Eristic liability under ERISA

52 Brooklyn L. Rev. 1211, *

FALL, 1987

52 Brooklyn L. Rev. 1211

LENGTH: 18100 words

NOTE: CORPORATE OFFICERS AS EMPLOYERS: ERISTIC LIABILITY UNDER ERISA.

Gail Cagney

SUMMARY:
... Enforcement of the Act is facilitated, in part, by the imposition of liability on employers for delinquent contributions and for withdrawal from multiemployer pension funds. ... For example, Title I authorizes civil actions by participants, beneficiaries or fiduciaries to collect delinquent contributions. ... Second, Judge Mazzone analogized to the imposition of personal liability on corporate officers through judicial construction of the FLSA's definition of employer, citing Donovan v. Agnew. The District Court rejected defendant's contention that the holding in Agnew could not be extended to the ERISA context. ... In that case, the plaintiff sought to impose liability on the president and sole shareholder of the defendant, Arlington Sample, for withdrawal from a multiemployer pension plan. ... First, where a statute, such as ERISA, fails to provide express corporate officer liability, the federal policies underlying the statute should be weighed against the policies supporting the concept of limited liability. ... While the imposition of corporate officer liability through statutory interpretation obviates the necessity of meeting all the common law requirements for piercing the corporate veil, this result is not unreasonable when the corporate officer has exercised direct, personal control over the administration of the corporation's pension plan.

TEXT:
[*1211] In 1974, Congress enacted the Employee Retirement Income Security Act (ERISA or the Act) ¹ in response to widespread abuse in the management of private pension plans. ² In enacting ERISA, Congress created a complex regulatory scheme for the creation and administration of employee benefit plans. Enforcement of the Act is facilitated, in part, by the imposition of liability on employers for delinquent contributions ³ and for withdrawal from multiemployer pension funds. ⁴

Recently, courts have held that personal liability can be imposed on corporate officers for delinquent contributions owed by the corporation to multiemployer plans or for withdrawal from such a plan, established under ERISA. ⁵ In these cases, plaintiffs have eschewed the common law prerequisites for piercing the corporate veil and have argued successfully that ERISA's definition of employer encompasses corporate officers. ⁶ Thus, courts, [*1212] through a broad construction of ERISA's definition of employer, have created a seemingly radical exception to the concept of limited officer/shareholder liability.

This Note begins with a summary of ERISA's legislative history. It continues by summarizing the traditional method of imposing corporate officer liability through the common law doctrine of piercing the corporate veil and explores recent application of this doctrine in the ERISA context. The Note then discusses a contrasting method of imposing corporate officer liability through statutory interpretation. First, this method is explored in the context of the Fair Labor Standards Act. Next, recent cases imposing similar liability pursuant to ERISA are analyzed. Finally, the Note concludes that in view of Congress' express intention to protect the interests of employees who participate in private pension plans, the imposition of personal liability is an equitable result when the corporate officer directly administers the pension plan and, thus, acts as an employer.

I. ERISA's LEGISLATIVE HISTORY AND PURPOSE

In 1974, Congress, prompted by public outcry over inadequacies in the private pension system, enacted ERISA as a means of protecting employees' retirement income. ⁷ Prior to ERISA's passage, federal regulation of employee pension plans was grossly inadequate. ⁸ Federal statutes had established minimal [*1213] control over pension plans, ⁹ but none had provided standards for funding, vesting, fiduciary conduct or employer liability. Thus, the need for reform was readily apparent. ¹⁰

[*1214] Congress recognized, as a matter of public policy, that workers must be assured adequate retirement income. ¹¹ therefore, the objectives of ERISA's proponents were to increase the number of pension plan participants and to assure that participants receive their benefits. ¹² Consequently, ERISA's declared policy is to protect the interests of participants through the creation of standards for disclosure, fiduciary obligations, vesting, funding and plan termination insurance. ¹³ Furthermore, Congress recognized that in order to effectuate ERISA's broad remedial purpose, [*1215] the Act must incorporate strong enforcement procedures. ¹⁴ Thus, Congress created civil remedies and criminal penalties for ERISA violations. ¹⁵ These enforcement procedures were designed for the express purpose of providing "participants and beneficiaries with broad remedies for redressing or preventing violations of the Act." ¹⁶

Employer liability for ERISA violations is provided in four sections of the Act. ¹⁷ For example, Title I authorizes civil actions [*1216] by participants, beneficiaries or fiduciaries to collect delinquent contributions. ¹⁸ In addition, the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) ¹⁹ provides employer liability for complete or partial withdrawal from an employer plan. An employer who withdraws from a multiemployer plan incurs a fixed and immediate debt to the plan. ²⁰ The duty to calculate and collect this liability is imposed upon the plan sponsor. ²¹ Failure to collect the amounts owed subjects the sponsor to potential liability for breach of fiduciary duty. ²²

Recently, pension funds and trustees of multiemployer plans have successfully argued that ERISA imposes personal liability on corporate officers for both delinquent contributions owed to multiemployer plans and withdrawal from multiemployer plans. ²³ In these cases, plaintiff-fiduciaries have argued that ERISA's definition of employer encompasses corporate officers. Thus, liability was imposed on corporate officers, pursuant to ERISA, without meeting the common-law prerequisites for piercing the corporate veil.

[*1217] II. PIERCING THE CORPORATE VEIL AT COMMON LAW

It is axiomatic that a corporation is a legal entity separate and distinct from its officers and shareholders. ²⁴ Consequently, most jurisdictions hold that in the absence of express statutorily imposed liability, ²⁵ officers and shareholders enjoy limited liability for the obligations of the corporation. ²⁶ The public policies underlying the doctrine of limited liability include the encouragement of capital investment and the efficient allocation of creditor risk. ²⁷

Nevertheless, courts frequently abrogate the doctrine of limited liability and impose personal liability on corporate officers. Broadly stated, this occurs in situations in which the continued existence of the corporate entity would "defeat public convenience, justify wrong, protect fraud, or defend crime." ²⁸ In [*1218] such circumstances, courts will invoke the equitable doctrine ²⁹ of piercing the corporate veil, disregard the corporate entity, and thereby deprive the officer of the corporate shield.

