James Tsareff v. Manweb Services , 794 F.3d 841 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 14-1618
JAMES TSAREFF, et al.,
Plaintiffs-Appellants,
v.
MANWEB SERVICES, INC.,
Defendant-Appellee.
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:10-cv-00980-SEB-DKL — Sarah Evans Barker, Judge.
ARGUED SEPTEMBER 19, 2014 — DECIDED JULY 27, 2015
Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.
BAUER, Circuit Judge. Plaintiff-appellant, Indiana Electrical
Pension Benefit Plan (“Plan”), through its trustee, James
Tsareff, brings this action to collect withdrawal liability from
defendant-appellee, ManWeb Services, Inc. (“ManWeb”), un-
der the Employee Retirement Income Security Act (“ERISA”),
as amended by the Multiemployer Pension Plan Amendments
Act of 1980 (“MPPAA”), 29 U.S.C. §§ 1001–1461. The Plan
argues that ManWeb is responsible for the withdrawal liability
2 No. 14-1618
incurred by Tiernan & Hoover, certain assets of which
ManWeb acquired through an asset sale, under a theory of
successor liability. The Plan appeals the district court’s grant of
judgment as a matter of law to ManWeb and denial of the
Plan’s motion for summary judgment. For the reasons that
follow, we reverse.
I. BACKGROUND
ManWeb is an Indianapolis-based company that performs
engineering, construction, and installation-related services. In
August 2009, ManWeb entered into an asset purchase agree-
ment (“APA”) with Tiernan & Hoover, another Indianapolis-
based electrical contractor that performed engineering,
construction, and service for cold storage facilities under the
trade name, “The Freije Company.” Unlike ManWeb, a non-
union employer, Tiernan & Hoover was party to a collective
bargaining agreement (“CBA”) with IBEW Local 481 Union
(“Union”), in accordance with which it made contributions to
the Plan, a multiemployer pension fund. As a result of the asset
purchase, Tiernan & Hoover ceased operations and no longer
had an obligation to contribute to the Plan. Although ManWeb
continued to do the same type of work in the jurisdiction of the
CBA for which contributions were previously required of
Tiernan & Hoover, ManWeb did not make any contributions
to the Plan following its purchase of Tiernan & Hoover’s assets.
On February 24, 2010, counsel for the Plan sent a letter
addressed to “The Freije Company” to Tiernan & Hoover’s
former Indianapolis address, indicating that it had determined
that the company had effectuated a complete withdrawal from
the Plan in August 2009 and that, pursuant to § 4202 of ERISA,
No. 14-1618 3
the Plan had assessed withdrawal liability against Tiernan &
Hoover. The letter indicated that Tiernan & Hoover owed
$661,978.00 in withdrawal liability, which could be satisfied in
one lump sum payment or in nineteen quarterly payments,
commencing within sixty days of the company’s receipt of the
letter. Pursuant to a mail forwarding instruction, the letter was
forwarded to ManWeb’s address at 9211 Castlegate Drive,
Indianapolis, Indiana 46256, where it was received and signed
for by a ManWeb employee. Nevertheless, no payments were
ever made to satisfy this liability; further, Tiernan & Hoover
never sought review of the withdrawal liability assessment or
initiated arbitration, despite the availability of both options
under the statute. 29 U.S.C. §§ 1399(b)(2)(A) and 1401(a)(1).
Pursuant to the statute, the assessment against Tiernan &
Hoover became due and owing after its failure to request
review and initiate arbitration within the statutory deadline.
29 U.S.C. § 1401(b)(1).
As a result of Tiernan & Hoover’s failure to make with-
drawal payments, the Plan filed a collection action in federal
court against Tiernan & Hoover pursuant to 29 U.S.C.
§§ 1132(e) and (f), and 1451(c). The Plan added ManWeb as a
defendant under a theory of successor liability. At the close of
discovery, the parties filed cross-motions for summary
judgment. The district court granted the Plan’s motion in part,
finding that Tiernan & Hoover had waived its right to dispute
the assessment of withdrawal liability by failing to initiate
arbitration proceedings and, therefore, owed the full amount
of the assessment. However, with respect to the Plan’s claim of
successor liability against ManWeb, the district court held that
4 No. 14-1618
ManWeb was not liable to the Plan and granted ManWeb’s
motion for judgment as a matter of law. This appeal followed.
