On December 27, 2011, the US Court of Appeals for the Seventh Circuit issued a decision in Central States, Southeast and Southwest Areas Pension Fund v. SCOFBP, LLC. The key litigated issues were whether:

In 2001, one of the defendants, SCOFBP, LLC, an insolvent entity, stopped making contributions to Central States, Southeast and Southwest Areas Pension Fund (Plaintiff) and incurred withdrawal liability under the MPPAA for unfunded pension benefits. In litigation, Plaintiff argued that SCOFBP's two solvent affiliates, defendants MCRI, LLC and MCOF, LLC, were liable for Plaintiff's withdrawal liability because they were "trades or businesses" under common control with SCOFBP, and therefore a single employer for determining withdrawal liability under the MPPAA. Both of the solvent entities are for-profit LLCs that owned real estate property that was leased to SCOFBP.

The district court granted summary judgment in favor of Plaintiff, holding that the two solvent LLCs were liable under the MPPAA because they are trades or businesses and under common control with the insolvent entity. The defendants appealed.

The Seventh Circuit affirmed the holding of the district court. On the issue of the whether MCRI and MCOF were "trades or businesses" under the MPPAA, the Seventh Circuit applied the test established in Commissioner v. Groetzinger, which asks whether the entity engaged in an activity:

(480 U.S. 23 (1987).)

This test distinguishes trades or businesses from passive, private investments, which are not jointly and severally liable for withdrawal liability. The Seventh Circuit acknowledged that certain case law supports the defendants' contention that the Groetzinger test does not apply to LLCs. However, it relied on more recent case law that has held that the Groetzinger test applies to a limited partnership. In addition, it reasoned that in applying the Groetzinger test, courts must consider the purpose of the MPPAA, which is to "prevent the dissipation of assets required to secure vested pension benefits."

The court found that formal business entities, such as the solvent LLCs, can satisfy the "trade or business" test by engaging in certain real estate activities, such as negotiating leases and maintaining property, where the activity increases equity, appreciates value and generates tax deductions, even where a net gain does not result. Furthermore, the MPPAA does not require that the solvent entities have an economic nexus with the withdrawing entity. Entities under common control can share liability even if their activities are not connected in any way.

The defendants had argued on appeal that the two solvent LLCs were personal investments that are not primarily engaged in for-profit business activities. Personal investments under the MPPAA include:

MCOF's status under the MPPAA was a relatively simple issue for the Seventh Circuit. It held that the "act of leasing property to a withdrawing entity itself is categorically a 'trade or business' under the MPPAA" (Central States, Southeast and Southwest Pension Fund v. Ditello, 974 F.2d 887 (7th Cir. 1992)). Therefore MCOF, which leased a lumberyard to SCOFBP, is a trade or business under the MPPAA, and is liable for SCOFBP's withdrawal.

MCRI also satisfied the requirements for a trade or business under the Groetzinger test. Even though it has no permanent employees, MCRI is a formal business entity that leases parcels of land to a third-party company. The court concluded that it satisfied the test by engaging in regular and continuous business activities for generating income or profit, including:

On the issue of common control, the Seventh Circuit held that SCOFBP, MCOF and MCRI were under the common control of their owner when SCOFBP incurred withdrawal liability, because the two solvent entities were part of the owner's estate when he declared bankruptcy, in 1999.

Private real estate vehicles operating in the Seventh Circuit will not be able to avoid withdrawal liability attributable to an affiliated entity's unpaid pension contributions to a multiemployer plan under the MPPAA solely because they are LLCs. Nor will they avoid liability by arguing that real estate activities such as negotiating leases and maintaining property are personal investment activities unrelated to those of the withdrawing employer. LLCs affiliated with the withdrawing entity will be jointly and severally liable for that withdrawal liability as long as the Groetzinger test is satisfied.