Appeals Court Remands Successor Liability Case

The 7th Circuit Court of Appeals has remanded a ruling in favor of Indianapolis-based ManWeb Services, Inc., which is being sued by the Indiana Electrical Workers Pension Benefit Fund for not fulfilling the pension fund obligations of its predecessor.

The plaintiff is arguing that due to successor liability, ManWeb is responsible for the pension liabilities owed by The Freije Company, which withdrew from the pension fund and owes a liability of $661,978. Successor liability allows a creditor to seek recovery from the purchaser of assets for liabilities that were not assumed as part of an acquisition.

According to court documents, ManWeb paid $259,360 for the assets of Tiernan & Hoover,, which conducted business under the name The Freije Company, in August 2009. Freije signed a collective bargaining agreement with the International Brotherhood of Electrical Workers Local 481, however, ManWeb was non‐union.

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As a union employer, Freije contributed to the Fund, and under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) was required to pay withdrawal liability of $661,978 when it ceased operations. But ManWeb did not make any contributions to the fund after its purchase of Freije.

Neither Freije nor ManWeb made withdrawal liability payments, and Freije never took advantage of its right to seek review of the assessment amount or to challenge the assessment in arbitration, said the Court of Appeals. The assessment therefore became due when the statutory deadline for contesting the liability passed. The fund then sued Freije and added ManWeb as a defendant based on successor liability.

The district court granted summary judgment for ManWeb in 2013, finding it lacked notice of Freije’s withdrawal liability. In the first appeal, the 7th Circuit Court remanded the case, finding that the company “had sufficient pre‐acquisition notice of [Freije’s] contingent withdrawal liability to satisfy the federal successor liability notice requirement.”

However, the district court granted summary judgment again in favor of ManWeb, concluding that the fund had not shown sufficient continuity of business operations to support successor liability. The Electrical Workers Pension Benefit Fund appealed again.

“ManWeb’s purchase of and use of Freije’s intangible assets—its name, goodwill, trademarks, supplier and customer data, trade secrets, telephone numbers, and website … weigh more heavily in favor of successor liability than the district court recognized,” said the Court of Appeals in its ruling.

The Court of Appeals vacated the district court’s decision, and remanded the case for further consideration.

The UK government has released a white paper outlining measures that would increase the powers of The Pensions Regulator (TPR), including giving the pension industry watchdog the ability to impose punitive fines.

“The pensions’ landscape is evolving, as defined benefit schemes continue to close and be replaced by other forms of provision,” said the white paper, which was released by The Department for Work and Pensions’ (DWP), and presented to Parliament. “We are managing this change so that the defined benefit system continues to work in the best interests of those involved,” it said, adding that it “supports the regulator’s ambition to be clearer, quicker, and tougher.”

The DWP said it will strengthen the regulatory framework, and the regulator’s powers to allow TPR to “punish those who deliberately put their pension scheme at risk by introducing punitive fines.”

It also said it would “legislate to introduce a criminal offense to punish those found to have committed willful or grossly reckless behavior in relation to a pension scheme and, build on the existing process to support the disqualification of company directors.”

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The measures include improving the effectiveness and efficiency of the regulator’s existing anti-avoidance powers.

“We will work with the relevant parties to ensure that these measures do not have an adverse effect on legitimate business activity and the wider economy,” said the DWP. It also said it would legislate to give TPR the information-gathering powers already in place for automatic enrollment and master trusts to its defined benefit and defined contribution functions, “including the power to compel any person to submit to an interview, the power to issue civil sanctions for non-compliance, and an inspection power.”

Not surprisingly, TPR welcomed the proposed new powers.

“Planned improvements to our scheme funding, information-gathering, and anti-avoidance powers will enable us to be clearer about what we expect from employers,” said Lesley Titcomb, chief executive of TPR, in a release. “Furthermore, strengthening the notifiable events framework will improve our regulatory grip and will ensure we are sighted sooner on planned transactions that could pose a risk to scheme members.”

Titcomb said TPR will now work closely with the government to develop the proposals in the white paper, including fines and criminal sanctions.

According to TPR, one of the main aspects of the new powers is to set greater clarity around the existing funding standards. It said it will now start discussions with stakeholders about how this might work, including how to revise its defined benefit funding code of practice to set out its expectations of trustees and employers.

Tags: Pension, The Pensions Regulator, UK