II. ANALYSIS
The Plan argues on appeal that the district court erred in
granting ManWeb judgment as a matter of law and denying
the Plan’s motion for summary judgment. We review this
decision de novo. McDougall v. Pioneer Ranch Ltd. P’ship, 494
F.3d 571, 575 (7th Cir. 2007). Summary judgment is proper only
when the record demonstrates that there is no genuine issue as
to any material fact and the moving party is entitled to a
judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986). Where, as here, the district
court was faced with cross-motions for summary judgment,
our review requires that we construe all facts and inferences in
favor of the party against whom the motion under consider-
ation was made—in this case, the Plan. Hendricks-Robinson v.
Excel Corp., 154 F.3d 685, 692 (7th Cir. 1998). Before we proceed,
however, we must address the district court’s interpretation of
the federal successor liability notice requirement.
A. Notice of Contingent Withdrawal Liability Satisfies
the Successor Liability Notice Requirement
The district court held that the successor liability notice
requirement excludes pre-acquisition notice of contingent
liabilities; thus, because the Plan did not assess the amount of
Tiernan & Hoover’s withdrawal liability until after the asset
purchase, it was impossible for ManWeb to have notice of any
existing withdrawal liability prior to acquisition. The Plan
argues that, in the narrow context of multiemployer pension
fund withdrawal liability, the successor liability notice element
No. 14-1618 5
encompasses both existing and contingent liabilities. Accord-
ingly, the Plan maintains that the notice requirement is
satisfied because the record shows that ManWeb had notice of
Tiernan & Hoover’s potential withdrawal liability. Because this
issue calls for an examination of the correct legal notice
standard for successor liability in the employer withdrawal
liability context, we review it de novo.
The successorship doctrine under federal common law has
developed extensively over the years in an effort to protect
federal rights and effectuate federal policies. See Chicago Truck
Drivers, Helpers & Warehouse Workers Union (Indep.) Pension
Fund v. Tasemkin, Inc., 59 F.3d 48 (7th Cir. 1995); Upholsterers’
Int’l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d
1323 (7th Cir. 1990). The general common law rule of successor
liability holds that, except for certain exceptions, where one
company sells its assets to another company, the latter is not
liable for the debts and liabilities of the seller. See Travis v.
Harris Corp., 565 F.2d 443, 446 (7th Cir. 1977). However, “the
Supreme Court and this Circuit have imposed liability upon
successors beyond the bounds of the common law rule in
a number of different employment-related contexts,” Artistic
Furniture, 920 F.2d at 1326, when “(1) the successor had notice
of the claim before the acquisition; and (2) there was ‘substan-
tial continuity in the operation of the business before and after
the sale,’” Tasemkin, 59 F.3d at 49 (quoting E.E.O.C. v. G-K-G,
Inc., 39 F.3d 740, 748 (7th Cir. 1994)). See, e.g., Golden State
Bottling Co., Inc. v. N.L.R.B., 414 U.S. 168 (1973); Artistic
Furniture, 920 F.2d at 1329; E.E.O.C. v. Vucitech, 842 F.2d 936
(7th Cir. 1988); Wheeler v. Snyder Buick, Inc., 794 F.2d 1228
(7th Cir. 1986). Successor liability is an equitable doctrine,
6 No. 14-1618
Tasemkin, 59 F.3d at 49, and in every instance where we have
found the imposition of federal successor liability to be
appropriate, we have done so after carefully balancing the
need to vindicate important federal statutory policies with
equitable considerations. Thus, determining whether or not
notice of a contingent liability satisfies the successorship notice
requirement in the context of employer withdrawal liability
necessitates a similar analysis of the underlying policy goals.
The MPPAA consists of a series of amendments to ERISA
aimed at minimizing “the adverse consequences that resulted
when individual employers terminate[d] their participation in,
or withdr[e]w from, multiemployer plans.” Pension Benefit
Guarantee Corp. v. R.A. Gray & Co., 467 U.S. 717, 722 (1984). See
also Chicago Truck Drivers v. El Paso CGP Co., 525 F.3d 591, 595
(7th Cir. 2008); Artistic Furniture, 920 F.2d at 1328. To this end,
the MPPAA requires employers who withdraw from multi-
employer pension plans to pay their share of “unfunded vested
benefits,” or withdrawal liability. See 29 U.S.C. § 1381(b)(1). By
enacting provisions that hold withdrawing employers liable for
their share of their plan’s unfunded vested pension benefits,
Congress evinced a desire to (1) “relieve the financial burden
placed upon remaining contributors to a multiemployer fund
when one or more of them withdraws from the plan,” Artistic
Furniture, 920 F.2d at 1328; (2) “avoid creating a severe disin-
centive to new employers entering the plan,” House Commit-
tee on Ways and Means, Multiemployer Pension Plan Amend-
ments Act of 1980, H.R. Rep. No. 96-869, Part I, at 67, reprinted
in 1980 U.S. Code Cong. & Admin. News 2918, 2935 (herein-
after “House Report”); and (3) prevent the creation of funding
No. 14-1618 7
deficiencies, House Report, Part II, at 15, reprinted in 1980
U.S. Code Cong. & Admin. News 2993, 3004.
