Petition for Writ of Certiorari — Charles J. Rogers Construction v. Trustees for Michigan Carpenters Council Health & Welfare Fund

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9 i “298 F|

Case No. gecice OF THE CLERK

IN THE

SUPREME COURT OF THE

UNITED STATES

October 1990 Term

CHARLES J. ROGERS CONSTRUCTION,

a Michigan Corporation,

Petitioner,

TRUSTEES FOR MICHIGAN CARPENTERS

COUNCIL HEALTH AND WELFARE FUND,

Respondent..

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

SOLNER & SOLNER, P. C.

Robert J. Solner, Counsel

of record

Attorneys for Petitioner

30300 Telegraph Road

Suite 280

Birmingham, Mi. 48010

(313) 647 8250

E. R. WHINHAM

Attorney, of counsel

321 S. Main Street

Suite 213

Ann Arbor, Mi. 48)]04

(313) 996 5530

THE QUESTION PRESENTED FOR REVIEW

WHETHER THE EMPLOYEE RETIREMENT INCOME

SECURITY ACT OF 1974 PREEMPTS STATE

CORPORATE REORGANIZATION LAW ?

TABLE OF CONTENTS

The Question Presented on Review. - - - i

Table of Contents . +--+ ++ ++ 7° oii

Table of Authorities. - +++ +s + iii-v

The Prior Opinions in this Case. +s: - 1

Grounds on Which the Jurisdiction

of the Supreme Court of the United

States is Tewomed «. «ce ese eee 8 2

The Statutes Which are Involved

dn this Case .-<.-++-+e«sreeee 8 * -2-8

Concise Statement of the Case. - - -8-18

Argument. .<--+<+«+<+*«ee*rseee es 19-25

Relief. 7. * o e. . 7. * . +. . . ad . s . -26

Index to Appendix

BQmoenGiz. . «see e eee 8 Oe la-219a

TABLE OF AUTHORITIES

Cases page

Deiches v Carpenters Health and

Welfare Fund, 572 F.Supp 766

PPE? . os 6 6 6's « « eo we « « 26

FMC Corporation v Holliday,

uv. S. e 111 S.Ct. 403 (1990) . .. 23

Fort Halifax Packing Co. v

Coyne, 482 U. S. 1, 107 S.Ct.

weeny oe uemm. 2 (1987) ....... 22

Goben v Barry, 703 P2d 1378

EE ee

Ingersol-Rand Co v McClendon,

U. Be ’ 111 3-.Gtb. 476

Dees bs « Ss 6 6 « e 20,21,23,24

Mackey v Lanier Collection

Agency & Service, Inc., 486

U. S. 825, 108 S.Ct. 2182,

er > |

Minority Employees v Tennessee

Dep't of Employment Sec.,

901 F.2d 1327, cert. denied,

oe we Si 8.66. 220,

iii

112 L.Ed.24d (1990). ° ° o ° . 7 @ ° e 10

Planned Consumers Marketing v

Coats and Clark 522 NE2d 30)

(Ct of App NY 1988) - - +++ +++. 24

Trustees of Michigan Carpenters

Council Health and Welfare Fund

v cC. J. Rogers, Inc. 933 F.2d 376

CIGSR). «§ « ee 0 oS 6 t 6 e@ BeSOsti ees

Torres v Oakland Scavenger Co.,

487 We Re 312, 108 S.Ce-« 2405,

101 L.Ed2d 285 (1988) - - -. +e -+-e- 9

Statutes

28 usc 1254 (1) ° . . ” . . . * . . . 2

Employees Retirement Income

Security Act. . .16,18,19,20,21,22,23,24

Sec. 502; 29 USC 1132. ... .- 9,16

Sec. 514; 29 USC 1144. . .. .18,24

Labor Managément Relations Act

Sec. 301; 29 uSC 185 ...+-+e-- 9

Sec. 302; 29 USC 186 ......- 9

Michigan Business Corporations Act;

MCLA 450.1101-450.2098. . ...... 12

Sec. 204; MCLA 450,1204. .

Sec. 862; MCLA 450.1862. .

Court Rules

Federal Rules of Appellate Procedure

oc | ae a a a oe ee

PRIOR OPINIONS IN THIS CASE

The United States Court of Appeals

for the Sixth Circuit decided this case

on May 10, 1001 and its opinion is

reported in 933 F.2d 376 and reproduced

in the Appendix to this Petition for a

Writ of Certiorari. The decision of the

Court of Appeals was a review of a

decision of the United States District

Court for the Western District of

Michigan. There were several opinions

and orders of the District Court which

are pertinent to this Petition for a Writ

of Certiorari. None of them were

published. They are reproduced in the

Appendix and are identified by title and

date in the Index to the Appendix.

GROUNDS ON WHICH THE JURISDICTION OF

THE SUPREME COURT OF THE UNITED STATES

IS INVOKED

The decision of the United States

Court of Appeals for the Sixth Circuit

was entered on May 10, 1991. The statute

which confers jurisdiction on this Court

is 28 U. S. C. 1254 (1).

THE STATUTES WHICH ARE INVOLVED

IN THIS CASE

29 U. S. C. 1144 (a)

Except as provided in subsection (b)

of this section, the provisions of

this title and title IV shall

supersede any and all state laws

insofar as they now or hereafter

relate to any employee benefit plan

described in section 4 (a).

29 U. S. C. 1144(b) (2) (A)

Nothing in this title shall be

construed to exempt or relieve any

person from any law of any State

which regulates insurance, banking

or securities.

The Michigan Business Corporations Act,

Section 204; MCLA 450.1204

Sec. 204. The articles of

incorporation may contain the

following provision or the substance

thereof: When a compromise or

arrangement or a plan of

reorganization of this corporation

is proposed between this corporation

and its creditors or any class of

them or between this corporation and

its shareholders or any class of

them, a court of equity jurisdiction

within the state, on application of

the corporation or of a creditor or

a shareholder thereof, or on

application of a receiver appointed

for the corporation, may order a

meeting of the creditors or class of

creditors or of the shareholders or

a Class of the shareholders to be

affected by the proposed compromise

or arrangement or reorganization, to

be summoned in such manner as_ the

court directs. If a majority in

mumber representing 3/4 in value of

the creditors or class of creditors,

or shareholders or class of

shareholders to be affected by the

proposed compromise or arrangement

or a reorganization, agree to a

compromise or arrangement or a

reorganization of this corporation

as a consequence of the compromise

Or arrangement, the compromise or

arrangement and the reorganization,

if sanctioned by the court to which

the application has been made, shall

be binding on all the creditors or

Class of creditors, or on all the

shareholders or class of

shareholders and also on this

corporation.

Michigan Business Corporations Act,

Section 205; MCLA 450.1205

Sec. 205. (1) When the provision of

204 is included in the original

articles of incorporation of a

corporation, all persons who become

creditors or shareholders thereof

are deemed to have become creditors

or shareholders subject in all

respects to that provision, and it

shall be binding upon them.

(2) When that provision is inserted

in the articles of incorporation, »y

an amendment of the articles, all

person who become creditors or

shareholders of the corporation

after the amendment becomes

effective are deemed to have become

creditors or shareholders subject in

all respects to that provision, and

it shall be binding upon then.

(3) The circuit court may

administer and enforce the provision

and restrain, pendente lite, actions

and proceedings against the

corporation with respect to which

the court so restraining has begun

the administration or enforcement of

the provision, and appoint a

temporary receiver for the

corporation and grant the receiver

such powers as are deemed proper.

The Michigan Business Corporations Act,

Section 862: MCLA 450.1862

Sec. 862. (1) The corporation, in

the manner provided in Section 861

but without limiting the generality

or effect of that section, may amend

or repeal its bylaws; constitute or

reconstitute and Classify or

reclassify its board of directors,

and name, constitute or appoint

directors and officers in place of,

or in addition to any director or

officer then in office; amend its

articles of incorporation, and make

any change in its capital or capital

stock, or any other amendment,

change or alteration, or provision

authorized by this act; be

dissolved, transfer any part of its

assets, and merge or consolidate as

permitted by this act, but in any of

these cases a shareholder does not

have a statutory right of appraisal

of his shares; change the location

of its registered office and remove

or appoint a resident agent;

authorize and fix the terms, manner

and conditions of issuance of bonds,

debentures or other obligations,

whether or not convertible into

shares of its capital stock of any

Class, or bearing warrants or other

evidences of optional rights to

purchase or subscribe for shares of

its capital stock of any class; and

lease its property and franchises.

(2) Irrespective of any other

provision of this act, the

corporation may issue its shares of

capital stock and its bonds for the

consideration specified in the plan

or reorganization after confirmation

of the plan.

CONCISE STATEMENT OF THE CASE

The Respondent and nine other

voluntary unincorporated trust funds

established pursuant to Section 302 of

the Labor Management Relations Act; 29 U.

S. C. 1001 et seq., brought this action

under Section 301 of the Labor Management

Relations Act; 29 DD. S. C. 185 and

Section 502 of ERISA; 29 U. S. C. 1132 to

collect claimed arrearages, penalties,

interest, liquidated damages and

attorneys' fees for unpaid employer

contributions to ERISA benefit plans.

The Petitioner and other business

organizations and individuals were

involved in the construction business and

named by the Respondent and the other

trust funds as defendants in the action

described above.

Pursuant to Rule 3(c) of the Federal

Rules of Appellate Procedure, as applied

by this Court in Torres -v. Oakland

Scavenger Co., 487 U. 8S. 312 , 108 S.Ct

2405, 101 L.Ed.2d 285 (1988) and by the

~ Sixth Circuit Court of Appeals in

Minority Employees v Tennessee _ Dep't of

Employment Sec., 901 F.2d 1327 cert.

denied, U. S$. , 111 S. Ct. 210,

112 L.Ed.2d 170 (1990), the Court of

Appeals ruled that the only parties

before it were the Petitioner and the

Respondent.

The Court of Appeals framed the

issue, here pertinent, as follows:

This case involves an appeal...

from a final judgement that the

Employee Retirement Income Security

Act of 1974... , preempted state

corporate reorganization law... .

Trustees of Michigan Carpenters

Council Health and Welfare Fund v C.

J. Rogers, Inc. 933 F.2d 376, 377.

Our jurisdiction - over the

cross-appeal is therefore restricted

to the only named party, the

Michigan Carpenters Council Health

and Welfare Fund.

Having determined that the

defendant Construction is the only

party properly before us on appeal,

we further find that all issues on

appeal are preserved with the

exceptic: of the claim that the

district court erred in finding that

Inc. was the alter ego of

Construction and Excavating since

Inc. failed to perfect its right to

appeal. However, our holdings are

subject to the restriction that the

outcome affects only Construction.

On cross-appeal, all issues raised

are preserved, once again with the

condition that our findings are

applicable only to the Michigan

Carpenters Council Health and

Welfare Fund. Michigan Carpenters

Council, supra, at pp 380-381.

. aa PUBLISHER'S }

ORIGINAL PAG}

Two of the Defendants, Charles J.

Rogers Construction Company

(Construction) and Chas. J. Rogers

Excavating, Inc. (Excavating) experienced

financial difficulties in July of 1979.

They petitioned the Circuit Court of

Genesee County for an arrangement of

unsecured creditors pursuant to the

Michigan Business Corporations Act; MCLA

450.1101-450.2098. An initial plan of

arrangement was approved by the required

creditors as spelled out in Section 204

of the Michigan Business Corporations

Act; MCLA 450.1204 (a majority in number

representing 3/4 in value) and approved

by the Genesee County Circuit Court on

March 22, 1980..

Construction and Excavating were

unable to perform the approved

arrangement and a second plan was

NATION ILS NOT CONTINUOUS.

proposed to the Genesee County Circuit

Court; a reorganization in which the

assets of Construction and Excavating

would be transferred to a new Michigan

Corporation, created by the second plan,

C. J. Rogers, Inc. (Inc.). Inc. was

incorporated on May 1, 1980. This second

plan was also approved in the manner used

for approval of the initial arrangement.

The reorganization required

Construction and Excavation to sell

their tangible corporate assets

(equipment) and assign there accounts

receivable, some inventory and their

uncompleted contracts to Inc. Inc.

purchased tangible assets at fair market

value, as distinguished from Salvage

value, by the issuance of promissory

notes and preferred stock. Inc. assumed

certain secured debt of Construction and

Excavating owed to a bank and ae bonding

company and other secured creditors

represented by a creditors committee.

Unsecured creditors were to be paid from

the receipts on promissory notes made by

Inc. to Construction and Excavating.

The funds trustees, who were the

plaintiffs in the action in district

court, were given notice of the

proceedings in the Genesee County Circuit

Court and attended hearings concerning

the proposals of the initial arrangement

and the subsequent reorganization, but

cid not participate in either of the

plans approved by the state court under

the authority of the Michigan Business

Corporations Act.

Two years after the plan for

reorganization was in operation and Inc.

was a going enterprise, the trustees of

the various funds started the action in

this case in the United States District

Court for the Western District of

Michigan seeking unpaid ERISA

contributions, interest, penalties,

liquidated damages and attorneys fees as

provided under ERISA Section 1132 (g)

(A), (B), (C), and (D). from Contruction,

Excavating, Inc., husband and wife,

Willaim H. Leoni and Joanne Leoni, who

held the stock of Construction,

Excavation and Inc., either directly or

indirectly, and two other construction

enterprises in which the Leoni's had an

interest.

During the proceedings on the claims

of the trustees of the several ERISA

funds in the United States District Court

for the Western District of Michigan, a

Temporary Restraining Order was issued

restraining any payment on the promissory

notes that were to be used to make

payments to unsecured creditors of

Construction and Excavating. This

Temporary Restraining Order was vacated

on August 29, 1985. The order vacating

the Temporary Restraining Order expressly

determined that the federal district

court was not assuming jurisdiction of

the reorganization plan in the state

court, jurisdiction for which was

determined to be in the Genesee County

Circuit Court. A copy of this order is

contained in the Appendix.

It was evident that the

reorganization plan approved by the state

court created Inc. to allow for a

continuation of the business activity of

Construction and Excavating to create

assets to pay creditors and to accomplish

this purpose it was necessary that Inc.

have no responsibility for the debts of

the reorganized corporations other

than through the plan. Thus, it was the

contention of the defendants, in the

district court and in the Court of

Appeals, that Inc. could have no

liability to the ERISA trust funds for

the cortributions owed to those funds’ by

Construction and Excavating. The lower

courts did not accept this contention

based upon a legal conclusion that the

provisions of Section 514 of ERISA; 29 U.

S.C. 1114 (a), directed the preemption of

the reorganization provisions of the

Michigan Business Corporation Act and the

determinations of the Genesee County

Circuit Court made pursvant thereto.

Because we believe such a conclusion is

not within the contemplation of Section

514 as it has been applied by this and

other courts, we bring this; Petition for

a Writ of Certiorari.

ARGUMENT

BECAUSE THERE IS NOTHING IN ERISA

THAT GIVES UNSECURED CREDITORS OF

CONTRIBUTORS TO ERISA BENEFIT

PLANS A PREFERRED STATUS BECAUSE

THE DEBT OWED IS FOR AN ERISA

CONTRIBUTION, A DETERMINATION OF

PREEMPTION OF STATE CORPORATE

REORGANIZATION LAW BY ERISA IS

NOT SOUND.

There have been numerous decisions

of this Court which have dealt with the

question of ERISA preemption of state

law. In determining that ERISA did

preempt Michigan corporate reorganization

law as contained in the Michigan Business

Corporations Act and applied by a state

court, the Sixth Circuit Court of Appeals

placed significant reliance upon the

recent decision of this Court,

Ingersol-Rand Co.v McClendon, U. S.

», lll SS. Ct. 476 (1990). We believe

that this reliance is misplaced.

There is no relationship which

creates a debt that does not

significantly concern the creditor with

the debtor's ability to pay. The

determination of the Court of Appeals,

933 F.2d at p 383, that a corporation in

state corporate reorganization would

affect the ERISA plans' ability to

measure the availability of funds and

calculate benefit levels, etc. is reason

to determine that preemption is required,

is not sound. Any factor which has

effect on ability to pay, has effect upon

the creditor's ability to plan and spend.

This does not make every generally

applicable state law dealing with the

debtor-credcitor relationship preempted

because the relationship arises in

connection with an ERISA plan.

In determining Ingersol-Rand, supra,

at 111 S. Ct. 483, Justice O'Connor

said:

Notwithstanding its breadth, we

have recognized limits to ERISA's

pre-emption clause. In Mackey Vv

Lanier Collection Agency & Service,

Inc,, 486 U. S. 825, 108 S. Ct.

2182, 100 L.Ed.2d 836 (1988) the

Court held that ERISA did not

preempt a State's general

garnishment statute even though it

was applied to collect judgements

against plan participants. Id., at

841, 108 S.Ct. at 2191. The fact

that collection might burden the

administration of a plan did not, by

itself, compel pre-emption.

Moreover, under the plain language

————

of § 514(a) the Court held that only

state laws that relate to *enefit

plans are pre-empted. Fort Halifax

Packing Co. v Coyne, 482 U. S. 1,23,

107 §.Ct. 2211,223-24, 96 L.Ed.2d 1

(1987). Thus, even though a state

law required payment of severance

benefits, which would normally fall

within the purview of ERISA, it was

not pre-empted because the statute

did not require the establishment or

maintenance of an ongoing plan.

Id.,at 12, at 107 S.Ct., at 2217-18.

Neither of these limitations is

applicable to this case. We are not

dealing here with a_generally

applicable statute that makes _ no

reference to, or indeed functions

irrespective of, the existence of an

ERISA plan. (Emphasis supplied) Nor

is the cost of defending this

lawsuit a mere administrative

burden. Here, the existence of a

pension plan is a critical factor in

establishing liability under the

State's wrongful discharge law. As

a result, this cause of action

relates, not merely to pension

benefits, but to the essence of the

pension plan itself.

Justice O'Connor, for the Court in

Ingersol-Rand, supra, at lll S.Ct. 482,

and previously in FMC _ Corporation Vv

Holliday, UU. S- ___ 111 S.Ct.

