GCIU-Employer Retirement Fund v. Goldfarb Corporation

Citation: Not availableDocket: 08-3229

Court: Court of Appeals for the Seventh Circuit; May 11, 2009; Federal Appellate Court

Original Court Document: View Document

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Graphic Communications International Union (GCIU) Employer Retirement Fund filed a complaint against The Goldfarb Corporation to recover withdrawal liability payments under the Employee Retirement Income Security Act (ERISA) after Fleming Packaging Corporation, a subsidiary of Goldfarb, filed for bankruptcy. The district court dismissed the case due to lack of personal jurisdiction over Goldfarb, a Canadian company with no U.S. presence. GCIU contends that Goldfarb is liable for Fleming’s withdrawal from the pension fund following the sale of its assets. Goldfarb acquired a 60% stake in Fleming in 1995, later increasing it to 82.2% by 2001, and had significant involvement with Fleming's financial issues, including restructuring plans and loan agreements with Fleming's creditors. Despite this involvement, Goldfarb maintained separate operations from Fleming. The case now proceeds on appeal after the dismissal.

On August 15, 2002, Alonna Goldfarb traveled to Peoria, Illinois, for an unspecified reason related to the defendant. In September 2002, Fleming sold part of its Peoria operations, prompting Bank One to demand the $1.5 million loan originally promised by the defendant. The defendant attempted to condition this loan on Bank One providing additional funds for restructuring. Following negotiations, the defendant loaned Fleming $765,000 and agreed to advance another $1.5 million contingent on lenders funding Fleming's operations until July 2003. However, from December 2002 to January 2003, lenders rejected Fleming's operational proposals, initiated a default notice, and sought legal counsel for bankruptcy. 

In February 2003, a Fifth Amendment to the Loan Agreement was executed, wherein the lenders agreed to forbear from exercising default rights if the defendant ceded control of Fleming to George Gialenios, who was tasked with restructuring. In return, the defendant was entitled to 3.5% of Fleming's sale proceeds, and the lenders agreed not to enforce the defendant's obligations regarding the $1.5 million. The purpose of this amendment was to allow Fleming time to develop a sale strategy as a going concern. The Goldfarbs resigned from Fleming’s Board in early February 2003, and the defendant granted Gialenios a proxy to vote its shares. 

On April 7, 2003, Martin Goldfarb informed the defendant’s Board that banks had taken control of Fleming, and the planned sale was stalled. Fleming filed for bankruptcy in May 2003. In July 2004, the bankruptcy trustee initiated an adversary proceeding against the defendant concerning these events. Joanna Anderson from Bank One noted that the defendant initially resisted cooperating in the bankruptcy process but later agreed to relinquish control during the sale. Her notes indicated that no bankruptcy filing would occur until a buyer was secured, after which a 363 auction was planned.

In June 2007, the plaintiff filed a lawsuit to collect withdrawal liability payments from the defendant, which was referred to Magistrate Judge Byron Cudmore. The judge recommended dismissing the case for lack of personal jurisdiction, concluding that while the defendant had minimum contacts with the U.S., the plaintiff failed to demonstrate that the claims were related to those contacts. The judge also denied the plaintiff's request for further discovery, stating that inquiries regarding Alonna Goldfarb's trip and negotiations with lenders were unrelated to the claim. The district court adopted the Magistrate Judge's recommendations, determining that the defendant's U.S. contacts did not pertain to Fleming's withdrawal from the Fund, which was the basis of the plaintiff’s claim.

The court determined that the defendant had lost control over Fleming prior to Fleming's withdrawal from the Fund, noting that Fleming's lenders initiated the sale of Fleming in January 2003. It found that the defendant's interactions with these lenders did not influence the collective bargaining agreements of Fleming’s subsidiaries. The court also denied the defendant's request for additional discovery, stating that the requested information was not relevant to the plaintiff's claim.

Regarding personal jurisdiction, the court reviews dismissals for lack of jurisdiction de novo, with the plaintiff bearing the burden to demonstrate jurisdiction exists. A prima facie case suffices when a motion to dismiss is based on written materials without an evidentiary hearing. Under Title I of ERISA, personal jurisdiction is established if the defendant is properly served and has sufficient minimum contacts with the U.S., which can be either specific or general. General jurisdiction requires continuous and systematic business within the forum state, while specific jurisdiction relates to contacts arising from the lawsuit's basis.