Despite the fact that as early as 1910 the Supreme Court had already identified the practice of disregarding the corporate form as a "growing tendency," ³⁰ the application of this doctrine remains shrouded in ambiguity and confusion. ³¹ While courts frequently pierce the corporate veil, there is no uniform rule outlining the factors required to employ the doctrine. Consequently, courts have struggled to establish relevant criteria on a case-by-case basis. ³² Courts that have pierced the corporate veil have considered a variety of factors to be relevant in their determinations. Among the elements considered germane to such determinations are: undercapitalization; ³³ division of the single enterprise into smaller, separate units; ³⁴ failure to maintain corporate formalities; ³⁵ non-payment of dividends; ³⁶ non-functioning [*1219] of officers or directors; ³⁷ lack of respect for the corporation as a separate entity; ³⁸ injustice to the litigants; ³⁹ and fraudulent intent. ⁴⁰

Where plaintiffs have sought to impose personal liability on corporate officers for violations of ERISA, many courts have applied the traditional prerequisites for piercing the corporate veil. ⁴¹ For example, in Chicago Painters and Decorators' Pension, [*1220] Health and Welfare Deferred Savings Plan Trust Funds v. Torrvagg, ⁴² plaintiffs alleged that two sole shareholders and principal officers of an Illinois corporation were personally liable for pension benefits owed under four collective bargaining agreements. In denying defendant's motion to dismiss (as to that allegation), the district court, applying Illinois law, stated that the corporate privilege of limited liability could be disregarded after consideration of a variety of facts, including the failure to maintain corporate formalities and the undercapitalization of the corporation. ⁴³

The Torrvagg court further noted that neither ERISA, nor federal case law, at that time, addressed the question of a corporate officer's liability under ERISA. ⁴⁴ Nevertheless, the district court declared that ERISA's legislative history and Declaration of Policy supported the conclusion that Congress intended the courts to further the interest of pension plan beneficiaries. ⁴⁵

In Greater Kansas City Laborers Pension Fund v. Thummel, ⁴⁶ corporate officer liability was imposed through ERISA in a different context. In Thummel, the defendant operated a masonry business as a sole proprietorship ten years prior to forming a successor corporation of which he and his wife were sole shareholders. ⁴⁷ The union pension fund sought to impose personal liability on the defendant as an officer and shareholder of the newly formed corporation under the theory that the corporation was an "alter ego" successor of the sole proprietorship. ⁴⁸ In effect, [*1221] the plaintiff argued that the two businesses were in fact one entity.

In holding the corporation and its individual owner liable for unpaid pension contributions, the court emphasized that the sole proprietorship ceased to exist after the formation of the corporation. ⁴⁹ The court noted that despite the existence of the successor corporation, the defendant and his wife continued to perform the same tasks, employ the same workers, use the same equipment and maintain the same business location as the sole proprietorship. ⁵⁰ Consequently, the court ruled that the successor corporation was the "alter ego" of the sole proprietorship and pierced the corporate veil. ⁵¹

III. CORPORATE OFFICER LIABILITY THROUGH STATUTORY CONSTRUCTION

Recently, in contradistinction to the traditional methods of piercing the corporate veil at common law, several plaintiffs have successfully asserted that ERISA authorizes the imposition of liability upon individual corporate officers for delinquent contributions to multiemployer pension plans. These plaintiffs have obviated the necessity of satisfying the prerequisites for piercing the corporate veil by arguing that ERISA's definition of employer encompasses an officer who acts directly or indirectly in [*1222] the interest of the corporation. Thus, courts have held that individual corporate officers are potentially liable for violations of ERISA's provisions regarding employee pension benefits.

While the assertion that ERISA mandates corporate officer liability may seem radical, it is not without precedent since it is well settled that such liability is mandated by a virtually identical definition of employer found in the Fair Labor Standards Act (FLSA). ⁵²

A. Corporate Officer Liability Under the FLSA

The FLSA, enacted in 1938, established employee minimum wage and maximum hour standards as well as a requirement that employers maintain records of employee services. ⁵³ The FLSA defines an employer as "any person acting directly or indirectly in the interest of an employer in relation to an employee." ⁵⁴ In the last two decades, courts have routinely interpreted the FLSA's definition of employer to include individual [*1223] corporate officers. ⁵⁵ This determination has resulted in the officer being held personally liable for the corporation's violations of the FLSA. In part, this interpretation derives from the firmly established principle that the FLSA is to be liberally construed in light of Congress' intention to protect employees. ⁵⁶

This liberal interpretation of employer under the FLSA began with the 1947 Supreme Court decision in Rutherford Food Corp. v. McComb. ⁵⁷ In Rutherford, the Supreme Court held that parties alleged to be independent contractors were "employees" within the meaning of the FLSA. ⁵⁸ The Court stated that the existence of an employer/employee relationship was to be determined by the circumstances surrounding the relationship, and not by labels such as "independent contractors." ⁵⁹ In so ruling, the Court emphasized the nature of the "contractors" activity as well as their proximity to the admitted employees. ⁶⁰ The Court [*1224] supported its conclusion by noting that the FLSA's definition of employer was broad, ⁶¹ and that the purpose of the FLSA was to create an effective method of eliminating subnormal labor conditions detrimental to commerce and the well-being of workers. ⁶²

Subsequent to its decision in Rutherford, the Supreme Court again applied a broad construction of the FLSA, in Goldberg v. Whitaker House Cooperative. ⁶³ In Goldberg, the Court held that a cooperative, created to sell products manufactured by its members in their homes, was an "employer" and its members "employees" under the FLSA. ⁶⁴ The Court, disregarding what it termed the "device" ⁶⁵ of the cooperative, determined that the test of employment was "economic reality" rather than "'technical concepts'" ⁶⁶ such as a cooperative.

