Trustees Socal Ibew-Neca v. Kevin Liebeck ( 2019 )

FILED
NOT FOR PUBLICATION
MAY 24 2019
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
TRUSTEES OF THE SOUTHERN No. 17-56188
CALIFORNIA IBEW-NECA PENSION
PLAN, DC No. CV 15-0553 JVS
Plaintiff-Appellee,
MEMORANDUM*
v.
KEVIN LIEBECK, as Executor of the
Estate of Denny R. Steelman,
Defendant-Appellant.
Appeal from the United States District Court
for the Central District of California
James V. Selna, District Judge, Presiding
Argued and Submitted April 11, 2019
Pasadena, California
Before: TASHIMA and PAEZ, Circuit Judges, and ALSUP,** District Judge.
Defendant-Appellant Kevin Liebeck (“Liebeck”), the executor of the estate
of Denny R. Steelman (“Steelman”), appeals both the district court’s denial of
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable William H. Alsup, United States District Judge for the
Northern District of California, sitting by designation.
Steelman’s motion to stay and the district court’s subsequent grant of summary
judgment in favor of Plaintiff-Appellee Trustees of the Southern California IBEW-
NECA Pension Plan (“Trustees”). As to the motion to stay, Liebeck argues that
the district court erred by allowing this lawsuit against Steelman to proceed before
Action Electric, Inc.’s (“Action”) withdrawal liability under the Employee
Retirement Income Security Act of 1974 (“ERISA”) had been determined in
Action’s bankruptcy proceeding, because the automatic bankruptcy stay unfairly
precluded Steelman from challenging the assessed withdrawal liability through the
arbitration procedures set forth in 29 U.S.C. § 1401. Liebeck also challenges the
district court’s summary judgment ruling that Steelman was personally liable for
the withdrawal liability as a result of his common control of a trade or business that
leased property to Action.
We have jurisdiction pursuant to 28 U.S.C. § 1291, and “[w]e review de
novo the scope or applicability of the automatic stay under the Bankruptcy Code,
11 U.S.C. § 362, because it is a question of law.” Palmdale Hills Prop., LLC v.
Lehman Commercial Paper, Inc. (In re Palmdale Hills Prop., LLC), 654 F.3d 868,
875 (9th Cir. 2011) (citing McCarthy, Johnson & Miller v. N. Bay Plumbing, Inc.
(In re Pettit), 217 F.3d 1072, 1077 (9th Cir. 2000)). We also review de novo a
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grant of summary judgment. See Save the Peaks Coal. v. U.S. Forest Serv., 669
F.3d 1025, 1031 (9th Cir. 2012). We affirm in part, reverse in part, and remand.
1. The district court did not err in allowing Trustees to proceed with their
suit against Steelman despite the automatic stay arising from Action’s bankruptcy
proceeding. Even if the bankruptcy stay could have applied to Steelman,1 we have
suggested that the non-debtor invoking the applicability of the stay must raise the
issue with the bankruptcy court, so that the bankruptcy court can extend the stay to
1
Given that the structure and text of ERISA suggest that there is a
single withdrawal liability for which all commonly controlled trades and
businesses that together make up “the employer” are jointly and severally liable,
Liebeck makes a valid argument that any attempt by Steelman to arbitrate Action’s
withdrawal liability would have involved Action’s interests and affected the
bankruptcy estate. See 29 U.S.C. §§ 1301(b)(1), 1381(a); see also Bd. of Trustees
of W. Conference of Teamsters Pension Tr. Fund v. Lafrenz, 837 F.2d 892, 893
(9th Cir. 1988). As a result, arbitration between Steelman and Trustees to
determine whether Action had actually incurred the assessed withdrawal liability
may well have fallen within the unusual circumstances exception to the general
rule that an automatic bankruptcy stay applies only to the bankrupt debtor. See
United States v. Dos Cabezas Corp., 995 F.2d 1486, 1491 & n.3 (9th Cir. 1993)
(noting that an automatic stay may apply to non-bankrupt co-defendants of a
debtor where “there is such identity between the debtor and the third-party
defendant that the debtor may be said to be the real party defendant and that a
judgment against the third-party defendant will in effect be a judgment or finding
against the debtor” (internal quotation marks and citation omitted)); see also
Boucher v. Shaw, 572 F.3d 1087, 1093 (9th Cir. 2009) (“[I]f the liability of the
non-debtor party were to affect the property of the bankruptcy estate, such as by a
requirement that the debtor indemnify the non-debtor . . . it may be necessary for
the plaintiff in such a case to proceed against the non-debtor party through
bankruptcy proceedings.” (citations omitted)).
