Court Holds Successor Liable for Pension Plan Withdrawal Payment

If the successor liability notice requirement excludes notice of contingent multiemployer pension plan liabilities, “a liability loophole would exist,” the 7th Circuit said.

The 7th U.S. Circuit Court of Appeals has found that the lack of a specific notice of multiemployer plan withdrawal liability and the specific amount of liability does not shield a successor employer of being responsible for the payment.

In its opinion, the court noted that the general common law rule of successor liability holds that, with certain exceptions, where one company sells its assets to another, the latter is not liable for the debts and liabilities of the seller. However, it cited cases in which both the U.S. Supreme Court and the 7th Circuit have imposed liabilities on successors beyond this rule in a number of employment-related contexts where “(1) the successor [was on] notice of the claim before the acquisition; and (2) there was ‘substantial continuity’ in the operation of the business before and after the sale.”

The appellate court pointed out that withdrawal liability cannot be assessed until the plan sponsor has determined that the employer has withdrawn from the plan under the Multiemployer Pension Plan Amendments Act (MPPAA). The MPPAA provides that when an employer withdraws from a multiemployer plan, the plan sponsor calculates the amount of liability owed by the employer and, as soon as feasible, notifies the employer of the amount due and requests payment. So, if an employer withdraws from a plan before it sells its assets, the liability is known before the sale.

In the case before the appellate court, union employer Tiernan & Hoover did not get notice that it was deemed to have withdrawn from the plan and owed $661,978.00 in withdrawal liability until after it sold its assets to non-union employer ManWeb Services.

The 7th Circuit disagreed with a district court’s finding that the successor liability notice requirement excludes notice of contingent liabilities. It said if this were true, and an employer withdrew from a plan after it sold its assets, “a liability loophole would exist,” and the plan would be left “holding the bag.”

The appellate court said it does not believe this result would further Congress’ goal of ensuring that the responsibility for a withdrawing employer’s share of unfunded, vested pension benefits is not shifted to remaining employers in the plan.

The asset purchase agreement showed that ManWeb had notice of Tiernan & Hoover’s contingent withdrawal liability, in part, because part of the agreement said it was not obligated to assume and did not agree to assume any liability or obligation arising out of or related to union activities, “including without limitation pension obligations.”

The appellate court found that, because of the indemnification included in the asset purchase agreement and the fact that ManWeb, having knowledge of the potential withdrawal liability, could have negotiated a lower purchase price, imposing successor liability on ManWeb is equitable. The 7th Circuit cited a 9th Circuit opinion that said, “The requirement of notice and the ability of the successor to shield itself during negotiations temper concerns that imposing successor liability might discourage corporate transactions.”

The opinion in Tsareff v. ManWeb Services, Inc. is here.