Imposing successor liability for unpaid multiemployer
pension fund contributions and withdrawal liability effectuates
these congressional policies and goals. See Tasemkin, 59 F.3d at
49; Artistic Furniture, 920 F.2d at 1329; Central States, Se. & Sw.
Areas Pension Fund v. Hayes, 789 F. Supp. 1430, 1435–1436 (N.D.
Ill. 1992) (relying on Artistic Furniture’s analysis in holding
successor liable for predecessor’s delinquent withdrawal
liability). However, although contribution liability and with-
drawal liability are animated by similar congressional motives,
there is an important distinction between the two that is
relevant to our analysis. While contribution costs are calculated
per the terms of an existing collective bargaining agreement to
which an employer is party, withdrawal liability cannot be
assessed until the plan sponsors have determined that the
employer has withdrawn under the statute. The MPPAA
provides that when an employer withdraws from a
multiemployer plan, the plan sponsor calculates the amount of
liability owed by the employer and, as soon as practicable,
notifies the employer of the amount due and demands pay-
ment. 29 U.S.C. § 1382. Consequently, unlike contribution
costs, “the withdrawing employer cannot determine, or pay,
the amount of its debt until the plan has calculated that
amount … .” Milwaukee Brewery Workers’ Pension Plan v. Joseph
Schlitz Brewing Co., 513 U.S. 414, 423 (1995).
Because the assessment of withdrawal liability is triggered
by an employer’s withdrawal from a multiemployer plan,
whether or not the precise amount of withdrawal liability is
8 No. 14-1618
ascertainable prior to the employer’s asset sale depends on
whether withdrawal occurs before or after the asset sale takes
place. The precise amount of withdrawal liability is not
ascertainable pre-acquisition if, as here, the employer is found
to have withdrawn after it has sold its assets. However, if the
employer withdraws from the plan before selling its assets (e.g.,
ceases operations due to bankruptcy) and the plan assesses
withdrawal liability in the interim period between the with-
drawal and subsequent asset sale, the precise amount of
withdrawal liability may be known prior to the asset sale. See,
e.g., McDougall, 494 F.3d at 571; Tasemkin, 59 F.3d at 48.
Consequently, were the successor liability notice requirement
to exclude notice of contingent liabilities in this narrow
context—as the district court held below, and as ManWeb
argues here—a liability loophole would exist: multiemployer
plan sponsors would be foreclosed in some situations (but not
others) from seeking withdrawal liability from asset purchasers
who would otherwise qualify as successors, and the plans
would be left “holding the bag,” Central States, Se. & Sw. Areas
Pension Fund v. Nitehawk Express, Inc., 223 F.3d 483, 487 (7th
Cir. 2000).
We do not believe that this result would further Congress’s
goal of ensuring that the responsibility for a withdrawing
employer’s share of unfunded vested pension benefits is not
shifted to remaining employers. See Central States, Se. & Sw.
Pension Fund v. Bomar Nat’l, Inc., 253 F.3d 1011, 1014 (7th Cir.
2001). Nor do we believe that notice of contingent withdrawal
liability is inconsistent with this court’s opinion in Artistic
Furniture, which, contrary to what ManWeb argues, did not
hold that successor liability arises only when the purported
No. 14-1618 9
successor “knows the precise extent” of the liability.1 Artistic
Furniture requires that we strike a balance between the need to
effectuate federal labor policies with “the social interest in
facilitating the market in [the transfer of] corporate and other
productive assets.” Artistic Furniture, 920 F.2d at 1325. Surely
it would be inequitable “to impose successor liability on an
innocent purchaser when … the successor did not have the
opportunity to protect itself by an indemnification clause in the
acquisition agreement or a lower purchase price.” Musikiwamba
v. ESSI, Inc., 760 F.2d 740, 750 (7th Cir. 1985). However, such
measures are still available in an asset sale where the buyer has
notice that the seller may be contingently liable for withdrawal
liability. For these reasons, we disagree with the district court
and hold that notice of contingent withdrawal liability satisfies
the successor liability notice requirement.
