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Date: 07-31-2018

Case Style:

Mark McClaskey v. CWG Plastering, LLC


Southern District of Indiana Federal Courthouse - Indianapolis, Indiana

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Case Number: 17-1980

Judge: Wood

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Southern District of Indiana (Marion County)

Plaintiff's Attorney: Donald D. Schwartz

Defendant's Attorney: William P. Hogan

Description: Walter “Wally” Gianino owned and
operated a plastering company in St. Louis, Missouri, for over
thirty years. That business—Gianino Plastering—abruptly
closed in 2012. Around the same time, Wally’s son, Curt Gianino,
who had worked at Gianino Plastering for over a decade,
founded his own company, CWG Plastering, LLC. CWG
took on at least some of Gianino Plastering’s customers, hired
2 No. 17‐1980
its employees, and without missing a beat completed jobs that
Gianino Plastering had begun. What might be a story of a son
following in his father’s footsteps is complicated by an inconvenient
fact: Curt went into business on the same day that a
$196,940.73 judgment was entered against his father’s company.
That judgment arose out of Gianino Plastering’s 2009 collective
bargaining agreement with the Operative Plasterers
and Cement Masons International Association Local 3 (“the
Union”). The agreement obligated the company to make regular
contributions to the Indiana State Council of Plasterers
and Cement Masons Health and Welfare and Pension Funds
(“the Funds”). Gianino Plastering soon fell short of meeting
that obligation, prompting the Funds to sue in the Southern
District of Indiana in 2011 to recover the delinquent payments.
After a bench trial, the district court entered judgment
against Gianino Plastering and in favor of the Funds. But the
Funds were blocked from collecting on their judgment because
Gianino Plastering filed for bankruptcy.
The Funds now have sued CWG, asserting that CWG is
Gianino Plastering’s successor and alter ego and thus liable
for both the judgment and for other ongoing violations of the
collective bargaining agreement. After discovery, the parties
filed cross‐motions for summary judgment. The district court
ruled that the Funds had not produced enough evidence to
proceed to trial. Our de novo review of the record convinces us
to the contrary: the Funds proffered considerable evidence
that a trier of fact could use to support its case against CWG,
and so we reverse and remand.
No. 17‐1980 3
I
The Funds rely on two legal theories to impose liability on
CWG for Gianino Plastering’s debts and continuing obligations.
First, they contend that CWG is a successor to Gianino
Plastering, making it liable for Gianino Plastering’s failure to
pay into the Funds. See, e.g., Teed v. Thomas & Betts Power Sols.,
L.L.C., 711 F.3d 763, 764 (7th Cir. 2013). Second, they argue that
CWG must continue to abide by Gianino Plastering’s collective
bargaining obligations as an alter ego of the defunct company.
See, e.g., Int’l Union of Operating Eng’rs, Local 150, AFLCIO
v. Centor Contractors, Inc., 831 F.2d 1309, 1312–13 (7th Cir.
1987).
Because CWG’s liability arises under the Employee Retirement
Income Security Act (ERISA), 29 U.S.C. §§ 1132, 1145,
and the National Labor Relations Act (NLRA), 29 U.S.C.
§ 185(a), everyone assumed in the district court that federal
law governs both claims. (On appeal, CWG cited a few cases
that rested on state law, but it never actually argued that state
law applies.) At oral argument, CWG belatedly took the position
that state law should apply. Choice of law is not a subject
of jurisdictional status, and so a party can forfeit that issue by
overlooking it. McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674,
684 (7th Cir. 2014). That is what CWG did here: it failed to
challenge the governing law either in its briefs before this
court or in its summary judgment materials in the district
court. We thus consider the subject forfeited, see Puffer v. Allstate
Ins. Co., 675 F.3d 709, 718 (7th Cir. 2012).
A
Even with the forfeiture, the question remains whether we
should, on our own initiative, reject the use of federal law in
4 No. 17‐1980
favor of one or more state laws. We see no reason to do so
here. If the choice of federal law appeared to be flatly inconsistent
with the Supreme Court’s decisions, we would have a
different problem. But it is not. To the contrary, the NLRA and
