In the
United States Court of Appeals
For the Seventh Circuit

No. 00-2812

Central States, Southeast and Southwest Areas
Pension Fund, a pension trust, and Howard
McDougall, trustee,

Plaintiffs-Appellees,

v.

Gary L. White and Inge T. White,

Defendants-Appellants.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 1046--David H. Coar, Judge.

Argued January 26, 2001--Decided July 20, 2001


  Before Bauer, Manion, and Rovner, Circuit
Judges.

  Manion, Circuit Judge. As part of their
residential property, Gary and Inge White
owned two small apartments over their
garage. Over a period of 32 years they
annually rented the apartments to various
tenants. During that time Gary White
became owner of over 80% of the shares of
a trucking company, which, after several
years of operation, became bankrupt and
ceased doing business. The Central
States, Southeast and Southwest Areas
Pension Fund ("Central States") assessed
substantial withdrawal liability but was
able to collect from the company only a
fraction of the amount owed. After
considerable delay, Central States sued
the Whites for the balance owed. The
district court concluded that the garage
apartment rental activity met the
statutory requirements for the Whites’
liability as common owners under the
Multiemployer Pension Plan Amendments Act
of 1980 ("MPPAA") and held them liable
for $16 million. The Whites appeal, and
we reverse.

I.   BACKGROUND

A.   Apartment Rental

  In anticipation of his marriage to Inge
in June 1969, Gary White purchased a home
in downtown Detroit. Inge’s name was
added to the title in 1973. At the time
of the purchase, the home’s detached
garage had two overhead apartments which
the previous owner had rented. Mr. White
agreed to honor the lease agreements with
the current tenants, and after some
discussion with Mrs. White after their
marriage, they decided to continue to
rent the apartments. At the time Mr.
White was self-employed, and because his
job required frequent out-of-town travel,
they valued the added security of the
tenants’ presence on the property. Thus,
they continued to rent the apartments,
primarily to students at nearby Wayne
State University, until they sold the
property in 1996.

  During the time the Whites leased the
garage apartments, they deposited rental
income into and paid expenses out of
joint bank accounts. Typically, Inge
showed prospective tenants the apartments
and talked to them about rent and
availability. Either Inge or Gary handled
routine cleaning and maintenance
problems, including contacting repair
workers and paying the bills.

  During the 32 years that they owned the
property, the Whites reported income and
expenses from the apartment rental on
Schedule E, "Supplemental Income and
Loss," of their federal income tax
return. According to an arrangement with
the IRS, common expenses such as mortgage
interest, homeowner’s insurance, real
estate taxes and landscaping, were
attributed 5/8 to the Whites’ home and
3/8 to the garage apartments. Of
particular significance, as will be shown
below, the Whites reported rental income
from the garage apartments of $4,500 on
their 1992 federal income tax return.
While this annual income over the years
would appear to be a modest financial
benefit, in fact it has resulted in an
assessment against the Whites in the
amount of $16 million. Here’s why.

B.   Trucking Operation

  During the 1970’s, Mr. White began
working for Ford Motor Company, and in
1986, he served as its Director of
Minority Business Development. Seeking to
expand Ford’s minority supplier program,
members of Ford’s senior management urged
White to purchase a trucking company,
Trans Jones, which owned a subsidiary
named Jones Transfer (referred to jointly
as "Trans Jones Companies"). Mr. White
did purchase the company, and became its
CEO. At the time he purchased Jones
Transfer, it was subject to collective
bargaining agreements with various local
Teamsters unions which required it to
make contributions to the Central States,
Southeast and Southwest Areas Pension
Fund on behalf of bargaining unit
employees. This business venture turned
out to be unsuccessful and the Trans
Jones Companies filed for bankruptcy,
ultimately going out of business in
December 1992. As a result, Central
States determined that Jones Transfer had
completely withdrawn from the Pension
Fund as of December 27, 1992 and assessed
its withdrawal liability at that time at
approximately $7 million.