1
ManWeb cherry-picks this language, which originally appeared in this
court’s opinion in Vucitech, 842 F.2d at 945, twisting the court’s holding
and ignoring the context in which that language appears. In Vucitech, the
court noted that, where a successor “knows about its predecessor’s liability,
knows the precise extent of that liability, and knows that the predecessor
itself would not be able to pay a judgment against it, the presumption should
be in favor of successor liability.” Id. at 945 (emphasis added). However, the
court did not hold that the notice element requires the existence of a precise
debt. In fact, just the opposite, as Vucitech imposed successor liability on an
asset purchaser where a number of employment discrimination suits had
been filed against the predecessor prior to acquisition, but where the court
had not yet determined the precise extent of the liability stemming from
those suits. Id. at 946.
10 No. 14-1618
B. ManWeb Had Notice of Tiernan & Hoover’s With-
drawal Liability
Applying this rule to the present case, it is clear that
ManWeb had notice of Tiernan & Hoover’s contingent with-
drawal liability. “Notice can be proven not only by pointing to
the facts that conclusively demonstrate actual knowledge, but
also by presenting evidence that allows the fact finder to imply
knowledge from the circumstances.” Artistic Furniture, 920 F.2d
at 1329. Here, ManWeb’s notice of Tiernan & Hoover’s contin-
gent withdrawal liability can be both reasonably inferred and
directly proven by evidence in the record.
To begin with, prior to finalizing the purchase of Tiernan &
Hoover’s assets, ManWeb conducted pre-purchase negotia-
tions and performed the due diligence necessary to evaluate
the asset sale. Going into this process, ManWeb’s owners,
Charles Mandrell and Michael Webster, were aware that
Tiernan & Hoover was a union-affiliated employer. At the due
diligence stage, Webster testified that he conducted an analysis
of Tiernan & Hoover’s union-related obligations to make sure
that the company was current on their payroll and fees to
the union. He also discussed unfunded pension liabilities
with the President of Tiernan & Hoover, Mick Hoover, because
he “knew that the pension was short of money.” Mandrell,
who was also involved in the decision-making process related
to the asset purchase of Tiernan & Hoover, also had concerns
going into the purchase negotiations because he knew “the
risk associated with dealing with the unions.” Mandrell had
previously worked for a union contractor and testified that he
was “very aware” of the concept of withdrawal liability prior
to the asset sale; the asset sale was “not a transaction that
No. 14-1618 11
[he] specifically wanted to do” because he “under[stood] the
underfunded portion of the pension fund” and knew of the
associated risk of “potential liability.” Together, this demon-
strates that ManWeb’s key decision-makers were aware of
Tiernan & Hoover’s union obligations and shared concerns
related to unfunded pension plan liabilities.
Additionally, Tiernan & Hoover’s contingent withdrawal
liability was explicitly included in the APA, which was signed
by Webster on behalf of ManWeb, through reference to and
attachment of Tiernan & Hoover’s financial statements and
balance sheets for the years 2006 and 2007. These documents,
which were turned over to ManWeb as part of ManWeb’s pre-
purchase due diligence, expressly stated that Tiernan &
Hoover “contributes to various multi-employer, union-
sponsored pension plans” and that, as such, Tiernan & Hoover
was subject to certain liabilities imposed by ERISA and the
MPPAA, including “the share of the [P]lan’s unfunded vested
liabilities allocable to [Tiernan & Hoover] upon withdrawal from the
union or termination of the plan for which [Tiernan & Hoover]
may be contingently liable” (emphasis added). The APA also
included an “Excluded Liabilities” clause, which provided that
ManWeb was not obligated to assume and did not agree to
assume any liability or obligation “arising out of or related
to union related activities, including without limitation pen-
sion obligations,” or “under any Benefit Plan” (a term that is
defined later in the agreement to include each “Pension Plan
and Multiemployer Plan of Seller”). These sections of the APA,
coupled with Webster and Mandrell’s knowledge of unfunded
pension liabilities, establish that ManWeb had sufficient pre-
acquisition notice of Tiernan & Hoover’s contingent with-
12 No. 14-1618
drawal liability to satisfy the federal successor liability notice
requirement.
