ERISA-Second Circuit Holds That Bona Fide Sale Exemption To Withdrawal Liability Did Not Apply When Purchaser Was Not Obligated To Maintain Substantially The Same Number Of Contribution Base Units As The Seller

HOP Energy, L.L.C. v. Local 553 Pension Fund, No. 10-3889-cv (2nd Cir. 2012), involved a determination of whether the “bona fide sale exemption” (found in 29 U.S.C. § 1384(a)(1)) prevented the imposition of withdrawal liability under ERISA.

In this case, the plaintiff, HOP Energy, L.L.C. (“HOP”), was in the business of delivering fuel oil and providing heating services. Prior to May 12, 2007, it serviced New York City customers through its Madison Oil operating division (“Madison”) . Madison was a “union shop” and had signed the Teamsters Local 553 2004-07 Master Collective Bargaining Agreement (the “2004-07 Master CBA”). On May 12, 2007, HOP sold 100% of Madison’s operating assets to Approved Oil Company (“Approved”), also a signatory to the 2004-07 Master CBA. Teamsters Local 553 has a multi-employer pension fund (the “Fund”). The 2004-07 Master CBA required employers to contribute to the Fund, based on a certain number of contribution base units determined by the number of hours their employees worked.

To effectuate Madison’s sale, HOP and Approved entered into an Asset Purchase Agreement (“APA”), which provided that:

Approved shall make contributions to the Fund for substantially the same number of contribution base units for which HOP had an obligation to contribute with respect to the operations covered by the Fund. Notwithstanding the previous sentence …, nothing in this Section shall impair or limit the Purchaser’s right to discharge, lay off, or hire employees or otherwise to manage the operations of the Business, including the right to amend, revise or terminate any collective bargaining agreement currently in effect and, as a consequence, reduce to any extent the number of contribution base units with respect to which Approved has an obligation to contribute to any plan.

Following the sale of Madison’s assets, HOP ceased operations in New York City and also ceased contributing to the Fund. The Fund’s sponsor assessed HOP withdrawal liability for $1,204,007. HOP asked the Fund to reconsider the assessment, claiming that the Madison sale was exempt from withdrawal liability because it constituted a bona fide asset sale. The
Fund upheld its assessment, and the case found its way to the Second Circuit Court of Appeals (the Court). The issue for the Court: did Approve have a post-sale obligation to contribute substantially the same number of contribution base units to the Fund as HOP (as required by 29 U.S.C. § 1384(a)(1)(A))? If so, the exemption from withdrawal liability would apply, since all other conditions for the exemption had been met.

The Court said that, since under the terms of the APA Approved could reduce the number of employees or take other steps that would result in a decrease in its contribution base units and thus the amount of its contributions to the Fund, Approved had no obligation to maintain substantially the same number of contribution base units that HOP was responsible for. Nothing in the 2004-07 Master CBA, any other agreement or any law placed any such obligation on Approved. Therefore, the Court ruled that the bona fide sale exemption was not available to block the imposition of the withdrawal liability on HOP.

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