3
the non-debtor, if appropriate. See Boucher v. Shaw, 572 F.3d 1087, 1093 n.3 (9th
Cir. 2009); see also J & J Sports Prods., Inc. v. Brar, No. 2:09-CV-3394-GEB-
EFB, 2012 WL 4755037, at *1 (E.D. Cal. Oct. 3, 2012). Steelman failed to
prospectively raise the issue in the bankruptcy court before the arbitration period
expired. He thereby deprived the bankruptcy court of the opportunity to determine
whether the bankruptcy stay applied, and if so, whether it should nonetheless be
partially lifted to allow arbitration of Action’s withdrawal liability. See 11 U.S.C.
§§ 105(a), 362(d)(1); 28 U.S.C. § 1334(b). Accordingly, Steelman waived the
argument that the automatic stay had unfairly precluded him from arbitrating
whether Action fell within 29 U.S.C. § 1383(b)’s construction industry exemption
from withdrawal liability. We therefore affirm the district court’s denial of the
motion to stay or dismiss.
2. The district court’s summary judgment ruling did not rely on the
improper resolution of a disputed issue of fact about ownership of the Washington
Property at the time of Action’s withdrawal. The district court explicitly adverted
to Liebeck’s evidence that title to the Washington Property had been transferred to
the Bypass Trust in 2010. The district court then performed its analysis assuming
Liebeck’s version of this disputed fact, ultimately concluding that Steelman was
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personally liable even if the Bypass Trust owned the Property after Christine
Steelman’s death in 2010.
3. While the district court correctly determined on summary judgment
that the leasing operation was a “trade or business,” the district court failed to
apply the correct standard when determining whether that trade or business was
under “common control” with Action. See 29 U.S.C. § 1301(b)(1); Bd. of Trustees
of W. Conference of Teamsters Pension Tr. Fund v. Lafrenz, 837 F.2d 892, 893
(9th Cir. 1988). Pursuant to § 1301(b)(1), federal Treasury regulations provide the
governing standard for common control. See 29 U.S.C. § 1301(b)(1); 26 C.F.R. §
1.414(c)–2. Under these regulations, the test for determining “control” is whether
Steelman owned a controlling interest – an actuarial interest of at least eighty
percent – of the Bypass Trust. See 26 C.F.R. § 1.414(c)–2(b)(2)(i)(B), (c); see also
Lafrenz, 837 F.2d at 893–94. The district court did not address this standard and,
although Steelman was entitled to net income and a limited amount of principal
from the Bypass Trust, there is no evidence in the record about whether Steelman’s
right to income and limited principal constitutes an “actuarial interest” under 26
C.F.R. § 1.414(c)–2(b)(2)(ii), and, if so, how large a share of the trust that actuarial
interest was. Accordingly, Trustees have not carried their burden to show that
5
Steelman “controlled” the Bypass Trust as defined by the Treasury regulations;
therefore, we reverse the district court’s grant of summary judgment to Trustees.2
4. In addition, even if Steelman did “control” the Bypass Trust, the
district court erred in concluding that such control would make Steelman
personally liable for the withdrawal liability. ERISA’s single-employer provision
makes jointly and severally liable those trades and businesses that are commonly
2
The district court also erred to the extent that it held that even if
Steelman no longer controlled the leasing operation after 2010, he could still be
personally liable for having previously controlled the leasing operation. The
district court stated that it “agree[d] with the Plan that Steelman would remain
liable even if his trade or business ceased with the Bypass Trust,” and then cited
several cases that “held that the termination of a lease before withdrawal does not
preclude withdrawal liability.” However, the cases that the district court cited do
not support its holding; the cited cases deal with commonly controlled entities that
ceased their leasing operations shortly before withdrawal, but not entities that
ceased being subject to common control years before withdrawal.
Here, the district court expressly noted that the transfer of the Washington
Property to the Bypass Trust occurred in the ordinary course of estate planning
after the death of Christine Steelman, and no party has asserted that the transfer
was fraudulent or made in an attempt to shield Steelman from withdrawal liability.