403, 407, relates that basic to the

resolution of a preemption question is

the intent of Congress. We submit that

it cannot be said with conviction that by

enacting ERISA, Congress | intended to

preempt generaily applicable state laws

of corporate reorganization dealing with

aiding a debtor corporation's ability to

meet its obligations.

an saan CU

There are decisions in addition to

the ones identified in the Ingersol-Rand

opinion, supra, which do not support the

preemption determination, here. By way

of example, and with no attempt at being

exhaustive, we point to two state court

of last resort cases that determined that

generally applicable statutes dealing

with the debtor-creditor relationship

were not preempted by ERISA. These cases

are Goben v_Barry, 703 P2d 1378 (Kan

1985) and Planned Consumers Marketing v

Coats and Clark, 522 NE2d 30 (Ct of App.

NY 1988). Of similar connotation is

Deiches v Carpenters' Health and Welfare

Fund, 572 F Supp 766 (D. NJ 1983).

Lastly, we wish to challenge the

determination of the Sixth Circuit Court

of Appeals regarding presuetice as it

relates to the provisions of ERISA

contained in 29 U. S. C. 1144(b)(2)(A)

that preemption is forbidden because the

law sought to be preempted deals with

"securities."

Our contention’ was dismissed by the

Sixth Circuit Court of Appeals by

reasoning that "securities" in the cited

provision concerned only the marketing of

securities, 933 F.2d at pp 383-384.

While we believe that giving a narrow

scope to a broad statutory definition is

questionable, assuming the scope of the

definition used by the Court of Appeals

to be appropriate; examination of the

provisions of Sectiuon 662 of the

Michigan Business Corporations Act; MCLA

450.1862 shows that these provisions do

deal with the marketing of securities

within the purposes of a corporate

reorganization.

RELIEF

WHEREFORE, Petitioner prays that a

Writ of Certiorari directed to the United

States Court of Appeals for the Sixth

Circuit be granted.

Respectfully submitted,

SOLNER & SOLNER, P. C.

Robert J. Solner

Attorneys for Petitioner

30300 Telegraph Road

Suite 280

Birmingham, Michigan

48010

(313) 647 8250

E. R. WHINHAM

Attorney, of counsel

321 S. Main Street

Suite 213

Ann Arbor, Michigan 48104

(313) 996 5530

INDEX TO APPENDIX

Decision of the Court of Appeals

of May 10, 1991 . .... +. .-+. 1a-62a

Order of District Court Vacating

Temporary Restraining Order of

August 9, 1985 . . . . ° . . . ° 63a-65a

District Court Findings of Fact

and Conclusions of Law of

November 20, 1985 ....... . 66a-155a

Opinion and Order of the District

Court of December 27, 1988 .. 156a-197a

District Court Judgment of December 27,

1988 a i . . . . . 7 ° . . . a 198a-20la

District Court Opinion and Order

Re Altering or Amending Judgment

of February 20, 1989 .... . 202a-216a

District Court Amendment to

Judgment of February 20, 1989 . 217a-218a

Statement as to Corporate Parent or

Subsidiary Relationship ...... . 219a

Appendix 1a

Nos. 89 1411/1412

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

In Re: MICHIGAN CARPENTERS

COUNCIL HEALTH AND WELFARE

FUND, et al.,

Plaintiffs,

TRUSTEES FOR MICHIGAN

CARPENTERS COUNCIL HEALTH

AND WELFARE FUND,

Plaintiff-Appellee,

Cross~Appellant (89-1412)

C.J. ROGERS, INC., a

Michigan Corporation, et al.,

Defendants,

CHARLES J. ROGERS

CONSTRUCTION, a Michigan

Corporation,

Defendant-Appellant,

Cross-Appellee (89-1411).

ON APPEAL from the

United States District

Court for the Western

District of Michigan

Decided and Filed May 10, 1991

2a Appendix

Before: KENNEDY, BOGGS and SUHRHEINRICH,

Circuit Judges.

SUHRHEINRICH, Circuit Judge. This case

involves an appeal and cross-appeal from a

final judgment that the Employee Retirement

Income Security Act of 1974 ("ERISA"), 29

U.S.C. §§ 1001-1461, preempted state

corporate reorganization law and _ that

various defendants were liable to the

plaintiffs below on an "alter ego" theory of

liability for contributions owed to the

plaintiff trust funds. For the reasons

stated below, we AFFIRM in part and with

respect to the district court's finding as

to liquidated damages, VACATE and REMAND in

part.

FACTS

Plaintiffs are ten voluntary

unincorporated trust funds’ established

Appendix 3a

pursuant to Section 302 of the Labor

Management Relations Act ("LMRA"), 29 U.S.C.

§ 186, and ERISA. The funds provide health,

retirement, and education benefits for

employee beneficiaries ‘of the defendant

corpora*ions. Plaintiffs brought this

action to collect $500,000 in alleged

arrearages and penalties, and to compel

defendants to keep current on their

contributions, under collective bargaining

agreements which obligated defendants to

make periodic contributions for the benefit

of their employees. Defendants, who are or

were all generally in the construction

business, included Charles J. Rogers

Construction Company ("Construction"), C.J.

Rogers, Inc. ("Inc."), Chas. J. Rogers

Excavating, Inc. ("Excavating"), and W.P.M.,

Inc., all corporations organized under

Michigan law; C.J. Rogers-Cooper, a joint

venture which operated in Michigan in the

mid-1970's; and William H. Leoni, a building

4a Appendix

contractor who is the president of Inc.,

Construction, and Excavating; and is also

the sole shareholder of LERO Corporation, a

holding corporation which owns a majority of

the shares of stock of Construction and

Excavating.

Both Excavating and Construction were

incorporated by Charles J. Rogers as small,

family-owned and ssevenes corporations.

Before 1975, controlling interests’ in

Excavating were held by Charles J. Roger's

two sons, Charles K. Rogers and Lawrence P.

Rogers, although other family members held

lesser amounts of stock. William H. Leoni

had been an employee of Construction since

1952, and until 1975, held a small block of

stock in Excavating.'

William H. Leoni Sr. is the son-in-law

of Charles J. Rogers.

Appendix 5a

In 1974, Excavating found itself in

financial straits and without operating

funds. Charles K. and Lawrence P. each

agreed to loan Excavating $100,000 in return

for promissory notes with face values of the

same amount and secured by Excavating's

accounts receivable. In addition, Leoni

assumed the role of active manager.

Difficulties continued and Leoni agreed to

buy out the positions of the other

shareholders in both Construction and

Excavating. It was at this time that LERO

Industries, Inc. was incorporated to be a

holding company for the stock of the two

Rogers' companies. According to the terms

of the agreement executed on May 20, 1975,

Excavating and Construction agreed to redeem

all outstanding shares of their stock for

$646,000, and Leoni personally guaranteed

the companies' obligations. The agreement

further provided that at the closing of the

deal, the debts to Charles K. and Lawrence

6a Appendix

P. would be discharged by payment to them of

$50,000 each.

Leoni became president of both companies

upon the sale and his wife, Joanne, became

the owner of 100% of Construction's stock

and 98% of Excavating's stock. At this

time, Joanne and William Leoni paid the

Rogers brothers $50,000 each for the

promissory notes pursuant to the terms of

the May 20, 1975 contract. Although the

agreement itself stated that the notes would

be discharged at the time of the closing,

the notes were actually assigned to the

Leonis, and remained outstanding debts of

Excavating. The promissory notes had been,

and continued to be, secured by Excavating's

accounts receivable.

The companies' financial difficulties

continued, leading them to petition the

Genesee County Circuit Court in Flint,

Michigan, in July of 1979 for an arrangement

of unsecured creditors pursuant to the

Appendix 7a

Michigan Business Corporations Act, Mich.

Comp. Laws §§ 450.1101-450.2098 ("the

Michigan Act"). Under Michigan law, if a

three-fourths majority of creditors in value

agree to a compromise, and receive the

sanction of the court to which application

was made, the compromise is binding on all

creditors of the corporation. Mich. Comp.

Laws § 450.1204. At that time, the state

judge enjoined all creditors of Construction

and Excavating from filing any suit against

the companies to collect debts owed and from

enforcing any lien against the defendant

companies. Among the numerous unsecured

obligations that had become delinquent were

contributions owed by defendants to

plaintiffs pursuant to collective bargaining

agreements between defendants and plaintiff

funds.

The plan of arrangement filed with the

circuit court proposed to pay off the

general unsecured creditors over varying

Ba Appendix

periods of time, with a 100% payoff to be

made to electing creditors over ten years.

In accordance with the state court's order,

the two companies notified all of their

creditors, both secured and unsecured, of

the reorganization and submitted a list of

these creditors to the court. The initial

plan of arrangement submitted jointly by

excavating and construction was approved by

the required three-fourths majority of the.

unsecured creditors, and by the state court

on March 22, 1980. Plaintiffs received

notice of the plan but did not participate

in the arrangement.

Construction and Excavating were unable to

perform the planned compromise and

arrangement. A second plan was then

proposed in the state court in which the

assets of the two companies would be

transferred to a new Michigan corporation,

C.J. Rogers, Inc. ("Inc."). This new plan

was approved by the required three-fourths

Appendix 9a

majority of the unsecured creditors and by

the state court. Inc. was incorporated on

May 1, 1980. Once again, plaintiffs

received notice of the second proposed plan,

but did not participate in the arrangement.

Inc. was capitalized in the following

manner. Both Excavating and Construction

sold all of their corporate assets and

assigned the accounts receivable, inventory,

and uncompleted contracts to Inc. Inc.

purchased these assets at their fair market

value in consideration for two ten-year

secured promissory notes given by Inc. to

Excavating and Construction. Construction

and Excavating were issued $1 million of

preferred stock with an indefinite

redemption period as payment for’. the

accounts receivable and inventory. In

addition, Joanne Leoni executed a

subscription agreement to purchase 200,000

shares of common stock of Inc. for either

cash or property. In return, she assigned

10a Appendix

to Inc. the two promissory notes that she

held as assignee of the Rogers brothers.

Each of the notes, as previously stated, had

a face value of $100,000 and were secured by

certain accounts receivable of Excavating.

Mrs. Leoni became the sole shareholder of

Inc.

Inc. called for payment of the

subscription agreement on October 14, 1980,

the date upon which the circuit court and

majority of the new creditors approved the

sale of assets to Inc. By this time, the

accounts receivable securing the two

promissory notes had been paid, thereby

fulfilling the precondition to Inc.'s

creation. The new plan was approved by a

majority of the new creditors and the state

court.

In May 1983, the plaintiffs filed this

action in federal district court seeing

unpaid contributions and injunctive relief

pursuant to collective bargaining agreements

Appendix 11a

with Construction and Excavating and from

Inc. and Leoni as alter-egos of these two

companies. On November 20, 1985, the

district court rendered its findings of fact

and conclusions of law as required by Fed.

R. Civ. P. 52(a), finding that: (1)

defendants were liable tc plaintiffs for

unpaid contributions, interest, liquidated

damages, and attorney fees under 29 U.S.C.

§ 1132(g) (2) (A), (B), (C) and (D); (2) Inc.

was the alter-ego of Construction and

Excavating; (3) defendant Leoni was not

personally liable for the unpaid

contributions; and (4) plaintiffs'

liquidated damages claims could not exceed

the 20% statutory limit of the delinquent

contributions of defendants, and that it was

irrelevant what type of assessments --

penalty or audit -- plaintiffs could have

levied against defendants. A final judgment

was entered in favor of plaintiffs for

unpaid contributions in the amount of

12a Appendix

$100,904.68, interest in the amount of

$96,643.56, liquidated damages in an amount

equal to the interest, together with

attorney fees, costs, and post judgment

interest. The district court denied the

defendants' motion to alter or amend the

judgment on February 22, 1989.

On appeal, the defendants assert that the

district court erred in holding that Inc. is

liable under an alter-ego theory of

liability; in applying ERISA rather than

state reorganization provisions; and in

refusing to offer equitable relief under 29

U.S.C. § 1132 (g) (2) (E). On cross-appeal

the plaintiffs allege error in the district

court's refusal to find defendant Leoni

personally liable. The plaintiffs further

allege that the district court erred in

holding that’ the liquidated damages

available under 20 U.S.C. § 1132 (g) cannot

exceed 20% of the total delinquent

contributions owed by the defendants. It is

Appendix 13a

also contended that the 20% referred to in

this section deals with an annualized figure

rather than a flat 20% of the amount of

contributions due and owing regardless of

the period that has elapsed between the time

they were due and the ultimate judgment

entered in the case.

II.

APPELLATE JURISDICTION

An initial matter is the extent to which

we may entertain jurisdiction over the

appeal and cross-appeal, given that both the

notices of appeal in this case merely

employe the term "et al." to designate the

respective appealing parties. Rule 3(c) of

the Federal Rules of Appellate Procedure

provides in pertinent part that "[tjhe

notice of appeal shall specify the party or

parties taking the appeal," and further

provides that "[{a)n appeal shall not be

14a Appendix

dismissed for informality of form or title

of the notice of appeal." [In Torres v. Oakland

Scavenger Co., 487 U.S. 312 (1988), the Supreme

Court held that use of the term "et al." to

designate parties to an appeal fails to

comply with the specificity requirement of

Rule 3(c), and that this failure creates a

jurisdictional bar: "“"[t]jhe failure to name

a party in a notice of appeal is more than

excusable ‘informality'; it constitutes a

failure of that party to appeal." 487 U.S.

at 314. In Minority Employees v. Tennessee Dep't of

Employment Sec. 901 F.2d 1327 (6th Cir.), cert

denied, 111 S. Ct. 210 (1990), we held that,

because the failure to specify a party is a

jurisdictional defect, we were required to

apply the decision in Torres retroactively.

Id.

The defendants filed their notice of

appeal on March 20, 1989, The relevant

portion of the caption reads as follows:

pe tm

Appendix 15a

"MICHIGAN CARPENTERS COUNCIL HEALTH &

WELFARE FUND, et al., Plaintiffs, v. et al.,

Defendants." The body of the notice states

as follows: "Notice is hereby given that

Defendants, Charles J. Rogers Construction

Company, et al., in the above case no. G83-

582 CA5, hereby appeal to the United States

Court of Appeals for the Sixth Circuit...."

Under Torres and Minority Employees, it is clear that

the only defendant properly before us in

this appeal is Charles J. Rogers

Construction Company ("Construction") since

it is the only party designated in the

caption and body of the notice of appeal.

The notice of cross-appeal, which is

governed by Rule 4(a)(3) of the Federal

Rules of Appellate Procedure, is similarly

defective. In the notice of cross-appeal,

the caption appears as follows: "TRUSTEES

FOR MICHIGAN CARPENTERS' COUNCIL HEALTH AND

WELFARE FUND, et al [sic], Plaintiffs, v.

16a Appendix

CHARLES J. ROGERS CONSTRUCTION CO., et al

[sic], Defendants;" and the body of the

notice states that "Notice is hereby given

that plaintiff TRUSTEES FOR MICHIGAN

CARPENTERS COUNCIL HEALTH, [sic] et al,

2 Under a Torres and

hereby cross-appeals....

Minority Employees analysis, the notice fails to

meet the specificity requirement of Rule

3(c), and therefore "constitutes a failure

of that party to appeal." While it could be

argued that the specificity requirement of

Fed. R. App. P. 3(c) applies only to the

initial notice of appeal, we conclude that the

broad language of Torres also encompasses Rule

4(a)(3). See Young Radiator Co. v. Celotex Corp., 881 2

F.2d 1408, 1416 (7th Cir. 1989) (noting that

“The original notice of cross-appeal

erroneously stated that "Defendant CHARLES

J. ROGERS CONSTRUCTION COMPANY, INC., et al

[sic]," was the party cross-appealing to

this court. The record reveals the counsel

for plaintiffs corrected that error on April

3, 1989, within the jurisdictional time

limits. See Fed. R. App. P. 4(a) (3).

Appendix 17a

the Torres opinion made clear that the

requirements of both Rules 3 and 4 must be

satisfied as to each party); Stockstill v. Petty Ray

Geophysical, 888 F.2d 1493, 1496 (5th Cir.

1989) (same). Our jurisdiction over the

cross-appeal is therefore restricted to the

only named party, the Michigan Carpenters

Council Health and Welfare Fund.

Having determined that the defendant

Construction is the only party properly

before us on the appeal, we further find

that all issues on appeal are preserved with

the exception of the claim that the district

court erred in finding that Inc. was the

alter ego of Construction and Excavating

Since Inc. failed to perfect its right to

appeal. However, our holders are subject to

the restriction that the outcome affects

only Construction. On cross-appeal, all

issues raised are preserved, once again with

the condition that our findings are

18a Appendix

applicable only to the Michigan Carpenters

Council Health and Welfare Fund (hereinafter

"Michigan Carpenters" or "the Fund").

III.

THE APPEAL

Construction's first argument on appeal is

that the district court erred in holding

that ERISA preempted Michigan's’ state

corporate reorganization laws. ERISA is a

comprehensive statutory framework which

governs the administration of private

employee pension and benefit plans. Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 525 (1981).

Section 514 of ERISA explicitly preempts

state law, providing in pertinent part that

"the provisions of this subchapter...shall

supersede any and all State laws insofar as

they may now or hereafter relate to any

employee benefit plan...." 29 U.S.C. §

1444(a). State laws are defined to include

"all laws, decisions, rules, regulations, or

Appendix 19a

other State action having the effect of

law...." 29 U.S.C. § 1144(c)(1). The

preemption provision is designed to

"‘provide for a uniform source of law,'"

Whitworth Bros. Storage Co. v. Central States,794 F.2d 221,

233 (6th Cir.) (quoting H.R. Rep. No. 93-533,

93d Cong., 2d Sess., reprintedin 1974 U.S. CODE

CONG. & ADMIN. NEWS 4655), cert. denied, 479

U.S. 1007 (1986), and is "‘intended to apply

in its broadest -sense to all actions of

State or local governments,' and to

‘reserv[e] to Federal authority the sole

power to regulate the field of employee

benefit plans.'" Kentucky Laborers District Council Health

and Weifare Fund v. Hope, 861 F.2d 1003, 1004 (6th

Cir. 1988) (quoting Shaw v. Delta Air Lines, Inc., 463

U.S. 85, 99 (1983).