ERISA are both statutes in which the Supreme Court has often
opted for a federal standard, in light of the broad preemptive
force of both ERISA and section 301 of the Labor Management
Relations Act. See Smith v. Evening News Ass’n, 371 U.S. 195,
200 (1962); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 55–56
(1987).
For example, the Supreme Court announced a federal
standard for successor liability in a number of cases beginning
with John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964),
where it addressed the question whether a corporate successor
had a duty to arbitrate under the labor laws. Id. at 548–49.
There the Court found that federal law controlled and imposed
a duty to arbitrate on the successor employer, even
though only the predecessor had actually agreed to arbitrate.
Id. at 550–51. Over the next decade, the Court periodically returned
to successor liability under the NLRA and in each instance,
it used a federal standard. See Golden State Bottling Co.
v. NLRB, 414 U.S. 168, 174–85 (1973) (finding that federal labor
policy favored holding a successor liable for the unlawful discharge
of an employee from its predecessor); NLRB v. Burns
Int’l Sec. Servs., Inc., 406 U.S. 272, 287–88 (1972) (holding that
a successor is not bound to substantive terms of previous collective
bargaining agreement). See also Howard Johnson Co. v.
Detroit Local Joint Exec. Bd., Hotel & Rest. Emps. & Bartenders
Int’l Union, AFL‐CIO, 417 U.S. 249, 264–65 (1974) (no successor
liability).
No. 17‐1980 5
A federal standard for alter‐ego liability also has deep
roots in labor law. In Howard Johnson, the Supreme Court held,
without even a nod to state law, that federal common law governed
the question before it. It then went on to state that under
federal law, an “alter ego” (unlike a successor corporation) “is
in reality the same employer and is subject to all the legal and
contractual obligations of the predecessor.” 417 U.S. at 259 n.5.
On the other side of the ledger we have the Supreme
Court’s decision in Peacock v. Thomas, 516 U.S. 349 (1996),
which cautions federal courts not to jump to the assumption
that federal common law applies. Peacock started out as an
ERISA suit by a class against a company (Tru‐Tech) and one
of its shareholder‐officers (Peacock). That suit resulted in a
judgment against Tru‐Tech, but not against Peacock. After the
court of appeals affirmed the judgment, the named class representative,
Thomas, sued Peacock to try to collect the judgment
against Tru‐Tech. The Supreme Court thus had to decide
“whether federal courts possess ancillary jurisdiction over
new actions in which a federal judgment creditor seeks to impose
liability for a money judgment on a person not otherwise
liable for the judgment,” Id. at 351. On these facts, the Court
found nothing in ERISA that would stretch federal standards
that far. It emphasized that the complaint alleged no violation
of ERISA or the Plan, and held that such allegations were essential
for a veil‐piercing action. Id. at 353–54. Without ancillary
jurisdiction, the case did not belong in federal court.
Recognizing that this issue remains open, we nonetheless
do not find in Peacock a clear signal undermining the Court’s
longstanding recognition that cases that do rest on ERISA or
Plan language are both within the federal court’s subject‐matter
jurisdiction and typically governed by federal law. In our
6 No. 17‐1980
case, the Funds argue that CWG is engaged in an ongoing violation
of the NLRA and ERISA by failing to comply with an
extant collective bargaining agreement. To the extent that Peacock
rested on a concern about the existence of a federal basis
for the action, it does not appear to apply here. Particularly in
light of CWG’s failure to suggest that state law governs the
alter‐ego and successor liability questions, we see nothing inappropriate
about applying federal law.
B
Both successor and alter‐ego liability incorporate a scienter
component coupled with an analysis of similarities between
the old and new entities. Successor liability requires notice of
the obligation by the new entity, while alter‐ego liability requires
more: a fraudulent intent to avoid collective bargaining
obligations. Chi. Truck Drivers, Helpers & Warehouse Workers
Union (Indep.) Pension Fund v. Tasemkin, Inc., 59 F.3d 48, 49 (7th
Cir. 1995) (successor liability); Cent. States, Se. & Sw. Areas Pension
Fund, 85 F.3d at 1287–88 (alter‐ego liability). Once scienter
