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​​​​ERISA Title IV and Controlled Groups

     See: ERISA Controlled Group Rules  /  "Evade or Avoid" Transactions / Pension - Home

2019.11  First Circuit REVERSES Sun Capital. See this Wagner Law Alert for a recap of the 1st Circuit's Sun Capital decision, with the lesson being that private equity firms and portfolio companies may avoid controlled group liability under ERISA if they carefully structure themselves and operate independently.

2019.03.22  Private Equity Firm Sued for Portfolio Co.'s Withdrawal Liability.  The Sun Capital case and its progeny should remain red flags for private equity firms. Case in point: the Teamsters just filed a complaint seeking $1.4 million in withdrawal liability from a PE firm due to its 88% ownership of a bankrupt subsidiary that had participated in its multiemployer pension plan (aka union plan). 

2018.03.22​  Sale of Subsidiary - Withdrawal Liability Imposed.  The 4th Cir. has held that in order for a company to obtain a refund of its withdrawal liability payment to a union pension fund that followed its sale of a subsidiary, the company must showing that the sale was not motivated by the employer's intent to avoid withdrawal liability. Penske Logistics LLC vs. Freight Drivers and Helpers Local Union No. 557 Pension Fund (2018, CA4) 2018 WL 345071.​

2016.April   Unprecedented Private Equity Court Decision Collapses Related Funds Triggering ERISA Withdrawal Liability for Portfolio Company’s Union Pension Obligations.  In the latest opinion issued in the Sun Capital litigation, the U.S. District Court for the District of Massachusetts just held two non-parallel private equity funds jointly and severally liable for a $4.5 million ERISA multiemployer plan withdrawal liability claim. Continued atSun Capital case.

2015.Oct.15  Joint Employer Status Insufficient to Create Multiemployer Plan Liability (ED PA).  Interpreting ERISA Section 515, this 3rd Cir. district court held that claims for $2 miillion of delinquent contributions to a multiemployer pension plan could only be brought against signatories to the applicable collective bargaining agreement. Despite exceptions that the Third Circuit and other courts have recognized for successors and those found to be a single employer with (or alter ego of) the signatory employer to a CBA, the court declined to extend those theories to claims based solely on joint employer status (Carpenters Combined Funds Inc. v. Kelly Sys., Inc., 2015 BL 339667, M.D. PA).

2015.July.27  Unknown Amount of ERISA Pension Liability Does Not Save Asset Purchaser (7th Cir.)  Notice of a seller’s ERISA liability is the threshold condition for applying the federal common law of successor liability to an asset purchaser. In the world of multiemployer (union) pension plans, ”[t]he precise amount of withdrawal liability is not ascertainable pre-acquisition if, as here, the employer is found to have withdrawn after it has sold its assets.”  The 7th Circuit made that observation in its Tsareff v. ManWeb Services decision, but held for equitable, policy-based reasons that “notice of contingent withdrawal liability satisfies the successor liability notice requirement.” Because ERISA pension liabilities are not only difficult to quantify but generally escalate over time, those who may purchase assets from an employer that has liability exposure under Title IV of ERISA – either due to sponsoring a defined benefit plan or contributing to a multiemployer pension plan – should carefully weigh their exposure, and consider rick avoidance or minimization strategies. 

2014.Jan.9  Successor Liability without Business Sale (7th Cir).  The ERISA requirements for notice of ERISA liabilities (for multiemployer plan contributions) and substantial continuity of business were satisfied where the owners of a family business shut down one business and immediately restarted two others that carried on the predecessors business. Sullivan v. Running Waters Irrigation, 7th Cir.

2013.Oct.15  "Single Employer" and "Alter Ego" Factors Contrasted (2nd Cir).  For federal labor law and ERISA purposes, a union sought to hold both the individual owners of a roofing company and a related company liable for obligations under a collective bargaining agreement.  The 2nd Circuit upheld dismissal of all claims, rejecting single employer and alter ego theories in deciding United Union v. A.W. Farrell.

