ERISA-Seventh Circuit Rules That Defendant Could Be Liable For Withdrawal Liability As A Successor To Employer From Which It Purchased Assets, Since The Defendant Had Notice Of Potential Withdrawal Liability At The Time Of Purchase

In Tsareff v. ManWeb Services, Inc., No. 14-1618 (7th Cir. 2015), plaintiff Indiana Electrical Pension Benefit Plan (the “Plan”), through its trustee, James Tsareff, brings this action under ERISA to collect withdrawal liability from defendant ManWeb Services, Inc. (“ManWeb”). The Plan argues that ManWeb is responsible for the withdrawal liability incurred by Tiernan & Hoover, certain assets of which ManWeb acquired through an asset sale, under a theory of successor liability. The Plan appeals the district court’s grant of judgment as a matter of law to ManWeb and denial of the Plan’s motion for summary judgment. After reviewing the case, the Seventh Circuit Court of Appeals (the “Court”) reversed the district court’s decisions.

In doing so, the Court noted that the Supreme Court and this Circuit have imposed liability upon a business successor when: (1) the successor had notice of the liability before the acquisition and (2) there was substantial continuity in the operation of the business before and after the asset sale. As to the notice requirement in prong (1), the Court said that the district court had held that this requirement excludes pre-acquisition notice of contingent liabilities; thus, because the Plan did not assess the amount of Tiernan & Hoover’s withdrawal liability until after the asset purchase, it was impossible for ManWeb to have notice of any existing withdrawal liability prior to acquisition. The Plan argued that, in the narrow context of multiemployer pension fund withdrawal liability, the successor liability notice element encompasses both existing and contingent liabilities. Accordingly, the Plan maintains that the notice requirement is satisfied because the record shows that ManWeb had notice of Tiernan & Hoover’s potential withdrawal liability.

The Court agreed with the Plan on this issue, finding that ManWeb did-in fact-have such notice, since:

–prior to finalizing the purchase of Tiernan & Hoover’s assets, ManWeb conducted pre-purchase negotiations and performed the due diligence necessary to evaluate the asset sale;

— going into this process, ManWeb’s key decision-makers were aware of Tiernan & Hoover’s union obligations and shared concerns related to the Plan’s unfunded pension plan liabilities; and — Tiernan & Hoover’s contingent withdrawal liability was explicitly included in the Asset Purchase Agreement between Tiernan & Hoover and ManWeb.

However, after finding that prong (1) for imposing successor liability was satisfied, the Court said that prong (2) for imposing such liability, namely the “successor liability continuity requirement”, was not considered by the district court. As such, after reversing the district court’s decisions, the Court remanded the case back to the district court to determine if prong (2) was satisfied.

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