is established, successor liability is imposed if there is a “substantial
continuity in the operation of the business before and
after the sale.” Tasemkin, 59 F.3d at 49 (quoting EEOC v. G‐KG,
Inc., 39 F.3d 740, 748 (7th Cir. 1994)). For alter‐ego liability,
the Funds additionally must show “substantially identical
management, business purpose, operation, equipment, customers,
supervision, and ownership.” Rabine, 161 F.3d at 433.
The former holds the successor liable for violations of labor
and employment law by the predecessor, while the latter
holds the alter ego to the terms of the full collective bargaining
agreement entered by the predecessor. See Howard Johnson,
417 U.S. at 259 n.5. Both of these analyses are fact intensive,
but they boil down to a simple question: despite two entities’
No. 17‐1980 7
legal separation, does the evidence suggest they are one and
the same?
II
Here, the district court approached the issue by marching
through a lengthy list of factors identified in several earlier
decisions from this court, including Tasemkin, 59 F.3d 48, Sullivan
v. Running Waters Irrigation, Inc., 739 F.3d 354 (7th Cir.
2014), and Cent. States, Se. & Sw. Areas Pension Fund v. Sloan,
902 F.2d 593 (7th Cir. 1990). It found that “there are simply too
many differences between the entities” for any reasonable
factfinder to impose successor or alter‐ego liability. In so finding,
however, the court failed to credit the full range of evidence
the Funds presented and it crossed the line between
taking the evidence in the light most favorable to the nonmoving
party, and weighing the evidence for itself.
Our own review of the evidence presented by the Funds
for purposes of the summary judgment motion persuades us
that there are striking continuities between Gianino Plastering’s
operations and the newly‐formed CWG. As we noted at
the outset, Wally was the sole owner of Gianino Plastering
and shuttered the company in 2012; CWG opened within days
of Gianino Plastering’s closing and was solely owned by Curt.
The companies’ ownership, name, and address may have
changed, but the transition of operations and employees from
Gianino Plastering to CWG tells a different story.
The crucial period for analyzing the transition runs from
July 27 to August 14. On July 27, the presiding magistrate
judge recommended a $196,940.73 judgment against Gianino
Plastering after an evidentiary hearing on damages. Wally undisputedly
told Curt about the ruling. Not quite three weeks
8 No. 17‐1980
later, on August 14, the district court adopted the magistrate
judge’s recommendation and entered judgment in that
amount against Gianino Plastering. On the same day, Curt
registered CWG Plastering as a Missouri LLC.
Meanwhile, Gianino Plastering was at work as a plastering
subcontractor on a residential job called the LJPP project.
Sometime in late July, Wally and Curt visited the LJPP general
contractor and informed him that Gianino Plastering was
shutting down but that CWG would honor Gianino Plastering’s
bid and complete the work. Documents as late as July 30
still listed Gianino Plastering as the plastering subcontractor,
yet CWG later accepted a $28,800 payment for work completed
through July 31. The subcontract was transferred to
CWG on August 17, only three days after its formation. CWG
then completed the job in Gianino Plastering’s stead.
Gianino Plastering employed four people at the time of its
closing: Wally, Curt, Daniel Giger, and James Gildehaus. All
but Wally joined CWG’s payroll immediately after Gianino
Plastering went out of business, presumably while still working
on the LJPP project. Curt, Giger, and Gildehaus received
their last Gianino Plastering paycheck on August 10, the Friday
before the judgment was entered. The next Friday, August
17, Curt and Gildehaus received a CWG paycheck. Gildehaus
was aware that he had switched employers because
Curt called him and said “Hey, Wally’s being sued and I’m
starting my own company now and Wally’s no longer in the
picture.” Giger missed a week of pay, receiving his first CWG
check on August 24, but he understood that gap to be caused
by the Funds’ lawsuit against Gianino Plastering. Giger testified
that he did not even realize that he was working for a new
company. Wally was not formally employed by CWG that
No. 17‐1980 9
year (he began receiving CWG pay in August 2013), but there
is evidence that he was involved with the new company in
