Central States Southeast & Southwest Areas Pension Fund v. Messina Products, LLC , 706 F.3d 874 ( 2013 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 11-3513 & 12-1333
C ENTRAL S TATES S OUTHEAST AND
S OUTHWEST A REAS P ENSION F UND, et al.,,
Plaintiffs-Appellees and
Cross-Appellants,
v.
M ESSINA P RODUCTS, LLC,
a Michigan limited liability company,
Defendant-Appellant,
and
S TEPHEN M ESSINA and F LORENCE
M ESSINA,
Defendants and
Cross-Appellees.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:10-cv-00355—Robert M. Dow, Jr., Judge.
A RGUED S EPTEMBER 12, 2012—D ECIDED F EBRUARY 8, 2013
2 Nos. 11-3513 & 12-1333
Before F LAUM, W OOD , and H AMILTON, Circuit Judges.
H AMILTON, Circuit Judge. When an employer par-
ticipates in a multiemployer pension plan and then with-
draws from the plan with unpaid liabilities, federal
law can pierce corporate veils and impose liability on
owners and related businesses. These appeals present
issues on the scope of such liabilities. Plaintiff Central
States, Southeast and Southwest Areas Pension Fund is a
multiemployer pension plan within the meaning of the
Employee Retirement Income Security Act of 1974
(“ERISA”), as amended by the Multiemployer Pension
Plan Amendments Act of 1980 (“MPPAA”), 29 U.S.C.
§§ 1381-1461. Messina Trucking, Inc. was a closely-held
corporation owned, along with several other closely-
held entities, by Stephen and Florence Messina. For
several years, Messina Trucking was subject to a collec-
tive bargaining agreement that required it to contribute
to the Fund for its employees’ retirement benefits. In
October 2007, however, Messina Trucking permanently
ceased to have an obligation to contribute to the Fund,
triggering a “complete withdrawal” from the Fund, and
incurring nearly $3.1 million in potential withdrawal
liability. 29 U.S.C. § 1383.1The Fund sued Stephen and Florence Messina, Messina
Trucking, Messina Products, Messina Product Operations
LLC, Utica Equipment Co., Washington Lakes, LLC, and
1
Messina Trucking initiated arbitration to challenge the
merits of its withdrawal liability. See 29 U.S.C. § 1401(a)(1).
That arbitration is pending.
Nos. 11-3513 & 12-1333 3
Auburn Supply Co. seeking a declaratory judgment
that the named defendants were jointly and severally
liable for the withdrawal liability obligation incurred
by Messina Trucking under 29 U.S.C. § 1301(b)(1) of the
MPPAA as “trades or businesses” under “common con-
trol” with Messina Trucking. All parties aside from
Stephen and Florence Messina and Messina Products
either conceded liability or for various reasons were
dismissed from the proceedings.
The Messinas and Messina Products argued that they
were not “trades or businesses” under section 1301(b)(1)
and thus that they could not be held liable for Messina
Trucking’s withdrawal. On cross-motions for summary
judgment, the district court held that Mr. and Mrs.
Messina, who owned and leased several residential
properties as well as the property from which Messina
Trucking operated, were not engaged in a “trade or
business” and thus could not be held liable for Messina
Trucking’s withdrawal liability. See Central States,
Southeast and Southwest Areas Pension Fund v. Messina
Trucking, Inc., 821 F. Supp. 2d 1000, 1009 (N.D. Ill. 2011).
The district court found that Messina Products, as a
formal business organization whose documents showed
that its purpose was to generate profit, was a “trade or
business” that could be held liable for Messina
Trucking’s withdrawal liability. Id. at 1007. The Fund
appeals the portion of the judgment in favor of the
Messinas, and Messina Products appeals the portion of
the judgment in favor of the Fund. We resolve both
appeals in favor of the Fund, affirming in part and revers-
4 Nos. 11-3513 & 12-1333
ing in part the district court’s judgment, and remanding
for further proceedings.2
I. Commonly Controlled “Trades or Businesses” under the
MPPAA
Under ERISA, the Pension Benefit Guaranty Corpora-
tion, a government corporation, protects covered em-
ployees by insuring their benefits against insolvency
or termination of their pension funds. Before the 1980s,
ERISA’s contingent liability provisions gave employers a
perverse incentive to withdraw from financially weak
multiemployer plans to avoid liability in the event the
plan terminated in the future. The MPPAA amended
ERISA to discourage such voluntary withdrawals from
multiemployer plans by imposing mandatory liability
on all withdrawing employers for their proportionate
shares of “unfunded vested benefits.” 29 U.S.C. § 1381.
