ERISA-7th Circuit Finds That Asset Sale Exception To Withdrawal Liability Applies, Despite Earlier Workforce Reductions

Central States, Southeast and Southwest Areas Pension Fund v. Georgia-Pacific LLC, No. 10-2489 (7th Cir. 2011) involved the application of ERISA’s withdrawal liability rules. In 2004, the defendant, Georgia-Pacific LLC (“Georgia-Pacific”), sold its building-products division to BlueLinx Corp. (“BlueLinx”) . After that sale, Georgia-Pacific no longer had any employees participating in the multiemployer Central States, Southeast and Southwest Areas Pension Fund (“the Plan”). Georgia-Pacific claimed it did not have any withdrawal liability to the Plan. It relied on 29 U.S.C. §1384(a)(1), which provides that an employer will not incur any withdrawal liability, when “solely because, as a result of a bona fide, arm’s-length sale of assets to an unrelated party . . ., the [employer] ceases covered operations or ceases to have an obligation to contribute for such operations” and the buyer not only assumes liability for the contributions but also posts a bond to ensure payment. Under that provision, the employer is secondarily liable for the first five years of the buyer’s payments. BlueLinx began contributing to the Plan and posted the bond, and Georgia-Pacific stood behind its obligations. Thus, it appeared that the requirements of §1384(a)(1) were met.

Nevertheless, the Plan claimed that Georgia Pacific owed about $5 million in withdrawal liability. Why? The Plan argued that the sale to BlueLinx is not “solely” responsible for the fact that Georgia-Pacific no longer contributes to the Plan. At the beginning of 1994, Georgia-Pacific had three divisions with employees on whose behalf Georgia-Pacific contributed to the Plan. During 1994 and 1995, Georgia-Pacific laid off workers in one of those divisions (its wood-pulp division), but not enough to incur a partial withdrawal under 29 U.S.C. §1385. In 1997, Georgia-Pacific closed some facilities in the second of those divisions (its building division) and laid off workers, this time incurring a partial withdrawal and a resulting liability in the amount of $81,585.62. Seven years later, Georgia-Pacific sold the third of those divisions (building-products) to BlueLinx. The aggregate reduction in employees participating in the Plan, attributable to the foregoing layoffs and sale, would constitute a complete withdrawal. According to the Plan, this complete withdrawal did not occur “solely because . . . [of an] arm’s-length sale of assets to an unrelated party”. The question for the Court: do the 1994, 1995 and 1997 layoffs (the “pre-sale layoffs”) cause Georgia-Pacific to fail the “solely” requirement in the asset sale exemption from withdrawal liability?

The Court said that the asset sale exception should be formulated as follows: If the sale had not occurred, everything else had remained the same, and no withdrawal liability would have accrued, then the sale to a buyer that continues the pension contributions does not entail withdrawal liability. Under this formulation, there is no withdrawal liability in this case. The pre-sale layoffs are disregarded in determining whether the “solely” requirement in the asset sale exception is met. Those layoffs would be counted only if Georgia-Pacific planned in advance to effect the layoffs and sale, since such a plan would allow it to evade the withdrawal liability requirements. The arbitrator in this case found that there was no such plan. The Court ruled that the asset sale exception of §1384(a)(1) allowed Georgia -Pacific to avoid the purported $5 million of withdrawal liability.

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