  Although the Whites contend otherwise,
see infra n. 7, in January 1993, Central
States allegedly made a demand for
payment upon Jones Transfer for
withdrawal liability in the amount of $7
million. In March 1993, Central States
requested certain financial information
from Gary White, including copies of his
most recent personal income tax returns.
Mr. White provided Central States with
the requested information, including his
tax returns which, as we have noted,
indicated his receipt of rental income
from the garage apartments. Central
States then engaged in arbitration with
the Trans Jones Companies, ultimately
receiving approximately $386,000 from the
bankruptcy proceeding and $4,300 from a
lawsuit against other corporate
affiliates of the Trans Jones Companies.

C.   Personal Liability for $16 Million

  Almost six years after Central States
settled with Jones Transfer for its
withdrawal liability, Central States
filed suit against the Whites, seeking to
hold them personally liable for the
company’s withdrawal liability. In its
complaint, Central States alleged that
the Whites’ garage apartment rental
activities constituted a trade or
business which, along with Jones
Transfer, was under the Whites’ common
control. Because each employer of a trade
or business under common control is
jointly and severally liable for the
other’s withdrawal liability, Central
States contended that the Whites were
personally liable for the liability,
which had grown to over $16 million./1
The district court agreed with Central
States, granting it summary judgment and
holding the Whites personally liable for
$16 million of withdrawal liability. The
Whites appeal.

II.    DISCUSSION

A.    Standard of Review

  Initially, we consider the applicable
standard of review. Generally, this court
reviews a grant of summary judgment de
novo, viewing all of the facts and
drawing all reasonable inferences
therefrom in favor of the nonmoving
party. Oest v. Illinois Dep’t of
Corrections, 

, 610 (7th Cir.
2001). Summary judgment is proper when
the "pleadings, depositions, answers to
interrogatories, and admissions on file,
together with the affidavits, if any,
show that there is no genuine issue as to
any material fact and that the moving
party is entitled to a judgment as a
matter of law." Fed. R. Civ. P. 56(c).

  Central States would like us to review
the district court’s decision for clear
error, arguing that where the court
isreviewing a set of undisputed facts,
and is merely applying settled law to
those facts, a lower and less stringent
standard applies. In support of this
position, Central States cites Central
States, Southeast & Southwest Areas
Pension Fund v. Personnel, Inc., 

, 792 (7th Cir. 1992), wherein we
stated "where we examine[ ] an assessment
of withdrawal liability, we review[ ] the
district court’s conclusions for clear
error because the facts were undisputed
and the only factual issue was one of
characterization." In response, the
Whites contend that the facts are
disputed, and, in addition, they argue
that clear error review is only available
if the party opposing summary judgment
did not claim a right to a jury trial,
which they claim they did./2 They cite
Central States, Southeast and Southwest
Areas Pension Fund v. Slotky, 

, 1373-74 (7th Cir. 1992), and Jurcev
v. Central Community Hosp., 

,
623 (7th Cir. 1993), to support their
position. We need not revisit these cases
to determine whether a lower standard of
review is appropriate on a review of
summary judgment because, as explained
below, we conclude that the district
court erred on a question of law in
interpreting the statute; therefore, our
review is necessarily de novo. See
Central States, Southeast and Southwest
Areas Pension Fund v. Fulkerson, 

, 894 (7th Cir. 2001).


B.   Withdrawal Liability

  Under the Employee Retirement Income
Security Act ("ERISA"), 29 U.S.C.
secs. 1001-1371, as amended by the
MPPAA, 29 U.S.C. secs. 1381-1461, an
employer who ceases to contribute to a
multi-employer pension fund is liable for
withdrawal liability. See Central States,
Southeast & Southwest Areas Pension Fund
v. Ditello, 

, 888 (7th Cir.
1992). This liability is the employer’s
proportionate share of "unfunded vested
benefits." Id.; 29 U.S.C. sec. 1381.
Section 1301(b)(1) of MPPAA provides that
"all employees of trades or businesses
(whether or not incorporated) which are
under common control shall be treated as
employed by a single employer and all
such trades and businesses as a single
employer." 29 U.S.C. sec. 1301(b)(1).
Under this section, each business under
common control is jointly and severally
liable for the withdrawal liability of
the others./3 See 

. To impose withdrawal liability on an
organization other than the one
originally obligated to the Pension Fund,
two conditions must be satisfied: (1) the
organization must be under "common
control" with the obligated organization
and (2) the organization must be a "trade
or business." 