2012. He signed a lien waiver on behalf of CWG on November
30 and was seen at the LJPP jobsite. In short, a trier of fact
could find that CWG adopted Gianino Plastering’s workforce
as its own after the judgment was entered.
In an attempt to downplay the continuities between the
two companies, CWG emphasizes what it sees as major differences
between the two entities. It stresses that CWG was
solely owned and managed by Curt, while Gianino Plastering
was solely owned and managed by Wally. But the Funds have
offered evidence undermining this clean distinction. Wally
was the sole CWG contact for at least one client; he submitted
bids for at least two CWG projects; and he accompanied Curt
to meetings early in CWG’s existence. Furthermore, “familial
control” can be treated as “common ownership and control”
in appropriate labor cases. NLRB v. Dane Cnty. Dairy, 795 F.2d
1313, 1322 (7th Cir. 1986). A reasonable factfinder could find
both common ownership and control between the two entities
here.
The parties dispute the materiality of CWG’s capitalization,
common equipment, and shared clients. But the best we
can say for CWG is that these disputed items are just that: disputes
to be resolved at trial. CWG makes much of Curt’s initial
financing of CWG with $5,500 of his own money. A more significant
source of initial funds, however, was the $28,800 payment
that CWG accepted for Gianino Plastering’s work on the
LJPP project. According to its bank statements, CWG could
not have met its obligations for its first month of operation
using the $5,500 deposit alone. Similarly, the parties dispute
whether it is significant that CWG used Gianino Plastering’s
10 No. 17‐1980
trucks. Gianino Plastering sold the trucks to a third party that
immediately leased them to CWG. Evidence in the record of
this transaction is sparse; perhaps it was a straw transaction,
or perhaps it was an arms‐length bargain. But there is room
for a factfinder to adopt either interpretation. Last, we know
that CWG and Gianino Plastering shared eight customers. But
we do not know from the record how many total customers
each entity serviced; it could be eight of eight, or it could be
eight of one hundred. Without a denominator, this fact is not
conclusive of liability; it is evidence for a factfinder to weigh.
Considered as a whole, the record would allow reasonable
factfinders to differ. As to scienter, the Funds have strong evidence
of intent and undisputed evidence of knowledge, but a
factfinder could choose to believe Curt’s account over Gildehaus’s.
Similarly, the Funds have submitted evidence that
could suggest “substantial continuity in the operation of the
business,” Tasemkin, 59 F.3d at 49 (quoting G‐K‐G, Inc., 39 F.3d
at 748), and “substantially identical management, business
purpose, operation, equipment, customers, supervision, and
ownership,” Rabine, 161 F.3d at 433. The Funds’ evidence is
not flawless—after all, it is the rare case that can meet that
standard—but the district court was too quick to grant summary
judgment in CWG’s favor.
III
Because the Funds have presented sufficient evidence to
proceed to trial on both theories, we REVERSE the judgment of
the district court and REMAND for further proceedings consistent
with this opinion.
No. 17‐1980 11
HAMILTON, Circuit Judge, concurring. I join fully in Chief
Judge Wood’s opinion. I write separately to address concerns
raised in Judge Easterbrook’s opinion concurring in the judgment.
The federal rules of successorship liability under ERISA
and federal labor law evolved as equitable doctrines to address
the common practice of employers trying to sell their
businesses so as to avoid their obligations under federal law.
In developing those rules, courts have indeed kept an eye on
how those rules would likely affect people to alter their decisions
in buying and selling businesses or their assets.
That is evident in Indiana Electrical Workers Pension Benefit
Fund v. ManWeb Services, Inc., 884 F.3d 770 (7th Cir. 2018), discussed
in Judge Easterbrook’s concurrence. In that case, we
remanded for a trial on the issue of successorship liability.
That result could not have come as a surprise. At the time of
the original asset purchase, the buyer in that case actually did
anticipate the possibility of successor liability. The buyer
knew the seller faced potential withdrawal liability, and it
knew full well that successor liability was a possibility. The
buyer negotiated the deal with that prospect in mind, even