2
Mr. and Mrs. Messina have argued that, in the event of a
reversal of the judgment in their favor, the arbitrator must
decide whether they were in the control group at the time of
the withdrawal. See Doherty v. Teamsters Pension Trust Fund
of Philadelphia, 16 F.3d 1386, 1390 (3d Cir. 1994); Central States,
Southeast and Southwest Areas Pension Fund v. Slotky, 956 F.2d
1369, 1373 (7th Cir. 1992). Because the district court found
that the Messinas were not operating a “trade or business”
and thus were not employers within the control group and
subject to liability, it did not address this question. On
remand, the district court should address this issue of
arbitrability in the first instance.
Nos. 11-3513 & 12-1333 5
Not only the withdrawing employer can be held liable.
Congress also provided that all “trades or businesses”
under “common control” with the withdrawing em-
ployer are treated as a single entity for purposes of as-
sessing and collecting withdrawal liability. 29 U.S.C.
§ 1301(b)(1); Central States, Southeast and Southwest
Areas Pension Fund v. Neiman, 285 F.3d 587, 594 (7th Cir.
2002). Each trade or business found to be under
common control is jointly and severally liable for any
withdrawal liability of any other. See Central States, South-
east and Southwest Areas Pension Fund v. SCOFBP, LLC,
668 F.3d 873, 876 (7th Cir. 2011), citing McDougall v.
Pioneer Ranch Ltd. Partnership, 494 F.3d 571, 574 (7th Cir.
2007). The provision’s purpose is “to prevent businesses
from shirking their ERISA obligations by fractionalizing
operations into many separate entities . . . .” Central
States, Southeast and Southwest Areas Pension Fund v. White,
258 F.3d 636, 644 (7th Cir. 2001), quoting Board of Trustees
of the Western Conference of Teamsters Pension Trust Fund
v. H.F. Johnson, Inc., 830 F.2d 1009, 1013 (9th Cir. 1987).
Because Mr. and Mrs. Messina and Messina Products
conceded that they were under “common control” with
Messina Trucking, the only issues here are whether
the Messinas and Messina Products were involved in
a “trade or business” and accordingly can be held
jointly and severally liable for Messina Trucking’s
pension liability.
The phrase “trade or business” is not defined by sec-
tion 1301(b)(1). To apply the term under the MPPAA,
we have adopted the test adopted by the Supreme
Court for other tax purposes in Commissioner of Internal
6 Nos. 11-3513 & 12-1333
Revenue v. Groetzinger, 480 U.S. 23, 35 (1987). See Neiman,
285 F.3d at 594; White, 258 F.3d at 642; Central States,
Southeast and Southwest Areas Pension Fund v. Fulkerson,
238 F.3d 891, 895 (7th Cir. 2001). The “Groetzinger test”
requires that for economic activity to be considered the
operation of a trade or business the activity must be
performed (1) for the primary purpose of income or
profit; and (2) with continuity and regularity.
One purpose of the Groetzinger test is to distinguish
trades or businesses from passive investments, which
cannot form a basis for imputing withdrawal liability
under section 1301(b)(1). See Central States, Southeast
and Southwest Areas Pension Fund v. Personnel, Inc.,
974 F.2d 789, 794 (7th Cir. 1992). The question is whether
Mr. and Mrs. Messina and Messina Products should
be considered “trades or businesses” under this test, or
whether their activities are more akin to passive invest-
ments. We conclude that the record shows that they
are all “trades or businesses” and can be held liable
under section 1301(b)(1) for Messina Trucking’s with-
drawal liability.