Despite its disregard for the technical distinctions present in the case, the Goldberg Court failed to adequately define the phrase "economic reality." The Court simply stated that "economic reality" supported the conclusion that an employer/employee relationship existed between the management and members of the cooperative. ⁶⁷ Nevertheless, the factors that the Court considered relevant to its determination are discernible from its opinion. For example, the Court stressed the fact that the cooperative management determined the members' rate of compensation and exercised the right to hire and fire its members. ⁶⁸

[*1225] The Supreme Court's holdings in Rutherford and Goldberg were restricted to a determination of whether an individual or group of individuals were employees under the FLSA and, therefore, within the scope of its protection. In subsequent cases, courts expanded upon the application of the "economic reality" test to determine whether a corporate officer was an employer under the FLSA. However, most courts have applied the test without express reference to it.

For example, in Chambers Construction Co. v. Mitchell, ⁶⁹ the Eighth Circuit held that a corporate officer, with operational control, was an employer under the FLSA. ⁷⁰ The court's holding was based upon the fact that the corporate officer hired the company's supervisory staff and determined the salaries paid to all employees. ⁷¹ Thus, the Chambers court applied the same criteria that were determinative in Goldberg; the Eighth Circuit, in effect, employed the "economic reality" test. The "economic reality" test has evolved to the point where courts routinely hold that a corporate officer who exercises operational control is an employer within the meaning of the FLSA. ⁷²

[*1226] Infrequently, courts have addressed the question of whether Congress intended this result. For example, in Donovan v. Agnew, ⁷³ the First Circuit rejected the defendant's contention that Congress, in enacting the FLSA, did not intend to expose corporate officers to liability, except where the prerequisites for piercing the corporate veil had been met. ⁷⁴ The court concluded that Congress had intended to widen the parameters of the common-law employer/employee relationship by incorporating an extremely broad definition of employer. ⁷⁵

Additionally, the First Circuit noted the overwhelming weight of authority holding that a corporate officer, who exercises inordinate operational control, is an employer under the FLSA. ⁷⁶ Furthermore, the court observed Congress' failure to amend the FLSA's definition of employer in the wake of its judicial construction. Therefore, the First Circuit concluded that Congress, by its silence, had acquiesced to a broad judicial interpretation of the definition of employer. ⁷⁷

B. Corporate Officer Liability Under ERISA's Definition of Employer

Recently, several plaintiffs have successfully asserted that ERISA's definition of employer also mandates corporate officer liability. The first case to hold that an officer and shareholder was an employer under ERISA was Alman v. Servall Manufacturing Co. ⁷⁸ In Alman, the United States District Court for the District of Massachusetts granted plaintiff's unopposed motion for summary judgment. District Court Judge Mazzone held that the defendant Herman Bank, officer and principal shareholder of Servall, was an employer within the meaning of ERISA and was, therefore, jointly and severally liable for Servall's delinquent contributions to a multiemployer benefit plan. ⁷⁹

[*1227] In determining that the defendant Bank was an employer within the meaning of the Act, Judge Mazzone emphasized that Bank had directed Servall's financial, production, and business activities and had acted on behalf of Servall with regard to its benefit plan. ⁸⁰ The district court concluded, therefore, that Bank was "'acting as an employer, directly or indirectly in the interest of an employer, in relation to an employee benefit plan.'" ⁸¹

Judge Mazzone had occasion to elaborate on the Alman holding in Massachusetts State Carpenters Pension Fund v. Atlantic Diving. ⁸² In Atlantic Diving, the court granted plaintiff's motion to amend its complaint to include, as defendants, three officers of Atlantic Diving. The defendants opposed the amendment [*1228] on the ground that it failed to state a valid claim, thereby challenging the court's previous decision in Alman. ⁸³

The District Court of Massachusetts reiterated its holding that an officer could be subject to personal liability and supported its conclusion by analogy to two lines of cases. First, Judge Mazzone discussed cases in which courts have "displayed a willingness to disregard the corporate form" in the ERISA context, by imposing liability on "alter ego" corporations. ⁸⁴ The court reasoned that the imposition of personal liability through interpretation of ERISA's definition of employer was an "ordinary result" in view of the federal courts' willingness to pierce the corporate veil in pension fund payment cases. ⁸⁵

Second, Judge Mazzone analogized to the imposition of personal liability on corporate officers through judicial construction of the FLSA's definition of employer, citing Donovan v. Agnew. ⁸⁶ The District Court rejected defendant's contention that the holding in Agnew could not be extended to the ERISA context. The court pointed to the similarity of the definitions of employer in ERISA and the FLSA, and the commonality of their underlying policies. ⁸⁷ Judge Mazzone concluded that ERISA was part of a comprehensive statutory scheme devised by Congress to protect working persons and guarantee them adequate income, retirement benefits, and the right to collective bargaining. ⁸⁸ Thus, since ERISA and the FLSA are part of one statutory scheme, which is designed to ensure employee compensation, the court reasoned that, when faced with the "identical inquiry" under ERISA, it was bound by the First Circuit's [*1229] holding as to when an individual was an employer under the FLSA. ⁸⁹

At least one other court has adopted this reasoning. In Combs v. P & M Coal Co., ⁹⁰ the United States District Court for the District of Columbia, in a brief opinion, denied defendant's motion to dismiss a claim for withdrawal liability brought by the trustees of a union pension fund against two officers and controlling shareholders of P & M Coal. ⁹¹ Pointing to ERISA's definitions [*1230] of "employer" and "person," ⁹² the court concluded that corporate officers and shareholders, being "individuals" within the meaning of "person," could be employers under ERISA. ⁹³ Citing Atlantic Diving, the court stated that if it were proven that the defendants had "significant ownership and control over the operation of the corporation," they would be subject to withdrawal liability. ⁹⁴ This approach, however, has not been universally accepted.