.


  1.   Common control.

  Under the statute, "common control" is
defined with relation to Internal Revenue
Code Section 414(c). See 29 U.S.C. sec.
1301(b)(1). The parties do not dispute
that the Whites’ rental activities and
Jones Transfer are under common control,
as defined by the statute and the
regulations./4 Instead, they dispute
whether the activities need to be
economically related to one another in
order to be under common control./5 The
Whites argue that requiring an economic
nexus furthers ERISA’s purpose, which is
"to prevent employers from avoiding
withdrawal liability by fractionalizing
their operations." 

. This argument certainly has appeal.
If an owner sets up other businesses that
have similar operations or that perform
services that the primary employer uses,
such structuring could be exposed as an
effort to avoid paying into the pension
fund on behalf of employees in those
other entities. "[S]ince almost the
entire purpose of the [MPPAA] is to
prevent the dissipation of assets
required to secure vested pension
benefits, the use of a controlled nominee
to screen assets from creditors is just
the sort of device at which the
controlled group provision is aimed."

. But what if the
commonly owned business has absolutely no
connection to the company whose employee
pension benefits are at issue?
  Until very recently, our case law has
been less than clear on this point.
Compare 

(no
economic nexus other than "common
control" required), with 

(decided weeks after
Personnel and finding that "this circuit
has never squarely faced the issue of
whether businesses must be economically
related . . . under section 1301(b)(1)").
However, we have recently confirmed that
no such nexus is required in order to im
pose liability. See 

n.1. Accordingly, the district
court correctly concluded that the garage
rental activity and Jones Transfer were
under Mr. White’s common control./6

  2.   Trade or business.

  Even though Jones Transfer and the
Whites’ garage apartment rental
activities are under common control, the
Whites are not necessarily subject to
Jones Transfer’s withdrawal liability.
Rather, as noted above, we must also
examine whether the garage rental
activities constitute a "trade or
business" for purposes of Section
1301(b)(1). We construe statutory terms
according to their ordinary, common
meaning unless they are defined by the
statute. 

. The
MPPAA does not define the phrase "trade
or business," and both parties devoted a
great deal of their briefs to the
apparent conflict between Personnel and
Ditello regarding the appropriate test
for determining whether an activity is a
trade or business. In Personnel, in
interpreting the phrase "trade or
business," this court looked to Internal
Revenue Code Section 162(a), which allows
a taxpayer to deduct expenses incurred in
carrying on a trade or business, and to
the Supreme Court’s decision in
Commissioner of Internal Revenue v.
Groetzinger, 

(1987),
interpreting that tax code section.

. The Supreme
Court stated that "the taxpayer must be
involved in the activity with continuity
and regularity and that the taxpayer’s
primary purpose for engaging in the
activity must be for income or profit. A
sporadic activity, a hobby, or an
amusement diversion does not qualify."
Groetzinger, at 35 (holding that a
taxpayer who spent 60-80 hours per week
engaged in gambling activities with a
view toward earning a living and who had
no other employment operated a trade or
business). A few weeks later, however, in
Ditello, we stated that, because the tax
context is so unique, the Groetzinger
test was not the most appropriate test
and instead construed the term in light
of the purpose of the MPPAA, which is "to
prevent dissipation of assets required to
secure vested pension benefits." 

(citation omitted).

  We have recently resolved this dispute
and reaffirmed that the Groetzinger test
is appropriate for determining whether an
activity is a trade or business for
purposes of Section 1301(b)(1).

(finding that,
although the decision involved a specific
provision of the tax code, Groetzinger’s
test is appropriate because it comports
with the common meaning of the phrase
"trade or business."). Under that test,
we consider whether the person engaged in
the activity: (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 business from investments, which . . .
cannot form a basis for imputing
withdrawal liability under sec.
1301(b)(1)." 

