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Case Alert: Court Holds that “There is No Third Element for ERISA Successor Liability.”

Brian A. Pepicelli, Esq., bpepicelli@tuckerlaw.com, (412) 594-3953

Successor liability is a powerful collection tool for multiemployer plans under ERISA. It most commonly arises in the context of asset sales (although it is not limited to that situation). 

Assume that Company A has an obligation to contribute to a multiemployer pension plan and that it owes the plan delinquent contributions or withdrawal liability under ERISA. Also assume that Company A sells it assets to Company B.

Based on this transaction, can the plan go after Company B for the debt of Company A?

The standard rule in asset sales is that the buyer does not acquire the seller’s liabilities. So, if that rule were to apply here, the answer would be “no.” Company B would not be responsible for Company A’s debt to the plan. 

However, the successor liability theory has evolved as an exception to that standard rule. It allows the plan to hold Company B liable for Company A’s debt as long as two requirements are met:

  • Company B had notice (either actual or constructive) of Company A’s obligation to the plan; and
  • Company B substantially continued Company A’s operations. 

In a recent case, Cent. Pa. Teamsters Pension Fund v. Waggoner, No. 5:20-cv-5560, 2024 U.S. Dist. LEXIS 84986 (E.D. Pa. May 10, 2024), a district court confirmed that a plan need not establish anything else. 

In that case, the alleged successor argued that there is a third requirement to ERISA successor liability. It asserted that before a plan can go after the successor (Company B), the plan must first establish that the predecessor (Company A) is unable to satisfy the debt. The court swiftly rejected that argument. It noted that such an additional requirement is nowhere to be found in the case law and is contrary to ERISA’s purpose of protecting the participants in employee benefit plans. Therefore, a plan may go straight after the successor without first having to prove that the predecessor company is unable to pay. 

This conclusion is consistent with other successor liability decisions. Courts expect the buyers in these transactions to inquire about any hidden liabilities of the seller and to address them in their negotiations. This can be done by insisting on a lower purchase price, requiring an indemnity provision in the agreement, or requiring the seller to post a bond. Because plans are not in the position to investigate sales rumors regarding their various contributing employers, courts have declined to place any additional burden on the plans.

For more information contact Brian Pepicelli.

May 17, 2024

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