II. Stephen and Florence Messina
A. Standard of Review
Ordinarily, we review de novo a district court’s grant
of summary judgment in an ERISA case because the
issues involved require statutory interpretation and are
issues of law. See White, 258 F.3d at 639-40; Fulkerson,
238 F.3d at 894. Yet when the only issue before the
Nos. 11-3513 & 12-1333 7
district court is the characterization of undisputed sub-
sidiary facts, and where a party does not have the right
to a jury trial, we have applied the clearly-erroneous
standard of review. See Pioneer Ranch, 494 F.3d at 575-77;
Personnel, 974 F.2d at 792; Central States, Southeast and
Southwest Areas Pension Fund v. Slotky, 956 F.2d 1369, 1373
(7th Cir. 1992).
The Fund argues that its appeal against the Messinas
presents pure questions of law and that we should re-
solve these questions de novo. The Messinas contend
that the more forgiving clear error standard should
govern because there are no disputed facts, only
disputed characterizations of those facts. As we explain
below, resolution of the issues in this appeal is not a
matter of properly characterizing undisputed facts. It is
instead a matter of proper interpretation of the statute
and our precedents as applied to undisputed facts. Be-
cause these are issues of law, de novo review is appro-
priate. Fulkerson, 238 F.3d at 894.
B. The Relevant Facts
When Messina Trucking withdrew from the Fund in
October 2007, the Messinas owned at least 80 percent of
the stock and ownership interest in each of the Messina
entities, including Messina Trucking. Stephen Messina
had served as the president of Messina Trucking since
its inception in 1955. Florence Messina had served as
vice president and secretary since 1964.
Because the ownership, rental, and use of real estate
are critical to our decision, we must trace them in some
8 Nos. 11-3513 & 12-1333
detail. In 1963, Stephen Messina purchased a parcel of
real property located at 6386 Auburn Road in Shelby
Township, Michigan (“the Auburn Road Property”).
Stephen and Florence Messina have been joint owners of
the Auburn Road Property since at least 1971. After he
purchased the Auburn Road Property, Stephen Messina
demolished the existing building and replaced it with a
new one. He then constructed a second building and, over
time, several additions to the two buildings. Messina
Trucking and a couple of other Messina entities op-
erated out of the Auburn Road Property.
Messina Trucking paid rent to the Messinas for its use
of the Auburn Road Property for many years, but it
stopped paying rent at some point prior to 2005 due to
financial difficulties. There was never any written lease
agreement between the Messinas and Messina Trucking,
but the practice was that the Messinas paid the
property taxes on the property, while Messina Trucking
paid for property insurance and utilities. All repairs and
maintenance on the Auburn Road Property were per-
formed by employees of Messina Trucking. The other
Messina entities that operated from the Auburn Road
Property never paid any rent to the Messinas to use
the property.
Stephen Messina also owned two properties located
at 45245 Merrill Road and 45041 Merrill Road in Utica,
Michigan (the “Merrill Road Properties”). 45245 Merrill
Road adjoins the Auburn Road Property. Mr. Messina
testified that he purchased the properties in part because
they were adjacent to the Auburn Road Property, and
Nos. 11-3513 & 12-1333 9
that the additional land allowed him to expand a garage
on the Auburn Road Property that was used by Messina
Trucking, and to permit Messina Trucking to have addi-
tional means of ingress to and egress from its operations.
Stephen Messina also stated that he purchased the
Merrill Road Properties to generate rental income. At
one time Messina Trucking paid rent for its use of the
Merrill Road Properties, but again, it stopped paying
rent sometime prior to 2005. Two homes were located on
the 45245 Merrill Road property. One of the homes was
leased to a Messina Trucking employee and his wife
pursuant to a written agreement with Stephen Messina.
That employee was able to provide additional security
for the Messina Trucking facilities on nights on week-
ends and to care for the guard dog. The second home on
the 45245 Merrill Road property also was leased to a
residential tenant. A third home located on the 45041
Merrill Road property was leased pursuant to a writ-
ten agreement.
Either Stephen Messina or his daughter negotiated
the terms of the residential leases for the Merrill Road
Properties. The rent for the properties was paid on
a monthly basis, and either Florence Messina or the
Messinas’ daughter deposited the rent checks into
the Messinas’ personal joint bank account. A Messina
Trucking employee monitored the rent payments to
ensure that they were paid on time. The Messinas paid
the property taxes and insurance on the Merrill Road
Properties. The tenants paid all other utilities aside
from water, which was paid by Messina Trucking. Em-
10 Nos. 11-3513 & 12-1333
ployees of Messina Trucking took care of the lawns
and removed snow at the Merrill Road Properties. The
Messina Trucking shop foreman was responsible for
maintenance. These Messina Trucking employees were
not paid any additional money for their maintenance
work on these residential properties owned by Mr. and
Mrs. Messina. During the tax years 2005 to 2008, the
Messinas reported the rental income from the prop-
erties on Schedule E of their federal tax returns, and
they deducted expenses for insurance, professional fees,
repairs, taxes, and utilities from the rental income.
