A union lawsuit alleging that a family plastering business invented an “alter ego” to dodge a judgment against it of nearly $200,000 was reinstated Tuesday by the 7th Circuit Court of Appeals.
The appellate panel reversed summary judgment granted to the employer by the late Indiana Southern District Court Judge Larry J. McKinney in Mark McClesky, et al. v. CWG Plastering LLC, 17-1980. The case was remanded for further proceedings.
CWG was the successor entity to Gianino Plastering, which closed abruptly and filed for bankruptcy in 2012 after a court entered a $196,940 judgment against Gianino Plastering. The judgment arose from a decision in a lawsuit over the company’s 2009 collective bargaining agreement that alleged Gianino had underfunded it obligation to the Indiana State Council of Plasterers and Cement Masons Health and Welfare and Pension Funds.
Chief Judge Diane Wood wrote for the panel that CWG, operated by the son of the owner of Gianino, “went into business on the same day” the judgment was entered. “CWG took on at least some of Gianino Plastering’s customers, hired its employees, and without missing a beat completed jobs that Gianino Plastering had begun,” Wood wrote.
“… 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,” Wood said.
Judges Frank Easterbrook and David Hamilton each wrote separate concurrences in the case. Easterbrook agreed with the decision and remand, but had reservations about choice-of-law questions that the majority found had been waived.
“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,” he wrote. “… 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,” Easterbrook wrote, noting the funds would have been worse off had the judgment been discharged in bankruptcy.
“… 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,” Easterbrook continued. “Is that really what federal common law should achieve?
Hamilton’s concurrence took exception to Easterbrook’s.
“The federal rules of successorship liability under (the Employee Retirement Income Security Act) 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,” Hamilton wrote. “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.”
“(T)he case now before us … does include powerful evidence of a bad‐faith effort to continue the earlier business while favoring certain creditors and leaving these Funds unpaid,” Hamilton continued. “If bankruptcy would be a better alternative, fairer to all creditors of an insolvent business, so be it.”
The case is remanded for proceedings on the union’s claims that CWG is liable for the judgment as well as ongoing violations of the collective bargaining agreement.