Seventh Circuit Closes the Successor Liability Notice Requirement Loophole Under the MPPAA Regarding “Contingent” Withdrawal Liability

The Seventh Circuit closed the loophole pertaining to the successor liability notice requirement for purchasers of assets that come with a multiemployer union pension plan. In Tsareff v. Manweb Services, 794 F.3d 841 (7th Cir. 2015), the U.S. Court of Appeals for the Seventh Circuit held that under a successor liability theory, an asset purchaser can be liable for the seller’s withdrawal liability resulting from the asset sale provided that the buyer was aware of the seller’s “contingent” withdrawal liability.

Under the Employee Retirement Income Security Act (“ERISA”), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), a plaintiff can bring an action to collect withdrawal liability from a defendant purchaser of assets.  29 U.S.C. §§ 1001-1461. The MPPAA consists of a series of amendments to ERISA aimed at minimizing the adverse consequences that result when individual employers terminate their participation in, or withdraw from, multiemployer plans. The MPPAA requires employers who withdraw to pay their share of “unfunded vested benefits” or withdrawal liability.  Imposing successor liability for unpaid multiemployer pension fund contributions and withdrawal liability effectuates congressional policies and goals of relieving the financial burden placed upon the remaining contributors to a fund when one or more of them withdraws from the plan, avoiding a severe disincentive to new employers entering the plan, and preventing funding deficiencies.

The general common law rule of successor liability holds that, except for certain exceptions, where one company sells its assets to another company, the latter is not liable for the debts and liabilities of the seller. However, liability has been imposed upon successors beyond the bounds of the common law rule in a number of different employment-related contexts including that of withdrawal liability when:  (1) the successor had notice of the claim before the acquisition and (2) there was substantial continuity in the operation of the business before and after the sale. The Tsareff decision addresses a liability loophole in the notice requirement that formerly excluded “contingent” liabilities such that multiemployer plan sponsors would be foreclosed in some situations from seeking withdrawal liability from asset purchasers who would otherwise qualify as successors, and the plans would be left holding the bag.

In Tsareff, plaintiff, Indiana Electrical Pension Benefit Plan (“the Plan”), through its trustee brought a successor liability action to collect withdrawal liability from defendant, ManWeb Services, Inc., for assets ManWeb acquired in an asset purchase agreement with Tiernan & Hoover. Tiernan & Hoover was a party to a collective bargaining agreement with Local 481, in accordance with which it made contributions to a multiemployer pension fund. After the acquisition, ManWeb did not make any contributions to the Plan. The district court granted ManWeb’s motion for summary judgment holding that ManWeb was not liable to the Plan as successor liability notice requirements excluded 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 despite the fact that the record showed that ManWeb had notice of Tiernan & Hoover’s potential or “contingent” withdrawal liability.

The appellate court reversed on this issue holding that the district court abused its discretion in concluding that the successor was not liable to the Plan because notice of “contingent” withdrawal liability satisfied the MPPAA successor liability notice requirement. Since successor liability is an equitable doctrine, the appellate court balanced the need to vindicate important federal statutory policies with equitable considerations.  Because the assessment of withdrawal liability is triggered by an employer’s withdrawal from a multiemployer plan, whether or not the precise amount of withdrawal liability is ascertainable prior to the employer’s asset sale depends on whether withdrawal occurs before or after the asset sale takes place. The 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. Therefore, the appellate court held that notice of “contingent” withdrawal liability satisfies the successor liability notice requirement under this scenario.  Applying this rule to Tsareff, the Court held that ManWeb had notice of Tiernan & Hoover’s “contingent” withdrawal liability.  ManWeb owners were aware that Tiernan & Hoover was a union-affiliated company and conducted an analysis of the union-related obligations, including discussing unfunded pension liabilities. Further the “contingent” withdrawal liability was explicitly included in the asset purchase agreement.

For prospective purchasers of assets who have notice that the seller may have a potential or contingent liability upon withdrawal of a multiemployer pension plan, this Seventh Circuit opinion solidifies that you will satisfy the notice requirement of the two-part test in holding purchaser’s liable for the sellers unpaid withdrawal liability. This decision underscores the importance of assessing the seller’s obligations and obtaining a withdrawal liability estimate (as required by ERISA) from the Plan prior to purchase.

Trisha Tesmer

Trisha Tesmer

Trisha K. Tesmer is an Appellate and Litigation partner in the firm's Chicago office.