C. Analysis
The Fund does not seek to hold Mr. and Mrs. Messina
liable merely because of their ownership of or positions
within Messina Trucking, nor could it. See White, 258 F.3d
at 640 n.3; see also Fulkerson, 238 F.3d at 896 (“Given
the prevalence of investing, permitting the holding of
investments . . . without more to be considered regular
and continuous activity would eviscerate the limitations
placed in the text of § 1301(b)(1).”); Slotky, 956 F.2d at
1374 (“[T]he purpose of limiting controlled group mem-
bership to persons engaged in trades or businesses is
to protect the owners of corporations from having to
dig into their pockets to make good the withdrawal
liability of their corporations.”). Instead, the Fund seeks
to hold the Messinas liable for operating as a “trade
or business” as commercial and residential landlords.
The district court found that the Messinas’ rental activi-
ties did not amount to a “trade or business” under the two-
Nos. 11-3513 & 12-1333 11
part Groetzinger test. Considering only the sporadic
rental activity undertaken by the Messinas themselves,
the district court concluded that their rental activity
was not sufficiently continuous and regular to be a
trade or business rather than an investment. In ren-
dering its decision, however, the district court did not
have the benefit of Central States, Southeast and Southwest
Areas Pension Fund v. SCOFBP, LLC, 668 F.3d 873 (7th
Cir. 2011), issued after the district court’s decision.
Without SCOFBP, and particularly its teaching that
renting property to a withdrawing employer is “cate-
gorically” a trade or business, the district court did not
consider properly the legal implications of the facts that
the Messinas permitted Messina Trucking, their closely-
held corporation and the withdrawing employer, to
operate on the property they owned without a formal
written lease and without paying rent for several years.
See SCOFBP, 668 F.3d at 879. The district court also
did not account properly for the property maintenance
activities of the Messina Trucking employees, which,
without a formal agreement, must be imputed to the
Messinas. We therefore reverse the judgment in favor
of Mr. and Mrs. Messina.
The district court relied primarily on our decision
in Fulkerson. See Messina Trucking, 821 F. Supp. 2d at 1007-
09, citing Fulkerson, 238 F.3d 891.3 The Fulkersons were
3
The district court also relied heavily on Central States,
Southeast and Southwest Areas Pension Fund v. Nagy Ready Mix,
(continued...)
12 Nos. 11-3513 & 12-1333
the only shareholders of Holmes Freight Lines, Inc., a
trucking company. They also owned three parcels of
land that they leased to Action Express, Inc., a different
trucking company that was owned by their sons.
Holmes Freight and Action Express were maintained as
separate corporations; the Fulkersons owned no interest
in and were not involved in the management of
Action Express. The written leases under which Action
Express leased the Fulkersons’ property were so-called
“triple net leases” under which the tenant, Action
Express, was responsible for most obligations, including
maintenance, operating expenses, real estate taxes, and
insurance. All the Fulkersons did was collect rent pay-
ments and make mortgage payments. When Holmes
Freight ceased operations and withdrew from the Fund,
the Fund argued that the Fulkersons’ leasing activities
constituted a “trade or business” and that the Fulkersons
could be held liable for Holmes Freight’s withdrawal
3
(...continued)
Inc., 2011 WL 3021524 (N.D. Ill. July 22, 2011). Nagy leased his
property to Nagy Ready Mix, a closely-held corporation,
through a formal triple-net lease under which Nagy Ready
Mix was responsible for upkeep of the property. The district
court held that Nagy’s rental activity more closely resembled
investment activity than “trade or business” activity, and
found that he could not be held liable for Nagy Ready Mix’s
withdrawal liability under section 1301(b)(1). See 2011 WL
3021524, at *4-6. The Fund’s appeal from the district court’s
decision in Nagy is pending before this court in No. 11-3055.
