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Home > Blog > In Withdrawal Liability Dispute, Seventh Circuit Reaffirms Presumption That Leasing Property to a Withdrawing Employer Is a Trade or Business

In Withdrawal Liability Dispute, Seventh Circuit Reaffirms Presumption That Leasing Property to a Withdrawing Employer Is a Trade or Business

In Loc. 705 Int’l Bhd. of Teamsters Pension Fund v. Pitello, No. 20-2142, __F.4th__, 2021 WL 2818326 (7th Cir. July 7, 2021), a dispute over unpaid withdrawal liability, the Plaintiff Pension Fund sued Gradei’s Express Company, the Pitellos (Gradei’s owners), and another corporation owned by the Pitellos, GX Warehousing, on the theory that they were trades or businesses under common control. The district court found there was enough to establish common control on the basis that Gradei’s was conducting business rent-free on the “Melrose Park Property” owned by the Pitellos. The Seventh Circuit affirmed.

The court cited its decision in Cent. States Se. & Sw. Areas Pension Fund v. Messina Prod., LLC, 706 F.3d 874, 882 (7th Cir. 2013), where it explained that in the leasing context, “where real estate is rented to or used by the withdrawing employer and there is common ownership, it is improbable that the rental activity could be deemed a truly passive investment. In such situations, the likelihood that a true purpose and effect of the ‘lease’ is to split up the withdrawing employer’s assets is self-evident.”

While the presumption that leasing property to a withdrawing employer is a trade or business can be rebutted by evidence, the Pitellos have not done so. They do “not recognize the economic equivalence between a return on investment in the form of rent collection and return on investment in the form of dividends or salaries made possible by the absence of any rent obligation. Land owned by a firm’s equity investors and used by that firm in its business is itself a form of equity investment in the firm. Logically that means that the land should be treated as part of the business.”

The court concluded that the Pitellos “were engaged in a trade or business under common control with Gradei’s because of their ownership of the Melrose Park Property and Gradei’s use of that property rent-free.” The district court correctly concluded that Gradei’s, GX, and the Pitellos were personally liable for Gradei’s withdrawal liability.

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