In several cases, district courts within the Third Circuit have stated that ERISA's definition of employer does not extend to individual corporate officers. This conclusion, moreover, has been affirmed by the United States Court of Appeals for the Third Circuit.

The first decision on this issue by a court within the Third Circuit was by the United States District Court for the Western District of Pennsylvania in Combs v. Indyk. ⁹⁵ In that case, the trustees of a union retirement fund alleged corporate officer liability for delinquent contributions under two causes of action. In their first cause of action, plaintiffs asserted that individual liability was authorized under Section 301 of the Labor Management Relations Act (LMRA). ⁹⁶ The LMRA grants jurisdiction to federal courts for suits involving allegations of breach of contract between an employer and a labor organization representing [*1231] employees in an industry affecting commerce. ⁹⁷ Plaintiffs attempted to invoke section 301 jurisdiction by claiming that the corporate officers had violated wage agreements by understating the number of hours worked by their employees thereby diminishing the corporation's contribution to the union pension fund. ⁹⁸

Noting that the corporation, and not the defendants, was the sole signatory to the collective bargaining agreement, the district court dismissed this claim against the officers, stating that "[t]he record is devoid of any hint or suggestion that the corporate veil should be pierced." ⁹⁹ Thus, the court held that personal liability under section 301 must be predicated on the existence of facts sufficient to pierce the corporate veil at common law.

With respect to plaintiffs' second allegation that corporate officer liability was mandated under ERISA's definition of employer, the district court concluded that its reasoning as to section 301 liability was equally applicable to the ERISA claim. ¹⁰⁰ The court pointed to the absence of any evidence that the corporate form had not been respected. ¹⁰¹ Thus, the court reiterated its unwillingness to impose corporate officer liability in the absence of facts sufficient to pierce the corporate veil at common law. Additionally, the court characterized the omission of the word "officer" from ERISA's definition of "person" ¹⁰² as indicative of Congress' intent not to "expose corporate officers to liability for employer's violations of ERISA." ¹⁰³

The United States District Court for the Eastern District of Pennsylvania adopted the Combs analysis in Paperworks Pension Plan v. Arlington Sample Book Co. ¹⁰⁴ In that case, the plaintiff sought to impose liability on the president and sole shareholder of the defendant, Arlington Sample, for withdrawal from a multiemployer pension plan. ¹⁰⁵ The plaintiff argued that [*1232] the officer/shareholder was an employer by virtue of his having acted, directly or indirectly, in the interest of Arlington Sample. ¹⁰⁶

Quoting Combs, the court stated that the absence of the word "officer" in ERISA's definition of person was indicative of Congress' intent not to subject corporate officers to personal liability for ERISA violations. ¹⁰⁷ Moreover, noting that corporations must by their nature, act through an individual, the court stated that "[t]he entire purpose behind incorporation would be vitiated if courts routinely reached behind the corporate form and held shareholders liable for pension plan contributions." ¹⁰⁸ The court implied that failure to allege facts sufficient to pierce the corporate veil was fatal to any claim against a corporate officer under ERISA. ¹⁰⁹

Once again, in Solomon v. Klein, ¹¹⁰ the plaintiffs alleged that ERISA's definition of employer mandated personal corporate officer liability. Plaintiffs argued that the defendant acted on behalf of the corporation in all matters pertaining to the benefit plan, including payroll audits, calculation of contributions, making payments, signing checks and paying bills. ¹¹¹ However, the United States Court of Appeals for the Third Circuit affirmed the district court's decision granting summary judgment in favor of a corporate president, chief executive officer and shareholder. ¹¹²

The Third Circuit, quoting the Combs decision, restated the reasoning that Congress, by its omission of the word "officer" from ERISA's definition of person, indicated an intention not to expose corporate officers to personal liability. ¹¹³ Moreover, the Third Circuit expressly rejected the District Court of Massachusetts' analogy to the FLSA in Atlantic Diving. ¹¹⁴ The Third Circuit [*1233] criticized the Massachusetts court for its reliance upon the FLSA and its consequent failure to interpret ERISA. ¹¹⁵ The Third Circuit concluded that its duty was to ascertain Congress' intent in enacting ERISA and not its intent with regard to the FLSA. ¹¹⁶

III. ANALYSIS

Arguably, the District Court of Massachusetts' decisions in Alman and Atlantic Diving, holding that corporate officers could be personally liable for delinquent contributions, were not supported by analyses sufficient to justify the court's conclusions. Nevertheless, ample support for these holdings can be found by analogy to the FLSA. Furthermore, Judge Mazzone's decisions in these cases further the overall congressional policy behind the enactment of ERISA. Finally, the Alman and Atlantic Diving decisions comport with the well established principle that the corporate entity will not be permitted to frustrate federal statutory policy.