In the meantime, unlike the district court, we do not give
Nagy persuasive weight.
Nos. 11-3513 & 12-1333 13
liability. See Fulkerson, 238 F.3d at 893-94. We held
otherwise, finding that the Fulkersons’ leasing activity
did not automatically constitute a “trade or business”
under the Groetzinger test, and remanded for further
development of the record. We explained that, “posses-
sion of a property, be it stocks, commodities, leases,
or something else, without more is the hallmark of an
investment. Thus, mere ownership of a property (as
opposed to activities taken with regard to the prop-
erty) cannot be considered in determining whether
conduct is regular or continuous.” Fulkerson, 238 F.3d
at 895-96. Once we removed from consideration the
fact that the Fulkersons owned the leased property, all
that remained was the fact that Tom Fulkerson spent
approximately five hours a year dealing with the leases
or the leased properties. This, we found, was insuf-
ficient activity to satisfy the requirement in Groetzinger
that the activity be regular or continuous to be a trade
or business. Id. at 896.
Likewise, we held in White, 258 F.3d 636, that by
renting out two residential apartments above their
garage, the Whites had not engaged in a “trade or busi-
ness” sufficient to impose withdrawal liability on them
personally when the trucking company owned by Gary
White went bankrupt and withdrew from the Fund.
Importantly, we found that there was no possibility
that the Whites’ rental activity was being used to
dissipate or fractionalize the withdrawing employer’s
assets to avoid withdrawal liability. Id. at 644. Although
the Whites realized some income and tax benefits from
the rentals, an important purpose of their ownership of
14 Nos. 11-3513 & 12-1333
the rental apartments was the additional security the
tenants provided for the Whites’ own home. The
existence of the apartments had not been a deciding
factor in the Whites’ decision to purchase their home,
and though they performed some maintenance and
upkeep on the property, the apartments were ap-
pendages of their primary residence and such normal
upkeep benefitted them personally. We found that their
actions were routine for any homeowner and were
not legally significant. White, 258 F.3d at 643.
The rental activities we considered in Fulkerson and
White are easily distinguishable from the rental activities
conducted by the Messinas. Simply put, neither the
Fulkersons nor the Whites rented property to the with-
drawing employer itself. The Fulkersons rented property
to their sons’ separately owned and managed trucking
company; the Whites rented their garage apartments
to residential tenants.
The Messinas, though, rented their property to their
own, closely-held company — Messina Trucking, the
withdrawing employer. They also leased residences to
individual tenants, but that activity was incidental to
the rental activity in favor of Messina Trucking. In
SCOFBP, we stated explicitly that “leasing property to
a withdrawing employer is a ‘trade or business’ within
the meaning of the MPPAA.” 668 F.3d at 878, 879 (“Fur-
thermore, we have held that leasing property to a with-
drawing employer itself is categorically a trade or busi-
ness.”), citing Central States, Southeast and Southwest
Areas Pension Fund v. Ditello, 974 F.2d 887, 890 (7th Cir.
Nos. 11-3513 & 12-1333 15
1992); see also Slotky, 956 F.2d at 1374 (rejecting argu-
ment that property owner, who was majority share-
holder of withdrawing employer that was operating on
the property and sporadically paying rent, was not en-
gaged in a “trade or business” but was merely holding
property for withdrawing employer as a trustee). The
MPPAA does not impose liability for a withdrawing
employer on purely passive investment entities, in-
cluding those that invest in real estate. But where the
real estate is rented to or used by the withdrawing em-
ployer and there is common ownership, it is improbable
that the rental activity could be deemed a truly passive
investment. In such situations, the likelihood that a true
purpose and effect of the “lease” is to split up the with-
drawing employer’s assets is self-evident. We see no
reason why that principle should not apply here.
The Messinas make no effort to distinguish SCOFBP
or its implications. They also fail to cite any appellate
authority, and we are aware of none, holding that an
individual under common control with a withdrawing
employer and who leases property to the withdrawing
employer is not operating a trade or business. Without
authority in support of their position, the Messinas
instead attack SCOFBP, arguing that it is “inapplicable”
and “fails to account for the state of the law in this
circuit on such issue.” In holding that leasing property
to a withdrawing employer is “categorically” a trade
or business, SCOFBP relied on Ditello. The Messinas
contend that Ditello, and SCOFBP by extension, are not
good law because instead of relying on Groetzinger and
its two-part test, they relied instead on the underlying
16 Nos. 11-3513 & 12-1333
purpose of the statute — to prevent the fractionalization
of assets.
