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Northwest OH Legal Blog

Thursday, November 10, 2016

United States Department of Justice Files Criminal Charges against Taft-Hartley Funds’ Contributing Employers for Mail Fraud

The United States Department of Justice (“DOJ”) has filed a criminal complaint (United States v. Christopher Thompson, Kimberly Thompson, Air Quality, Inc. and AQE, Inc., Cause Number 1:16-cr-10014, District Court of Massachusetts) against the owners of two delinquent employers, Air Quality, Inc. (“Air Quality”) and AQE, Inc. (“AQE”), for mail fraud and other criminal violations based upon the employers’ use of the U.S. Mail to file false contribution remittances.  The criminal case follows the filing of a civil action (McAnarney v. Air Quality, Inc. and AQE, Inc., Cause Number 1:15-cv-13891, District Court of Massachusetts) by several Massachusetts-based Taft-Hartley funds (“Massachusetts Laborers Benefits Funds”) against the two delinquent employers.  The civil suit was filed on November 19, 2015, and the criminal indictment was filed a mere 61 days later, on January 19, 2016. 

Civil Lawsuit.  The civil lawsuit alleged that the two companies were alter-egos of one another on the grounds that they— 

  • shared the same corporate officers,
  • were both in the business of asbestos removal services,
  • ·operated out of the same address,
  • stored their trucks, equipment and supplies at the same place,
  • used the same clerical staff and supervisors, and
  • used laborers providing asbestos removal services interchangeably between the two companies.

The defendants argued that the two companies comprised a lawful “double-breasted operation.”  The parties filed a joint motion to stay the civil proceedings due to the pending criminal case. That motion was granted on August 1, 2016.

Criminal Indictment.  The criminal indictment filed by the DOJ alleged that the defendants’ use of the U.S. mail for filing false remittance reports violated multiple federal laws, including—

  • mail fraud,
  • theft or embezzlement from an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”),
  • false ERISA statements, and
  • aiding and abetting a criminal enterprise.

The remedy sought by the DOJ in its complaint was civil and criminal forfeiture.  The defendant employers filed a motion to dismiss the criminal charges, which was denied by the district court. The district court explained that a “double-breasted operation” is a business comprised of both union and non-union companies in which the non-union company bids on contracts that do not require a union contractor and the union company bids solely on union contracts. The court noted that such double-breasted arrangements are “neither uncommon nor inherently unlawful.”

In its indictment, the DOJ alleged that under the defendants’ fraudulent scheme, the union and non-union companies were not actually two separate companies, but rather a single company with the same location, workforce, equipment and management.  In other words, Air Quality and AQE were actually a single business in which Air Quality was bound by the collective bargaining agreements (“CBAs”) that AQE signed.  Contrary to the way in which they operated, the defendants fraudulently misrepresented that their business was a lawful double-breasted operation with two separate companies, one subject to the CBAs and the other not subject to the CBAs.  Thus, the DOJ was seeking criminal liability based on an “alter-ego” theory.

Alter Ego Theory in Criminal Indictments.  The use of an alter-ego theory to show common control in civil suits to collect outstanding fringe benefit contributions or withdrawal liability is not new.  However, the criminal court noted that it was unaware of any criminal cases using alter-ego liability in this manner and that neither party had cited such a case to the court.  In denying the defendants’ motion to dismiss the criminal indictment, the court noted that when grading an indictment’s sufficiency, the court looks to see whether the document sketches out the elements of the crime and the nature of the charge so that the defendant can prepare a defense and plead double jeopardy in any future prosecution for the same offense.  The indictment did so.  The defendants’ motion to dismiss was accordingly denied.

Takeaway.  Basing a criminal indictment on the alter-ego theory of common control is novel and, if successful, would provide Taft-Hartley funds with another option in pursuing delinquent employers.  The case in question is one of first impression.  It is likely that the legitimacy of this theory as a basis for a criminal complaint against a delinquent employer will be litigated in the federal courts and that the United States Supreme Court may have the final say on the issue.

If you have any questions or concerns regarding this communication, please do not hesitate to call Allotta | Farley Co., LPA at (419) 535-0075 or email megarner@allottafarley.com.


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