Court also
has ruled that the term does not
encompass purely ’personal’ activities no
matter how ’continuous’ or ’extended’ the
activity may be nor how profitable . . .
." Groetzinger v. Commissioner of
Internal Revenue, 

, 274 (7th
Cir. 1985), aff’d, 

(1987)
(citing Higgins v. Commissioner, 

, 216 (1941)).

  In Fulkerson, this court had occasion to
address the distinction between a trade
or business and an investment. The
Fulkersons owned a trucking company,
Holmes, which went bankrupt and incurred
withdrawal liability. Completely separate
from their ownership of Holmes, the
Fulkersons bought three parcels of land
on which Holmes built trucking terminals
and subsequently sold them back to Mr.
Fulkerson. He then leased the land and
terminals, through a triple-net lease
(i.e., one in which the tenant incurs
many of the obligations of rental such as
maintenance, operating expenses, real
estate taxes and insurance), to Action,
another trucking company owned by his
sons (in which Mr. and Mrs. Fulkerson had
no interest or participation). According
to Mr. Fulkerson, he did not spend more
than five hours per year in connection
with the properties. His activities
consisted of depositing the rent checks,
making mortgage payments and reporting
the rental income on Schedule E of his
federal income tax forms for supplemental
income.

  Central States sought to impose personal
liability on the Fulkersons for Holmes’
withdrawal liability, arguing that their
rental activity was a trade or business,
and together with Holmes, was under their
common control. The district court agreed
and granted summary judgment to Central
States. However, on appeal, applying the
Groetzinger test, this court concluded
that the district court had erred in
relying solely on the Fulkersons’ holding
of the leases for ten years to support
its conclusion that the leasing activity
constituted continuous and regular
conduct. Rather, we held that "mere
ownership of property (as opposed to
activities taken with regard to the
property) cannot be considered in
determining whether conduct is regular or
continuous." 

Central
States had argued that the Fulkersons had
engaged in such activities "with regard
to the property" by selecting the
properties, negotiating purchases and
negotiating the leases. However, this
court concluded that a reasonable fact-
finder could determine that these leases
were an investment and that the activity
was not sufficiently continuous and
regular to constitute a trade or
business. 

Contrast 

(defendant’s extensive
commercial real estate activities "rose
to the level of a trade or business").

  Applying the Groetzinger test to
determine if the Whites’ rental activity
is a trade or business, we conclude that
it does not rise to such a level. First,
it does not appear that the Whites rented
their garage apartments for the primary
purpose of income or profit. Central
States, however, insists that the Whites’
primary purpose in renting the apartments
was mainly income or profit. Although
they certainly realized income and
received certain tax benefits from the
rentals, the Whites’ testimony reflects
that an important, if not primary,
purpose for renting the apartments was
the added security of the tenants’
presence. There is no evidence that the
apartments were a deciding factor tipping
the scales in favor of the Whites’
decision to purchase the home. The
apartments, and their tenants, predated
the Whites’ purchase and, initially, the
Whites merely agreed to honor the
existing tenants’ leases. However, we
need not resolve this issue (nor remand
the case for a factual determination)
because, regardless of the Whites’
primary purpose, we conclude that their
engagement in the rental activities was
more akin to purely personal investment,
and thus was not sufficiently continuous
or regular to constitute a trade or
business. See 

.

  In nearly every way, the Whites’ conduct
resembles that of the Fulkersons, from
the manner of depositing rent checks to
the tax treatment of the rental income
and expenses. While the Whites performed
more upkeep, such as maintaining the
property and performing routine repairs
and cleaning, this involvement is not
legally significant. The Whites’ garage
apartments were appendages of their
primary residence. Such normal upkeep
benefitted them personally as it
maintained the value of their home. Their
activities did not benefit a trade or
business that could be easily separated
from the normal maintenance and upkeep
that every homeowner performs. The Whites
simply purchased and cared for their
primary residence, which happened to
include a garage with two apartments, and
lived in it for 32 years. Contrast

(numerous real
estate sale and purchase transactions
each year); 

(bought three properties and sold two
within 10 years). The Whites’ activities,
however extensive, in the upkeep and
maintenance of their investment in their
primary residence were personal in
nature, and as such, do not rise to the
level of a trade or business.