In Shaw the Supreme Court held that "[a]

law ‘relates to' an employee benefit plan,

in the normal sense of the phrase, if it has

a connection with or reference to such a

20a Appendix

plan." Shaw 463 U.S. at 96-97 (footnote

omitted). Thus, not eniy are "state laws

specifically designed to affect employee

benefit plans," preempted, Shaw 463 U.S. at

98; but also any law that has_= any

"connection with or reference to" the plan.

Pilot Life Ins. v. Dedeaux, 481 U.S. 41, 47 (1987).

See also Hope, 861 F. 2d at 1004. The Supreme

Court recently reaffirmed this principle in

Ingersoll-Rand v. McClendon U.S. 111 S. Ct.

—— —_—— /

478 (1990), and FMC Corp. v. Holliday, _. U.S. __,

111 S. Ct. 403 (1990) (preemption clause is

conspicuous for its breadth). . See also Mackey v.

Lanier, 486 U.S. 825, 829-30 (1988).

Notwithstanding, the Supreme Court has

indicated that "[sjome state actions may

affect employee benefit plans in too

tenuous, remote, cr peripheral a manner to

warrant a finding that the law ‘relates to'

the plan." Shaw, 463 U.S. at 100 n.21;

——— /

Appendix 21a

See, e.g., Mackey, supra (ERISA did not preempt a

state's general garnishment statute); For

Halifax Packing Co. v. Coyne,482 U.S. 1 (1987)

(severance pay statute not preempted); Aetna

Life ins. Co. v. Borges, 869 F. 2d 142 (2d Cir.)

(state escheat law not preempted), cer.

denied,110 S. Ct. 57 (1989); Firestone Tire & Rubber

Co. v. Neusser, 810 F.2d 550, 556 (6th Cir. 1987)

(municipal income tax not preempted).

Under Michigan law, a corporation may

include in its articles of incorporation a

provision which allows the corporation or a

creditor or shareholder’ thereof, upon

proposal that a compromise or arrangement

plan of reorganization be effectuated

between any of the parties, to apply to a

court of equity jurisdiction within the

state to order a meeting of the creditors or

Class of creditors, or shareholders or class

of shareholders to be affected by the

proposed compromise or reorganization.

22a Appendix

Mich. Comp. Laws § 450.1204. fThe statute

further provides that:

If a majority in number representing

3/4 in value of the creditors ... to

be affected by the proposed

compromise or arrangement or a

reorganization, agree to a

compromise, or arrangement or a

reorganization of this corporation

@as a consequence of the compromise

or arrangement, ... if sanctioned by

the court ... shall be binding on

all the creditors or class of

creditors ... and also on this

corporation. id.

Section 205 states that when the provision

of Section 204 (Mich. Comp. Laws § 450.1204)

is included in the original articles of

incorporation or added by amendment, all

persons who become creditors or shareholders

thereof are bound by the provision. Mich.

Appendix 23a

Comp. Laws § 450.1205.° Once a plan of

reorganization has been confirmed by the

judgment of a court of competent

jurisdiction, Section 861 of the Michigan

Act authorizes the manner in which the plan

or reorganization may be carried out. It

states that such action by the corporation

"may be taken, as directed in the judgment,

by the receiver or trustee of the

corporation appointed in the reorganization

proceedings, or by any other- person

designated by the court." Mich. Comp. Laws

§ 450.1861. Finally, Section 862 creates

and defines the powers of corporation under

the judicially confirmed plan of

reorganization. Mich. Comp. Laws §

450.1862.

It is Construction's contention that the

state corporate reorganization laws are not

preempted by ERISA because they are not

24a Appendix

inconsistent with any specific ERISA

provisions and therefore do not defeat

ERISA's purpose of providing for the uniform

administration of employee benefit plans.

Specifically, Construction argues’ that

because ERISA is silent as to debtor-

creditor relationships when a plan is

solvent, it does not hinder the uniform

application of an administrative scheme such

as a state court reorganization plan.

In support of its argument, Construction

points out that ERISA contains specific

legislation to regulate employer withdrawals

from multiemployer pension plans. See

Multiemployer Pension Plan Amendments Act of

1980 ("MPPAA"), 20 U.S.C. § 1381. Thus,

from apparent congressional silence on the

issue of debtor-creditor relations when the

parties are solvent, Construction asks us to

infer that such state regulation is

permissible. This argument draws its force

Appendix 25a

from Mackey, supra, where the Supreme Court held

that a generally applicable state

garnishment law allowing creditors to

garnish ERISA welfare benefits was not

preempted. Noting that only pension funds

were protected from garnishment, the Court

held that it could be inferred from

congressional silence that the legislature

did not intend to extend a similar

protection for welfare benefits. J.

We do not find the instant situation

analogous to Mackey. Construction's argument

ignores the explicit language of section 515

of ERISA, which provides that every employer

who is obligated to make contributions to a

multiemployer plan under the terms of the

plan or collective bargaining agreement,

"shall to the extent not inconsistent with

law, make such contributions in accordance with the

terms and conditions of such plan or such agreement." 29

U.S.C. § 1145 (emphasis added). Further,

26a Appendix

pursuant to section 502(g), 29 U.S.C. §

1132(g), a trustee of a plan may bring an

action in federal district court to enforce

those obligations. The requirement of § 515

is mandatory and unconditional. We

therefore find that the Michigan Act

conflicts directly with the provision to the

extent it allows an employer unilaterally to

alter its obligation to the plan in

contravention of the contractually agreed-

upon terms. Nor does the fact that MPPAA

regulates employer withéwawsle from

multiemployer plans advance Construction's

argument. To the extent Congress wished to

allow an employer to alter his obligations

to a plan it enacted the MPPA, which

provides a comprehensive statutory scheme

regulating employer withdrawals from

multiemployer plans. We do not believe

3The MPPAA protects multiemployer plans

by requiring withdrawing employers to pay

the multiemployer fund a proportional share

of the fund's "unfunded vested liability,"

Appendix 27a

that an employer can avoid these stringent

requirements through mechanisms created by

state law.

Nor are we persuaded ‘by Construction's

citation to Fort Packing, supra, (Maine statute

requiring a one-time severance payment to

employees in the event of plant closings not

preempted because it neither established nor

required an employer to maintain an employee

welfare benefit plan, and involved little

more than a conditional one time obligation

of writing a lump sum check); _ Borges, supra,

(application of Connecticut's escheat law to

ERISA covered benefit checks and drafts that

had been issued but not collected not

preempted because state law had no effect on

insurance company's original determination

of eligibility for benefits and economic and

29 U.S.C. § 1381. The fund's trustees have

initial responsibility of determining all

employee's allocable share of the unfunded

vested benefit liability and to collect the

amounts due. 29 U.S.C. § 1382.

28a Appendix

administrative effect was therefore not

substantial enough to warrant preemption) ;

or Deiches v. Carpenters’ Health & Welfare Fund of Philadelphia,

572 F Supp. 766 (D.N.J. 1983) (New Jersey

preference statute which allowed a receiver

of an insolvent employer to avoid a

preferential transfer of delinquent

contributions owed to a welfare trust fund

not preempted by ERISA since statute merely

required return of certain employer's

contributions to a plan and did not have any

effect upon the rules, procedures or

policies of the ERISA plan). Unlike those

cases, each of which found that the effect

of state laws on ERISA plans was too tenuous

or remote to warrant preemption, we conclude

that the application of the Michigan Act to

the Fund would have a substantial ongoing

effect on the sdniniareetion of the employee

benefit plan affected by such an

arrangement. Rather than having the amount

Wiis.

Appendix 29a

of contributions owed by the employer

determined by the plan's’ trustee in

accordance with the parties' agreements and

applicable federal law, the state provisions

in essence shift those decisions to the

administrator of the corporate compromise or

reorganization. The amount of contributions

received would therefore be subject to the

presumable precarious financial condition of

the reorganized corporation; and necessarily

affect the plan's ability to calculate

benefit levels, make disbursements, and

monitor the availability of funds’ for

benefit payments. See Fort Halifax Packing, supra, 482

U.S. at 9. Thus, we conclude that the

district court did not err in treating the

Michigan Act as preempted by ERISA.

In the alternative, Construction argues

that the Michigan Act falls within an

30a Appendix

exception to ERISA preemption under the

"savings" clause, 29 U.S.C. § 1144(b) (2) (A),

which provides:

Except as provided in subparagraph

(B),* nothing in this subchapter shall

be construed to exempt or relieve any

person from any law of any State which

regulates insurance, banking, or

securities.

Construction cecntends’ that because a

reorganization or compromise effectuated

pursuant to the Michigan reorganization

provisions affects the rights of

shareholders, noteholders, and holders of

other debt instruments, all of which are

classified as securities, the provisions

"regulate ... securities." In support,

Construction cites the definitional section

of ERISA, which incorporates the definition

“29 U.S.C. § 1144 (b)(2)(B), the

"deemer" clause, is not relevant to the

instant appeal.

Appendix 31a

of "security" found in 15 U.S.C. § 77(b) (1)

of the Federal Securities Act of 1933.

Construction's argument is without merit.

Undisputedly, the provisions of the Michigan

Act "relate to" and "affect" securities

since the Michigan Act applies to

corporations, which are financed by

"securities" as broadly defined. Thus, any

statutory provisicn which redefines a

creditor's right in a corporation

necessarily has an impact upon "securities."

That is not to say, however, that the

iehiene Act was designed to "regulate

securities." To the contrary, the express

purposes of the Michigan Act are to simplify

and modernize the law governing business

corporations; provide a general corporate

form for the conduct or promotion of a

lawful business; and to give’ special

recognition to the legitimate needs of close

corporations. Mich. Comp. Laws § 450.1103.

Moreover, Michigan has adopted the Michigan

32a Appendix

Uniform Securities Act, which became

effective January 1, 1985.° This

legislation "‘is designed to protect the

public against fraud and deception in the

issuance, sale, exchange, or disposition of

securities within the State of Michigan by

requiring the registration of certain

securities and transactions.'" People v.

Dempster, 396 Mich. 700, 704 (1976) (quoting

Schmidt & Cavitch, MICHIGAN CORPORATION LAW,

1071 (1974). Thus it is clear that the

Michigan Act does not "regulate securities"

within the meaning of the savings clause.

Construction's second argument on appeal

is that the district court erred in refusing

°The Michigan Uniform Securities Act

replaced the 40-year old Michigan Blue Sky

Law, 1933 PA 205. The Michigan Act

substantially tracks the language of the

Uniform Securities Act. -People v. Dempster, 396

Mich. 700, 704 (1976).

rel

tet Maen att .

Appendix 33a

to grant it "other equitable relief"

pursuant to 29 U.S.C. § 1132(g)(2)(E). The

section provides in pertinent part that in

any action brought by a fiduciary on behalf

of a plan to enforce section 1145, the court

shall award the plan "such other legal or

equitable relief as the court deems

appropriate." 29 U.S.C. § 1132(g) (2) (E).

Specifically, Construction argues that the

district court failed to give appropriate

equitable relief by refusing to assume

jurisdiction over the state reorganization

plan, and by awarding the plaintiff funds

full return of their ‘claim of unpaid

contributions, interest, liquidated damages,

costs and attorney fees; a recovery four to

five times greater than other unsecured

creditors of Construction and Excavating

will receive on their claims. First, it is

clear from the unequivocal language of

section 1132(g) (2) (E) that equitable relief

is discretionary. To paraphrase the

34a Appendix

section, the district court is not required

to grant equitable relief unless and until

it deems equitable relief appropriate.

Second, given our disposition of the

preemption issue on appeal, and _ the

liquidated damages issue on cross-appeal, we

conclude that the district court did not err .

in denying equitable relief.

rein rere |

THE CROSS APPEAL ~

On cross-appeal, Michigan Carpenters

argues that the district court erred in

refusing to "pierce the corporate veil" to

find defendant William Leoni personally

liable for the willful signing of collective

bargaining agreements on behalf of inactive

company assets from Construction and

Excavating to Mrs. Leoni for capitalization

of Inc.

A corporation is presumed to be a separate

entity from its shareholders. Laborers’ Pension

Trust Fund v. Sydney Weinberger Homes, 872 F. 2d 702,

704 (6th Cir. 1988) (citing Contractors Laborers,

Teamsters & Engineers Health and Welfare Plan v. Hroch, 757

F.2d 184, 190 (8th Cir. 1985)). The

corporate veil may be pierced, however, if

the court finds "‘substantial reasons for

36a Appendix

doing so'" after weighing the following

factors: "(1) the amount of respect given

to the separate entity of the corporation by

its shareholders; (2) the degree of

injustice visited on the litigants by

recognition of the corporate entity; and (3)

the fraudulent intent of the incorporators."

Weinberger Homes, 872 F.2d at 704 (citation

omitted).® This court has also noted that

"deference to the corporate form may be

particularly inappropriate in relation to

ERISA because Congress enacted ERISA in part

to protect employees who were being deprived

of anticipated benefits by a corporate

sham." Weinberger Homes, 872 F.2d at 705

In Weinberger Homes, the court provided a

nonexhaustive list of specific factors

including undercapitalization of the

coloration, the maintenance of separate

books, the separation of corporate and

individual finances, the use of the

corporate formalities and finally, whether

the corporation is a sham. 872 F.2d at 704-

05 (citation omitted). See also N.L.A. B. v. Fullerton

Transfer & Storage Ltd, 910 F.2d 331, 380 n. 13

(1990).

Appendix 37a

(citing Almanv. Danin, 801 F.2d 1, 3-4 (1st Cir.

1986).

On appeal, we review the district court's

findings of fact under a clearly erroneous

standard of review. Fed. R. Civ. P. 52;

Anderson v. City of Bessemer, N.C., 470 U.S. 564 (1985).

"If the district court's account of the

evidence is plausible in light of the record

viewed in its entirety, the court of appeals

may not reverse it even though convinced

that had it been sitting as the trier of

fact, it would have weighed the evidence

differently. id. at 573-74. When findings

of fact are based upon assessments of

witness credibility, "even greater

deference" to the finder of fact is

warranted, "for only the trial judge can be

aware of the variations in demeanor and tone

of voice that bear so heavily on the

listener's understanding of and belief in

what is said." id. at 575.

38a Appendix

In support of its claim, Michigan

Carpenters contends first that on several

occasions defendant Leoni intentionally

signed the wrong corporate entity to a

collective bargaining agreement. The

plaintiff claims that in November 1980,

Leoni signed collective bargaining

agreements under the names of the old

companies. Excavating .and Construction,

with full knowledge that these companies had

been inactive since May 1980. It is further

alleged that on February 6, 1981, Leoni

personally signed the collective bargaining

agreement for defendant Excavating when he

knew the company was not in business.

Michigan Carpenters also alleges that Leoni

Clearly testified that his purpose was to

gain "an advantage for the company," which

the plaintiff argues was that the company

would later claim that no such agreement

existed and therefore no fringe benefits

were owed.

We ne Le

Appendix 39a

At trial, Leoni testified that the union's

business manager, Gerald R. Hall, requested

him to sign the agreement for "Rogers,

Inc.", and that he did so with full

knowledge that the company was dormant and

not actively in business. It was Leoni's

position that this contract executed on

behalf of Excavating, should not bind Inc.

Hall, on the other hand, testified that he

had asked Leoni to sign on behalf of the

"new Rogers company." The district court

noted that if Hall's testimony were fully

credited, it tended to show that Leoni

knowingly attempted to deceive Hall by

signing for a company which Leoni knew was

not active. The court observed, however,

that Hall later testified that he believed

Leoni to be a man of his word and did not

believe Leoni set up Inc. to evade his

fringe obligations. In addition, Hall

testified that he knew a new Rogers company

had been formed and that he believed "Chas.

40a Appendix

J. Rogers Inc." was the name of the new

company, but that he never asked, nor did

Leoni inform him of the new company's name.

Hall also stated that he had seen paychecks

with the names "Chas. J. Rogers Inc." and

"C.J. Rogers Inc." during the period of

April to September 1980. Furthermore, Hall

testified that it would have been reasonable

for Leoni to assume that he, Hall, knew as

of February 1981, that C. J. Rogers, Inc.

was the name of the new company.

On the basis of this testimony, the.

district court held that the plaintiffs

below failed to show that Leoni acted with

specific intent to deceive Hall. The court

found that despite the plaintiffs' emphasis

on Leoni's willingness to take advantage of

Hall's ignorance of the new company's name

in order to avoid creating contractual

obligations for the new Inc., Hall himself

conceded the adversarial nature of employer-

union relationships. The court also stated

ner ain Se dh Neher hls nig rk bbe DDT Ere ehe oo A bee

a inline ist te

Appendix 41a

in light of the confusion hint attended

Inc.'s creation, it was not surprising that

Hall might have been confused as to the name

of the new corporation, and that he might

very well have asked Leoni to sign for

Excavating, although intending to sign up

Inc. The court further held that it was not

implausible that Leoni sincerely believed

Hall to be requesting» a contract with

Excavating, as various witnesses testified

that, although dormant, the two old

companies could indeed recommence active

operations. Thus, the court was unwilling

to find fraud from "what may be

characterized as sharp business practices,

especially where there may have been some

negligence on the part of Hall in not

knowing the correct name of the entity with

which he was trying to secure a contract."

Upon review of the record, we find that the

district court's findings of fact are

supported by the record as a whole, and are

42a Appendix

not clearly erroneous. - Moreover, we are

especially hesitant to set aside the

district court's findings when they are

based on credibility determinations of the

witnesses. Anderson, supra, 470 U.S. at 575.

Next, Michigan Carpenters asserts that

Leoni testified falsely before the state

court judge that he was the sole shareholder

of Excavating and Construction, since he

owned slightly less than 100% of the shares

of each company. With respect to this

allegation, the district court noted also

that witness Rene Ortlieb, the attorney who

represented Construction, Excavating and

Inc. during the state court reorganization,

in his statements to the state court judge,

also referred to Leoni as the "sole

shareholder." The district court found that

this was not a material misrepresentation,

since the state court judge was attempting

to elicit from Leoni concurrence in the

Appendix 43a

representations made that day by Ortlieb,

the majority of which concerned other

details of the reorganization. We find no

basis in the record to disturb that finding.

