The ruling, handed down by the United States District Court for the District of Columbia, comes as a significant victory for the Pension Benefit Guaranty Corporation (PBGC), which established a prima facie in the case against Asahi Tec Corporation last year (see “Japanese Company May Be Liable for Terminated U.S. Pension”).
Specific damages have yet to be decided, but the court ruled in favor of the PBGC’s claim that as a result of the acquisition, Asahi became a “controlled group” member of Metaldyne and is therefore liable for the unfunded benefit liabilities and termination premiums that arose from the termination of Metaldyne’s pension plan.
Crucial to the verdict were documents produced during the trial’s discovery phase showing Asahi Tec’s leadership had been made fully aware of the pension liabilities when it contracted New York-based Mercer Human Resources Consulting for the purpose of reviewing Metaldyne’s employee benefit and compensation programs.
During that process, Mercer identified significant underfunded long-term employee benefit obligations in Metaldyne’s pension plans for union and non-union employees. Mercer then presented the results in a report to RHJ International, Asahi Tec’s controlling shareholder, and facilitated conversations between buyer and seller about factoring those liabilities into Metaldyne’s equity value.
Also contributing to the verdict was the fact that Asahi Tec established a U.S.-based wholly-owned subsidiary called Argon Acquisition Corporation to actually execute the purchase—resolving key jurisdiction issues.
The suit itself resulted from Asahi Tec’s refusal to heed the PBGC’s warning that it was still liable for pension plan liabilities, even after it had filed for relief as a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.
At that stage, the PBGC became a plan trustee, pursuant to Title IV of the Employee Retirement Income Security Act (ERISA), as it often does when a pension plan covered by Title IV terminates without sufficient assets to pay all of its promised benefits.
A complete copy of the ruling is available here.