Cir. 2005); Pelfresne v.

Village of Williams Bay, 917 F.2d 1017, 1023 (7th Cir.

1990). (The Fund has done almost as little to explain its

assertion that Pioneer Ranch had no right to a jury trial,

but it has at least cited to Central States, Se. & Sw.

Pension Fund v. Personnel, Inc., which by omitting any

discussion of the jury issue from its determination of the

standard of review arguably suggests that a jury right does

not exist. 974 F.2d 789, 792 (7th Cir. 1992).) Even if it had

not waived the issue on appeal, Central States “explicitly

notifie[d] [Pioneer Ranch] of [its] potential liability” under

the MPPAA, which suggests that it might have been

required to arbitrate its control group membership.

Central States, Se. & Sw. Areas Pension Fund vs. Slotky,

956 F.2d 1369, 1373 (7th Cir. 1992). If so, the majority

is correct and it has no right to a jury trial.

I would therefore not reach the general issue of whether

there is a right to a jury trial in lawsuits to recover

MPPAA withdrawal liability under 29 U.S.C. § 1401(b)(1).

I otherwise agree with the majority opinion.

A true Copy:

Teste:

________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—7-12-07