Michigan Carpenters' third contention is

that during the reorganization, the

defendants obtained a restraining order

preventing all creditors from collecting

obligations owed by the various defendants,

and that while that order was in effect,

Gefendant Leoni, according to his own

testimony, paid over to Inc. for the benefit

of Mrs. Leoni approximately $200,000 from

the accounts receivable of the old

companies, which she now claims is her

capital contribution to Inc. The Fund

contends that not only did Mrs. Leoni not

file a claim with the state court, she was

not even listed as a creditor. It argues

that defendant Leoni's own exhibit reflects

that the note was canceled at the real

estate closing in 1975. In addition,

44a Appendix

Michigan Carpenters asserts that even if

Mrs. Leoni did receive the note, it was

unenforceable and therefore invalid

consideration for the new stock, since at

the time it was paid in September 1980 it

was not enforceable under the applicable

statute of limitations. Finally, the Fund

points out that the note in question had

been carried on the corporate books as a

"note payable-officer", and that Mrs. Leoni

was never an officer, and that the note was

payable to husband and wife.

We find no support in the record for the

Fund's argument. Tne initial order signed

by the state court judge enjoined all

creditors from enforcing their debts "until

further order of the Court." There was

testimony at trial that the restraining

order was issued in part to allow the

companies to work out a plan of arrangement.

The state court approved the proposal to

create Inc. at a hearing held on October 14,

Appendix 45a

1980, based on representations by Ortlieb

that all creditors had been apprised of the

proposal and that most had approved. The

district court specifically found that the

Oversight Committee's recommendation to the

state court judge to approve the sale of

assets was based on full knowledge of the

transaction by which the notes’ were

assigned. The court based this conclusion

on testimony elicited from the accountant

who prepared the financial statements of the

two companies during the pertinent time

period, the attorney who was responsible for

the mechanics of Inc.'s incorporation and

the attorney for the Oversight Committee.

With regard to the plaintiff's contention

that these notes were surreptitiously

diverted to Inc. without the knowledge or

consent of the creditors or the state court,

the district court found, and we agree,

that:

[T]he evidence simply does not support

46a Appendix

that claim; if anything, the evidence

solidly supports the finding that the

transaction was scrupulously monitored

by the creditors of the two companies

and that their financial affairs were

laid naked to all who had an interest

in them. It simply strains credibility

to find that the attorneys,

accountants, and the large creditors,

were unaware of the transaction, or,

which must be plaintiffs' theory, that

they somehow conspired to divert the

notes to the Leonis' benefit.

Further, testimony at trial indicated that

the notation "note payable--officer" was

made as an accounting convention. As

correctly noted by the district court, the

fact that the statute of limitations had run

on the two demand notes did not erase the

debt but merely prevented the creditor from

enforcing his rights. SeeA Corbin, CORBIN

Appendix 47a

ON CONTRACTS § 8 (1963) (stating that a

perfectly valid contract may become

naa eer 5 DBs

unenforceable by virtue of the statute of

limitations but that the expiration of the

period fixed by the statute does not make

such a contract void but merely

unenforceabie).

Finally, the district court also found as

to Inc. that the evidence showed that it was

adequately capitalized. In reaching this

conclusion the court relied on the testimony

of a corporate law expert that the $200,000

invested by Mrs. Leoni was’ sufficient

capitalization for Inc., since it allowed

the company to obtain minimal bonding.

Further, the district court stated that the

$200,000 investment plus Inc.'s deferred-

free credit rating enabled it to prequalify

for $20 million dollars worth of state work.

The plaintiffs offered no rebuttal

testimony. In light of the foregoing, we

find no basis for reversing the district

Jiteacneaatimeiennstiemenil

48a Appendix”

court's decision with respect to defendant

Leoni.

Michigan Carpenters' second issue on

cross-appeal pertains to the district

court's ruling on liquidated damages.

Plaintiffs argued below that unpaid

contributions in the amount of $187,363.73

' and liquidated damages representing both

late payments and audit assessments in the

amount of $284,594.00 were due and owing.

The district court noted that the liquidated

damages requested by the plaintiffs would

amount to roughly 150% of the unpaid

contributions. It ruled that such an amount

was in excess of that permitted by 29 U.S.C.

§ 1132(g), since liquidated damages may not

exceed 20% of unpaid contributions. The

district court also held that it was

irrelevant what type of assessment - late

payment or audit - plaintiffs might have

Appendix 49a

levied against the defendants, because the

effect was still the same.

In its findings of fact and conclusions of

law the district court did not determine

exactly how much was owed by whom, which

particular contracts were binding upon which

company, or make findings regarding whether

in some instances the contributions had in

fact been paid. Instead, the court simply

asked the parties to submit itemized

statements of damages, interest, and

liquidated damages pursuant to the court's

rulings and 29 3.S.C. § 1132(g)(2). After

adjustments not relevant to the instant

appeal. the court | awarded unpaid

contributions in the amount of $100,904.68,

prejudgment interest on the unpaid

contributions in the amount of $96,643.56,

and an amount equal to the interest as

liquidated damages.

On cross~appeal Michigan Carpenters argues

that the late payment assessments requested

50a Appendix

are for contributions that were voluntarily,

but untimely, made by the defendants. Thus,

the underlying contributions against which

the late payments are assessed are allegedly

not a part of the court's "unpaid

contribution" figure. Likewise, Michigan

Carpenters assets that the audit assessments

are also based on contributions that in some

instances have already been made. Michigan

Carpenters therefore claims that its right

to collect these amounts is independent of

its right to collect liquidated damages on

the unpaid contributions mandated by 29

U.S.C. § 1132(g) (2) (C).’

Michigan Carpenters' allegations require

us to determine whether the Fund is entitled

to liquidated damages in the form of audit

or late payment assessments - in addition to

those authorized by section 1132(g). Before

7In the complaint, the plaintiffs

sought separate relief under ERISA and the

various collective bargaining agreements.

Appendix 51a

we can determine whether the Fund is

entitled to contributions outside of section

1132(g), we must analyze the scope of the

term “unpaid contributions" as it is found

in that section. Statutory interpretation

is a question of law subject to a de novo

OO em ee A ERS OO es ow

review by this court. /nreVause 886 F.2d 794,

798 (6th Cir. 1989). In construing the

statute, we must attempt to "ascertain the

intent of Congress." jd. (citation omitted).

Section 502 and 515 of ERISA, 29 U.S.C. §§

1132 and 1145, as amended by the

Multiemployer Pension Plan Amendments Act

("MPPAA"). Pub. L. No. 96-364, 94 Stat. 1208

(codified in scattered sections of 5, 26, &

29 U.S.C.) of 1980, §§ 1132(g) and 1145,

govern the enforcement of employer

contributions to employee pension and

welfare trust funds. These sections provide

a statutory remedy for a trust’ fund

fiduciary suing to collect unpaid plan

a le

52a Appendix

contributions and até cesigned to "‘promote

the prompt payment of contributions and

assist plans in recovering the costs

incurred in connection with delinquencies. '"

Central States, Southeast and Southwest Areas Pension Fund v. Alco

Express Co, 522 F. Supp. 919, 928 (E.D. Mich.

1981) (quoting Staff of Senate Comm. on

Labor and Human Resources, 96th Cong., 2d

Sess., Ss. 1976, The Multiemployer Pension Plan

Amendments of 1980: Summary and Analysis of Consideration

(Comm. Print. 1980) at 43-44).

Section 515 provides:

Every employer who is obligated

to make contributions to a

multiemployer plan under’ the

terms of the plan or under the

terms of a collectively bargained

agreement shall, to the extent

not inconsistent with law, make

such contributions in accordance

with the terms and conditions of

Appendix 53a

such plan or such agreement.

ded, tee

29 U.S.C. § 1145. Section 515 is reinforced

by the remedial provisions of ERISA section

502(g):

(2) In any action under this

subchapter by a fiduciary for or on

behalf of a plan to enforce section 1145

of this title in which a judgment in

favor of the plan is awarded, the court

shall award the plan-

(A) the unpaid contributions,

(B) intergst on the unpaid

contributions,

(i) interest on the unpaid

contributions, or

(ii) liquidated damages provided

for under the plan in an amount’

not in excess of 20 percent (or

such higher percentage as may be

lie eae ential

54a - Appendix

permitted under Federal or State

law) of the amount determined by the court under

subparagraph (A),

(D) reasonable attorney's fees and

costs of the action, to be paid by the

defendant, and

(E) such other legal or equitable

relief as the court deems appropriate.

For purposes of this paragraph,

interest on unpaid contributions shall

be determined by using the rate

provided under the plan, or, if none,

the rate prescribed under section 6621

of Title 26.

29 U.S.C. § 1132(g) (2) (emphasis added).

The language of Section 1132(g) is

mandatory, and once the provision applies,

the district court must award liquidated

damages. See, e.g., Idaho Plumbers & Pipefitters v.

United Mechanical Contractors, Inc., 875 F.2d 212, 215

(9th Cir. 1989); Central States, Southeast and Southwest

Appendix 55a

| Areas Pension Fund v. Gerber Truck Serv., Inc., 870 F.2d

1148, 1156 (7th Cir. 1989); feneigemeted ins. Fund

v. Sheldon Hall Clothing, 862 F.2d 1020, 1023 (3rd

Cir. 1988), cert. denied, 490 U.S. 1082 (1989);

Penn Elastic Co. v. United Retail & Wholesale Corp., 792 F.2d

oon os «ae Cis. 1986). The section

provides that upon "a judgment in favor of the

plan" the court shall award the plan the

unpaid contributions" and "interest on the

unpaid contributions." 29 U.S.C. § 1132(g)

(2) (A) & (B). Thus, it is clear that the

provisions of that section apply only if

there were unpaid contributions on the date

of the award. In reaching this conclusion

we reject the decisions of those courts

which state, often in dicta, that the

provisions of section 1132(g)(2) apply at

the time suit if filed. See, Idaho Plumbers &

Pipefitters, 875 F.2d at 215; Carpenters & Joiners Welfare

Fund v. Gittleman Corp., 875 F.2d 476, 478 (8th Cir.

1988) ; Carpenters Health and Welfare Fund of Philadelphia and

L a

56a Appendix

Vicinity v. Building Tech. Inc., 747 F. Supp. 288 (E.D. Pa.

1990); Bennett v. Machined Metals Co, 591 F. Supp.

600, 605-06 (E.D. Pa. 1984); Trustees of the Glaziers

Local 963 Pension, Welfare and A prentice Funds v. Walker and

Laberge Co. Inc, 619 F. Supp. 1402. 1405 (D.C.

Mad. 1985). See also dhileeiie Amended and Restated

Health Benefit Fund v. John Ryan Construction Co., 767 F.2d

1179, 1174 (5th Cir. 1985) (reasoning that

a "judgment in favor of the plan" included

district court's judgment in plans' favor on

ancillary points so as to trigger mandatory

assessment of § interest, penalty, and

attorney ‘fees where plans sought both unpaid

contributions and ancillary relief, despite

the fact that the employer paid the

delinquent contributions before judgment).

We further hold that | as to liquidated

damage assessments which are keyed to these

"unpaid contributions," the remedy offered

by section 1132(g) is exclusive. To recover

liquidated damages outside of and in

Appendix 57a

addition to the statutory frame work of

section 502(g) with its 20% limitation would

allow a more expansive remecy than that

authorized by the Congress. Thus, to the

extent that the Fund's late payment and

audit assessment figures reflect assessments

based upon contributions which were still

unpaid at the time judgment was awarded,

recovery of these amounts is barred, and the

Fund's recovery is limited to those

liquidated damages allowed under section

1132(g) (2).

This returns us to the precise issue

raised by Michigan Carpenters: whether

Michigan Carpenters is entitled to late

payment or audit damages which reflect ~%

assessments based on contributions which

were untimely, but ultimately paid prior to

judgment.® Section 1132(g)(2) does not

Sat trial, the plaintiffs presented

evidence that delinquent contributions were

assessed on either late payment liquidated

damages or audit assessments, but not both.

—

58a Append:

explicitly cover this situation. Each case

which has dealt with the issue has held that

delinquent contributions do not qualify as

"unpaid contributions" and _ liquidated

damages are not recoverable under 29 U.S.C.

§ 1132(g) (2) (C) (ii). See Idaho Plumbers, supra,;

Gittleman, supra; Building Tech, supra; Glaziers, supra; Bennett,

supra. In Gittleman, the Eighth Circuit further

ruled that liquidated damages were also not

recoverable under a collective bargaining

agreement on the grounds that "(t]he detail

and comprehensiveness of the section

1132(g)(2) remedy supports the conclusion

that it was meant to supplant any remedy

that other wise would be available." 857

F.2d at 479 (internal quotation omitted).

By contrast, in Glaziers, the district court

held that liquidated damages for all

Thus, there would be no "double recovery" of

liquidated damages on a delinquent

contribution.

Appendix 59a

contributions paid in an untimely manner

) were recoverable as mandated by the

| operative collective bargaining agreements.

619 F. Supp. at 1805. The court did not

discuss ERISA preemption. In Bennett, the

court held that the plaintiff plans were not

entitled to liquidated damages on untimely

contributions, declining to extend section

1132(g) (2) (C) (ii) to untimely payments. 591

F. Supp. at 605-06. The court did not

discuss a contractual theory of liability.

The most comprehensive treatment of this

issue is found in the Ninth Circuit's

decision in /daho Plumbers, supra. -There the court

concluded that federal common law principles

apply to determine the enforceability of a

liquidated damages provision under a labor

agreement. 875 F.2d at 216-17 (quoting H.R.

Rep. No. 869, 96 Cong., 2d Sess. (1980)

(Part II), reprinted in 1980 U.S. CODE CONG. &

ADMIN. NEWS 2918, 3037-38) (emphasis

iil

60a Appendix

supplied by /daho Plumbers court). See also 126

Cong. Rec. H7899 (daily ed. Aug. 16, 1980)

(statement of Representative Thompson). The

court therefore concluded that "Congress

intended only to preempt laws limiting

liquidated damages to an amount below the

20% level when the terms of 1132(g)(2) are

satisfied." ld. at 217. (emphasis in

original). Seealso Central States, $22 F. Supp’ at

928 (quoting remarks of Representative

Thompson regarding H.R. 3904 in the floor

debate of the House).

We agree with the reasoning and conclusion

of the Ninth Circuit in /daho Plumbers that a

fund has a valid claim for late payment

and/or audit damages pursuant to its

collective bargaining agreements with

defendants, not covered by section 1132(g).

We caution, however, that in assessing

liquidated damages to those contributions

not covered by section 1132(g)(2), the

Appendix 61a

district court should examine whether the

liquidated damages provisions in the

- en eee Saag cearweaernsieds. de

operative collective bargaining agreements

constitute a penalty under federal common

law. See /ldaho Plumbers, 875 F.2d at 217-18.

We now turn to Michigan Carpenters' final

contention. The Fund argues that the 20%

figure referred to in section 1132(g) (2)

basis. In essence, Michigan Carpenters is

asking the court to allow recovery of

liquidated damages of up to 20% annually.

Nothing in section 1132(g) (2) (c) (ii) or its

legislative history, however, suggest that

liquidated damages should be assessed on a

perannum basis. See Bennett, 591 F. Supp. at 607.

We therefore decline to adopt such an

interpretation in the absence of explicit

language authorizing it.

For all the foregoing’ reasons, the

judgment of the district court is affirmed

—

62a Appendix

as to the issues raised in the appeal. As

for the issues raised in the cross-appeal,

the district court's conclusions regarding

defendant Leoni are affirmed. On the

liquidated damages issue, we VACATE and

REMAND the district court's judgment and

order and direct that it make findings of

fact as to damages in accordance with our

holdings on the liquidated damages issue.

The district court's findings are to be

limited to Michigan Carpenters.

Appendix 63a

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION - GRAND RAPIDS

MICHIGAN CARPETERS COUNCIL

HEALTH & WELFARE FUND, et al.,

Plaintiffs,

CHARLES J. ROGERS CONSTRUCTION

COMPANY, et al.,

Defendants.

64a Appendix

At a session of said

court, held on the 9th

day of August, 1985

PRESENT: HONORABLE WENDELL A. MILES,

Chief U.S. District Judge

THIS MATTER having come before the Court

upon request by the Defendants Construction

and Excavating to lift the Court's prior

restraining Order and any extensions the

last of which were dated June 3, 1985, all

parties being present, and the Court being

ctherwise informed;

IT IS HEREBY ORDERED that the temporary

restraining order as aforementioned is

HEREBY VACATED, for the reason that

Defendants Excavating and Construction have

agreed to notify and send to Plaintiffs'

counsel 10 days prior to the hearing date,

the written proposed modification for

review. The Defendants will notify

Plaintiffs' counsel of the date and time

upon which the proposed modification will be

submitted to Judge Harry B. McAra of the

Meets \a- weeny

Appendix 65a

Genesee County Circuit Court for his

approval;

IT IS FURTHER ORDERED that the Court is

expressly not assuming jurisdiction of the

reorganization plan, which jurisdiction is

with Judge Harry B. McAra in the Genesee

County Circuit Court.

Dated:

WENDELL A. MILES, Chief

U.S. District Court Judge

APPROVED AS TO FORM

AND CONTENT Dated:

GEORGE R. HAMO

APPROVED AS TO FORM

AND CONTENT Dated:

GEMRICH, MOSER, -

DOMBROWSKI, BOWSER & FETTE

By:

EDWARD FREEBERG

66a Appendix

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

MICHIGAN CARPENTERS

COUNCIL HEALTH AND

WELFARE FUND, et al.

Plaintiffs, No. G83-582 CA5

Vv.

CHARLES J. ROGERS og

CONSTRUCTION et al. OF LAW

Defendants.

