ERISA-Third Circuit Holds That The Successor Liability Rule May Be Applied To Hold Buyer Of Assets Liable For Seller’s Unpaid Plan Contributions

In Einhorn v. M.L. Ruberton Construction Company, No. 09-4204 (3rd Circuit 2011), the Court faced the question of whether the purchaser of an employer’s assets is liable under ERISA for the employer’s delinquent plan contributions. Here, under two collective bargaining agreements, Statewide Hi-Way Safety, Inc. (“Statewide”) was obligated to make contributions to a multiemployer pension plan and a multiemployer health and welfare plan. Statewide became delinquent in making these contributions. After the delinquency arose, Statewide sold its assets to the defendant, M.L. Ruberton Construction Company (“Ruberton”). Is Ruberton liable for the delinquent contributions under the theory of successor liability?

In analyzing the case, the Court noted the Supreme Court’s decision in Golden State Bottling Co. v. NLRB, in which the Court held that the purchaser of a business could be liable for remedying an employee’s unlawful discharge, when the purchaser had notice of the discharge and continued, without interruption or substantial change, the seller’s business operations. The Court also noted the Third’s Circuits decision in Teamster Pension Trust Fund of Phila. & Vicinity v. Littlejohn, holding that successor liability for delinquent ERISA fund contributions could be imposed on the surviving corporation following a merger.

Building on those and other cases, the Court held that a buyer of assets, here Ruberton, may be liable under ERISA for the seller’s delinquent pension and welfare plan contributions, when the buyer had notice of the liability for those contributions prior to the sale, and there exists sufficient evidence of continuity of operations between the buyer and seller. The Court expounded on this rule. It said that “notice” centers on whether the buyer knows about the liability (and acknowledged that the buyer had such notice here), as opposed to whether the buyer knows that the liability will be enforced. As to substantial continuity, the following factors are relevant: (1) continuity of the workforce, management, equipment and location, (2) completion of work begun by the predecessor, and (3) constancy of customers. The Court remanded the case back to the district court to apply the foregoing.

Planning Note: The rule of successor liability requires careful due diligence on employee benefit matters by the buyer in the context of an asset sale. When potential liability for any employee benefit is discovered, the buyer should negotiate a price reduction, or at least a provision in the sale agreement under which the seller or its owners will indemnify the buyer for any successor liability imposed for that benefit.

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