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Board of Trustees of Automobile Mechanics' Local No. 701 Union and Industry Pension Fund v. Full Circle Group Inc.

United States Court of Appeals, Seventh Circuit

June 24, 2016

Board of Trustees of the Automobile Mechanics' Local No. 701 Union and Industry Pension Fund, Plaintiff-Appellant,
Full Circle Group, Inc., et al., Defendants-Appellees.

          Argued May 23, 2016

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 5868 - Charles P. Kocoras, Judge.

          Before Bauer, Posner, and Williams, Circuit Judges.

          Posner, Circuit Judge.

         The plaintiff, a board that administers a multiemployer defined-benefit pension plan sponsored by Mechanics' Local Union No. 701, filed this suit against a company named Full Circle Group and its subsidiaries seeking to impose withdrawal liability on them (we'll treat all the companies as a single entity, which we'll dub FCG).

          The Multiemployer Pension Plan Amendments Act of 1980 amended ERISA by imposing liability on employers who withdraw, partially or completely, from participation in an underfunded multiemployer pension fund, thereby reducing the fund's already diminished resources for paying the pensions to which employees of the fund's members are contractually entitled. See 29 U.S.C. §§ 1381 et seq.; Central States, Southeast & Southwest Areas Pension Funds v. Bulk Transport Corp., 820 F.3d 884 (7th Cir. 2016). The pension board's appeal is from the district court's grant of summary judgment in favor of FCG and the resulting entry of a final judgment in its favor.

         FCG purchased the assets of a shipping and shipyard services company named Hannah Maritime Corporation (HMC, the parties call it, as will we), whose president was Donald Hannah. HMC had a collective bargaining agreement with the mechanics union that required it to make contributions to the union's pension fund to finance pensions for HMC's employees.

         Hannah had hired his son Mark to work at HMC in 2007. The following year Mark formed FCG, and the new company bought two land leases and shipyard equipment from HMC and also hired HMC's shipyard service employees. No significant liabilities of HMC were explicitly transferred to the new company-notably, HMC's withdrawal liability was not transferred. FCG tried to negotiate its own collective bargaining agreement with the union, and though the attempt failed the company contributed to the union's pension fund until the company's employees voted to decertify the union in 2009. With HMC having ceased contributing to the fund, the fund assessed withdrawal liability against it. But in the meantime HMC had become insolvent, which prompted this suit in which the fund seeks to impose HMC's liability to the fund on FCG as HMC's successor.

         The district judge did not decide whether FCG could be said merely to have continued HMC's business, just under a different name, a question complicated by the fact that not all of FCG's employees were former employees of HMC and by uncertainty as to just how similar FCG's business was to what HMC's business had been. The judge was concerned that deciding that issue would require a trial. Instead he focused on a second requirement for successor liability-that the successor be aware of its predecessor's liability. Chicago Truck Drivers, Helpers & Warehouse Workers Union (Independent) Pension Fund v. Tasemkin, Inc., 59 F.3d 48, 49 (7th Cir. 1995); Upholsterers' International Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323, 1326 (7th Cir. 1990).

         It would be plausible that having worked for HMC and being the owner's son, Mark Hannah would have been aware of the company's obligations to contribute to a union pension fund, though we can't be certain that he learned of these obligations before the agreement to transfer assets to the newly created FCG. It is a virtual certainty however that he knew before the agreement was made that HMC was unionized, if only because it was something his father was bound to mention-indeed to be preoccupied with because unionization limits a company's control over and dealings with its employees. Mark testified that he was aware of the union pension fund, and the obligation to contribute to it, by July 1, 2008, the date the transaction closed.

         The "general [federal] common law rule of successor liability holds that … where one company sells its assets to another company, the latter is not liable for the debts and liabilities of the seller." Tsareff v. ManWeb Services, Inc., 794 F.3d 841, 845 (7th Cir. 2015). But as explained in EEOC v. Vucitech, 842 F.2d 936, 944 (7th Cir. 1988) (citations omitted), there need to be exceptions to that rule:

The entire issue of successor liability … is dreadfully tangled, reflecting the difficulty of striking the right balance between the competing interests at stake. In favor of successor liability is the interest in preventing tortfeasors from externalizing the costs of their misconduct by selling their assets free of any liabilities and distributing the proceeds to their shareholders. Against is the interest in a fluid market in corporate assets, which is impeded if purchasers acquire along with the assets legal liabilities of unknown, sometimes unknowable, dimensions. The latter consideration dominated common law thinking until recent years, producing a rule, now eroding, that in a sale of assets … as distinct from a merger or consolidation, the purchaser took free of any liabilities not expressly assumed, including tort liabilities.
A similar but looser approach, in which the focus is on the continuity between the predecessor's and successor's businesses and [on] the [successor's] notice of the [predecessor's] acts, has long been followed in labor cases in which the issue is the successor's duty to honor the obligations assumed by [the] predecessor in a collective bargaining agreement.

         The parties agree that we should use the "similar but looser approach" described in Vucitech and reiterated in other cases-an approach that focuses on the continuity between the predecessor's and successor's businesses and on the latter's notice of the former's acts. Knowing that HMC was unionized Mark would almost certainly also have known that the company would be required to contribute to a union pension fund if there was one. That knowledge should have alerted him to the possibility of withdrawal liability, which he could have verified by asking HMC to get an estimate from the union of the union's liabilities to its members. See 29 U.S.C. § 1021(l). That would have eliminated the possibility that successor liability would impose a crushing debt on FCG, for once Mark learned what FCG's successor liability would or might be he could, depending on its size, have refused to buy HMC's assets; for if no assets are bought, no liabilities are assumed.

         The district court granted summary judgment in favor of FCG for two reasons, the first being lack of evidence that Mark knew about the pension fund and the possibility of withdrawal liability before signing the asset-acquisition agreement. Yet he knew about the pension contributions by July, implying that he had learned about them earlier, and he had lawyers advising him on the acquisition of HMC's assets and its unionized employees. It is thus plausible that he knew about the ...

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