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In a case of first impression within the courts of the 3rd Circuit, an Eastern District judge has ruled that ERISA allows the trustees of a multiemployer pension plan to use both alter-ego and piercing-the-corporate-veil theories of liability against the corporate affiliates and individual owners of a bankrupt company. The 37-page opinion by U.S. District Judge Mary A. McLaughlin in Brown v. Astro Holdings Inc. is limited to cases under the Employee Retirement Income Security Act in which the plaintiff seeks to recover pension plan contributions from an employer that withdraws from a multiemployer pension plan. McLaughlin noted that neither the U.S. Supreme Court nor the 3rd U.S. Circuit Court of Appeals have yet squarely addressed whether alter-ego liability or veil piercing are available with respect to withdrawal liability under ERISA and the Multiemployer Pension Plan Amendments Act of 1980. But in several recent decisions, McLaughlin found, both courts have “suggested that they may not be.” Faced with nothing but dicta from the higher courts, McLaughlin said she was forced to “conduct an independent analysis of whether alter-ego or veil-piercing theories are available under ERISA and the MPPAA.” And while numerous lower courts have apparently applied the two theories in ERISA cases, McLaughlin found that “in all of these cases, however, the courts assumed that alter-ego liability and veil piercing were available, and the issue of whether ERISA and the MPPAA foreclose those remedies was never raised or addressed.” After analyzing all of the available case law, as well as the statutory text, McLaughlin concluded that, in the specific context of a suit under both ERISA and the MPPAA, plaintiffs must be allowed to pursue liability under both the alter-ego and veil-piercing theories. “Recognizing alter-ego liability under the MPPAA would further the policy and purpose of the statute. The general purpose of the MPPAA is to protect the solvency of multiemployer pension plans,” McLaughlin wrote. “One of the principal ways the statute does this is by imposing withdrawal liability on employers leaving the plans. Interpreting an ‘employer’ responsible for withdrawal liability to include alter egos of the employer furthers the purpose of the statute by preventing a company from avoiding liability by shifting assets to its alter ego,” McLaughlin wrote. And since alter-ego liability is “predicated on the alter ego being essentially the same entity as the employer,” McLaughlin said, “interpreting the MPPAA to allow it should not unduly expand the reach of withdrawal liability.” Veil piercing is also a valid theory, McLaughlin said, noting that she “found nothing in the legislative history of the MPPAA that would indicate Congress intended to foreclose the use of veil piercing and allow individuals who abused the corporate form to escape liability.” McLaughlin said she recognized that the U.S. Supreme Court has cautioned that, due to the “comprehensive nature of ERISA,” courts should not read remedies into the law that are not reflected in the statutory text. Despite those words of caution, McLaughlin said that she “cannot conclude that Congress intended to preclude recourse to piercing the corporate veil, at least as to individual owners, in circumstances where the stringent standards for such liability are met.” The ruling is a victory for plaintiffs’ attorneys Bruce S. Levine and Peter D. DeChiara of Cohen Weiss & Simon in New York, and Linda M. Martin of Willig Williams & Davidson of Philadelphia. The plaintiffs in this suit are the trustees of the Master, Mates and Pilots Pension Plan who are seeking to recover more than $3.4 million in withdrawal liability due to the bankruptcy of NPR Inc., a shipping company. NPR is not named as a defendant in the suit. Instead, the plaintiffs named 13 corporate affiliates of NPR and four individual members of the Holt family — Thomas Holt Sr. and his children, Thomas Holt Jr., Leo Holt and Michael Holt. The suit alleges that the corporate affiliates, together with NPR, constituted a family of closely held corporations, all owned by Thomas Holt Sr. and his sons and all in the business of providing port services and shipping. The plaintiffs describe the companies as a “family conglomerate” which they refer to as the “Holt Family Enterprise.” In an effort to show that the corporate affiliates are all alter egos of NPR, and that the court should pierce the corporate veil and hold the Holt family members liable, the suit outlines the alleged structure of the corporations and the power wielded over them by the Holts. Thomas Holt Sr., the suit says, indirectly owns 100 percent of NPR through two layers of wholly owned subsidiaries — NPR is alleged to be wholly owned by NPR Holding Corp., which is wholly owned by the Holt Group Inc., which is wholly owned by Thomas Holt Sr. Thomas Holt Jr., the suit alleges, was appointed president and director of NPR in 1997, and Michael Holt and Leo Holt are alleged to have been directors of the Holt Group Inc. The suit alleges that the Holts “maintained absolute domination and control” over the corporate defendants and treated NPR and the corporate defendants as “one closely held enterprise.” As a result, the suit says, the 13 corporate affiliates are liable as “alter egos” of NPR because NPR and the affiliates are so “inextricably intertwined” that they have “effectively merged” into a single entity. And the Holts, the suit alleges, are liable under a veil piercing theory because they “directly or indirectly” owned NPR and the corporate defendants and they “failed to maintain corporate formalities” between NPR and its corporate affiliates. Therefore, the suit alleges, “the corporate veils of the corporate defendants should be pierced to hold the [individual defendants] personally, jointly, and severally liable for NPR’s withdrawal liability under ERISA.” In a motion to dismiss, defense attorneys Lawrence G. McMichael and Patrick M. Northen of Dilworth Paxson argued that “ERISA does not recognize alter-ego/piercing-the-corporate-veil liability against an individual or entity that is not directly liable under ERISA.” By bringing a suit under only those theories, the defense team argued, the plaintiffs were attempting to “rewrite ERISA and/or the MPPAA — and upset the specific statutory scheme adopted by Congress — by importing an equitable remedy that Congress was certainly aware of and could have included in ERISA, but did not.” But McLaughlin found that the defense lawyers had conceded that their argument was a novel one. “They point to no decision, and the court can find none, that has ever held that alter-ego liability or veil-piercing is impermissible under ERISA or the MPPAA,” McLaughlin wrote. Instead, McLaughlin said, the defense team relied on dicta in decisions from the U.S. Supreme Court and the 3rd Circuit “that caution against judicially expanding the remedies available under ERISA and the MPPAA, and that express doubts about the availability of alter-ego and veil-piercing theories under those statutes.” But while the higher courts had expressed doubts, McLaughlin found that none of the decisions had explicitly ruled out use of alter ego and veil piercing. Forced to tackle the question herself, McLaughlin concluded that, in the context of an MPPAA claim, both theories should be allowed. “There is no statutory definition of an ‘employer’ under the MPPAA,” McLaughlin wrote. “Defining an ‘employer’ for purposes of withdrawal liability has been left to the courts.” As a result, McLaughlin said, there is “no overlap between alter-ego liability and any existing definition of an employer, nor is there a ‘carefully crafted and detailed legislative scheme’ that would be upset by allowing alter-ego liability.” Since Congress left open the definition of an “employer” subject to withdrawal liability, McLaughlin found that the courts must “must borrow from traditional common law to develop the necessary federal common law for interpreting the statutory language.” McLaughlin concluded that “interpreting an ‘employer’ subject to withdrawal liability to include an ‘alter ego’ of that employer accords with federal common law and the purposes and policies behind ERISA and the MPPAA. Both alter-ego liability and veil piercing are recognized under federal common law.”

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