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Seventh Circuit Denies Refund of Contributions to Multiemployer Plan for Mistakenly Covered Participant and Denies Arbitration Under the PBGC’s Default Rules for Withdrawal Liability

In Central States, Southeast and Southwest Areas Pension Fund v. Bulk Transport Corp., the U.S. Court of Appeals for the Seventh Circuit held that the employer could not seek a refund of contributions made to a multiemployer plan on behalf of an employee that the employer mistakenly believed was covered under the collective bargaining agreement because the employer had certified that the employee was eligible to participate in the plan and later explicitly covered the employee by name in subsequent collective bargaining agreements, and further, the pension fund had no duty to inquire as to the employee’s eligibility. The court also held that, in seeking arbitration for a dispute of withdrawal liability, the employer and the pension fund must use the American Arbitration Association’s (“AAA”) Multi-Employer Pension Plan Arbitration Rules that were approved by the PBGC instead of the PBGC’s default rules, notwithstanding the fact that the AAA had significantly… Continue Reading

Court Finds Sun Funds Liable for Withdrawal Liability of Portfolio Company

On remand by the First Circuit Court of Appeals, the Federal District Court of Massachusetts found Sun Capital Partners III, LP (“Sun Fund III”) and Sun Capital Partners IV, LP (“Sun Fund IV, and together with Sun Fund III, the “Sun Funds”) liable for the withdrawal liability of Scott Brass, Inc. (“SBI”), a bankrupt portfolio company of the Sun Funds.  In applying the First Circuit’s “investment plus” test, the district court found that the Sun Funds received a direct economic benefit and were therefore engaged in a “trade or business” for purposes of shared liability under the Multiemployer Pension Plan Amendments Act.  Even though Sun Fund III and Sun Fund IV held a 30% and 70% interest, respectively, in SBI (which each is under the 80% required for controlled group purposes), the district court found that the Sun Funds operated as a single “partnership-in-fact” with no meaningful independence in their… Continue Reading

Owner Who Leased Land to Company and Worked as an Independent Contractor for an Unrelated Entity Held Personally Liable for Company’s Withdrawal Liability

Nagy Ready Mix (the “Company”) withdrew from a multiemployer pension plan after the Company ceased employing workers covered by a collective bargaining agreement.  The pension plan filed suit to collect withdrawal liability from the Company; Mr. Nagy, the Company’s owner; and two affiliated companies under his common control.  While passive investors are not “trades or businesses” for withdrawal liability purposes, an individual who engages in an unincorporated trade or business under common control with the withdrawing employer is personally liable for the withdrawal liability.  The Seventh Circuit Court of Appeals cited two grounds for imposing personal liability on Mr. Nagy.  First, the court held that Mr. Nagy was personally liable for the withdrawal liability because he leased property to the Company.  In prior opinions, the court held that leasing property to a withdrawing employer is “categorically” a trade or business.  Second, the court held that Mr. Nagy was liable for… Continue Reading

Seventh Circuit Holds Individuals Personally Liable for the Corporation’s Withdrawal Liability from a Multiemployer Pension Plan

Messina Trucking withdrew from a multiemployer pension plan after the collective bargaining agreement ceased.  The pension plan filed suit for collection of withdrawal liability against, among others, Messina Trucking’s owners, Mr. and Mrs. Messina, and other businesses owned by the Messinas.  While passive investors are not trades or businesses for these liability purposes, the Seventh Circuit Court of Appeals, citing a prior opinion, held that renting property to a withdrawing employer is “categorically” a trade or business.  It was undisputed that the Messinas rented property to their closely-held corporation; therefore, the Messinas were personally liable to the pension plan for the company’s withdrawal liability. The Court also held another entity owned by the Messinas was a trade or business even though it had no employees, regular business activity, real estate, or other assets, aside from an investment in another entity.  The court concluded that this entity was a trade or… Continue Reading

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

Sixth Circuit Holds that a Union’s Indemnification of an Employer’s Withdrawal Liability Does Not Violate Public Policy

In a case of first impression, the U.S. Court of Appeals for the Sixth Circuit held that a union’s agreement in a collective bargaining agreement to indemnify an employer for its withdrawal liability under a multiemployer plan does not violate public policy and is therefore enforceable. In this case, the General Drivers, Warehousemen and Helpers Local Union No. 89 specifically agreed in its collective bargaining agreement with Shelter Distribution, Inc. that the union “shall indemnify [Shelter] for any contingent liability which may be imposed under the Multiemployer Pension Plan Amendment Acts of 1980.” The court reasoned that (i) the indemnity was analogous to obtaining a policy from an insurance company to cover any potential liability for fiduciary breaches as described in Section 1110(b) of the Multiemployer Pension Plan Amendments Act; (ii) the indemnity is not a violation of any “well defined and dominant” public policy; and (iii) the goals of… Continue Reading

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