  Central States argues that several
factors compel the conclusion that the
Whites were engaged in a business: that
they obtained actual and substantial tax
benefits from renting the property, that
they satisfied their mortgage and
increased the equity in the property
through the rental income, and that they
obtained deductions and depreciation. We
find these arguments unconvincing. The
same such arguments could be made about
any other traditional investment
activity./7

  3.   Fractionalization.

  Our conclusion that the Whites’ rental
activity does not amount to a trade or
business furthers Congress’ purpose in
enacting the statute. "Congress enacted
sec. 1301(b) in order to prevent
businesses from shirking their ERISA
obligations by fractionalizing operations
into many separate entities . . . ." Bd.
of Trustees of the Western Conference of
Teamsters Pension Trust Fund v. H.F.
Johnson, Inc., 

, 1013 (9th
Cir. 1987). Here, the Whites’ rental
activity has absolutely no possibility of
being used to dissipate or fractionalize
Jones Transfer’s corporate assets and
thus avoid withdrawal liability. See

("the purpose of
limiting controlled group membership 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."); 

("[g]iven 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 sec. 1301(b)(1).").

  Central States’ frustration is
understandable, but its reaction is not
commendable. Because of Jones Transfer’s
bankruptcy, Central States has incurred
what began as $7 million and is now $16
million in unfunded vested pension
benefits. They argue the Whites had a
separate, commonly owned business that
should expose them to personal liability
for the company’s $16 million debt, a
demand that surely would have caused the
Whites’ personal bankruptcy. A law with
the sound purpose of preventing
fractionalization should not be stretched
to such an extreme application that would
expose a common owner of a completely
unrelated personal business to such
withdrawal liability. The Whites’ two
apartments did not offend Congress’
purpose designed to prevent businesses
from shirking their ERISA obligations. In
any event, an owner of a business that is
obligated to pay contributions to a
common pension fund may need to take
extra caution in engaging in real estate
and other personal investment activities.
See Susan C. Glen, "Central States v.
Personnel, Inc.: When Real Estate
Investments Create Personal Liability
under the Multiemployer Pension Plan
Amendments Act of 1980," 

. Rev.
501, 524-25 (1993) (finding that the
imposition of personal liability may
cause the average small business owner to
avoid ownership of real property)./8

III.   CONCLUSION

  The Whites’ limited rental activities
involving their primary residence are
personal in nature and do not rise to the
level of a "trade or business" for
purposes of the MPPAA. Thus, the district
court erred in its conclusion that the
Whites were personally liable for the
Trans Jones Companies’ withdrawal
liability. Accordingly, we reverse the
judgment of the district court and remand
for the entry of summary judgment in
favor of the Whites.

FOOTNOTES

/1 As of December 31, 1999, the Whites’ net worth,
including amounts held in tax qualified plans,
was approximately $1.4 million.

/2   The district court denied the Whites’ jury
demand as moot, given its grant of summary judg-
ment, and the Whites did not appeal this ruling.
In their opening brief, they stated that the ap
plicable standard of review was de novo. However,
in its response, Central States challenged this
statement and the Whites addressed its argument
in their reply brief, arguing that they request-
ed, and are entitled to, a jury trial. Central
States moved to strike those portions of the
reply brief, arguing that the Whites did not
address this issue in their initial appellate
brief and had waived the argument. However, that
portion of the Whites’ reply brief, prompted by
Central States’ standard of review argument in
its response brief, necessarily included a con-
sideration of whether the nonmoving party re-
quested a jury trial. Accordingly, it was appro-
priate for them to first raise it at that point
and Central States’ Motion to Strike is denied.