Plaintiff[{s] are voluntary unincorporated

trust funds established pursuant to section

302 of the Labor Management Relations Act,

29 U.S.C. § 186, and the Employee Retirement

Income Security Act (ERISA), 29 U.S.C. §

1001, et seg., and provide a variety of

pension, health, and welfare benefits to

employees throughout the state by means of

employer-funded contributions. Plaintiffs

brought this action to collect $500,000 in

alleged arrearages and penalties, and to

compel defendants to keep current on their

Appendix 7a

contributions, under collective bargaining

agreements which purportedly obligate

defendants to make periodic contributions

for the benefit of defendants' employees.

The matter was tried before the Court,

sitting without a jury, over eleven trial

days. The Court heard testimony from twenty

witnesses, and received into evidence well

over two hundred exhibits, the majority of

which were documents consisting of many

pages and varying degrees of complexity.

The Court has taken copious notes at trial,

has read the entire transcript and all

depositions, and has reviewed all of the

evidence submitted by the parties. The

following shall comprise the Court's

findings of fact and conclusions of law,

required by Fed. R. Civ. P. 52(a). Before

doing so, however, the Court would like to

compliment the parties on an exceptionally

well-tried case. Trial of this matter was

spread out over seventeen months, imposing

68a Appendix

not inconsiderable burdens upon counsel, the

witnesses (some of whom were frequently

recalled for testimony), and the Court in

terms of juggled schedules, interrupted

concentration, reassembled exhibits, and

long distances traveled.

Additionally, the issues and factual

circumstances involved were highly complex,

requiring of the parties and the Court the

highest attention to detail, the patience to

develop end redevelop particularly difficult

areas, and the mental agility to deal

intelligently with unexpected evidentiary

turns. The parties and counsel have

conducted this litigation in a spirit of

courtesy and cooperation, for which the

Court commends then.

Findings of Fact

i. Defendants Charles J. Rogers

Construction Company; C.J. Rogers, Inc.;

Chas. J. Rogers Excavating, Inc.; and

W.P.M., Inc. are corporations organized

Appendix 69a

under the laws of Michigan. Defendant C.J.

Rogers-Cooper is a joint venture which

operated in Michigan in the mid-1970s.'

Defendant William H. lLeoni, Sr. is a

building contractor and is the president of

ING< Construction, and Excavating.

Additionally, Leoni is the sole shareholder

of LERO Corporation, a holding corporation

which owns a majority of the shares of stock

of Construction and Excavating. (Ex. 67 and

70).* Defendant W.P.M. is a corporation

shareholder [as] are Leoni, Sr.'s sons

William H. Leoni, Jr., Patrick Leoni, and

Michael Leoni. Leoni, Jr. is the president

of W.P.M.

2. All defendants are, generally, in the

building construction business. Excavating

was incorporated in 1932 by Charles Rogers*

to engage in trucking, hauling, excavating,

and general contracting business.

Construction was incorporated at some time

prior to 1964* and also engaged in the

70a Appendix

general contracting business. There were

some significant differences in the work

performed by the two companies, however, as

Construction primarily performed piling,

paving, and tunnel work, not done by

Excavating, whereas Excavating was primarily

involved in trucking and road building.

Inc. was incorporated on May 1, 1980 and

performs substantially the same types of

work as Construction and _ Excavating.

Rogers-Cooper was a joint venture formed in

the mid-1970's to perform certain specific

construction contracts. Construction

collaborated with Cooper Construction

Company on approximately five contracts

until the joint venture entity ended in

1978. W.P.M. was incorporated on October

20, 1978. (Ex. W). Although its Articles of

Incorporation state that its purpose is to

engage in, inter alia, the general

construction and excavation contracting

business, W.P.M. operates on a smaller scale

Appendix . 71a

than the other Rogers companies. (Tr. IX,

6-91).° W.P.M. also subcontracts or engages

in joint ventures with Cliff's United

Development, a minority contractor, in order

to satisfy state minority contracting

requirements.

3. The events leading up to Inc.'s

incorporation from the background to this

lawsuit. The Court believes it necessary to

relate these facts in order to understand

the instant dispute.

4. Both Excavating and Construction were

incorporated as small, family-owned and

operated corporations. (Exs. 66, 70; Tr.

Iz, 3-8). Before 1975, controlling

interests in Excavating were held by Charles

Rogers' two sons, Charles K. Rogers and

Lawrence P. Rogers, although other family

members held lesser amounts of stock. (Ex.

L4). William H. Leoni had been employed by

Construction since 1952,° and, until 1975

held a small block of stock in Excavating.

72a Appendix

5. In 1974 Excavating found itself in

financial straits and had no operating

funds. One of its major creditors, the

National Bank of Detroit ("NBD") insisted

that Excavating's shareholders advance money

to the company. Larry and Chuck Rogers thus

loaned $100,000 each to Excavating in return

for promissory notes. (Deposition of

William Martz, pp. 9-11).’

6. Management difficulties remained

unresolved, however. To restore Excavating

to profitability, Excavating's bonding

‘company, Aetna, required Leoni to assume the

role of active manager. This move was less-

than-satisfactory, due to intrafamilial

quarrels between Excavating's shareholders,

and it was determined that consolidation of

ownership of the company was the best way to

proceed. As no outside purchasers were

found, Leoni agreed to buy out the positions

of the other’ shareholders in both

Construction and Excavating. It was at this

Appendix 73a

time that LERO Industries, Inc. was

incorporated, on the advice of Leoni Sr.'s

bank, to be a holding company for the stock

of the two Rogers companies. (Exs. L4, 68;

Tr. II, 14-15). Under the May 20, 1975

agreement, the companies agreed to redeem

all outstanding shares of stock for

$646,000. Leoni personally guaranteed the

companies' obligation. The agreement

further provided that the debts to Chuck and

Larry Rogers should be discharged at the

closing by payment to them of $50,000 each.

Thus, although the Rogers brothers had each

loaned $100,000 to Excavating, the company's

poor financial condition, and the lack of

interested buyers compelled them to accept

a discounted price for the promissory notes

which they held. After the sale, Leoni, Sr.

and his wife owned 100% of Construction's

stock, and 98% of Excavating's' stock.

Leoni, Sr. became president of both

companies from that date forward.

74a hepunde

7. The closing for what has been referred

to as the "family sale" occurred on May 27,

1975, one week after the agreement had been

entered into. At this time, Joanne and

William Leoni, as trustees for certain

Totten trusts, paid the Rogers brothers

$50,000 each for the promissory notes.

(Martz Dep., 39-40). Thus, although the

agreement (Ex. L4) itself states that the

notes would be discharged at the time of the

closing, the notes were actually assigned to

the Leonis, and remained outstanding debts

of the Excavating company. These promissory

notes had been, and continued to be, secured

by Excavating's accounts receivable. These

financing arrangements were supervised by

the Michigan National Bank (Ex. C5) and the

corporate attorneys. The entire transaction

is thoroughly documented, and the Court

finds there to have been no improprieties in

the "family sale" of May 20, 1975. The

notes were carried on the books as "note

Appendix 75a

payable--officer" until 1980.° Although

Mrs. Leoni was never an officer of either

Construction or Excavating, the note was

carried on the books as "note payable--

officer" as an accounting convention.

(SoIner Dep., 2-10-84, 24).

8. The State of Michigan required both

Construction and Excavating to submit joint

bids on state highway work, to eliminate the

possibility of collusion. Accordingly,

Construction and Excavating often bid on

state highway jobs as joint venturers. (Ex.

AA; Tr. II, 12-13). These joint ventures

required one company to .complete the work

awarded to the other if it could not

complete such work. (Leoni Dep., 26-28).

Additionally, at the insistence of the banks

with which Construction and Excavating did

business, the two companies were cross-

collateralized on various loans. This did

not indicate that Construction and

Excavating were not in fact acting as

76a Appendix

separate entities, but merely reflected the

desire for extra protection on the part of

the companies' financial partners, the

banks. (Solner Dep., 9-23-84, 33-35).

9. In August of 1974 the Michigan

National Bank advanced Excavating $1.5

million, so that excavating could pay off an

outstanding loan owed to the National Bank

of Detroit. The Michigan National Bank

required the loan to be collateralized by

both Excavating and Construction.

Modifications were later required to be

personally guaranteed by Leoni, Sr. (Tr.

II, 11-12). On April 13, 1979 Michigan

National Bank, one of the companies' largest

secured creditors, notified Leoni that it

was accelerating the promissory note

underlying the loan. The bank contended

that the note's term was for two years,

whereas Leoni maintained that the note was

a four-year note, and was thus not due. The

issue of this loan became the subject of a

Appendix 77a

lawsuit filed by Construction and Excavating

in the Genessee County Circuit Court. A

temporary restraining order was obtained

preventing seizure of the corporate assets

by the bank; however, the adverse publicity

caused severe damage to the companies'

ability to carry on business. (Tr. II, 15-

17). In fact, the companies lost their

bonding and could not carry on business

(Id.) and were in imminent danger of losing

their assets to seizure by the Internal

Revenue Service for unpaid tax liens.

(Ortlieb Dep., 5-6).°

10. The Rogers companies' untenable

financial situation compelled them in July

of 1979 to file for reorganization in the

Genessee County Circuit Court pursuant to

Mich. Comp. Laws Ann. §§ 450.1204-450.1205.

The Plan of Arrangement to be submitted by

Excavating and Construction pursuant to the

reorganization would present to the circuit

court a plan for paying off general

78a Appendix

creditors of both companies. (Ex. G).

Judge McAra enjoined all creditors of

Construction and Excavating from filing any

suit against the companies to collect debts

owed and from enforcing any lien.

11. The Plan of Arrangement filed with the

circuit court proposed to pay off the

general unsecured creditors over varying

periods of time, with a 100% payoff to be

made to electing creditors over ten years.

Pursuant to Judge McAra's order, the two

companies were required to notify all

creditors, secured and unsecured, of the

reorganization, and to submit a list of same

to the court. The Court finds’ that

representatives of plaintiff trust funds

attended some of the circuit court hearings

on the proposed reorganization, were aware

of the reorganization, and were at all times

on notices of the reorganization as it

progressed. This finding is based on the

testimony of Michael Gautheir (Tr. 1, 53-

Appendix 79a

56); Gerry Hall (Tr. IV, 8-9, 30); Cass

Dombrowski (Tr. VIII, 274-277); Rene Ortlieb

(Dep., 21); stipulation by Mr. Horton

(Ortlieb Dep., 29-30). Also see Exs. QQ,

19). Good faith efforts were made to keep

all creditors notified of the progress of

the reorganization, and the information

regarding the reorganization was available

to all creditors. (Ortlieb Dep., 21; Ex.

R3).

12. Hearings were held before Judge McAra

on at least three occasions between December

1979 and October 14, 1980, when Judge McAra

gave final sanction to the plan of

arrangement. During this period of time,

negotiations were ongoing with the

companies' major creditors, including the

banks, the bonding company (Aetna), the IRS

and State of Michigan (to whom taxes were

due), without whose cooperation the

reorganization could not succeed. Also

during this period, balloting by the general

80a Appendix

creditors transpired, as a majority vote of

acceptance of the plan was necessary for its

sanction by the court.

13. At the time of filing of the petition

of reorganization, no consideration had been

given to the creation of a new corporation.

(Ortlieb, Dep., 64). In mid-April, 1980,

after consultations with Aetna, the

companies' accountant, the banks, the

companies' attorneys, eens decided to form

a new corporation. This action was taken on

the advice of the foregoing parties in order

to present an acceptable balance sheet tc

Aetna. This would enable the new company to

obtain the required bonding and State

highway prequalification to continue

business. (Ortlieb Dep., 13-17). The Court

accepts Mr. Ortlieb's testimony that the new

corporation was formed to obtain binding,

without which either of the two Rogers'

companies could not continue in business.

Mr. Ortlieb's testimony with respect to the

Appendix 81a

discussions and events’ preceding the

reorganization and incorporation of the new

Inc. is corroborated by attorneys Solner and

Martz, who were actively involved in the

reorganization and formation of the new

company. The Court specifically rejects the

contention that formation of a new

corporation was contemplated at the time the

petition for reorganization was filed.

Plaintiff's deposition exhibit (Ortlieb

Dep.) shows that the accountant, Edmond

Swad, prepared a summary of the necessary

steps to be taken in order to form a new

corporation; this document, among others,

corroborates Mr. Ortlieb's testimony that

consideration was first given to this plan

in April 1980 long after the petition for

reorganization had been filed. (Also see

Solner Dep., 9-23-84, 12-14). Counsel for

Leoni were in complete agreement that

formation of a new company was absolutely

necessary to continue in business at all.

82a Appendix

Both Ortlieb and Solner agreed that, had a

new company not been formed, the bank and

Aetna would have repossessed the equipment,

leaving nothing for the unsecured creditors.

(Ortlieb Dep. 13-15, 21-22; Solner Dep., 9-

23-83, 39-40). Further, according to

Ortlieb, Leoni rejected out of hand the

suggestion that he liquidate his debts by

declaring bankruptcy; rather, Leoni chose a

circuit court reorganization because it

enabled him to pay his debts, albeit on a

reduced scale. (Ortlieb Dep. 47-48; also

see Solner 9-23-83 Dep., 74--discussion of

Chapter 11 bankruptcy). In accepting this

testimony, the Court specifically concludes

that the incorporation of the new Inc. was

motivated by good faith, legitimate business

reasons and was untainted by any fraudulent

purpose or desire to evade obligations to

creditors. (Ortlieb Dep., 84).

14. Inc. was incorporated on May 1, 1980.

Both Excavating and Construction by formal

Appendix 83a

corporate action agreed to sell all of the

assets of the corporations and assign the

account receivable, inventory, and

0 Inc.

uncompleted contracts to Inc.'

purchased the assets of the old corporations

on the basis of the fair market value of the

assets'' in the form of two ten-year secured

promissory notes given b, Inc. to Excavating

and Construction. The purpose price of the

assets was well over $5 million. (Ex. A).

Additionally, Construction and Excavating

were issued $1 million of preferred stock

with an indefinite redemption period as

payment for the accounts receivable and

inventory. (Ex. A).

15. Notice was given to all creditors and

to the circuit court of the proposed sale of

assets and incorporation of Inc. Judge

McAra's approval was necessary for the two

companies to dispose of their assets.

Robert Kotz, counsel to the creditors'

Oversight Committee testified that he, and

84a Appendix

all creditors, were notified of the proposed

plan of sale of assets to Inc. (Kotz Dep.,

5-10; Dep. Ex. 1). Judge McAra approved the

sale of assets to the new corporation.

16. The question of the initial

capitalization of Inc. was hotly contested

and closely scrutinized at trial. According

to Solner, who formed Inc., in order for the

new company to receive continued bonding, it

was necessary to obtain certain "Liability-

free" assets through the purchase of the two

old companies' assets. Effective May 1,

1980 Inc. purchased the assets of

Construction and Excavating, conditioned on

Excavating paying $200,000 cash to Inc. and

on the circuit court's approval of the plan.

17. On Solner's recommendation, Joanne

Leoni was to be the sold shareholder of the

new corporation, Inc. Joanne Leoni assigned

to Inc. the two promissory notes that she

held as assignee of the two Rogers

brother([s]. Each of the _ notes, as

Appendix 85a

previously noted, had a face value of

$100,000. These notes were secured by

certain accounts receivable of Excavating.

These receivable were described by William

Martz as "net quick assets," or assets with

high liquidity because of their easy

convertibility to cash. Mrs. Leoni also

executed a subscription agreement’ to

purchase 200,000 shares of common stock of

Inc., payable in cash or property. (Ex.

69). The creation of Inc., was conditioned

upon payment in cash of the subscription

agreement and upon approval of the circuit

court. (Ex. A; Solner Dep., 2-10-84, 39-

43). It was the intention of the

incorporators and their representatives

that, if any condition should not be

fulfilled, the creation of Inc. would not be

consummated. (Id.) Inc. did not call for

payment of the subscription agreement until

October 114, 1980, the date on which Judge

McAra approved the sale of assets to Inc.

86a Appendix

The subscription agreement was not payable

until "the demand of the Treasurer," which

demand was not made until October 14, 1980;

further, share certificates were not issued

until October 14, 1980. Under such

circumstances, Mrs. Leoni's obligation to

pay for the stock did not become due until

October 14, 1980. ivory v. Lamoreaux, 241

Mich. 226 (1928); Gobles Cooperative Ass'n

v. Albright, 243 Mich. 68 (1929) (concurring

opinion of Fellows, J.). By this time, the

accounts receivable securing the _ two

promissory notes had in fact been paid.

(Ex. V4). Thus, by October 14, 1980, the

date the subscription agreement was called,

the pre-conditions to Inc.'s creation had

been fulfilled.”

18. The promissory notes were in fact

valid consideration for the subscription

agreement. '3 Although the statute of

limitations--in this case, six years--may

have run on the two demand notes originally

Appendix 87a

executed by the Rogers brothers, the statute

of limitations does not eradicate the

underlying debt but merely prevents the

creditor from enforcing his’~ rights.

Further, the debtor may expressly or

implicitly waive the defense of limitations.

Here, Excavating waived whatever defenses it

may have had to the enforcement of the

notes. As indicated above, by the time the

subscription agreement was called by inc.,

the notes had been paid. Thus, there was no

irregularity in the execution or performance

of the subscription agreement executed by

Mrs. Leoni, nor was Inc.'s creation attended

by fraud ont he part of its incorporators.

19. In the lawsuit by Construction and

Excavating against Michigan National Bank,

paragraph 20 of the complaint refers to the

"undercapitalization" of the two companies.

(EX. 37). No substantive evidence of

undercapitalization of either company was

presented by plaintiffs. The Court declines

88a Appendix

to find that either company was under-

capitalized, due to a complete failure of

proofs on this point.