obtaining an indemnity agreement from the sellers covering
this very risk of successor liability. 884 F.3d at 783, citing Tsareff
v. ManWeb Services, Inc., 794 F.3d 841, 848 (7th Cir. 2015) (prior
appeal); see also Golden State Bottling Co v. N.L.R.B., 414 U.S.
168, 172 n.2 (1973) (noting successor’s ability to negotiate for
indemnification regarding liability for predecessor employer’s
liability for unfair labor practices). Moreover, the parties
in ManWeb had structured their asset purchase agreement
to deliver all the cash to a different, favored creditor of the
(insolvent) seller, stiffing the union pension plan. In short, the
result in ManWeb did not impose a tax on a buyer that lacked
sufficient foresight or astute lawyers. In the case now before
12 No. 17‐1980
us, the evidence does not show a detailed and well‐lawyered
asset purchase agreement, as in ManWeb. It does include powerful
evidence of a bad‐faith effort to continue the earlier business
while favoring certain creditors and leaving these Funds
unpaid. If bankruptcy would be a better alternative, fairer to
all creditors of an insolvent business, so be it.
No. 17‐1980 13
EASTERBROOK, Circuit Judge, concurring in the judgment. I
agree with my colleagues that the case must be remanded,
but I do not agree with them about what ought to happen
next. I have reservations about choice of law and the content
of federal successorship law to the extent it applies.
Because the Funds seek to recover from CWG Plastering
directly under two federal statutes, the district court has subject‐
matter jurisdiction. It does not follow that federal law
applies to all of the Funds’ claims. The Funds present two
distinct claims: that CWG Plastering is liable in its own right
as the successor of Gianino Plastering and that CWG Plastering
must pay a judgment the Funds hold against Gianino
Plastering. The first claim arises under federal law. But the
second sounds like the same sort of theory that Peacock v.
Thomas, 516 U.S. 349 (1996), held to rest on state law. My colleagues
recognize that Peacock appears to govern the attempt
to collect the judgment from an entity that was not a party to
it. They add that they do not see in Peacock a “clear signal
undermining the Court’s longstanding recognition that cases
that do rest on ERISA or Plan language are … typically governed
by federal law.” Slip op. 5, emphasis in original. I
agree with that statement, but, because the attempt to collect
from CWG Plastering the judgment against Gianino Plastering
does not rest on ERISA or the Plans’ language, this claim
is governed by state law. (In Peacock itself the underlying
judgment rested on ERISA, which therefore cannot be
enough to call for the application of federal law to collection
proceedings.) It complicates litigation to have one claim for
relief rest on one body of law and a second claim for relief
on a different body of law, but this happens all the time. Peacock
requires the application of state law to the Funds’ effort
14 No. 17‐1980
to collect from B (CWG Plastering) an ERISA judgment entered
against A (Gianino Plastering).
The Funds’ direct ERISA claim rests on federal law, but
the statute does not supply a rule of decision. We must apply
federal common law. What is the source of that law? Sometimes
federal common law is drawn from state law. See, e.g.,
United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979); Kamen
v. Kemper Financial Services, Inc., 500 U.S. 90 (1991). In a case
arising under federal environmental law—and like this one
involving a theory of third‐party liability—the Justices raised
that possibility but did not decide when it would be appropriate
to use state‐law principles as the basis of federal rules.
United States v. Bestfoods, 524 U.S. 51, 63–64 n.9 (1998). The
Court did not come to a conclusion because the parties had
not presented the issue properly. Just so here. The parties
have briefed this appeal without so much as mentioning the
source‐of‐law problem, which means that we properly leave
the subject for another day.
My colleagues conclude that federal common law creates
successorship liability whenever the original and successor
businesses are similar enough—where “enough” depends
on juggling the many factors a creative legal mind can envision.
Maybe so; plenty of judicial opinions proceed that way.
My colleagues cite a sample of them. This ambulatory approach
confounds businesses by being so vague that it is impossible
