Appeal from the United States District Court for the Western District of Missouri.
The opinion of the court was delivered by: Bye, Circuit Judge.
Submitted: January 12, 2010
Before MURPHY and BYE, Circuit Judges, and STROM,*fn1 District Judge.
JNL Construction Company, Inc. (JNL), Larry McAllister (Larry), Nancy McAllister (Nancy), and TVM Rentals, Inc. (TVM) appeal the district court's adverse grant of summary judgment in an action brought under section 502, see 29 U.S.C. § 1132 (civil enforcement), and section 515, see 29 U.S.C. § 1145 (delinquent contributions), of the Employment Retirement Security Income Act (ERISA). Upon de novo review, see Trs. of the Graphic Commc'ns Int'l Union Upper Midwest Local 1M Health & Welfare Plan v. Bjorkedal, 516 F.3d 719, 725 (8th Cir. 2008), we reverse and remand for further proceedings.
Trustees for the Carpenters District Council of Kansas City Pension Fund, Carpenters District Council of Kansas City and Vicinity Welfare Fund, and Carpenters District Council of Kansas City and Vicinity Apprenticeship and Training Fund (collectively the Funds) brought an ERISA action on behalf of the Funds against JNL, the McAllisters, and TVM. The Funds alleged defendants failed to contribute union employees' fringe benefits to the Funds from November 2003 through January 2005, as required by collective bargaining agreements covering carpenters who performed work for JNL.*fn2 The Funds sought to pierce the corporate veil of JNL to reach the McAllisters and TVM. The relevant summary judgment record--which included Larry's and Nancy's deposition testimony and declarations, as well as bank and mortgage records--reveals the following.*fn3
JNL was in the business of finish-carpentry and employed only carpenters. The collective bargaining agreements were entered into in 1995 before JNL was incorporated in 1998 (the year the McAllisters divorced); at various times Larry and Nancy each owned from 49-51% of JNL. JNL had an office manager, and Nancy's son served as JNL's secretary/treasurer and chief executive officer at times, so Nancy was not always aware of JNL's income and expenses. Larry primarily worked as a carpenter, superintendent, or job bidder, leaving JNL's financial matters to others. JNL began having cash flow problems in 2003, and Larry drew no salary from late 2003 to late 2004. Around October 2004, Nancy became JNL's sole owner and president. According to Nancy, the JNL stock had little or no value at the time, so she paid Larry nothing; she explained the transfer occurred because Larry could not get his pension as a union carpenter if he retained any interest in JNL. Nancy also testified JNL ceased operations in August 2005. Its checking-account statements from July 2004 to January 2005 reflect multiple deposits and checks; the lowest monthly balance was $20,408 and the highest was $128,392.
JNL operated out of various locations. Larry personally paid either the rent or the mortgage payments for these locations, in part because the locations usually also served as his residence, and in part because his tax advisor so recommended; he was only sporadically reimbursed by JNL. JNL was last located in a residence in Pleasant Hill, Missouri. JNL took out a construction loan of around $250,000 to build the residence, but Larry put $60,000 of his own money into the project; Larry understood whoever resided in the residence upon its completion (which at first was Nancy's son) would pay off the construction loan. In July 2004, Larry took out a personal mortgage of $462,000 on the residence and netted $217,740 after paying off the existing mortgage. He deposited the proceeds into his personal account. He declared he used the money for JNL's business expenses, offering copies of personal checks totaling $95,000 which he wrote to JNL in July, August, and September 2004, and a copy of a $100,000 check he wrote to the Internal Revenue Service in August 2004 to satisfy JNL's tax liability.*fn4 A few days after Larry obtained the July 2004 loan, he bought the Pleasant Hill residence from JNL. The warranty deed recited the consideration was $10 and "other valuable consideration"; according to Larry, in addition to the payment of $10, he had agreed to satisfy the debt on the residence. From November 2004 to July 2005, Larry and Nancy lived at the residence, where JNL also conducted business beginning in either July or November 2004. Meanwhile, in December 2004 Larry took out another personal mortgage on the Pleasant Hill residence for $588,000, and this time netted about $86,000 after satisfying the existing mortgage. He placed these proceeds in JNL's account a few days later. In June 2005 Larry sold the residence for $800,000, and realized a profit of about $184,000. However, court records show all but around $49,000 was owed to a lender.
In August 2004, JNL transferred its tools to TVM for $100,000, but money was never exchanged. TVM rented the tools back to JNL, but because of cash-flow problems, no rental payments were made. The tools were sold in July 2005 for a profit of only around $19,700. Checking-account statements for TVM from 2004 and 2005 reflect at most a balance of around $2,000; as of November 2004, these statements were sent to the Pleasant Hill residence. JNL was TVM's sole customer.*fn5
In granting summary judgment to the Funds, the district court interpreted the complaint as raising claims only under ERISA, and applied this court's holding in Greater Kansas City Laborers Pension Fund v. Superior Gen. Contractors, Inc., 104 F.3d 1050 (8th Cir. 1997): to pierce a corporate veil, a court must consider (1) whether a corporation was controlled by another to the extent it had independence in form only, and (2) whether the corporation was used as a subterfuge to defeat public convenience, justify wrong, or perpetrate a fraud. Id. at 1055. The district court pointed to the following transactions cited by the Funds in concluding the first prong of the Greater Kansas City Laborers test had been met: the McAllisters shared space with JNL, and paid for the space; Nancy acquired the JNL stock for no value; JNL obtained a $250,000 construction loan to build the Pleasant Hill residence, and then Larry took out personal mortgages on it and received the net loan proceeds; Larry bought the Pleasant Hill residence, and his affidavit was insufficient to contradict the warranty deed's recitation indicating he paid only $10; Larry paid JNL's $100,000 tax debt; and JNL sold tools to TVM for $100,000, without receiving payment, and then failed to pay for renting the tools from TVM. The court also concluded defendants engaged in conduct to perpetrate a fraud to avoid paying JNL's creditors, noting Larry had repeatedly deposited money into JNL's account, but payments to the Funds were never made.
On appeal, the McAllisters, JNL, and TVM essentially reiterate their arguments from below, contending the Funds failed to establish a causal connection between the transactions upon which they relied and JNL's insolvency or undercapitalization.
In Greater Kansas City Laborers, plaintiffs (Missouri employee trust funds) sued solely under ERISA sections 502 and 515 to recover unpaid contributions from a corporate entity, and this court relied on the two-part test cited above in conducting its alter-ego analysis. See id. at 1052-55 (corporate-law standard for determining alter-ego status strikes appropriate balance between congressional intent of ERISA and long-established principle that corporation's existence is presumed to be separate and may be disregarded only in narrowly prescribed circumstances). In another section 515 case, this court cited the Tenth Circuit's federal common-law standard for piercing the corporate veil between a corporation and an individual, noting this court had previously concluded corporate officers could not be held personally liable under ERISA without a basis for piercing the corporate veil. See Minn. Laborers Health & Welfare Fund v. Scanlan, 360 F.3d 925, 927-29 (8th Cir. 2004) (citing Tenth Circuit's two-prong test: (1) whether there was unity of interest and lack of respect ...