The argument is not persuasive. When Ditello was
decided, it was not yet settled in our circuit that
the Groetzinger test is the test for determining
whether entities are “trades or businesses” under
section 1301(b)(1). There is no more uncertainty; that
issue is settled. See White, 258 F.3d at 642 (affirming that
the Groetzinger test is “appropriate” for determining
whether an activity is a trade or business for purposes
of section 1301(b)(1)); Fulkerson, 238 F.3d at 895 (finding
that the Groetzinger test applies to questions under
section 1301(b)(1); test “comports with the common
meaning of trade or business” and thus has broad ap-
plicability).
Although Ditello did not rely on Groetzinger, its
reasoning remains sound on this point.4 Its analysis,
4
Another portion of Ditello has been abrogated. Ditello and
Personnel were decided within two weeks of each other, and
diverged on the question of whether withdrawal liability
could be imposed where there was no economic relationship
between the withdrawing company and unrelated leasing
activities. In Personnel, we held that for businesses to be con-
sidered under “common control,” the businesses did not have
to be economically related. Instead, to establish withdrawal
liability, the Fund needed to prove only that the defendants
engaged in a trade or business. See 974 F.2d at 793. In
Ditello, however, we stated, “this circuit has never squarely
faced the issue of whether businesses must be economically
(continued...)
Nos. 11-3513 & 12-1333 17
which was based on the purpose underlying section
1301(b)(1), is congruent with the Groetzinger test.
SCOFBP, in turn, remains sound. Its conclusion that
an owner’s or related entity’s leasing of property to a
withdrawing employer was a trade or business is con-
sistent with both the Groetzinger test and with the under-
lying purpose of section 1301(b)(1).
In White, we said that there was no possibility that
the Whites’ rental activity was being used to dissipate
or fractionalize the withdrawing employer’s assets to
avoid withdrawal liability. See 258 F.3d at 644. Here, we
must draw the opposite conclusion. Stephen Messina
purchased the Auburn Road Property and then the
Merrill Road Properties for the benefit of Messina Truck-
ing’s operations. There was no formal lease (triple-net
or otherwise). Without formal documentation, the ines-
capable conclusion is that the Messinas’ leasing activity
was simply an extension of the business operations of
Messina Trucking, the withdrawing employer, and was
a means to fractionalize Messina Trucking’s assets. One
way or the other, the Messinas profited from the leasing
arrangement. While Messina Trucking was paying rent,
they profited directly from the rent payments. When
Messina Trucking ceased paying rent, rather than evict
4
(...continued)
related to be considered members of a controlled group of
trades or business under section 1301(b)(1), and it remains
an open question.” 974 F.2d at 890. This discrepancy in our
law has been resolved, and is no longer an open question in
our circuit. See Fulkerson, 238 F.3d at 895 n. 1 (confirming
that no economic nexus is required to impose liability).
18 Nos. 11-3513 & 12-1333
their tenant, the Messinas continued to receive the tax
benefits of their arrangement. They deducted expenses
such as insurance, professional fees, repairs, taxes, and
utilities from the rental income. And as owners of
Messina Trucking, they profited from their decision as
landlords to permit Messina Trucking to operate rent-
free. In other words, they engaged in their leasing
activity “for the primary purpose of income or profit,”
satisfying the second part of the Groetzinger test.
Real estate activity unrelated to business of the with-
drawing employer also can be “for the primary purpose
of income or profit” where that activity “increases
equity, appreciates value, and generates tax deductions
that reduce the overall tax burden,” even if the activity
does not produce a net gain. SCOFBP, 668 F.3d at 878,
citing Personnel, 974 F.2d at 795-96. Accordingly, the fact
that the Messinas did not rent exclusively to Messina
Trucking, the withdrawing employer, but also in-
cidentally rented a few residences located on the
Merrill Road Properties, does not change our analysis.