2013.Oct.4  Japanese Parent held liable for Acquired Company's Underfunded Plan.  A DC district court has found that a Japanese company became subject to U.S. jurisdiction for ERISA purposes because it learned about a target company's underfunded pension plan as the result of hiring a U.S. consulting firm to perform benefits-related due diligence, recognizing its potential ERISA liability through the merger agreement and public disclosures, and not being disadvantaged to a degree greater than the PBGC when weighing the equities of litigating in the U.S. The decision inPBGC v. Asahi Tec concluded by granting summary judgment to the PBGC for recovery of unfunded pension liabilities and plan termination premiums under ERISA Title IV (specifically, 29 USC §§ 1362 and 1306-7, respectively).

2013.July.24  Private Equity Alert re 1st Circuit's Sun Capital Decision: Consider ERISA Pension Liability Risks from Portfolio Plans.  On July 24, 2013, the First Circuit issued a decision that should concern private equity funds because it breaks new ground in addressing the circumstances under which they could be held liable to a multiemployer (union) pension plan for withdrawal liability arising from the bankruptcy of a portfolio company. The decision in Sun Capital has two immediate implications for PE funds. Continued at Sun Capital Case.

2013.Jul.11  Chapter 7 Bankruptcy of Plan Fiduciary - No Discharge for Multi-employer Plan.  As stated by a Massachusetts bankruptcy court: “The undisputed facts indicate that the Debtor prioritized the payment of corporate expenses that were beneficial to him, such as the [loans] which he personally guaranteed, over his obligations” to make payments owed by his company to multiemployer pension funds. His liability for those payments survived his Chapter 7 bankruptcy, because . . . . continued with case link at Multiemployer Plans.
2013.June.3 Withdrawal Liability Imposed on Family Business under Alter Ego Theory (N.D. Ohio)
The following line from the District Court's decision sums up the problem: "In essence, there was one pot of money and both companies took from it as they pleased." Here are further quotations from Local 134 vs. Enterprise Roofing:


“Where two companies are engaged in the same business in the same marketplace, courts ask ‘whether the two enterprises have substantially identical management, business, purpose, operation, equipment, customers, supervision and ownership.’” Rd. Sprinkler Fitters Local Union No. 669, U.A., AFL-CIO v. Dorn Sprinkler Co., 669 F.3d 790, 794 (6th Cir. 2012).

The Sixth Circuit recently stated that, when two businesses are owned by the same family, “even though the characters are the same and are related to one another, this does not necessarily mean the overall nature of management is the same in both companies.” Rd. Sprinkler Fitters, supra, 669 F.3d at 795. Rather, a court should consider the nature of each person’s managerial role to determine whether the companies’ management substantially overlapped. Id.

Perhaps the most important indicator in this case of the overlap between Services and Sheet Metal is the frequency and extent with which Todd and David took money from Services on Sheet Metal’s behalf.

After learning of the extent of the borrowing, Services took no action to seek repayment. It did nothing to stop future payments. In two relatively small companies, the amount borrowed strikes me as significant, and shows there was no real delineation between the two companies’ financial resources.2013.Feb.08  7th Circuit Imposes Withdrawal Liability on Lessor-Owner as "Trade or Business".  The 7th Circuit's decision in Central States v. Messina reiterates a recent holding by the same court to the effect that "where the real estate is rented to or used by the withdrawing employer and there is common ownership, it is improbable that the rental activity could be deemed a truly passive investment." See this article for a link to the decision.

2013.Jan.11  Tax Lien - Corporate Veil Pierced. Based on a multi-factor federal tax law test, an LLC that owned a parcel of a land was "no more than a legal fiction” of a delinquent taxpayer for purposes of a federal tax lien that attached to the taxpayer's property. That was the conclusion in Berkshire Bank v. Ludlow, Mass. (1st Cir., No. 12-1625, 1/11/13), which involved a single owner LLC, the commingling of funds between them, and too close a relationship to separate the taxpayer from being the true owner.