A. The Alman and Atlantic Diving Decisions

Alman v. Servall Manufacturing Co., ¹¹⁷ the first case holding an officer/shareholder liable pursuant to ERISA's definition of employer, is brief and suffers from a paucity of supporting analysis. ¹¹⁸ The District Court of Massachusetts cited only two cases: Donovan v. Agnew and Peckham v. Board of Trustees. Since Agnew concerns corporate officer liability under the FLSA, ¹¹⁹ Judge Mazzone must have reasoned by analogy to that statute. However, the court's citation to Peckham is more problematic. In Peckham, the Tenth Circuit held that a sole proprietor was not an employee within the meaning of ERISA and was, therefore, ineligible for participation in an employee benefit plan. ¹²⁰ The Peckham court did not rely upon an interpretation [*1234] of ERISA's definition of employer. Therefore, the Peckham decision does not lend support to Judge Mazzone's determination that ERISA's definition encompasses corporate officers. Furthermore, Peckham involved a sole proprietorship, not a corporation. Thus, the Peckham decision provides no support for the Alman decision since the court in Peckham neither pierced the corporate veil nor imposed liability upon a corporate officer.

In Massachusetts State Carpenters Pension Fund v. Atlantic Diving, ¹²¹ Judge Mazzone relied on his analogy to the FLSA again citing Donovan, ¹²² but omitting any discussion of Peckham. Interestingly, in its opinion the District Court of Massachusetts ignored relevant, but analytically weak arguments raised in defendant's memorandum that attempted to demonstrate Congress' intent in defining the term employer, without distinguishing ERISA from the FLSA. For example, in its memorandum, the defendant attempted to persuade the court that by including the language "indirectly in the interest of an employer" in ERISA's definition of employer, Congress did not intend to expose corporate officers to personal liability simply because the officer acted on behalf of the corporation. Rather, the defendant argued that Congress meant to encompass situations in which an employer might maintain ERISA plans through a separate entity, not technically the employer of the plan beneficiaries. ¹²³ The defendant's argument, however, is unpersuasive. Because the FLSA includes the identical language in its definition of employer, the defendant's argument in Atlantic Diving fails to overcome the weight of judicial authority that has interpreted this language as applicable to corporate officers.

Additionally, in its memorandum, the defendant in Atlantic Diving argued that in the absence of a clear indication to the contrary, Congress could not have intended to erode the doctrine of limited liability. ¹²⁴ The Atlantic Diving court ignored this assertion, presumably because it is equally applicable to the FLSA. If Congress, with the enactment of ERISA, did not intend [*1235] to expose corporate officers to personal liability, it would not have incorporated the FLSA definition of employer, for, as pointed out by the First Circuit in Donovan v. Agnew, Congress has acquiesced to broad judicial interpretation of the FLSA's definition. ¹²⁵ By extension, Congress must have intended a similar meaning in the ERISA context when it adopted the identical definition.

Admittedly, with regard to its analogy to the FLSA, the District Court of Massachusetts failed to address many of defendant's arguments ¹²⁶ and relied solely upon one case instead of citing to the many elaborative cases construing the FLSA's definition of employer as encompassing corporate officers. Nevertheless, the court's analogy is sound in view of Congress' similar purpose in enacting ERISA and the FLSA, and congressional acquiescence to judicial interpretation of the FLSA.

In addition, Judge Mazzone correctly applied the FLSA analogy by impliedly adopting the economic reality analysis. Thus, without reference to the economic reality test, the district court seems to have been persuaded by the inordinate amount of control exercised by the Alman and Atlantic Diving defendants over matters relating to the pension plan.

Judge Mazzone's second analogy to three cases imposing ERISA liability on "alter ego" corporations is substantially weakened by the fact that, in the cases cited, corporate liability was imposed on predecessors of "alter ego" successorships. ¹²⁷ Furthermore, the imposition of liability in those cases was predicated on the satisfaction of the traditional prerequisites for piercing the corporate veil.

Despite the weakness of this second analogy, the Alman and Atlantic Diving decisions were based upon an amalgamation of sound theories. First, ERISA's definition of employer was given [*1236] its plain meaning through broad judicial construction. This construction of ERISA's definition comports with judicial construction of the FLSA's similar definition of employer. Second, the court employed the "economic reality" test by considering the degree of control exercised by the corporate officer over pension fund and employment decisions. ¹²⁸ Finally, the court deferred to Congress' express concern for the well-being of employees and their families who depend upon pension benefits.

B. Congressional Intent

It is important to bear in mind that Congress' overall purpose in enacting ERISA was to protect the interests of participants in private pension plans and to provide participants with broad remedies for redressing and preventing ERISA violations. One of the methods Congress chose to protect employees' interests was to provide civil sanctions against employers for losses suffered by employees due to delinquent contributions or termination of insufficiently funded plans. Given that Congress enacted this provision for the singular purpose of protecting employees, it is unlikely that Congress intended to permit officers, who wage complete control over the administration of pension plans, to invoke the shield of limited liability.

Second, assuming that Congress intended to impose corporate officer liability, one means of achieving this aim is to provide an overly broad definition of employer. Surely, Congress was aware that had it incorporated a more specific definition of employer, enumerating many possible contingencies, the courts would most likely construe such a definition as strictly limited to the possibilities Congress provided. ¹²⁹ Additionally, as pointed [*1237] out by the First Circuit in Donovan v. Agnew, Congress must have been aware of the courts' expansive interpretation of the definition of employer provided for in the FLSA. ¹³⁰ Thus, by adopting a virtually identical definition, Congress may well have intended the same result.