In this case, the plaintiff conceded there were insufficient contacts for general jurisdiction, so the focus shifted to specific jurisdiction. The court must assess: 1) the defendant’s contacts with the forum, 2) whether these contacts meet constitutional standards of fairness, and 3) if the contacts are related to the claims in the lawsuit. Both parties accepted the district court's identification of the defendant's contacts with Fleming’s lenders and its determination that these contacts justified specific jurisdiction. However, the appeal centered on whether the plaintiff’s claim arose from these minimum contacts. It was noted that merely owning a majority of Fleming stock does not establish specific personal jurisdiction, as jurisdiction and liability are distinct inquiries. The evaluation of the defendant's contacts must be considered independently from Fleming's.

Defendant's actions, while potentially indicative of a more complex relationship than a typical parent-subsidiary dynamic, do not establish sufficient grounds for personal jurisdiction based solely on those actions. The court emphasizes that the focus must remain on whether the plaintiff’s claim is directly related to the defendant’s specific contacts with the forum state, rather than aggregating all contacts, regardless of their relevance. In this case, the only relevant contact was defendant’s interaction with Fleming’s lenders. The plaintiff's cause of action centers on claims of withdrawal liability under ERISA, which arises when an employer completely withdraws from a multi-employer plan, as defined by specific criteria in the statute. The plaintiff alleges that Fleming completely withdrew due to a sale of its assets that did not comply with ERISA's safe harbor provisions. However, the plaintiff acknowledges that only certain types of sales could constitute complete withdrawal and that bankruptcy or insolvency do not inherently indicate a cessation of obligations. 

The court notes that defendant relinquished its controlling interest in Fleming months before the sale and subsequent withdrawal. Despite the plaintiff's assertions that defendant's prior agreements and negotiations with lenders contributed to Fleming's withdrawal, the court finds these connections to be too weak to establish specific personal jurisdiction. Ultimately, the plaintiff's claims do not arise from the defendant's general actions but from the specific sale of Fleming's assets, which the defendant was not involved in at the time of the withdrawal.

Defendant’s financial missteps related to Fleming do not establish that Fleming had to withdraw from the Fund, as demonstrated by RAR, 107 F.3d at 1278, which underscores that loose causal connections do not suffice for personal jurisdiction. Even if the defendant's negotiating failures contributed to Fleming's withdrawal, these actions are not directly linked to the withdrawal itself. The timing of the negotiations was distant from the actual withdrawal, and lenders made independent decisions in the interim, indicating that but-for causation is overly broad and lacks limiting principles. Furthermore, despite defendant’s potential acquiescence to Fleming’s sale, there is no evidence that defendant influenced the decision to sell assets without regard to Fund obligations. The plaintiff failed to show that defendant contributed to how Fleming would be sold, as the lenders determined the sale strategy. While defendant acknowledged the sale of Fleming "as a going concern," it is unclear if this knowledge implies involvement in the withdrawal. The distinction between a stock sale and an asset sale is relevant, yet the complaint suggests awareness of a possible asset sale. However, knowledge alone does not demonstrate a connection to the withdrawal, which involves compliance with safe harbor provisions under 29 U.S.C. 1384. Notably, at the time defendant relinquished control of Fleming, no buyer or sale was arranged, indicating that defendant's contacts regarding the Loan Agreement did not pertain to withdrawal decisions, as no buyer's compliance with ERISA’s safe harbor was determined.

Defendant's surrender of control occurred three months prior to the sale of Fleming, during which time the sale plans changed without defendant's knowledge of progress. Consequently, the court concluded that defendant's contacts with the United States were insufficiently related to the sale decisions, failing to establish withdrawal liability. Plaintiff did not demonstrate a prima facie case supporting its claims against defendant based on these contacts, leading to the affirmation of the district court's dismissal of the case.

Plaintiff's request for further discovery was also denied; it sought limited information regarding Alonna Goldfarb’s travel to Peoria and defendant's negotiations with Fleming. The court reviews discovery denials for abuse of discretion and requires a prima facie showing of personal jurisdiction for such requests. Plaintiff had already reviewed over 6,000 documents and obtained depositions without finding evidence of defendant’s involvement in the asset sale decision that violated ERISA provisions. The evidence indicated that control of Fleming was surrendered in February 2003, allowing Gialenios, not defendant, to manage the sale. Anderson's deposition further clarified that the bank group prioritized a swift sale and found the Goldfarbs difficult to work with, undermining the likelihood that additional discovery would reveal relevant contacts. Therefore, the district court's denial of discovery was upheld, and the judgment favoring defendant was affirmed.