/3 In this case, Central States seeks to hold the
Whites, as owners of their garage apartments,
liable for Jones Transfer’s withdrawal liability.
We want to be clear that Central States is not
claiming, nor may it claim, that the Whites are
liable because Mr. White was the majority share-
holder of Trans Jones. Generally, controlling
shareholders and corporate officers are not
employers and therefore may not be personally
liable for a company’s withdrawal liability in
the absence of facts justifying the piercing of
the corporate veil under state law. See Levit v.
Ingersoll Rand Fin. Corp., 

, 1193
(7th Cir. 1989). Such facts are not alleged here.
Because the Whites’ garage rental activity is not
incorporated, but rather operated like a partner-
ship, it offers no shield from personal liability
to its owners.

/4 The Whites’ rental activities and Jones Transfer
qualify as a "brother-sister" group, one in which
the same five or fewer people have a controlling
interest and over which those same five people
exercise effective control. 26 C.F.R.
sec. 1.414(c)-2(c). A "controlling interest" in a
corporation is ownership of at least 80% of the
voting shares and, in a partnership, it is owner-
ship of at least 80% of the profits, interest or
capital interest. See 26 C.F.R.
sec. 1.414(c)-2(b)(2). "Effective control" is
demonstrated by ownership of at least 50% of the
combined voting power of all the voting stock of
a corporation and by ownership of at least 50% of
the profits, interest or capital interest of a
partnership. See 26 C.F.R. sec. 1.414(c)-2(c)(2).
Here, all of the stock of Jones Transfer, the
entity incurring withdrawal liability, was owned
by Trans Jones, 93.53% of the stock of which was
owned by Mr. White. His interest therein is
attributed to his wife. See 26 C.F.R. sec.
1.414(c)-4(b)(5)(i). Since the Whites owned 100% of
their garage rental activity (i.e., their home),
the leasing activity and the Trans Jones Compa-
nies are under "common control."

/5 It is undisputed that the Whites never rented the
apartments to anyone working for or connected
with Trans Jones or Jones Transfer and that those
companies never engaged in any business transac-
tions with the Whites personally, nor did the
companies ever provide them with any money or
thing of value for use in the rental of the
apartments.

/6 We note the irony, however, that while courts
have typically held that the businesses do not
have to be "related," most of the cases involved
a business which leased property to the business
incurring withdrawal liability. See Slotky, 

(7th Cir. 1992); Central States, South-
east and Southwest Areas Pension Fund v. Koder,

(7th Cir. 1992); Personnel, 

(7th Cir. 1992); Ditello, 

(7th
Cir. 1992); Bd. of Trustees of the Western Con-
ference of Teamsters Pension Trust Fund v.
LaFrenz, 

(9th Cir. 1988). In addi-
tion, as explained in more detail below, in
Fulkerson, the trucking company (which had in-
curred withdrawal liability and of which Mr.
Fulkerson was an owner) originally built trucking
terminals on Mr. Fulkerson’s land and subsequent-
ly sold them to him. Mr. Fulkerson continued to
use the land as rental property. Technically the
trucking company and Mr. Fulkerson’s leasing
activity were not related, but nevertheless there
was some connection. Here, no such connection
exists.

/7 The Whites also argue that there are genuine
issues of material fact regarding whether the
Trans Jones Companies received Central States’
notice and demand of payment of withdrawal lia-
bility, whether they were actually engaged in
rental activities on December 27, 1992, regarding
their intent (for profit or otherwise) in renting
the apartments, and whether Mrs. White intended
to join her husband in the rental activity. Even
assuming that these questions were resolved in
Central States’ favor, we would still conclude
that the Whites’ activities do not constitute a
trade or business for purposes of Section
1301(b)(1). Accordingly, we need not address
whether these additional issues should also have
precluded summary judgment.

/8 In addition to their statutory arguments, the
Whites have urged us to determine whether the
imposition of personal liability for $16 million
in withdrawal liability based on their rental
income of approximately $5,000 per year consti-
tutes a violation of their rights under the Due
Process and Taking Clauses of the Fifth Amend-
ment. However, given our holding regarding the
interpretation of the MPPAA, we need not reach
their constitutional arguments. See United States
v. Bloom, 

, 653 (7th Cir. 1998).
Likewise, we need not decide whether, because
Central States waited six years to file suit
(while $9 million in liability accumulated),
laches should apply to its claim.