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No Asset Sale Exception to Withdrawal Liability Applies Where Purchaser Can Reduce Employee Hours Post-Acquisition
The Second Circuit Court of Appeals affirmed a district court holding that a seller was not exempt from withdrawal liability under the Multiemployer Pension Plan Amendments Act because the purchaser of the seller’s assets was not obligated to contribute substantially the same number of contribution base units to the pension fund post-sale as seller had contributed pre-sale. In this case, the “contribution base units” were hours of employee pay. The asset purchase agreement stated that purchaser could lay off employees or take other actions which could reduce the number of contribution base units purchaser was obligated to contribute to the plan. The court found that, before the sale, seller had a year-to-year ongoing ERISA obligation to maintain a threshold level of hours of employee pay. If seller had reduced its contribution base units by 70 percent, or partially ceased its contributions in a given year, it would have been subject… Continue Reading
Buyer Beware: Social Media Due Diligence in M&A
Debra Hatter and Rikiya Thomas published an article in Bloomberg Law Reports detailing pitfalls from the perspective of a buyer seeking in an M&A transaction to partner with or acquire a target company that utilizes social media. Read more
Second Circuit Orders Former Tyco Director to Return $20 Million Payment
The U.S. Court of Appeals for the Second Circuit reversed the decision of the Southern District of New York, and ordered Frank Walsh, a former member of Tyco’s board of directors to return a $20 million secret payment he received from Tyco in connection with Tyco’s acquisition of CIT Group, Inc. Walsh claimed that the board ratified the payment. The court determined that under Bermuda law, Walsh failed to disclose that he stood to personally benefit from the acquisition—a duty he owed to the shareholders, not the board. Thus, once the breach occurred, only the shareholders, and not the board, could effect a release. (Tyco Int’l Ltd. v. Walsh, 10-4526-cv (2d Cir. Jan. 11, 2012)(Summary Order)).
Purchase Agreement’s Forum Selection Clause Controls Severance Plan Dispute
A recent decision in District of Minnesota serves as a good reminder to buyers and sellers in corporate transactions to understand that the terms of the purchase agreement can have broad reaching implications outside of the transaction. The buyer in the case had agreed in the stock purchase agreement (“SPA”) to assume the liabilities under the seller’s severance policy. When an employee who was terminated post-closing was denied severance benefits, he sued the buyer in the United States District Court for the District of Minnesota. The court applied the forum selection clause from the stock purchase agreement and granted the defendant’s motion to move the forum to the Northern District of Illinois, holding that since the assumption of severance liabilities was in the SPA, the forum selection clause in the SPA should apply. See Drapeau v. Airpax Holdings, Inc. Severance Plan, No. 11-64(DWF/JSM) (D.Minn. July 27, 2011).
Employer Exempt from Withdrawal Liability
The Seventh Circuit Court of Appeals upheld an arbitrator’s decision that Georgia-Pacific’s withdrawal from the Central States, Southeast and Southwest Areas Pension Fund was “solely” because of its arms-length sale of assets to a third party, where the purchaser assumed liability for the plan’s contributions and posted a bond to ensure payment. In one of the first appellate court decisions to interpret the phrase “solely because” in 29 U.S.C. §1384 (ERISA §4204), the Court stated that “. . .the best understanding of this phrase is one that concentrates on the transaction at issue: If the sale had not occurred, everything else has remained the same, and no withdrawal liability would have accrued, then the sale to a buyer that continues the pension contributions does not entail withdrawal liability.” The Court cautioned that if an employer completes its withdrawal in stages, with a sale being the last step, then all transactions… Continue Reading
Asset Purchaser May Have Successor Liability for Delinquent Contributions to Multiemployer Plan
The Third Circuit ruled that the purchaser of assets of an employer obligated to contribute to a multiemployer plan may, under certain circumstances, be held liable for the seller’s delinquent contributions to that plan. According to the Court, successor liability may exist where the purchaser had notice of the liability prior to the sale and there exists sufficient evidence of continuity of operations between the purchaser and seller. Einhorn v. M.L. Ruberton Construction Co., No. 09-4204 (3rd Cir. Jan. 21, 2011).
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