Third, along with its definition of employer, ERISA provides a definition of person. A person is defined as "an individual, partnership, joint venture, corporation, mutual company, joint-stock company, trust, estate, unincorporated organization, association, or employee organization." ¹³¹ Although courts that have declined to impose corporate officer liability pursuant to ERISA's definition of employer emphasized the omission of "officer" from ERISA's definition of person, ¹³² the plain meaning of "individual" encompasses corporate officers. ¹³³

Finally, in light of the enormity and complexity of ERISA, ¹³⁴ it is not difficult to envision the possibility that Congress simply overlooked the question of corporate officer liability. Admittedly, Congress has specifically addressed this issue in contexts other than ERISA. ¹³⁵ It can be argued, therefore, that [*1238] the existence of express provisions for disregarding the corporate form in other statutory schemes raises the presumption that Congress is cognizant of the problem and provides corporate officer liability only when it means to do so. ¹³⁶ However, generally, these statutory schemes are directed at specific problems involving corporations, such as securities regulation and corporate taxation. When Congress enacts statutes directed at corporate regulation it is more likely to draft penalties expressly directed at the corporate structure. By contrast, in enacting ERISA, Congress' attention was focused on regulation of the private pension system and the concomitant problems of reporting, disclosure, vesting, funding, fiduciary obligations, and insurance. The question of corporate liability was tangential to Congress' purposes and, therefore, could easily have been overlooked.

C. Effectuating Federal Statutory Policy

It is well established that the corporate entity will not be permitted to frustrate the purpose of a federal statute. ¹³⁷ However, difficulty in applying this principle arises in two areas. First, where a statute, such as ERISA, fails to provide express corporate officer liability, the federal policies underlying the statute should be weighed against the policies supporting the concept of limited liability. ¹³⁸ Second, a considerable amount of [*1239] confusion exists as to whether the frustration of the statutory policy must be intentional in order to disregard the corporate form. ¹³⁹

As of yet, the balancing of the competing interests of statutory policy and the concept of limited liability has not been clearly articulated by any court that has considered the question of corporate officer liability under ERISA. ¹⁴⁰ However, one of the guidelines for determining this question is well settled. A state statute regulating the limited liability of corporations will not be allowed to defeat the policy underlying a federal statute. ¹⁴¹ Consequently, the concept of limited liability must yield to the congressional policy that ERISA was designed to further -- the protection of pension plan beneficiaries.

Regarding the issue of whether the frustration of federal policy must be intentional, the Supreme Court, in Anderson v. Abbott, ¹⁴² stated that the corporate form could not defeat congressional policy, regardless of "whether that was the aim or only the result of the arrangement." ¹⁴³ The Court noted that although fraudulent intent behind the formation or operation of the corporation constitutes one of the recognized exceptions to the concept of limited liability, it is not an absolute prerequisite [*1240] to piercing the corporate viel. ¹⁴⁴ Consequently, many courts hold that the corporate form will not be respected where to do so would frustrate a federal policy, without regard to the good faith of the parties. ¹⁴⁵

However, the policy that the corporate form may not be used to frustrate federal public policy conflicts with the doctrine that a corporation may be legitimately formed for the purpose of "bona fide avoidance" of statutory restrictions. ¹⁴⁶ Consequently, some courts that pierce the corporate veil on the basis of circumvention of statutory policy, emphasize the element of bad faith. ¹⁴⁷

Bad faith or fraudulent intent should not be a prerequisite for imposing corporate officer liability for ERISA violations. With the passage of ERISA, Congress established that, as a matter of federal policy, pension plan beneficiaries must be protected from loss of accrued benefits. Permitting a corporate officer to raise the shield of limited liability, thwarts Congress' express purpose in enacting ERISA. Consequently, limited liability must yield, without regard to corporate intentions, where its imposition frustrates the federal statutory policy to protect pension plan beneficiaries.

CONCLUSION

Cases in which corporate officer liability has been imposed for violations of ERISA have suffered from a lack of substantive [*1241] analysis of the pertinent issues, but have reached the correct conclusion. The interpretation that ERISA's definition of employer encompasses corporate officers is clearly supported by analogy to judicial construction of the FLSA and is consistent with Congress' intention in enacting ERISA. Furthermore, this conclusion is supported by the principle that the corporate shield may not be interposed to frustrate federal statutory policy. While the imposition of corporate officer liability through statutory interpretation obviates the necessity of meeting all the common law requirements for piercing the corporate veil, this result is not unreasonable when the corporate officer has exercised direct, personal control over the administration of the corporation's pension plan.

FOOTNOTES:

n1 Pub. L. No. 93-406, 88 Stat. 829 (1974) (ERISA's labor provisions are codified as amended at 29 U.S.C. § 1001-1461 (1982)).

n2 A frequently cited example is the shutdown of a Studebaker factory in 1964. The factory closed terminating an unfunded vested employee benefit plan. As a result, many workers lost all of their accumulated benefits. In large part, the public outcry over this incident prompted Congress to enact the Employee Retirement Security Act of 1974 (ERISA or the Act). See H.R. REP. No. 807, 93d Cong., 2d Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4670, 4680 (citing the Studebaker shutdown); 119 CONG. REC. 30,368 (1973) (statement of Sen. Hartke) ("The American people know that private pensions need reform. . . . They know this because they live it. The people of South Bend, [Indiana], lived through the tragedy of the Studebaker shutdown, and that occurred under one of the best plans in the United States.").

n3 29 U.S.C. § 1145 (1982) (imposing obligation to contribute to a multiemployer plan in accordance with its terms); id. § 1132 (civil enforcement provision). See note 17 infra.

n4 Id. § 1381. See note 19 infra.

n5 See, e.g., Alman v. Servall Manufacturing Co., No. 82-0746-MA, slip op. at 3 (D. Mass. Apr. 9, 1984) (holding that ERISA's definition of employer encompasses corporate officer who directly controlled administration of benefit plan), see notes 78-81, 117-20 and accompanying text infra; Massachusetts State Carpenters Pension Fund v. Atlantic Diving, 635 F. Supp. 9 (D. Mass. 1984) (same), see notes 82-89, 121-27 and accompanying text infra; Combs v. P & M Coal Co., No. 84-560, slip op. at 2 (D. D.C. Feb. 6, 1985) (same), see notes 90-94 and accompanying text infra.

n6 The Act defines an employer as "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan." 29 U.S.C. § 1002(5) (1982).

n7 The participants in the Senate and House floor debates repeatedly referred to the volume of mail and media headlines that had expressed outrage over the inadequacies of the private pension system. See, e.g., 119 CONG. REC. 29,839 (1973) (statement of Sen. Jackson noting the volume of mail from constituents); 119 CONG. REC. 30,007 (1973) (statement of Sen. Ribicoff) (same); 119 CONG. REC. 30,368-69 (1973) (statement of Sen. Hartke citing numerous television programs, books and newspaper articles addressing the subject).