20. As to Inc., the evidence shows that

it was adequately capitalized. Solner, one

of the corporate law experts, testified that

the $200,000 invested by Mrs. Leoni was

sufficient capitalization for Inc., as it

enabled the new company to obtain minimal

bonding. Although less than $200,000 would

have been insufficient to obtain state

prequalification, Inc.'s deficit~free credit

rating enabled it to prequalify. Prequali-

fication is determined by the state on the

basis of three or four factors, one of which

is the amount of capitalization. In this

case, Inc. was capitalized not only by the

$200,000 note secured by the receivables

from the old companies, but also by the $1

million in preferred stock. As noted, the

preferred stock carried an indeterminate

redemption period, so there was no immediate

Appendix 89a

obligation to redeem the stock. Taking also

into account the "net quick" assets,

equipment, and current contracts, the state

prequalified Inc. for $20 million of state

work. Solner explicitly stated that Inc.

was not thinly capitalized. (Solner Dep.,

9-23-83, 37-40, 63-67; also see Martz Dep.,

18-19). No rebuttal evidence was presented,

and the Court specifically finds that Inc.

was properly and adequately capitalized.

21. There was some suggestion that the

Leonis had improperly diverted corporate

assets to their personal use in the

capitalization of Inc. As noted above,

Judge McAra's temporary restraining order

prevented all creditors from realizing on.

their debts; yet, Mrs. Leoni's promissory

note owed by Excavating was satisfied and

used as start-up capital for Inc. The Court

regards this allegation with the utmost

gravity, as diversion of corporate funds to

personal use, and in disregard of the

90a Appendix.

circuit court's temporary restraining order,

would indicate that Inc. was improperly

formed, and would tend to substantiate the

allegations of fraud made by plaintiffs. In

considering the merit of this allegation,

the Court has meticulously examined the

testimony of the parties most closely

associated with Inc.'s formation and with

the circuit reorganization. The initial

order signed by Judge McAra (Ex. G) enjoined

all creditors of Excavating and Construction

from proceeding on their debts "until

urthe orde »™ The

restraining order was issued in part to

allow the companies to work out a plan of

arrangement. (Kotz Dep., 37; Solner Dep.,

2-10-84, 37). Judge McAra did in fact

approve the proposal to create Inc. at a

hearing held on October 14, 1980. (See also

Ex. T). That hearing was brief, and Judge

McAra approved the plan based on Mr.

Ortlieb's representations that all creditors

Appendix 91a

had been apprised of the proposal and that

most had approved. An evidentiary hearing

was not held, and details of Inc.'s

incorporation were not revealed, nor did

Judge McAra express any desire or need to

review such details. (Ex. R2).

It is also clear that Mr. Swad, the

accountant who prepared the financial

statements of the two companies for the

pertinent time period, took account of the

"note payable--officer" in all the pertinent

financial statements. (See particularly,

Exs. S4, T4). Mr. Swad expressly understood

that Inc. was to be capitalized using the

notes. (Ortlieb Dep. Ex. 6). Mr. Martz was

aware of Inc.'s capitalization. (Martz

dep., 16-18, 42). Mr. Solner, as the

architect of Inc.'s incorporation, was of

course aware of the capitalization, and

further stated that all creditors were

-notified of the proposal and did not object.

(Solner Dep., 9-23-83, 16-17, 38-39, 74-75;

92a Appendix

Solner Dep., 2-10-84, 14-16). The Court has

paid particular attention to the testimony

of Mr. Kot™, the attorney for the Oversight

Committee. As he represented the Committee

in its dealings with the reorganization, and

was not an agent for Leoni or the companies,

the Court places particular reliance on his

knowledge of the capitalization. His

testimony indicated that he and the

creditors had seen the financial statements

(Kotz Dep. 35)3 he was aware that

receivable[s] were transferred to Inc., but

did not know the precise breakdown between

capital and purchase price (Id., 29); he

knew there were obligations running from the

companies to the Leoni family, but did not

know the particulars (Id., 36); he was aware

that such notes were disclosed by the

financial records but could not recall the

exact notes or exact amount (Id., 57); it

was his understanding that the bonding

company, the bank, the governmental

hopendix: 93a

entities, and the Oversight Committee were

"acutely aware" of the financial

transactions (Id., 73-74). Plaintiffs'

close cross-examination of Kotz showed that

he was never solicited with respect to

Joanne Leoni as a creditor of Excavating

(Id., 63-64) and was not aware of any

specific notes to Chuck and Larry Rogers

which had been assigned to the Leonis (Id.,

57). Nonetheless, the thrust of Mr. Kotz'

testimony is that he had seen the financial

records, was indeed aware of obligations

running to Joanne Leoni, and was generally

aware of the entire transaction. Cross-

examination did not alter his fundamental

testimony. The Court concludes, therefore,

that the Oversight Committee's recom-

mendation to Judge McAra to approve the sale

of assets was based on full knowledge of the

transaction by which the notes’ were

assigned. Plaintiffs have vigorously

pursued the theory that these notes were

94a Appendix

surreptitiously diverted to Inc. without the

knowledge and consent of the creditors or

the circuit court. However, the evidence

simply does not support that claim; if

anything, the evidence solidly supports the

finding that the transaction was

scrupulously monitored by the creditors of

the two companies and that their financial

affairs were laid naked to all who had an

interest in then. It simply strains

credibility to find that the attorneys,

accountants, and the large creditors, were

unaware of the transaction, or, which must

be plaintiffs' theory, that they somehow

conspired to divert the notes to the Leonis'

benefit. The Court thus specifically finds

that corporate funds were not fraudulently

diverted to the Leonis or Inc., and that

Inc. was not capitalized in violation of

Judge McAra's temporary restraining order.

22. The Court is somewhat perplexed by

Mr. Leoni's representation to Judge McAra

Appendix 95a

that he was the sole shareholder of

Excavating and Construction, (Ex. 02.22.36);

in reality, he owned slightly less than 100%

of the shares of each company. The Court

also notes that Mr. Ortlieb, in his

statements to Judge McAra also referred to

Mr. Leoni as_ the "sole shareholder,"

however. (Ex. 02, 19). The Court

specifically finds that this was not a

material representation. Judge McAra was

attempting to elicit from Mr. Leoni

concurrence in the misrepresentations made

that day by Mr. Ortlieb, the vast majority

of which concerned other details of the

reorganization. The statement regarding

being the sole shareholder was made strictly

in passing. The Court also notes Mr. Kotz'

statement that the representation was not

material (Kotz Dep. 18-22)."

23. After May 1, 1980 Excavating and

Construction assumed inactive status. They

continue to make payments pursuant to the

96a Appendix

reorganization plan, but are not actively

conducting business. They have no assets

except notes receivable and claims in

litigation.

24. Inc. did not assume any unsecured

debt of Excavating or Construction other

than the debts secured by equipment liens.

The two old companies continue to retire

their debts, however.

25. After the May 1980 incorporation,

Inc. began business utilizing the same

personnel, supervisors, equipment, officers,

and locations as had been used _ by

Construction and Excavating. Inc. completed

the contracts entered into by the old

companies.

26. Prior to the 1980 reorganization, the

relationship between Construction and

Excavating evidenced a certain degree of

mutuality. Leoni and Charles Lawson were

both officers of both corporations. Leoni,

as noted above, had controlling interests in

Appendix 97a

both corporation[{s]. Construction owned the

property where Excavating operated in

Melvindale. In fact, Construction's tax

returns for 1979 and 1980 indicate as its

address the Melvindale location. (te. Bz,

41-43). Construction's correct address has

been officially registered with the state

Corporations and Securities Bureau since

1962, however. [eee £88, 2333 Ex. $5).

Between 1978 and 1980, Mrs. Morton, payroll

supervisor for Inc., prepared the payrolls

for both Construction and Excavating; this

occurred, however, because Construction had

a computer at its Flint location, and

Excavating had no such facility. (Tr. I, 4-

5: Lawson Dep., 14). As noted above,

Construction and Excavating occasionally

prepared joint bids when required by the

State on state highway projects.

27. Generally, however, the two companies

prepared separate bids and obtained separate

pre-qualification status. (Tr. III, 93-95).

98a Appendix

The state's requirement of joint budding to

prevent collusion was not motivated by any

actual incident of collusion; it was

designed to prevent a recurrence of one

situation in which the two companies,

bidding separately and independently,

happened to be the only companies bidding on

a particular job and were thus both low

bidders. (Id.) On the few occasions that

Construction and Excavating were awarded a

joint bid, each company worked separately in

its respective geographic location. (Tr.

II, 13; Tr. III, 29). The companies also

filed separate tax returns, had separate

federal and state tax identification

numbers, separate bonding, different fiscal

years, separate annual financial appraisals,

and separate financial statements. (Exs. Y,

Z, A2, C2, D2, H2, I2, J2, M2).

28. Construction and Excavating operated

in distinct geographic regions, Flint and

Melvindale, respectively. Construction

Appendix 99a

rarely operated in the Detroit area--perhaps

for three out of 150 jobs per year.

Excavating never operated in the Flint area.

(Tr. III, 84-85).

29. The companies maintained separate

equipment and repair operations and had

substantially different customers. (Tr. I,

31; Tr. III, 95-96; Tr. VIII, 10, 20, 98-99,

205-206). They each had a_- separate

telephone number. (Tr. III, 136). Some

cross-over of equipment did occur. (Tr.

VIII, 10). Although Leoni was president of

both companies, and Lawson an officer of

both, day-to-day management responsibilities

were divided between them. Leoni retained

daily management and labor relations duties

on;y for Construction. These daily

responsibilities including labor relations

and signing of collective bargaining

agreements,w ere handled for Excavating by

Lawson between 1978-1980, and before that,

by three other individuals. Leoni rarely

100a Appendix

participated in Excavating's day-to-day

affairs. (Lawson Dep., 17; Tr. III, 83-84;

Tr. VIII, 8-9, 95-96, 204-205). Lawson's

knowledge of and responsibilities for

Excavating's affairs were limited to day-to-

day management, however, he had no

involvement with many crucial financial

decisions, such as the reorganization, the

cross-collateralization of the loan with

Michigan National Bank, and payment of

fringe benefits. It was Leoni, for example,

who instructed Mrs. Morton to cease paying

late payment assessment levied against

Excavating, Construction, Rogers-Cooper, and

Inc. (Tr. I, 18; Tr. VI, 35). Each company

had separate supervisory personnel. (Tr.

IItII, 96; Tr. VIII, 12).

30. The evidence showed that there had

been some interchange of employees between

Construction and Excavating. (in. 72).

This interchange was insignificant, however,

representing only 8% and 13% of total

Appendix 101a

employee hours worked by employees of

Construction and Excavating, respectively.

(Tr. VIII, 240-243; Ex. A3). Generally, the

two work forces did not intermingle prior to

May of 1980. (Tr. VIII, 10, 99, 117, 207,

241-246).

31. On the occasions when Construction

and Excavating worked together on a job, for

instance in the relationship of contractor-

sub, the companies would formally invoice

each other for work performed. (ee. VWiis,

14-15, 100-101).

+ B Curtis Baker, a foreman with

Construction, testified that of twenty-two

years spent with the company, he worked in

Melvindale for only two weeks. (Tr. II, 55-

56). He admitted that knowledge of the

Detroit-area company was "common" among

Flint employees, but stated that he believed

the companies were "all basically the same."

(Tr. II, 49). Roy Lee Turner, a laborer for

fifteen years for "C.J. Rogers" in Flint

102a Appendix

testified that he had never worked in the

Detroit area nor had seen Detroit-area

employees come to work in Flint. (Tr. II,

68). He had "heard of" a Detroit Rogers

company, but stated that "all {he knew]" was

that he work for C.J. Rogers. (Tr. II, 69).

As these men were plaintiffs' witnesses,

their testimony supports the Court; finding

that there was little significant

interchange among employees of Construction

and Excavating.

33. William Martz, attorney for

Construction and Excavating, stated that, in

his opinion, the two companies were not

alter egos of each other and had always

operated at arms length in their mutual

transactions. Martz felt it significant

that the companies kept separate books,

jobs, contract bidding, and bonding. (Martz

Oam., 23). Solner, in forming Inc.,

discussed with Leoni and Swad, the

accountant, the necessity for separating the

Appendix 103a

financial affairs of the new corporation

from those of the old companies. (Solner

Dep., 9-23-83, 80-81).

34. As previously noted, Rogers-Cooper

was a joint venture entity of construction

and Cooper Construction Company existing

wntil 1970. (Tr. FI, 433 Per. VEIZ, 82). It

performed $30 million worth of tunneling

jobs in Detroit, Bay City, Oregon and Ohio.

(Tr. VIII, 77, 91). Construction provided

the bondability and financing and Cooper

Construction provided the management and

employees. Ninety-five percent of the

equipment used was purchased separately by

the joint venture, and the remaining five

percent belonged to Construction. (Tr.

VIII, 76-77). The joint venture was

headquartered in Mount Clemens, Michigan.

However, Mrs. Morton of Construction

performed the payroll out of Construction's

Flint office, and the\checks were cut at

“

C.J. Rogers Transco in Melvindale. (Tr.

104a Appendix

VIII, 84). Mrs. Morton was paid by the

joint venture for these duties. (Tr. VIII.

92). Rogers-Cooper had a separate federal

tax ID number, filed separate tax returns,

kept separate books, “Michigan Employment

Security (MESC) registrations, quarterly

reports. (Tr. 76-78; Ex. S2). Labor

relations for the joint venture was

controlled by Fred Rozelle, president of

Cooper Construction. (Tr. VIII, 80).

Although the joint venture never executed

contracts with a union, fringe benefits were

paid to the plaintiff trust funds on behalf

of the employees (Tr. VIII, 88-89). Payment

of such benefits was made, however, because

the joint venture jobs required certified

payrolls. (Tr. VIII, 91).

35. It is standard practice for a union

to seek separate collective bargaining

agreements with bona fide joint ventures,

(Tr. X, 119, 202-203), and it is usually

possible for a union to discover which joint

Appendix 105a

venture are being operated within its (the

union's) jurisdictional area (Id.).

36. No collective bargaining agreements

were produced at trial obligating Rogers-

Cooper to pay fringe benefits to plaintiff

trust funds; neither Leoni, Mrs. Morton, nor

Michael Gautheir, auditor for plaintiff, had

ever see such an agreement. (Tr. I, 29, 523

Tr. III, 34).

37. Construction operated another joint

venture with a company called "Pneuma North

America." This joint venture’ lasted

approximately three months in 1978. The

relations between Construction and Pneuma

were formalized by contract, which provided

that Pneuma was to be the managing partner

with exclusive power to supervise on-the-job

work, and that the relationship of the

parties was limited to the performance of

the contract. The joint venture had its own

office, filed separate tax returns, and had

a separate federal ID number (Tr. I, 25-29,

106a Appendix

Ex. B). The joint venture agreement also

specifically provided,

Nothing herein shall be construed

to create a general partnership

between the parties por to

authorize either party to act as

genera] agent for the other

party, nor to permit either party

to bid for or to undertake any

other contracts for the other

party.

The contract was apparently signed by

Richard Maloblocki as president of Pneuma

North America (also see, Tr. I, 25) and

Leoni, as president of Construction. In

seeking to obligate defendants for certain

of the fringe benefits claimed to be owed,

plaintiffs point to a contract executed by

Maloblocki for "Charles J. Rogers

Construction Co." with the Michigan Laborers

for the payment of fringe benefits. The

Court specifically finds, in light of the

contract provision above, that Maloblocki

had no authority to execute the contract,

and that execution of such contract was

beyond the scope of his authority. Although

Appendix 107a

plaintiffs did not receive actual notice of

the limited joint venture contracts, they

must be held responsible for limitations on

Maloblocki's authority. This is especially

true in light of the conceded practice of

obtaining separate contracts from bona fide

joint ventures. Plaintiffs could have

discovered, had they exerted themselves,

that the relationship between Pneuma North

America and Construction was that of a bona

fide joint venture and the scope of

Malobiocki's authority. The Court

specifically finds that the so-called

Maloblocki agreement is not binding on

Construction, as being beyond the scope of

Maloblocki's authority.

38. When Inc. was formed new time cards

and daily report sheets were filled out by

the employees. Their year-to-date

withholding balances were zeroed out;

however, they did not fill out new

withholding forms. (Tr. VIII, 118-119,

108a Appendix

140).

39. It was disputed whether the

plaintiff fringe benefit funds were notified

in some way of the corporate changeover in

May 1980. the Court specifically finds that

plaintiffs were so notified by Mrs. Morton.

Although plaintiffs may not have understood

the purport of the reorganization, it was

not because they were not informed. (Tr. X,

338-340, 369, 371).

40. There is no question that some of the

corporate formalities were not scrupulously

observed. For instance, some of the

corporate minutes were not entered into the

books of some of the Rogers companies until

after trial in this matter had commenced.

Martz testified that the minutes of some

corporate meetings had been recorded in not

form by himself, but simply had not been

formally entered into the books after 1979.

Nor were corporate meetings regularly held.

The Court does not place great emphasis on .

Appendix . 109a

the informality which sometimes

characterized the companies' business. The

more important factors, such as corporate

financial affairs, were kept separate, and

there was no improper commingling of

personal with corporate funds.’

41. The reorganization caused

considerable confusion for all concerned.

During the period of the reorganization

various name changes were implemented among

the companies. Inc. was originally

incorporated as "CJR, Inc."; "Chas. J.

Rogers, Inc." became Chas. J. Rogers

Excavating, Inc." Leoni agreed that these

changes were confusing. (Tr. III, 129). In

fact, stamps, stationery and checks order

for Inc. (Tr. VI, 43) read "Chas. J. Rogers,

Inc." and continued to be used until May

1981 even after an amendment to the Articles

of Incorporation, officially changing the

new company*‘s name to "Inc." had been filed

(Te. VI, 30, 22, 34). Although the Court

110a Appendix

accepts that such matters as the name on

company checks were the least of the Rogers

companies worries at the time (Tr. VI, 51l-

52), it is indicative of the less than

meticulous efforts at keeping the companies

strictly separate.

42. The confusion evidenced by the

corporate name changes was further pointed

out by the fact that Inc. made fringe

benefit payments alternately under the names

"C.J. Rogers Inc." and Chas. J. Rogers,

Inc." until December 1980. (Ex. 39). Only

in the spring of 1981 were Inc.'s affairs

finally straightened out. Some of these

payments were made for employees of the old

companies for previously undertaken bonded

work, on accounts set up at the insistence

of the bonding company and the bank. (Tr.

