In Nutt v. Kees, No. 14-3364 (8th Cir. 2015), Kevin and Lisa Nutt had successfully sued their former employers under ERISA for two claims: delinquent contributions and breach of the fiduciary duty of care. The district court found that the Nutts’ former employers could not provide adequate relief and thus relied on a theory of successor liability to hold Osceola Therapy & Living Center, Inc. (“OTLC”) liable. OTLC appeals. The Eighth Circuit Court of Appeals (the “Court”) reversed.
As to the successor liability theory, the Court said that the doctrine of successor liability provides an equitable exception to the general rule that a buyer takes the assets of his predecessor free and clear of all liabilities other than valid liens and security interests. However, even assuming that that successor liability applies in the ERISA context, the Court concluded that the district court clearly erred, and abused its discretion, in its factual findings and improperly weighed the equities when it held OTLC liable as the successor of the Osceola defendants.
Continuing, the Court said that several considerations guide its review of the district court’s decision to impose successor liability. However, the ultimate inquiry always remains whether the imposition of the particular legal obligation at issue would be equitable and in keeping with federal policy. Before imposing financial liability for a predecessor’s past misdeed, courts look for two factors to ensure that liability is proper–notice and the direct transfer of assets from the predecessor. Here, OTLC did not purchase, and thus did not receive a direct transfer of, assets, nor did it receive timely notice of the potential liability. Thus, the district court abused its discretion in imposing successor liability.