ERISA's legislative history is replete with stories concerning the plight of employees who lost retirement income due to plan termination or inadequate vesting. For example, Senator Williams cited the plight of a New York shoe salesman, who, after twenty years of service, lost his pension at age 60 when his employer went out of business. 119 CONG. REC. 30,003 (1973) (statement of Sen. Williams).

Consequently, Congress focused on the fundamental unfairness in the system which had denied accrued benefits to middle and low-income workers who had led productive lives and had depended on their retirement income to supplement meager Social Security benefits. Id. at 29,839 (statement of Sen. Jackson) ("It is just not right for the middle or low-income worker, who has made a productive contribution to his community all of his working life, to be cheated out of his pension . . . ").

n8 The House Committee on Education and Labor noted that "regulation of the private system's scope and operation has been minimal and its effectiveness a matter of debate. The assets of private plans . . . constitute the only large private accumulation of funds which have escaped the imprimatur of effective federal regulation." H.R. REP. NO. 533, 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4639, 4641.

n9 Before the enactment of ERISA, three federal statutes regulated the private pension system. Id. The Welfare and Pension Plan Disclosure Act (WPPDA), 29 U.S.C. § 301-09 (1970), repealed by ERISA § 111, 29 U.S.C. § 1031 (1982), required that detailed plan descriptions be filed with the Secretary of Labor, id. § 305(b), and that copies of the plan be made available to beneficiaries. Id. § 307(a), (b). See Note, The Employee Retirement Income Security Act of 1974: Policies and Problems, 26 SYRACUSE L. REV. 539, 639 n.66. This disclosure requirement proved ineffectual because of the absence of adequate enforcement provisions. See 119 CONG. REC. 30,004 (1973) (statement of Sen. Williams). The WPPDA was characterized as a "glorified filing system." Note, supra, at 544 (citing Hearings on S. 1994 Before the Subcomm. on Labor of the Senate Committee on Labor and Public Welfare, 87th Cong., 1st Sess. 15 (1961)).

The Labor Management Relations Act (LMRA), 29 U.S.C. §§ 141-88 (1982), created guidelines for the establishment and administration of pension funds created pursuant to collective bargaining agreements. Through section 302 of the LMRA, Congress attempted to deter corruption in the collective-bargaining process. Arroyo v. United States, 359 U.S. 419, 425-26 (1959). Under the LMRA, pension funds must be held separate from union funds. 29 U.S.C. § 186(c)(5)(B) (1982). Additionally, pension funds must be held in a trust administered by an equal number of employer and union representatives. Id. Criminal penalties attach to willful violations of LMRA provisions. Id. § 186(d). However, the LMRA also proved an inadequate vehicle to administer pension plans because of its lack of standards regarding vesting, funding and fiduciary conduct. See H.R. REP. No. 533, 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4641, 4642.

Finally, the Internal Revenue Code of 1954 (IRC), 26 U.S.C. §§ 401-04, 501-03 (1982), created tax advantages for employers who administered qualified plans. The purpose of the regulation is to increase participation in pension plans by encouraging employers, through favorable tax treatment, to establish employee plans. H.R. REP. No. 807, 93d Cong., 2d Sess. (1974), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4670 4671. However, the Internal Revenue Service is primarily concerned with the collection of revenue and prevention of tax evasion. H.R. REP. No. 533, 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4641, 4642. Thus, the IRC provides no enforcement provisions designed to protect prospective pensioners. Id.

n10 See H.R. REP. No. 533, 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4641, 4642 (noting need for reform). Congress focused on six areas in need of reform: inadequate coverage; discrimination against non-governmental employees and the self-employed; inadequate vesting; inadequate funding; plan termination and misuse of funds. See H.R. REP. No. 807, 93d cong., 2d Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4641, 4678-81.

Of the problems spotlighted by Congress, plan termination and vesting were especially indicative of the tragic dimensions of the problem. At the time of ERISA's passage, 58% of employees between the ages of fifty and sixty who participated in employer-financed plans did not have a vested right in even 50% of their accrued benefits. Id. at 4680. Moreover, in 1972 alone, 19,400 participants lost a total of $ 49,000,000 in benefits due to plan terminations. Id.

n11 H.R. REP. No. 807, 93d Cong., 2d Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4670, 4676 ("One of the most important matters of public policy facing the nation today is how to assure that individuals . . . will have adequate incomes to meet their needs when they retire.").

n12 Id. at 4676-77; S. REP. NO. 383, 93d Cong., 2d Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4890.

n13 29 U.S.C. § 1001(b) (1982). Subsection (b) provides in relevant part:

It is hereby declared to be the policy of this chapter to protect . . . the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure . . . of financial and other information . . . by establishing standards of conduct, responsibility, and obligation for fiduciaries . . . and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

Id.

Subsection (c) further provides in relevant part:

It is hereby declared to be the policy of this chapter to protect . . . the interests of participants . . . by requiring them to vest the accrued benefits of employees . . . to meet minimum standards of funding, and by requiring plan termination insurance.

Id. § 1001(c).

Title I of the Act incorporates the disclosure, vesting, and fiduciary obligation provisions. The disclosure provisions direct the plan administration to furnish information regarding general plan administration and annual reports to the participants and the Secretary of Labor. Id. §§ 1081-86.

