personally liable for their corporation's withdrawal liability.
Based on these provisions, the Court finds defendants' argument persuasive. To be sure, the legislative history reveals that Congress was concerned that the term "employer" be construed in a manner consistent with the Act and its purpose, and that employers not be able to evade or avoid withdrawal liability through changes in identity, form of control, or through transactions which were not bona fide or at arms' length. See 126 Cong. Rec. H 7898 (daily ed. August 26, 1980); 126 Cong. Rec. S 10105 (daily ed. July 29, 1980). However, to accomplish this goal, Congress adopted specific provisions to guard against such maneuvers. See, e.g., section 4212(c), 29 U.S.C. § 1392(c) (transaction to evade or avoid liability shall be ignored for purposes of applying subchapter III); section 4218, 29 U.S.C. § 1398 (withdrawal from plan does not occur when employer changes its corporate structure or business form). Moreover, section 4001(b)(1), 29 U.S.C. § 1301 (b)(1), specifies that in the case of a sole proprietorship and partnership, the sole proprietor and the partnership, respectively, are treated as a single employer for purposes of subchapter III. There is nothing in the statutory language or legislative history which indicates that Congress intended the corporate identity be disregarded and corporate officers and shareholders held personally liable for withdrawal liability.
Notwithstanding the differences in statutory language and the different policy considerations underlying Titles I and IV, plaintiffs argue that the broad definition of "employer" in Title I applies here.
In fact, several courts have applied the definitions of terms listed in section 3, including that for "employer," to govern the construction of those same terms used in other titles of ERISA. See, e.g., Central Pennsylvania Teamster's Pension Fund v. Service Group, Inc., 645 F. Supp. 996, 6 EBC 1491, 1492 (E.D. Pa. 1985), and cases cited therein.
See also Nachman Corp. v. Pension Benefit Guaranty Corp., 592 F.2d 947, 952-53 and n.6 (7th Cir. 1979), aff'd, 446 U.S. 359, 64 L. Ed. 2d 354, 100 S. Ct. 1723 (1980) ("An earlier specific definition may properly color a subsequent use of the same words without redefinition").
However, even assuming that the definition of "employer" urged by plaintiffs does apply, the complaint against the individual defendants would still have to be dismissed. Despite the broadly inclusive definition of "employer" set forth in section 3(5), no court has construed it literally. If it were given such an expansive meaning, every agent or employee with some supervisory power over other employees could be included within such term. Indeed, there is a split in authority over whether corporate officers and dominant shareholders can ever be considered "employers" within the meaning of section 3(5). While some courts have expressly held that they are not,
other courts, relying on Donovan v. Agnew, 712 F.2d 1509 (1st Cir. 1983), which construed a similar definition of "employer" under the Fair Labor Standards Act,
have held that corporate officers with operational control of the corporation may fall within the definition of "employer."
However, even in the latter category of cases, the mere fact that someone is a corporate officer or dominant shareholder was held not to be enough to hold that person jointly and severally liable for the corporation's failure to pay. The courts involved have refused to impute to Congress an intent to disregard the shield from personal liability which is one of the major purposes of doing business in a corporate form, and instead have adopted varying standards for determining under what circumstances individual corporate officers or shareholders can be held personally liable for the corporation's unpaid contributions.
For example, the Ninth Circuit in Operating Engineers Pension Trust v. Reed, 726 F.2d 513 (9th Cir. 1984), rejected the trustee's argument that Reed, the majority shareholder and chief executive officer of the defaulting business which he had previously operated as a sole proprietorship, could be held personally responsible for unpaid contributions under ERISA. In determining whether an owner of a corporation can be held personally liable for trust fund contributions owed by the corporation, the court considered the following three factors: (1) the amount of respect given to the separate identity 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. 726 F.2d at 515. See also, Audit Services, Inc. v. Rolfson, 641 F.2d 757, 764 (9th Cir. 1981); Seymour v. Hull & Moreland Engineering, 605 F.2d 1105, 1109-14 (9th Cir. 1979). Because plaintiffs had not adduced any evidence indicating that any of these three factors were present, the court dismissed their complaint against Reed.
By contrast, other courts have adopted a more expansive definition of the term "employer," rejecting the argument that officers in a bona fide corporation can never be held personally liable for unpaid contributions. Thus, in Donovan v. Agnew, supra, the court found that corporate officers could be held personally accountable for the corporation's backpay liability absent circumstances equivalent to those that would justify piercing the corporate veil at common law. 712 F.2d at 1512. The court, however, refused to accept the Secretary's contention that Congress intended to hold any corporate officer or other employee with ultimate operational control over payroll matters personally liable for the corporation's failure to pay minimum and overtime wages as required by the FLSA.
Applying an "economic reality" analysis to determine the scope of the employment relationship, the court ultimately found that, under the circumstances of the case, the two corporate officers could be held personally liable for the unpaid wages. The officers in Donovan not only had a significant ownership interest in the corporation, but they also had operational control of significant aspects of the corporation's day to day functions, including compensation of employees, and they had personally made decisions to continue operations despite financial adversity during the period of nonpayment. 712 F.2d at 1514.
In the context of imposing withdrawal liability, the Court finds that the standard applied by the Ninth Circuit is the more appropriate one. However, even under the more inclusive "economic reality" approach used by the Donovan court, plaintiffs have failed to allege any facts which would support their claim that the individual defendants here are "employers" within the meaning of section 3(5). Plaintiffs have alleged only that these defendants were the officers and sole shareholders of Sun-Up. There is nothing in the record to suggest that they were the alter ego of the corporation or were otherwise personally responsible for the corporation's withdrawal from the Plans. The Court also notes that these defendants were not given any notice or an opportunity to individually appeal and arbitrate the assessment as required under sections 4219 and 4221 of ERISA, 29 U.S.C. §§ 1399 and 1401. Accordingly, plaintiffs' complaint against them could also be dismissed on this basis.
Moreover, dismissal of the individual defendants from this action will not leave plaintiffs without a remedy --they may still prosecute their claim against Sun-Up and they may proceed under state law in state court against the individual defendants for an appropriate remedy, see Solomon v. Klein, 6 EBC 1368, 1369-70 (E.D. Pa. 1985). In addition, plaintiffs may, if they discover any facts indicating that defendants were personally responsible for the decision to withdraw from the Plan which might justify the imposition of personal liability, move to amend their complaint.
Finally, with respect to the complaint against the corporate defendant Sun-Up Coal Company, plaintiffs have taken no action to prosecute their claims against it since they filed the complaint. Accordingly, unless the plaintiffs either move to have a default entered against Sun-Up or otherwise show cause why their claims against the company should not be dismissed, the Court will dismiss their complaint against Sun-Up for lack of prosecution.
For the reasons stated, it is this 25th day of June, 1985
ORDERED that the motion of defendants Murry Webb, Clement Webb, Jr., and Harry J. Aldridge to dismiss for lack of personal jurisdiction be and it is hereby granted; and it is further
ORDERED that the complaint against defendants Murry Webb, Clement Webb, Jr., and Harry J. Aldridge be and it is hereby dismissed; and it is further
ORDERED by the Court sua sponte that if plaintiffs do not move to have a default entered against Sun-Up Coal Company by June 28, 1985, this action will be dismissed for failure to prosecute.