The first part of the Groetzinger test, “continuity and
regularity,” is also satisfied. We reject the Messinas’
contention that the acts undertaken by the Messina
Trucking employees to maintain the Messinas’ property
cannot be imputed to the Messinas. There was no
formal lease in place that would have imposed a duty or
any other legal obligation on the Messina Trucking em-
ployees to take on those responsibilities. Without one,
the Messina Trucking employees who maintained the
property could not have been doing so for the benefit
Nos. 11-3513 & 12-1333 19
of Messina Trucking. They could have been acting only
at the behest of and for the benefit of the Messinas,
who owned the business and the property. The employ-
ees’ activities as agents of the Messinas should be
imputed to the Messinas. When considering the
actions of the Messinas and their agents in total, there
is no question that their leasing activities were con-
tinuous and regular.
In sum, it is clear that the Messinas’ rental activities
satisfied the Groetzinger test and were a “trade or busi-
ness.” We therefore reverse the district court’s judgment
in favor of Stephen and Florence Messina.
III. Messina Products
A. Standard of Review
We turn now to Messina Products’ appeal from the
district court’s determination that it was operating as a
“trade or business.” Messina Products asserts that our
review of its appeal should be de novo.5 However, because
5
Specifically, Messina Products contends that the district
court based its determination on a mistaken finding of fact
that Messina Products had employees when it actually did not.
Though the district court mentioned Messina Products’ sup-
posed employees in its denial of Messina Products’ motion
to alter or amend, the district court did not rely on this point
in reaching its original decision. Even if it had, the only
dispute is over the characterization of undisputed facts.
(continued...)
20 Nos. 11-3513 & 12-1333
the only issue before the district court was the charac-
terization of undisputed subsidiary facts and no party
has the right to a jury trial, we apply the clearly
erroneous standard of review. See Pioneer Ranch, 494
F.3d at 575; Personnel, 974 F.2d at 792; Slotky, 956 F.2d
at 1373. Our resolution of Messina Products’ appeal
would remain the same, though, even if we reviewed
these issues de novo.
B. The Relevant Facts
Messina Products was a Michigan limited liability
company formed on August 7, 1998, and commonly
owned with Messina Trucking. Stephen Messina was the
president of Messina Products, while Florence was the
vice-president and secretary. The company was gov-
erned by an operating agreement stating that the “Mem-
bers have adopted a business plan for the development
of properties and for the production, sale and marketing
of gravel for road, subdivision, City and community
development, both wholesale and retail.”
5
(...continued)
(There is no dispute that the Messinas were corporate officers
for Messina Products and that an employee of Messina
Trucking handled the bookkeeping and administrative work
for Messina Products.) Messina Products also contends that
the district court made a legal error in considering its state-
ment of business intent, which predates Messina Trucking’s
withdrawal from the Fund by several years. As explained in
the text, we find no error on that point, legal or otherwise,
and clear error review is appropriate.
Nos. 11-3513 & 12-1333 21
Vito Palazzolo was the controller for Messina Trucking.
He had access to and kept records not only for Messina
Trucking but also for the other Messina Entities,
including Messina Products. He testified that Messina
Products had no employees and owned no real estate.
It never sold any goods or performed any services. Its
sole asset was a 50% partnership interest in Messina
Lombardo, LLC, a company that owned and rented
properties. In turn, Messina Lombardo had no em-
ployees and was run by Lombardo Management Co.
Neither the Messinas nor Messina Products had any
ownership interest in Lombardo Management. Every
year, Messina Products received a K-1 tax form for LLC
income from Messina Lombardo. Palazzolo reviewed
the K-1 and forwarded it to the outside tax preparer.
Messina Products did not require any additional book-
keeping. In its federal tax returns, Messina Products
reported “trade or business” income and stated that
its principal business activity was “real estate rental.”
C. Analysis
Messina Products argued before the district court that
it was a passive investment vehicle and thus was not a
“trade or business” under the Groetzinger test. Again, to
be a “trade or business” under Groetzinger, the economic
activity in question must be performed (1) for the
primary purpose of income or profit and (2) with con-
tinuity and regularity. Groetzinger, 480 U.S. at 35. In
deciding MPPAA cases involving withdrawal liability,
we have determined certain factors to be particularly
relevant to this analysis, including the defendant’s
22 Nos. 11-3513 & 12-1333
intent in creating the enterprise, how the enterprise is
treated for tax purposes, and its legal form. See, e.g., Pioneer
Ranch, 494 F.3d at 577-78; Fulkerson, 238 F.3d at 895;
Personnel, 974 F.2d at 795. The district court considered
these factors and found that Messina Products had con-
tinually maintained and operated a real estate rental
company. It relied on the fact that Messina Products
was formally organized as a business enterprise and
had expressed its business purpose in its operating state-
ment and in its tax filings. The district court concluded
that Messina Products operated as a “trade or business”
under the Groetzinger test and thus could be held liable
for Messina Trucking’s withdrawal liability.