VI, 12-17, 45-46, 58-59; Ex. 34).

43. Excavating had a checking account

bearing both names, Construction and

Excavating; this account was set up at the

Appendix 111a

insistence of the bank; (Tr. VI, 30-31; Ex.

42). Each company maintained its own,

separate checking accounts in addition to

the one joint account. (Tr. VI, 53).

44. The companies have made fringe

benefit contributions for obligations owed

by the other companies. For instance, Inc.

has made at least a few contributions for

Construction and Excavating after the May

1980 reorganization (Tr. VI, 12) and

Excavating has reported that it was making

fringe benefit contributions for

Construction's employees. (Tr. VI, 18; Ex.

43). Defendants have at times’ used

different names on their monthly reporting

forms. (Tr. VII, 157), and have used the

same identification number for different

corporations (Ex. 107).

45. The Court finds that some of this

confusion is due to the inevitable sorting

out of affairs during the time of Inc.'s

incorporation in May 1980 (Nov. 29, 1983

112a Appendix

Tr., B. 145). Some of the confusion may

also be due to the negligence of the

auditors, who did not take care to match up

contributions with the correct company; the

auditors conceded that they did not even

look at the names that came in on the report

because there had been no dispute as to

contractual liability (Id., 143). As

previously stated, the auditors were on

notice that a new corporation had _been

created.

46. In establishing their claim that the

Rogers companies are contractually obligated

to make fringe benefit contributions,

plaintiffs have relied on various so-called

"rollover" provisions, employer registra-

tions, and powers of attorney signed by

Leoni or other agents of the Rogers

companies. Such documents continue the main

contract in effect between the union and the

employer without the necessity for executing

a master contract. ‘A representative

Appendix 113a

"rollover" clause provides:

(T}he employer agrees that,

unless he notifies the Union to

the contrary by certified mail at

least sixty (60) days prior to

the termination date of this

Agreement or any subsequent

Agreement, the employer will be

-bound and adopt any Agreement

reached by the Union and the

Association aqauring

negotiations...

At trial, Leoni stated that he understood

the purport of the provisions as meaning,

with respect to employer registrations, that

fringe benefits would be paid to the

registration "number" provided to the

employer; that, with respect to powers of

attorney, that the employer association was

given power to bargain for the individual

employer. He testified that he did not

believe, however, that the various

provisions and rollovers constituted

contracts that would bind the employer year

after year until such time as he formally

terminated the contract. "Absent a signed

contract, I had no contract." (EE s Babe

114a Appendix

32). The Court specifically finds, however,

that Leoni fully understood the purport of

the registration and rollover provisions

requiring him to give notice of intent to

terminate by certified mail. Construction

and Excavating did resign from the Michigan

Roadbuilders Association on August 17, 1978

(Ex. R6)7; no evidence was’ presented,

however, of termination by either company of

the contracts by certified mail as required.

47. The question of a contract signed in

February 1981 by Leoni on behalf of "Chas.

J. Rogers, Inc." was hotly disputed at

trial. "Chas. J. Rogers, Inc." was a

dormant corporation after May 1980. Leoni

testified that Hall, the Laborers' business

manager, requested him to sign the agreement

for “Rogers, Inc.", and that he did so,

fully knowing that that company was dormant

and not actively in business. Leoni took

the position that this contract, executed on

behalf of Excavating, should not bind Inc.

Appendix 115a

(Tr. III, 44-47). Hall, on the other hand,

testified that he requested Leoni to sign on

behalf of the "new Rogers company." (Ter.

IV, 15). This question is significant as,

if Hall's testimony is fully credited, it

tends to show that Leoni knowingly attempted

to deceive Hall by signing for a company

which Leoni knew was not active. Hall later

testified, however, that he believed Leoni

to be a man of his word and did not believe

Leoni set up Inc. to evade his fringe

benefit obligations. (Te. IV, 72).

Moreover, Hall testified that he knew a new

Rogers company had been formed, and that he

believed "Chas. J. Rogers Inc." was the name

of the new company; he had never asked, nor

had Leoni told him, what exactly the new

company had been named. (Tr. X, 126-127).

During the April to September 1980 period,

Hall had seen paychecks with the names

"Chas. J. Rogers Inc." and "C.J. Rogers

Inc." e.- Fy 434). In light of the

116a ’ Appendix

confusion which attended Inc.'s creation, it

is not surprising to the Court that Hall may

have been confused as to the name of the new

corporation, and that he may well have

requested Leoni to sign for Excavating,

although intending to sign up Inc. It is

also not completely implausible that Leoni

sincerely believed Hall to be requesting a

contract with Excavating, as various

witnesses testified that, although dormant,

the two old companies’ could indeed

recommence active operations. (Tr. X, 216-

217; Ortleib Dep. 48-49). The Court does

not believe that plaintiffs have borne their

burden of showing that Leoni acted with

specific intent to deceive Hall in this

matter. Plaintiffs have emphasized Leoni's

willingness to take advantage of Hall's

ignorance on the point of the new company's

name, to avoid creating contractual

obligations for the new Inc. However, Hall

himself conceded the adversarial nature of

Appendix 117a

employer-union relationships. (Tr. X, 136,

140). The Court is unwilling to find fraud

from what may be characterized as sharp

business practices, especially where there

may have been some negligence on the part of

Hall in not knowing the correct name of the

entity with which he was trying to secure a

contract.

48. Defendants contended that

approximately $8,000-$10,000 was erroneously

charged against Construction for "yard

work," i.e. work such as maintenance

performed in the contractor's construction

yard as opposed to on the job site. (fr.

VIII, 252), not covered under contract. The

parties specifically referred to contracts

with the Michigan Roadbuilders Association,

the Underground Association, and the

Associated General Contractors. The 1980-

1983 agreement for the Roadbuilders defines

covered work as including all workmen coming

within the jurisdiction of the Union, as set

118a Appendix

forth in Exhibit A. That exhibit, p. 43,

refers to "GENERAL LABORERS--- All laborers

in ... material years... and all laborers'

work -of an unskilled and semi-skilled

character." Yard work is clearly included

in this contract. The 1980-1983 Underground

agreement (Ex. D7) provides that "work"

means any work performed by [the] contractor

coming within the jurisdiction of the union

and “workmen" includes all classes of

laborers working in any classification

covered under the agreement. The agreement

makes no reference to yard work of any kind,

but does refer to "construction laborer."

The same is true of the AGC contracts.

Further, there was evidence that "yard work"

would not be covered under certain of the

agreements. The Court believes that the

parties have not sufficiently briefed the

issue of whether so-called "yard work" is

included in these two contracts. The

parties are directed to brief the issue,

Appendix 119a

pointing to the specific language in

specific contracts, and supported by

specific transcript references, to support

their claim that “yard work" is/not covered

under a particular contract. Briefs must be

submitted within 30 days from receipt of

this opinion.

49. The question of WPM's identity or

separateness from Inc. was another hotly

contested issue. The evidence on this point

sometimes conflicted. As noted above, WPM

was formed in 1978 by Leoni, Sr.'s three

sons. It frequently joint ventures with

Cliff's United Development, a minority-owned

contractor, thus meeting state highway

requirements for minority participation in

state contracts. (Tr. IX, 49; Tr. III, 19-

21). Bill Leoni, Jr. is president of WPM;

he is also a full-time employee of Inc.

(Tr. VI, 7). WPM's office is a trailer at

2277 Grand Blanc Road, which is the location

of the Grand Blanc Landfill, owned by the

120a Appendix

William H. Leoni, Inc. company. (Tr. IX,

45~46; Tr. III, 18). WPM is’ listed

separately in the Rankin phone directory.

(Tr. IX, 20). However, all calls made to

WPM's office are referred to Inc.‘s Torrey

Road address, as that is where Leoni, Jr. is

employed. Leoni Jr.'s secretary, employed

by WPM is physically stationed at Inc.'s

offices. WPM receives mail at its Grand

Blanc office; from there it is transported

to Inc.'s office. (Tr. IX, 46). WPM does

not use Rogers; computer for its payroll,

although Mrs. Morton has _ occasionally

prepared WPM's payroll. (Tr. III, 23; Tr.

VI, 13). WPM does not pay rent to Inc. for

the space it occupies.

50. Leoni, Jr. has the qualifications and

experience necessary to operate a small

contracting business such as WPM. (Tr.

VIII, 192-193, 231). He signs all insurance

and bonding contracts, promissory notes, and

is solely obligated on bank lines of credit.

Appendix 121a

(Tr. IX, 17-18; Ex. A6, C6, O06, 26). WPM

has separate corporate records and keeps

separate books. (Ex. W). WPM's stationary

shows its address as 2277 Grand Blanc Road

and also lists the Rankin number as its

phone numbers. (Ex. D6). All bids and

contracts are prepared and signed by Bill

Leoni, Jr. for WPM. (Exs. E6-I-6, N6-P6).

All official communications and contracts

are addressed to WPM at its Grand Blanc Road

address. (Tr. IX, 21). WPM is prequalified

by the state separately from any of the

other Rogers companies. (Ex. J6-M6). WPM

was a creditor of Construction and/or

Excavating, and voted on acceptance of the

reorganization plan just like any other

creditor. (Ex. B6). WPM is separately

licensed by the City of Flint, is separately

rated by the MESC and the State Department

of Civil Rights. (Exc. T5, U5, X5).

51. Leoni, Jr. has occasionally asked his

father for advice, and Mrs. Leoni is

122a Appendix

authorized to sign corporate checks,

although it is not common practice for her

to do so. (Tr. IX, 33-34, 36-37).

52. Cross-examination of Bill Leoni, Jr.

revealed several areas in which the

separation between WPM and Inc. is not so

clear-cut. For instance, in 1983, WPM

subcontracted 50-60% of its jobs--or six out

of ten or twelve-back to Inc. Further, WPM

has never bid against Inc.; Bill Leoni, Jr.

testified that this lack of competitive

bidding between the two companies was

probably due to Inc.'s — of interest in

jobs WPM would likely bid on. (Tr, IX, 39-

43). This assertion is undercut by the

large percentage of jobs subcontracted to

Inc. after being awarded to WPM.

53. WPM has been a non-union contractor

until recently; it does not pay fringe

benefits to the trust funds, but makes a

cash payment for fringes directly to the

men. (Tre. IX, S0-Si). Gerry Hall, the

Appendix 123a

business agent for the Flint Laborers union,

has frequently tried to "sign-up" WFM as a

union contractor. Hall testified that he

approached Leoni, Sr. about WPM, but was

told by him that he couldn't sign for WPM as

he was not an officer, and would have to

talk to Bill Leoni, Jr. When he thus

approached Bill, Jr. he purportedly told

Hall that his dad called the shots for WPM.

(Tr. IV, 21°23; Tr. V, 16). Since that

conversation, Hall has spoken to Bill, Jr.

only once about WPM.

54. Hall testified that his’- men

frequently don't know who they are working

for--Inc. or WPM--until they receive their

paycheck (Tr. IV, 26-27). This testimony

was contradicted by other evidence, however,

that the men do indeed know which company

they are working for. (Tr. VIII, 161, 166).

Hall becomes aware that WPL has been awarded

a job through the bi-weekly Dodge reports

circulated through the construction industry

124a Appendix

or when one of his men reports that he has

received a WPM paycheck.

55. Hall also testified that, on the

occasions when he has tried to get WPM to

sign a collective bargaining agreement, that

leoni, Sr. has always responded that he

would subcontract the job to Inc. rather

that allow WPM to be shut down by pickets.

(Te. IV, 26). The men then receive Inc.

paychecks.

56. Hall conceded, however, that he did

not believe WPM was established primarily to

avoid payment of fringe benefits, that it

was not a typical "scam" or double-breasted

contract which pays much less than union

scale. WPM does in fact pay union scale

wages. (Tr. V, 33-39-40). Hall also

conceded that non-union contractors

frequently subcontract to union contractors

to avoid a strike. (Tr. V, 39). At least

prior to trial, Hall also believed that WPM

and Inc. were separate companies (Tr. V,

Appendix 125a

40), admitted that he had never seen Leoni,

Sr. on a WPM job site, and at the time of

trial, believed Bill, Jr. ran WPM (Tr. XxX,

187).

57. There was evidence that Bill, Jr.

controls labor relations and management for

WPM. (Tr. VIII, 156). WPM frequently hires

employees laid off from other contractors,

including Inc. Similarly, WPM's employees

are frequently hired by Cliff's United

Development, as Cliff's does not have

employees of its own. ‘This is a common

practice in the construction industry. (Tr.

Ban, o2f TE. VIIL, 129, 173, 177-178-221).

Leoni, Jr. could see no conflict of interest

in hiring for WPM an employee already

working for Inc. (Tr. IX, 53-54). The

Court initially regarded this assertion with

skepticism; however, as it appears that such

shifting of personnel is a readily accepted

practice, the Court does not find the

general transfers of employees between WPM

126a Appendix

and Inc. to be tainted. The employees

receive separate W-2s from Inc., WPM and

Cliff's, although they do not always fill

out new withholding forms. (Tr. VIII, 131,

139-140, 165, 168-169). WPM frequently

leases its equipment from various equipment

suppliers or contractors, including Inc.

This, too, is a common practice in the

construction industry. (Tr. VIII, 132, 137-

138, Tr. IX, 66).

58. It is also important to note the

failure to produce certain material

evidence. Plaintiffs initially contemplated

producing expert testimony of their own on

the issue of WPM's status vis-a-vis the

other corporations and to establish their

theory that WPM is the alter ego of the new

Inc. (Tr. IX, 189). No such expert

testimony was produced. Further, plaintiffs

have had broad access to WPM's corporate and

business records through discovery. (See,

e.g., pleading No. 36). No evidence was

Appendix 127a@

presented of commingling of assets or funds

between Inc. and WPM, or that Leoni, Sr. in

any way had utilized or diverted such assets

to his own, or to Inc.'s, benefit. Evidence

that WPM is operated by bill, Jr. partially

at Inc.'s offices, that WPM pays no rent,

and that Inc. office employees sometimes

perform clerical services for WPM are minor

irregularities. In fact, no evidence of

gross irregularity in the conduct of WPM's

business was presented, except the testimony

of Mr. Hall regarding Leoni, Sr.'s "calling

the shots" for WPM, and his testimony that

the men did not know which company they were

working for. As previously noted, this last

assertion was contradicted by the credible

testimony of Mr. Baumann. While the Court

finds Mr. Hall generally to be a credible

witness, the weight of the evidence simply

does not support the conclusion that WPM is

merely a shell corporation directed by Mr.

Leoni, Sr. with Bill, Jr. acting solely as

128a Appendix .

a figurehead. There was no evidence, for

example, that the sub-contracts between WPM

and Inc. were not valid subcontracts or that

WPM is not treated by relevant financial

institutions and state authorities as a

separate entity. The Court is compelled to

conclude that WPM is a separately

functioning company from Inc., in its

financial, business and personnel affairs.

59. Plainciff trust funds may accept

employer contributions only if there is a

current signed collective bargaining

agreement between the employer and the

union. (See, e.g., Ex. 76, Mich. Carp.

Council Health & Welfare Fund Decl. of

Trust, Article V, § l(a); 11-28-83, Tr.,

68). The collective bargaining agreements

upon which piaintiffs rely uniformly

incorporate, either explicitly or by

reference, the terms of the various trust

agreements setting up the various plaintiff

trust funds. Many of the contracts

Appendix 129a

specifically state that the employer agrees

to be bound by the penalty provisions of

such declarations and agreements of trust.

The trust agreements uniformly authorize the

trustees to impose reasonable assessments

upon employers delinquent in their

contributions. The Court specifically finds

an adequate contractual basis for’ the

imposition in this case of late payment

assessments and audit assessments’ upon

defendants.

60. None of the contracts on which

plaintiffs rely contains a_ so-called

"successorship" clause, binding an employers

successors and assigns to the substantive

provisions of the agreements.

_ Conclusions of Law

61. The Court has jurisdiction over this

matter pursuant to section 301 of the Labor

Management Relations Act, 29 U.S.C. § 185,

and 29 U.S.C. § 1132 of the Employment

Retirement Income Security Act. (ERISA).

130a Appendix

62. Plaintiffs, as trustees of the fringe

benefit funds, have standing to sue to

enforce the contributory provisions of the

pertinent collective bargaining agreements.

Audit Services, Inc. v. Rolfson, 641 F. 2d

757 (9th Cir. 1981); en _v cWilliams

o ic Ca. ., 494 F. Supp. 53 (N.D.

Ill, 1980).

63. Plaintiffs rely on the single

employer, alter ego, and successor theories

of corporate entities in claiming that

Construction, Excavating, INC, Rogers-

Cooper, and WPM are jointly liable for the

unpaid contributions and related

assessments. Additionally, plaintiffs seek

to hold Leoni individually liable under a

theory of corporate veil piercing. The

Court agrees that Inc., Construction and

Excavating are jointly liable, but finds no

basis for imposing liability on defendants

Rogers-Cooper, WPM, or Leoni, and

accordingly dismisses the complaint as to

Appendix 1314

the latter three persons.

64. The single employer doctrine is a

theory which allows two or more entities to

be considered as one employer. Carpenters

Cc Uni ° Vv att- sw

inc., 690 F. 2d 489, 504-505 (5th Cir.

1982). Single employer status ultimately

depends on "all the circumstances of the

case," and is characterized as an absence of

an "arms-length relationship found among

unintegrated companies. ca 7

e ion nio operatin ineers

v.N.L.-R.B., 518, F.2d 1040, 1045 (D.C. Cir.

1975). However, a finding of single

employers status does not mean that the

various entities will be bound to the

contracts signed by on;y 6ne of the

companies. Rather, contractual liability

will be imposed only if the employees of the

various entities are found to constitute a

Single bargaining unit. Carpenters Local

Union No. 1846 v. Pratt-Farnsworth, supra at

132a Appendix

505. This latter issue was not tried to the

Court, and accordingly, the single employer

theory is inapplicable. to the instant

dispute.