to know the legal rule until lengthy and expensive
suits are over. Cf. Secretary of Labor v. Lauritzen, 835 F.2d 1529,
1539–45 (7th Cir. 1987) (concurring opinion). Our suit is in its
third year, and all my colleagues are willing to venture is
that “the record would allow reasonable factfinders to difNo.
17‐1980 15
fer.” Slip op. 10. I pity the judge who must draft the instructions
telling jurors how to proceed.
More: it is necessary to ask how this fundamentally ex
post perspective affects parties’ behavior ex ante. If “similar
enough” firms must pay their predecessors’ debts, what
happens? Will pension funds be the winners? Today’s decision
for these Funds may come at the expense of all funds
tomorrow.
Consider the facts of Indiana Electrical Workers Pension
Benefit Fund v. ManWeb Services, Inc., 884 F.3d 770 (7th Cir.
2018). ManWeb paid about $260,000 to buy Freije’s assets. It
sold (or never used) most of the physical assets and was essentially
acquiring the old firm’s name and goodwill. This
led the court to conclude that it may well be Freije’s successor
and, if so, must pay more than $660,000 that Freije owed
to a pension fund. Successorship raised the assets’ price to
$920,000 (the total to Freije plus the fund), much more than
ManWeb agreed to pay.
Businesses fail, and leave creditors unpaid, precisely
when their assets are worth less than their liabilities. If buying
the assets means also accepting the liabilities, then the
assets have a negative value and purchases do not occur.
When that happens pension and welfare‐benefit funds are
worse off, losing even an ability to recover the purchase
price from investors for their own benefit. Employees and
customers also may suffer losses when a business cannot
continue under new ownership.
I use the numbers in ManWeb to illustrate a problem, not
to reargue the facts of that case. If as Judge Hamilton suggests
the purchase price was below the value of the assets,
16 No. 17‐1980
and the buyer’s payment was used for the benefit of an inside
creditor rather than the fund, the right response should
have been a fraudulent‐conveyance action, which would
have enabled the fund to realize the assets’ true value. A successorship
judgment requiring the buyer to pay the full
amount of the debt, even when that exceeds the assets’ net
value, is problematic.
Courts should consider how judge‐made rules lead people
to alter their behavior. We stressed this recently in Illinois
Department of Revenue v. Hanmi Bank, No. 17‐1575 (7th Cir.
July 9, 2018). When bankruptcy judges allowed the sale of
assets free of successorship liability for tax debts, see 11
U.S.C. §363(f), a tax collector protested that its priority claim
had not received the protection to which the Bankruptcy
Code entitles it. We asked what that protection would have
entailed, given the existence of other creditors (some of them
secured) and buyers’ ability to make their own adjustments.
One potential adjustment would have been not to purchase
any assets; then the tax collector also could not have recovered.
Another potential adjustment would have been to acquire
the assets through a shell corporation without the ability
to pay the debtor’s back taxes. Again the tax collector
could not have recovered. Because several lawful alternatives
to the sale in bankruptcy left the tax collector emptyhanded,
the court concluded that nothing was all the tax collector
could get as “adequate protection” under §363.
What was true in Hanmi Bank is equally true of the
Funds’ claims. One lawful alternative would have been to
have the Funds’ claims discharged in bankruptcy. Another
would have been a sale of assets in bankruptcy, with liability
stripped off under §363(f) on the same theory as in Hanmi
No. 17‐1980 17
Bank. The former approach—bankruptcy with no successor—
would have been worse for the Funds, the workers, and
the customers alike. A sale of assets under §363(f) also would
have left the Funds with nothing. If Curt Gianino had consulted
a good bankruptcy lawyer before taking over his father’s
business, he would have been told these things. Ordering
him to pay about $200,000 to the Funds is a steep penalty
for the lack of legal advice and will serve as an incentive for
family businesses to throw creditors, workers, and customers
to the wolves. Is that really what federal common law
should achieve?

Outcome: Revered and remanded.

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