Messina Products disagrees, arguing that it had no
employees, owned no real estate or assets aside from
its interest in Messina Lombardo, and did not engage
in regular business activity. It attempts to characterize
itself as a passive investment vehicle, akin to the
passive, triple-net lease rental activity we considered in
Fulkerson, 238 F.3d at 893, 896, and the residential rental
activity we considered in White, 258 F.3d at 643-44.
We disagree.
We have written that it is “highly unlikely” that a
formal for-profit business organization would not
qualify as a trade or business under the Groetzinger test,
but our circuit has not adopted a per se rule that formal,
for-profit entities should always be considered “trades
or businesses.” SCOFBP, 668 F.3d at 878. Nevertheless,
we explained in Pioneer Ranch that “a defendant’s
stated intention of forming a business is highly relevant,
because it constitutes a declaration against interest.”
Nos. 11-3513 & 12-1333 23
Pioneer Ranch, 494 F.3d at 577-78. Accordingly, the
district court appropriately took note of the Messina
Products operating agreement stating that the “Members
have adopted a business plan for the development of
properties and for the production, sale and marketing
of gravel for road, subdivision, City and community
development, both wholesale and retail.” As we did in
Pioneer Ranch, and as the district court did here, we
find this evidence “highly relevant.” Messina Trucking,
821 F. Supp. 2d at 1006, citing Pioneer Ranch, 494 F.3d at
577-78. The fact that Messina Products filed a Form 1065
tax return for “trade or business income” and listed on
that return that its principal business activity was “real
estate rental” is also “strong evidence” that Messina
Products was a trade or business. See Personnel, 974 F.2d
at 795. And the activities, although minimal, were con-
ducted with sufficient continuity and regularity to
satisfy the Groetzinger test, particularly where they were
done under the auspices of a formal, for-profit organiza-
tion.
We reject Messina Products’ argument that we should
not consider the operating agreement because it was
written several years before Messina Trucking’s with-
drawal. Messina Products cites for support IUE AFL-
CIO Pension Fund v. Barker & Williamson, Inc., 788 F.2d 118,
125-126 (3d Cir. 1986), but that case decided a different
issue, holding that whether organizations are under
“common control” is determined as of the date of the
withdrawal. Also, Messina Products’ argument ignores
the fact that when conducting the Groetzinger analysis,
we routinely consult an entity’s documentary evidence
and other activities that necessarily predate the with-
24 Nos. 11-3513 & 12-1333
drawal. See, e.g., Pioneer Ranch, 494 F.3d at 577-78(relying on decade-old partnership agreement and defen-
dant’s tax returns over years preceding withdrawal);
White, 258 F.3d at 643-44 (considering 32 years of defen-
dants’ rental history and tax returns); Fulkerson, 238 F.3d
at 895-97 (considering defendant’s leasing activities
over ten years).
If the evidence were otherwise — if, for example,
Messina Products had amended its operating agreement
to reflect an intent to discontinue business operations
and to operate as a passive investment vehicle, or had
filed tax documents suggesting that it had only an invest-
ment purpose or that it had earned only investment
income — we could not ignore such evidence simply
because it preceded the withdrawal. In this case, how-
ever, Messina Products’ operating agreement was never
amended in a manner that could suggest that Messina
Products had ceased its business operations and was
instead an investment vehicle, and it consistently filed
its tax returns asserting a business purpose and
listing business income. It was entirely appropriate for
the district court to take these documents at face value.
With regard to Messina Products, therefore, we find
no error and affirm the district court.
The judgment of the district court is affirmed with
regard to Messina Products and reversed with regard
to Stephen and Florence Messina, and the case is
remanded for further proceedings consistent with
this opinion.
2-8-13