65. More difficult issues are presented

by the claims of alter-ego and successor

corporations. Plaintiffs claim that

Construction and Excavating were alter-egos

of each other, and that the new Inc. is the

alter-ego and successor of the two now-

inactive corporations. Alter-ego issues

commonly arise in successorship situations

when ownership of a signatory company

changes hands. Although a bona fide

successor is not, in general, bound by a

prior collective bargaining agreement, an

alter-ego will be so bound. N.L.R.B. Vv.

Tricor Products, Inc., 636 F.2d 266 (10th

Cir. 1980). There is no "hard and fast

rule" to determine whether two companies are

alter-egos; however, relevant factors

include continuity of workforce, equipment,

Appendix 133a

management, ownership, business, customers,

and the like. Tricor, supra; Service,

Hospital, Nursing Home and Public Employees

Lo c ° 7 merci operty

Service, Inc., 755 F.2d 499 (6th Cir. 1985);

Fugazy Continental Corp. v. N.L.R.B., 725

F.2d 1416 (D.C. Cir. 1984); Carpenters Local

Union No. 1846 v. Pratt-Farnsworth, supra at

507. The focus of the alter-ego theory in

the context of "successor" corporations is

whether the new entity is a disguised

continuance of the old company, viewed from

the perspective of the employees. General

Teamsters, Chauffers n ers ca

ni No. 249 v, j 's ing, 493 F.2d

956 (3rd Cir. 1974).

66. Construction and Excavating were not,

and are not, alter ego corporations, but

were functionally distinct operations.

Neither corporation was established or

maintained in order toe vade collective

bargaining obligations, as both companies

134a Appendix

regularly contracted with various unions.

Although they shared common ownership by the

Leonis, they had separate employees,

customers, business purpose, and financial

affairs. Although Leoni retained ultimate

control, as indicated by his decision to

cease payment of fringe benefit

contributions for all companies, he did not

exercise day-to-day supervisory or

management responsibilities over Excavating,

but only over Construction. Interchange of

equipment and personnel was infrequent, and,

in the context of the scale of business

conducted by the two companies, were

actively insignificant. The occasional

confusion of fringe benefit payments, not

always due to the fault of the Rogers’

personnel, does, as the Court earlier noted,

indicate that matters were not always

meticulously kept separate. However, the

evidence as a whole indicates that the two

businesses were functionally separate

Appendix 135a

entities, and were treated as such in their

financial and labor relations matters.

67. Inc., however, cannot be regarded as

other than the alter ego of the two now

dormant corporations, Excavating and

Construction. The Court has no doubt that

Inc. was not formed to circumvent collective

bargaining agreements or to evade payment of

fringe benefit contributions. It is clear

that Inc. was formed for legitimate business

purposes untainted by any hint of fraud or

mis-dealing with any of the creditors of the

two companies. Nonetheless, the fact

remains that Inc. simply picked up where

Construction and Excavating left off,

utilizing the same personnel, equipment,

supervision, serving the same customers and

performing the same contracts as

Construction and Excavating had been doing

before May 1980. That the new Inc. was

solely owned by Joanne Leoni did not

effectuate a bona fide change in ownership.

136a Appendix

One day the employees were working for the

two old companies, operating under the aegis

of the state court reorganization, the next

day they were employed by a new corporate

entity, Inc. From their perspective, their

jobs had not changed one iota, except for

the receipt of new paychecks with their

previous withholds "zeroed out." Although

the employees were aware of the change in

corporate structure, or were made aware as

soon as was thereafter feasible, they did

not understand that this change meant a

substantive difference in their terms of

employment. A very substantial, virtually

identical, continuity of the business

enterprises constituting Excavating and

Construction was maintained as a result of

Inc.*s incorporation. Under these

circumstances, the Court must find Inc. to

be the alter ego of the two old companies.

L.Ra~B. YY; ico S , supra;

Farnsworth.

68. It has frequently been stated that an

alter ego finding must rest upon a finding

of anti-union animus or an attempt to

surreptitiously evade contractual

obligations. See, e.g., In re Plaza Mission

Bottling Co., 14 B.R. 428 (E.D.N.Y. 1981).

This requirement has been questioned,

however, and it is now doubtful whether

anti-union animus is a sine qua non of alter

ego status. Fugazy Continental Corp. v.

N.L.R.B., supra at 1419 ("substantial

weight" to be given to motive for creation

of new company) ;? i Vv -R.B., 716

F.2d 1014 (4th Cir. 1983); Carpenters Local

Union No. 1846 v. Pratt-Farnsworth, supra at

508 (focus of alter ego doctrine is on

disguised continuance of old employer or

attempt to avoid obligations of contract);

N.L.R.B. v. Tricor, supra at 270 (anti-union

anumus merely one factor to be considered).

The Court has previously observed that anti-

138a Appendix

union animus played no role in the creation

of Inc.; this factor is ‘outweighed by the

identity of operations carried over from the

old companies, however.

69. With the fo» «going in mind, the Court

also concludes that WPM is not at alter ego

either of Excavating and/or Construction or

of Inc. It is a separately owned, managed,

and functioning entity. It was not formed

to evade contractual obligations with the

unions, and it is not a shell corporation

managed by the secret hand of Leoni, Sr. It

is what it purports to be, a company owned

and run by the three Leoni sons. Alter ego

liability may not be predicated merely

because separate members of the same family

own separate businesses with similar

business purposes. Having shown neither

contractual nor alter ego liability with

respect to WPM, the complaint is hereby

dismissed with respect to that defendant.

70. No basis for liability has been shown

Appendix 139a

with respect to defendant Rogers-Cooper. No

contract has been established between that

entity and the unions, although standard

practice would require the unions to obtain

a separate collective bargaining agreement

with the joint venture jens. Liability

for fringe benefit contributions cannot

arise apart from a written agreement.

Central States Southeast and Southwest Areas

Pension Fund v. Kraftco, Inc., 589 F. Supp.

1061 (M.D. Tenn. 1984) ; 29 U.S.C. §

186(c) (5) (B).

71. The facts show that Rogers-Cooper was

a separately functioning entity from the

other defendants. The so-called Malobiocki

agreement does not bind Rogers-Cooper or

Construction as Maloblocki was without

authority *° execute such agreement. 2A

C.J.S. Agency, § 166, pp. 809-810

("Limitations of authority are operative as

against those who have, or are charged with,

knowledge of them Such persons cannot

140a Appendix

claim to have been misled into reliance on

a more extensive authority..."); Id., § 172,

pp. 823-824 ("It is generally held that a

special agent, having authority only with

respect to a specific and limited act,

transaction or purpose can only affect the

rights and/or status of the principal within

the limits of the authority conferred, and

that third persons dealing with such an

agent must investigate and ascertain the

limits of his authority."); Jackson v.

Goodman, 244 N.W.2d 423 (Mich. App. 1976)

(in determining scope of authority, may

consider custom of similar businesses at

same time and place). Ratification is not

shown merely by the payment of fringe

benefits under the requirement of certified

payrolls. The complaint is hereby dismissed

as to Rogers-Cooper.

72. No basis of liability has been shown

with respect to William H. Leoni

individually. No contract has been executed

Appendix 141a

between the unions and Leoni, and the Court

does not find this to be an appropriate case

in which to "pierce the corporate veil." A

corporation's legal identity may be

disregarded if the corporation is used to

justify wrong, protect fraud, or avoid legal

obligations. Solomon v. Western Hills

Development Co., 21 N.W. 2d 428 (Mich. App.

1981); Seymour Vv. Hull & Moreland

Engineering, 605 F.2d 1105 (9th Cir. 1979).

There was undoubtedly a “degree of

informality" in the operation of the Rogers

companies. However, chere was no evidence

that any of the corporations was other than

a legitimate business entity, no evidence of

undercapitalization of Construction,

Excavating, or Inc., and no evidence of

improper commingling of personal with

corporate funds. Under these circumstances,

it is inappropriate to hold Leoni personally

liable for the debts of the corporations.

om v. Weste lLlls Development Co.,

142a Appendix

supra; Seymour _v. Hull] & Moreland

Engineering, supra. The complaint is hereby

dismissed as to defendant Leoni.

73% The rollover provisions in the

various contracts are enforceable against

defendants. No evidence was produced that

notice of termination by certified mail was

given to the unions, as required by the

contract language. Centra] States Southeast

and outhw ° Vv

Hitchings Trucking, Inc., 472 F.Supp. 1243

(E.D. Mich. 1979). Steinmetz Electrical

Contract s

58 Internationa] Brotherhood o Electrical

Worker, AFL-CIO, 517 F.Supp. 428 (E.D. Mich.

1981), cited by defendants, is inapt. That

case did not deal with a_— specific

contractual provision continuing the

contract in the absence of specific

termination by the contractor.

74. Defendants Excavating and

Construction resigned from the Michigan

Appendix 1438

Roadbuilders Association in August 1978.

This would constitute sufficient termination

of any subsequent agreement reached between

the Roadbuilders and the unions, as the

definition of a "contractor" covered by the

agreement means one that is a member of the

Roadbuilders Association. (Ex. F7, Article

II, V4, paragraph 1). However, defendants

Construction and Excavating signea new

agreements reached under the auspices of the

Roadbuilders on November 17, 1980. This

reestablishes contractual liability for

agreements reached by the Roadbuilders.

Contrast, Trustees of Colorado Pipe Industry

insurance Fund v. LPCC, Inc., 549 F.Supp.

833 (D. Colo 1982).

75. The Court finds no competent evidence

of intent to modify the provisions of the

contracts. It is undisputed that, aside

from the 1978 resignation from the

Roadbuilders association, no written notice

of termination was ever given to the unions.

144a Appendix

The only evidence of “modification" or

"termination" of the contracts was that some

business agents make a practice of obtaining

signed master agreements from each

contractor at the beginning of each contract

period. (See, e.g., Ex. S). This, in

itself, does not indicate sufficient intent

to modify the provisions od the original

contract such that the Court should infer

that such contracts were terminated.

Contrast, Pullman, Inc. v. International

otherhoo oj S

smi e Ss,

AFL-CIO, 354 F.Sup. 496 (E.D. Pa.

1972) (various letters between union _

employer indicating intent to modify

contract).

76. In its February 6, 1984 opinion, the

Court held that the six-year Michigan

statute of limitations, Mich. Comp. Laws

Ann. § 600.5807(8), was tolled between July

9, 1979 and June 27, 1980 as a result of an

Appendix 145a

injunction issued by Judge McAra prohibiting

all creditors of the Rogers companies from

pursuing their remedies against defendants.

The Court believes that ruling was in error.

Plaintiffs were not precluded from pursuing

their federally created in personam claims

under ERISA by the state court injunction.

In fact, plaintiffs were advised by their

attorneys that they could pursue their

federal remedies notwithstanding the ci

court injunction. (Tr. X, 119-120). Old

Security Life Insurance Company __v.

Continental Illinois Bank and Trust Co. 740

F.2d 1384, 1394 (7th Cir. 1984); Central

States, Southeast and Southwest Areas Health

and Welfare Fund v. Old Security Life

Insurance Co., 600 F.2d 671 (7th Cir. 1979);

Appeal of Coburn Leasing Co., 54 Mich. App.

228 (1974). Also see General Atomic Co. v.

Felter, 98 S.Ct. 76, 78 (1977) ("i]t is

therefore clear... that the rights conferred

by Congress to bring in personam actions in

146a Appendix

federal courts are not subject to

abridgement by state-court injunctions,

regardless of whether the federal litigation

is pending or prospective.") Therefore, all

claims accruing more than six years from the

date of filing of the complaint in this

matter, without taking into account the

circuit court injunction, are time-barred.

Defendants' claims for credit on account of

contributions made under mistake are also

barred to the extent more than one year from

the date of contribution has passed. 29

U.S.C. § 1103(c)(2)(A). Teamsters Local

Trucking Inc., 646 F.2d 865 (4th Cir. 1981).

77. 29 U.S.C. § 1132(g) (2) provides that,

in any case where a judgment is awarded to

a trust fund for delinquent contributions

under 29 U.S.C. § 1145; the Court shall

award the plan, ; |

(A) the unpaid contributions,

(B) interest on the’ unpaid

contributions,

Appendix | 147a

greater of--

(i) interest on the unpaid

contributions,

(ii) liquidated damages

provided for under the plan in an

amount not in excess of 20

percent (or such higher

percentage as may be permitted

under Federal or State law) of

the amount determined by the

court under subparagraph (A).

The language of the statute is mandatory.

; ) K sity Lal FE , Fund

b. Thummel, 738 F.2d 926 (8th Cir. 1984).

Thus, the Court directs the parties to

submit a proposed order of judgment for the

delinquent contributions, interest

calculated in accordance with 29 U.S.C. §

1132(g) (2), an amount calculated in

accordance with 29 U.S.C. § 1132(g)(2)(C),

and audit costs.

A brief word is in order about the amount

of liquidated damages to which plaintiffs

are entitled. Plaintiffs' Exhibit 63,

summarizing the amounts they initially

Claimed to be due, stated that there were

148a Appendix

delinquencies in the amount of $187,963,73,

and liquidated damages in the amount of

$284,594. Thus, the liquidated damages

would amount to roughly 150% of the

delinquencies. Such an amount is in excess

of that permitted by statute. Liquidated

damages, including audit assessments, may

not exceed 20% of the delinquent

contributions owed. J.A.M. National Pension

Fund Benefit Plan A v. Monal Manufacturing

Co., 607 F.Supp. 512 (D.C. D.C. 1985); also

see, Doolan _v. Doolan Stee] Corp., 591

F.Supp. 1506 (E.D. Pa. 1984). The proposed

order shall reflect an award of liquidated

damages equal to 20% of the delinquencies

found to be owed, if greater than the

interest calculated under 29 U.S.C. §

1132(g) (2) (C).-

78. In these findings of fact and

conclusions of law the Court. has not

attempted to determine « ‘actly how much is

owing by’ whon, nor which particular

Appendix 149a

contracts are binding upon which company,

except where absolutely necessary. The

Court believes that the parties themselves

can work out the particulars. Some

recalculation of amounts due and owing will

be necessary in light of some of the Court's

rulings. If the parties cannot work out the

particulars of the judgment to be entered,

and certain specific questions remain about

the Court's rulings, the parties are to

itemize their questicns, supported by

specific transcript reference where

possible, and present same to the Court for

resolution.

79. Accordingly, the parties are directed

to present to the Court two itemized

statements of damages, interest, liquidated

damages, etc., pursuant to the Court's

findings of fact and conclusions of law and

29 U.S.C. § 1132(g)(2) within 90 days for

entry. One statement is to include disputed

yard work, and one statement is to exclude

1508 Appendix

it. The Court has already ruled that yard

work is covered under the Roadbuilders

agreement. Plaintiffs may make a motion for

attorney fees, as such an award is also

mandatory under the statute. Defendants

will, of course, be allowed to contest

plaintiffs' request for fees, with the

ultimate award to be made by the Court,

after considering both parties' contentions

on the issue.

80. Defendants' motion for dismissal,

Fed. R. Civ. P. 41(b), is granted in the

following respects: the complaint is

dismissed in its entirety with respect to

defendants WPM, William H. Leoni, and C.J.

Rogers~-Cooper. Count II of the complaint

was previously dismissed by the Court in its

opinion of February 6, 1984. Count III is

dismissed.as to all defendants. In all

other respects, defendants' motion for

dismissal is DENIED.

The Court is empowered, pursuant to 29

Appendix 151a

U.S.C. §§ 1132(g) (2) (E), to order such other

legal or equitable relief as the Court deems

appropriate. The Court will retain

jurisdiction of the case in order to

maintain the preliminary injunctive order

previously entered on august 5, 1983

(effective July 1, 1983), or until further

order of the Court.

° usio

The Court finds for plaintiffs on Counts

I, IV and V. Count III is dismissed as to

all defendants. The complaint is dismissed

in its entirety as to defendants WPM, Inc.,

C.J. Rogers-Cooper, and William H. Leoni.

The parties are to submit briefs on the

issue of "yard work" within thirty days.

The parties are to submit proposed orders of

judgment within ninety days.

Wendell A. Miles, Chief Judge

Dated: November 20, 1985

otes

152a Appendix

1/ By agreement, the parties referred to

Charles J. Rogers Construction Company as

"Construction;" C.J. Rogers, Inc. as "Inc.";

Chas J. Rogers Excavating, Inc. as

"Excavating" and C.J. Rogers-Cooper as

"Rogers-Cooper." Throughout this opinion,

the Court will abide by this convention,

except as necessary.

2/ Plaintiffs' exhibits were given Arabic

numerals. Defendants' exhibits were

lettered A-Z; however, defendants' exhibits

were so numerous as to require

identification as A2-Z2, A3-Z23, A4-Z4 and so

on.

3/ The original documents of incorporation

are not included in Ex. 67, thus the Court

cannot identify the precise date of

incorporation.

4/ Charies Rogers was, before his death,

William H. Leoni's father-in-law. Rogers'

daughter, Joanne Leoni, is Leoni's wife.

5/ Transcript references will be identified

by volume and page number. Thus, the

immediate reference is to Volume IX, pages

6-9.

6/ The corporate books of Construction show

that Leoni had been ae director of

Construction at least since 1964. He became

a director of Excavating in 1974.

7/ William Martz and his deceased father

Lyle Martz were the corporate attorneys for

Construction and Excavating. - At trial

plaintiffs stipulated that Martz, Robert

Solner, attorney for Inc., and Robert Kotz,

attorney for the Oversight Committee, were

expert witnesses in the area of corporate

saw. (Fr. &, F378).

Appendix 153a

&/ Exhibits M4-U4, Excavating's financial

statements for this period, were admitted

into evidence by the Court;s order of August

30, 1984. Additionally, any of defendant's

exhibits, specifically Y, Z, A2-V2, J4-V4,

were not formally admitted at trial.

Plaintiffs' counsel had no objection to the

bulk of these exhibits and was instructed by

the Court to formalize his objections to

particular exhibits in a written memorandum

fare - 3B, 366, 1865). This plaintiff's

counsel did. As no objections were made to

the remaining exhibits, the Court now

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