Under these circumstances, we decline to hold that a trade or business that was
under common control with the withdrawing employer three years before
withdrawal, but which thereafter changed ownership and ceased being under
common control, could still be held jointly and severally liable for withdrawal
liability incurred three years later. See 29 U.S.C. § 1301 (referring to trades and
business that “are under common control” (emphasis added)); cf. Teamsters Joint
Council No. 83 v. Centra, Inc., 947 F.2d 115, 121 (4th Cir. 1991) (“As long as
Centra was a control group member with M & D when M & D withdrew from the
Pension Fund, Centra is jointly and severally liable on the withdrawal obligation.”
(emphasis added)).
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controlled, but not necessarily the entity or person that is doing the controlling.
See 29 U.S.C. § 1301(b)(1); Lafrenz, 837 F.2d at 893. Where courts have held
owners of certain commonly controlled trades and businesses personally liable for
withdrawal liability, they have done so not because ERISA imposes liability
directly on the controlling person, but rather because the legal character of the
commonly controlled entity makes its owners liable for the entity’s obligations, as
with a sole proprietorship. See, e.g., Lafrenz, 837 F.2d at 895 (“[W]e conclude that
the Lafrenzes are personally liable for Pre-Mix’s withdrawal liability, not because
they are the controlling shareholders in Pre-Mix, but because they are personally
liable for the withdrawal liability imputed to their unincorporated truck-leasing
operation.”); Bd. of Trustees of W. Conference of Teamsters Pension Tr. Fund v.
H.F. Johnson Inc., 830 F.2d 1009, 1014–15 (9th Cir. 1987) (holding joint
venturers personally liable for withdrawal liability because joint ventures are
normally treated as a type of partnership, and, in contrast to shareholders and
officers of a corporation, “partners are personally liable for obligations of the
partnership”).
California law supports Liebeck’s contention that the Bypass Trust was a
separate legal entity from Steelman. See Cal. Prob. Code § 18200; Laycock v.
Hammer, 44 Cal. Rptr. 3d 921, 925–26 (Ct. App. 2006). Trustees do not dispute
7
this, and cite no authority suggesting that a settlor can nevertheless be held
personally liable for the obligations of an irrevocable trust.3 As a result, even if
Steelman is found to be the controller of the Bypass Trust, Trustees have not
established as a matter of law that such a finding would entitle them to summary
judgment against Steelman in his personal capacity.4 Rather, under ERISA, the
Bypass Trust, not Steelman, would be jointly and severally liable for Action’s
withdrawal liability, and thus Trustees would need to seek recovery from the
Bypass Trust itself. See 29 U.S.C. § 1301(b)(1). The district court therefore
committed legal error in ruling otherwise and holding Steelman personally liable,
and that ruling must be reversed.
• ! •
3
Nor can someone be personally liable for an irrevocable trust’s
liabilities simply because they serve as the trustee, as Steelman did here. See Cal.
Prob. Code § 18001; Galdjie v. Darwish, 7 Cal. Rptr. 3d 178, 190–92 (Ct. App.
2003), as modified on denial of reh’g (Dec. 23, 2003).
4
Vaughn v. Sexton, cited by Trustees, does not alter this conclusion,
because in that case the defendant was held personally liable for a trust’s
withdrawal liability only because he was the alter ego of the trust. See Vaughn v.
Sexton, 975 F.2d 498, 504 (8th Cir. 1992) (“[T]he defendants described the trust as
an alter ego of Mr. Sexton. The effect of this concession, in our view, is that Mr.
Sexton may be held personally liable for the obligations of the trust.”). Here,
Trustees have not alleged that Steelman is the alter ego of the Bypass Trust.
8
On remand, the district court may consider entertaining a renewed motion
for summary judgment so that it can analyze, under the standard set forth in the
Treasury regulations, whether Steelman controlled the Bypass Trust. However,
because such control would make the Bypass Trust rather than Steelman himself
liable, and because the Bypass Trust is not a defendant in this lawsuit, the district
court need only consider a renewed motion if the Trustees can properly raise
another legal theory under which Steelman himself can be held personally liable
for the obligations of the Bypass Trust. Otherwise, only the factual dispute about
whether Steelman or the Bypass Trust owned the Washington Property after
Christine Steelman’s death in 2010 remains to be resolved at trial.
AFFIRMED in part, REVERSED in part, and REMANDED for further
proceedings.
Each party shall bear its own costs on appeal.
9