Sections 1102-14 provide for the establishment of a trust and enumerates fiduciary obligations and prohibited transactions. Id. §§ 1102-14.

The Act's vesting provisions create a non-forfeitable right to a percentage of pension benefits based upon the participant's years of service. Id. §§ 1051-61.

The funding provisions create a minimum funding standard for each plan year and require the amortization of plan deficits from prior years. Id. §§ 1081-86.

Title IV of the Act created the Pension Benefit Guaranty Corporation (PBGC), an administrative agency within the Department of Labor. Id. § 1302(a). Under the Act, each plan is required to pay a per capita insurance premium to the PBGC. Id. § 1306(a). The PBGC is charged with the administration of any plan that terminates due to insufficient funding. Id. § 1342. The PBGC ensures the participant's recovery of all unfunded accrued benefits under both single and multiemployer plans. Id. §§ 1322, 1322a. For a discussion of employer liability to the PBGC, see note 17 infra.

n14 See H.R. REP. NO. 533, 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4639, 4642. One of Congress' express purposes in repealing ERISA's predecessor, the WPPDA, was that its lack of enforcement provisions rendered it ineffectual. Id.

n15 29 U.S.C. §§ 1131, 1132, 1141. ERISA's general enforcement provisions are found in Title I. Criminal penalties attach to any person who willfully violates the disclosure requirements prexcribed in §§ 1021-30. Id. § 1131. Additionally, ERISA provides criminal sanctions for "coercive interference" with any participant's rights under the Act. Id. § 1141. See Bruffett v. Warner Communications, Inc., 692 F.2d 910, 916 (3d Cir. 1982) (citing wrongful discharge as an example of § 1141 violation).

Section 1132 authorizes civil actions brought by a participant, beneficiary, or fiduciary to: enjoin an act in violation of Title I or the terms of the Act, 29 U.S.C. § 1132(a)(3)(A); or obtain equitable relief either to redress ERISA violations, id. § 1132(a)(3)(B)(i), or to enforce Title I provisions or the terms of a pension plan, id. § 1132(a)(3)(B)(ii).

ERISA authorizes the Secretary of Labor to bring suit for civil penalties to redress violations of Title I or the terms of the pension plan. Id. § 1132(a)(5). See California Chamber of Commerce v. Simpson, 601 F. Supp. 104, 109 (C.D. Cal. 1985) ("Secretary has plenary authority to bring civil actions including for equitable relief to redress any individual violation"). Additionally, the Act authorizes the Secretary to bring an action for breach of fiduciary duty. 29 U.S.C. § 1132(a)(2), (6). See Donovan v. Bryans, 566 F. Supp. 1258, 1264 (E.D. Pa. 1983) (§ 1132(a)(6) grants Secretary broad authority to seek legal and equitable relief for breach of fiduciary obligations).

n16 H.R. REP. NO. 533, 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4639, 4655 (emphasis added); S. REP. NO. 127, 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. CODE CONG. & ADMIN. NEWS 4871.

n17 First, Title I authorizes civil suits to redress violations of the Act. 29 U.S.C. § 1132 (1982). See note 15 supra. A violation of the Act includes the failure to contribute to a multiemployer plan. Id. § 1145. "Every employer who is obligated to make contributions to a multiemployer plan . . . shall . . . make such contributions in accordance with the terms and conditions of such plan or such agreement." Id.

Second, Title IV imposes liability for withdrawal from a multiemployer plan. Id. § 1381. Third, ERISA imposes a tax on an employer who fails to meet minimum funding standards. I.R.C. § 4971. The tax is equal to 5% of the accumulated funding deficiency. Id. § 4971(a). Failure to correct the deficiency within 90 days of notification of the deficiency results in the imposition of a tax equal to 100% of the accumulated deficiency. Id. § 4971(b). Finally, under Title IV of the Act, an employer is liable to the Pension Benefit Guaranty Corporation, see note 13 supra, for unfunded vested benefits paid by the PBGC. 29 U.S.C. § 1362. An employer contributing to a single employer plan must reimburse the PBGC to the extent of unfunded insured benefits up to 30% of his net worth. Id. § 1362(b). Failure to reimburse the PBGC subjects the employer to a lien on his property in favor of the PBGC. Id. § 1368(a).

n18 29 U.S.C. § 1132(a)(3)(B)(ii) (1982). See note 17 supra.

n19 Pub. L. No. 96-364, 94 Stat. 1208 (codified as amended at 29 U.S.C. §§ 1381-1453 (1982)). The MPPAA provides that: "If an employer withdraws from a multiemployer plan in a complete or a partial withdrawal, then the employer is liable to the plan in the amount determined under this part to be the withdrawal liability." 29 U.S.C. § 1381(a) (1982).

The MPPAA significantly changed ERISA's liability provisions with respect to multiemployer plans. Prior to passage of the MPPAA, multiemployer plan benefits, unlike single employer plans, were not absolutely guaranteed by the PBGC. Rather, the PBGC was mandated to determine on a case-by-case basis whether to pay participants the difference between the value of non-forfeitable benefits accrued and the value of the plan's assets on the date of termination. Id. § 1381(c)(2) (1982). In the event that the PBGC decided to pay the difference, secondary employer liability was imposed in an amount not to exceed 30% of the employer's net worth. Id. § 1364. Additionally, upon withdrawal, a multiemployer incurred liability to the PBGC that was contingent upon the ongoing multiemployer plan terminating within five years of the employer's withdrawal from the plan. Id.

n20 29 U.S.C. § 1381 (1982). The employer is liable for its proportionate share of unfunded vested benefits as calculated under section 1391. Id.

n21 Id. § 1382.

n22 Id. § 1109.