Board of Trustees of the Local Union No. 373 United Assocation of Journeymen…

Background

The Board of Trustees of the Local Union No. 373 United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry Benefit Funds, acting in a fiduciary capacity, sued Mid-Orange Mechanical Corp., also known as Mid-Orange Mechanical Corporation, and Mid-Orange Plumbing and Heating, Inc. The claims alleged violations of the Employee Retirement Income Security Act of 1974 and breach of contract.

The proposed second amended complaint alleged that Mid-Orange Mechanical and Mid-Orange Plumbing and Heating shared accountants, clerical workers, other professionals, a payroll company, assets, and bank accounts. It also alleged that the companies operated the same business from the same location, had the same ownership, transferred business resources from Mid-Orange Mechanical to Mid-Orange Plumbing and Heating, and that William E. Hadden and Marie A. Hadden owned and controlled both companies.

The Funds had obtained earlier judgments against Mid-Orange Mechanical concerning unpaid contributions and withdrawal liability. The proposed amendment sought to add Mid-Orange Fire Protection Corp. and 1191 Dolsontown Road, LLC as defendants and alleged that those entities were under common control with Mid-Orange Mechanical and Mid-Orange Plumbing and Heating. The proposed claims sought to hold the added entities jointly and severally liable for the withdrawal liability judgment.

Legal standards

The court applied Federal Rules of Civil Procedure 15, 20, 21, and 16. Rule 15 generally allows amendments with the court’s permission when justice requires. Rule 20 permits adding defendants when the claims arise from the same transaction or series of transactions and involve common legal or factual questions. Rule 21 permits a court to add parties. Because the scheduling order set an earlier deadline for amended pleadings, Rule 16 also required the Funds to show good cause to modify that deadline.

The court explained that leave to amend may be denied for undue delay, bad faith, prejudice, or futility. An amendment is futile if the proposed claims could not survive a motion to dismiss because they do not state a legally sufficient claim.

Court’s analysis

The court found joinder proper because the proposed claims alleged that Mid-Orange Plumbing and Heating, Mid-Orange Fire Protection, and 1191 Dolsontown Road were jointly and severally liable for the same withdrawal liability judgment. The court also rejected the defendants’ argument that adding 1191 Dolsontown Road would violate the bankruptcy automatic stay because a bankruptcy court had already granted relief from that stay.

The court held that the proposed amendment was not futile. Under Section 4001(b)(1) of the Employee Retirement Income Security Act, businesses under common control are treated as a single employer for purposes of collecting withdrawal liability. The proposed complaint alleged that William and Marie Hadden wholly owned Mid-Orange Fire Protection and 1191 Dolsontown Road and were also principals of Mid-Orange Mechanical and Mid-Orange Plumbing and Heating. The court found these allegations sufficient, at the pleading stage, to allege that the four entities were businesses under common control.

The court rejected the defendants’ unsupported assertions that Mid-Orange Fire Protection and 1191 Dolsontown Road were not businesses. It also noted that the proposed complaint’s claims against the two added defendants were based on common-control liability, not enterprise-liability or alter-ego theories.

The court further found that the Funds showed good cause under Rule 16. According to the opinion, the Funds learned important facts about the two additional entities during depositions in July 2018 and promptly sought permission to amend afterward. The defendants acknowledged delays in providing some discovery. The court stated that it found a basis to conclude that the Funds were motivated by bad faith, but it nevertheless granted the motion and stated that no other arguments before it established undue prejudice, undue delay, or a lack of good cause. This portion of the opinion appears internally inconsistent with the decision to grant leave.

Disposition

Judge Nelson S. Roman granted the Funds’ motion for leave to amend the complaint. The Clerk was directed to terminate the motion at docket entry 119. The Funds were ordered to file the second amended complaint by October 8, 2020, and the defendants were directed to answer by December 20, 2020.