ERISA-Seventh Circuit Holds That Facts Must Be Established To Determine If Withdrawal Liability May Be Imposed On A Successor Company

In Board of Trustees of the Automobile Mechanics’ Local No. 701 Union and Industry Pension Fund v. Full Circle Group, Inc.,  No. 15‐2497 (7th Cir. 2016), the plaintiff, a board of trustees the (“Board”) that administers a multiemployer defined‐benefit pension plan sponsored by Mechanics’ Local Union No. 701, filed this suit against a company named Full Circle Group and its subsidiaries (together “FCG”) seeking to impose withdrawal liability on them . Here, the Board appeals the district court’s grant of summary judgment in favor of FCG.

In this case, FCG purchased the assets of a shipping and shipyard services company named Hannah Maritime Corporation (“HMC”), whose president was Donald Hannah. HMC had a collective bargaining agreement with the mechanics union that required it to make contributions to the union’s pension fund to finance pensions for HMC’s employees. Hannah had hired his son Mark to work at HMC in 2007. The following year Mark formed FCG, and the new company bought two land leases and shipyard equipment from HMC and also hired HMC’s shipyard service employees. No significant liabilities of HMC were explicitly transferred to the new company—notably, HMC’s withdrawal liability was not transferred. FCG tried to negotiate its own collective bargaining agreement with the union, and though the attempt failed the company contributed to the union’s pension fund until the company’s employees voted to decertify the union in 2009. With HMC having ceased contributing to the fund, the fund assessed withdrawal liability against it. But in the meantime HMC had become insolvent, which prompted this suit in which the fund seeks to impose HMC’s liability to the fund on FCG as HMC’s successor.

In reviewing the case, the Seventh Circuit Court of Appeals (the “Court”) said that the successor could be held liable for the predecessor’s obligations-here the withdrawal liability-if there is substantial continuity between the predecessor’s and successor’s businesses and the latter has notice of the former’s acts. In particular, the Court pointed to its decision in Tsareff v. ManWeb Services, Inc., in which the Court had determined that an asset buyer is on notice of, and therefore subject to, successor liability if he has notice that the seller may be contingently liable for withdrawal liability.  The Court concluded, however, that in this case a trial is needed to establish the facts and determine if the requirements for imposing the liability of FGC are met. Thus, the Court overturned the district court’s summary judgment and remanded the case.

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