Many asset buyers believe that, as long as they do not agree to ERISA Section 4204’s sale of assets exception to withdrawal liability, they will acquire the seller’s assets free and clear of any prior contribution history and from any withdrawal liability that may trigger as a result of the sale. In a startling new decision, the Court of Appeals for the Seventh Circuit disagrees.
In Tsareff v. Manweb Services, Inc., 2015 U.S. App. LEXIS 12924 (7th Cir. July 27, 2015), the Seventh Circuit found that, under a successor liability theory, an asset purchaser could be liable for the seller’s withdrawal liability that triggered as a result of the asset sale, provided that the buyer had been aware of the seller’s “contingent” withdrawal liability that had yet to trigger prior to the sale. The Seventh Circuit found that imposing successor liability was appropriate, as a matter of equity, to effectuate the congressional goal of the Multiemployer Pension Plan Amendments Act to relieve the financial burden on employers left in the fund and avoid creating a disincentive for new employers to join the fund. Here, as the asset buyer was aware of the concept of withdrawal liability, engaged in due diligence, and addressed withdrawal liability responsibility through an indemnification clause in the asset purchase agreement, so it was considered on notice of the possibility of seller withdrawal liability. The Seventh Circuit remanded the matter back to the district court to determine whether there was a sufficient continuity of operations after the sale for the buyer to be considered a “successor” and hence liable.
Tsareff thus states that mere knowledge that a seller’s withdrawal liability may be triggered and assessed upon or after the sale imposes joint and several liability on the buyer, provided there is a continuity of operations. The Seventh Circuit ignores (i) ERISA Section 4204, which limits asset buyer liability, and (ii) the statute’s limitation of withdrawal liability to the contributing employer and its controlled group members as of the withdrawal date. The Seventh Circuit also dismisses the consequence of its decision that the asset buyer is charged with notice of the seller’s withdrawal liability assessment, even if it received no such notice. This means that the asset buyer that is a successor after Tsareff cannot challenge the merits of the fund’s assessment if the seller did not timely request review of the assessment.
So, a potential asset purchaser that becomes aware that the seller participates in a multiemployer pension fund and might be assessed withdrawal liability should factor the risk of successor liability into the purchase price, or require the seller to place some of the sale price in escrow to insure there are funds to pay for any withdrawal liability triggered as a result of the sale. Note that ERISA requires multiemployer funds to furnish upon request estimates of the amount of withdrawal liability each participating employer would incur upon a withdrawal. Potential asset purchasers also should pay attention to whether and to what extent the Tsareff decision is adopted by the other Courts of Appeal.