C. Imposing Successor Liability on ManWeb is Equit-
able
As we previously noted, “successor liability is an equitable
doctrine, not an inflexible command, and ‘in light of the
difficulty of the successorship question, the myriad factual
circumstances and legal contexts in which it can arise, and the
absence of congressional guidance as to its resolution, empha-
sis on the facts of each case as it arises is especially appropri-
ate.’” Tasemkin, 59 F.3d at 49 (quoting Howard Johnson Co., Inc.
v. Detroit Local Joint Exec. Bd., 417 U.S. 249, 256 (1974)). The
district court held that, even if notice of a contingent liability
satisfied the notice requirement for successor liability, impos-
ing such a liability on ManWeb would be inequitable. We
review the district court’s determination to grant equitable
remedies for abuse of discretion. E.E.O.C. v. Northern Star
Hospitality, Inc., 777 F.3d 898, 901 (7th Cir. 2015). However, as
always, an error of law is necessarily an abuse of discretion.
Estate of Enoch ex rel. Enoch v. Tienor, 570 F.3d 821, 822 (7th Cir.
2009).
First, a brief overview of the MPPAA’s mandates is
necessary. Under the MPPAA, “any dispute between an
employer and the plan sponsor of a multiemployer plan
concerning a determination made under sections 4201 through
4219 [29 U.S.C. §§ 1391–1399] shall be resolved through
arbitration.” 29 U.S.C. § 1401(a)(1). Failure to initiate arbitration
has a simple and adverse consequence—withdrawal is conclu-
sively established and the amount demanded by the pension
No. 14-1618 13
plan becomes due and owing. Id. at (b)(1); Robbins v. Admiral
Merchants Motor Freight, Inc., 846 F.2d 1054, 1056 (7th Cir. 1988).
“The result is harsh,” Robbins, 846 F.2d at 1057, but it effectu-
ates Congress’s intent to ensure the stability of pension funds.
The district court held—and the parties to this appeal do
not dispute—that Tiernan & Hoover, by failing to arbitrate the
assessment of its withdrawal liability, waived any merits-based
defense that may have been available. However, the court
concluded that if Tiernan & Hoover’s waiver was the only
basis upon which it was liable for withdrawal, the Plan would
have to establish that ManWeb had notice of the events that led
to Tiernan & Hoover’s waiver before the asset purchase. The
district court then determined that this would be impossible
(since Tiernan & Hoover was notified of its withdrawal liability
several months after the closing of the APA); consequently,
the court turned to an evaluation of Tiernan & Hoover’s
underlying withdrawal. Ultimately, the district court held that
Tiernan & Hoover did not effectuate a withdrawal under the
MPPAA and that, as a result, it would be inequitable to hold
ManWeb liable as a successor for Tiernan & Hoover’s with-
drawal liability.
We address the district court’s two determinations in turn.
First, the district court erred as a matter of law in concluding
that, because Tiernan & Hoover waived any merits-based
defense by failing to arbitrate, the Plan had to establish that
ManWeb had notice that Tiernan & Hoover failed to arbitrate.
This, quite simply, is not required by the successor liability
notice requirement and does not find support in the policies
underlying the imposition of successor liability in the context
of the MPPAA. See supra, Part II.A. The notice requirement is
14 No. 14-1618
animated by concerns that it is inequitable to impose successor
liability upon an innocent purchaser who did not have an
opportunity to protect itself by obtaining indemnification or
negotiating a lower purchase price. See Musikiwamba, 760 F.2d
at 750. Thus, the successor’s remedy for successor liability is
already in place.
Furthermore, while the district court was within its discre-
tion to evaluate whether, under the facts presented in this case,
it would be equitable to impose liability on ManWeb when its
predecessor waived arbitration, it abused this discretion by
ignoring the fact that ManWeb could and did protect itself
against liability. To begin with, ManWeb obtained indemnifica-
tion “from, against and in respect of any and all losses,
liabilities … and expenses whatsoever … that may be incurred
by [Tiernan & Hoover] from or by reason of … any inaccuracy
or representation or breach of warranty made by [Tiernan &
Hoover] in this Agreement … [and] the Excluded Liabilities.”
Further, ManWeb, having knowledge of Tiernan & Hoover’s
potential withdrawal liability, could have required Tiernan &
Hoover to obtain an estimate of their withdrawal liability, see
29 U.S.C. § 1021(l) (providing that employers have the right to
annually request an estimate of their potential withdrawal
liability), in order to negotiate a lower purchase price. Shield-
ing a successor employer from liability when the company had
knowledge of the potential liability and still had bargaining
power with regard to the transaction runs counter to the
policies underlying the doctrine of successor liability. See
Golden State, 414 U.S. at 185. See also Einhorn v. M.L. Ruberton
Const. Co., 632 F.3d 89, 96 (9th Cir. 2011) (“The requirement of
notice and the ability of the successor to shield itself during
No. 14-1618 15
negotiations temper concerns that imposing successor liability
might discourage corporate transactions.”). Accordingly, the
district court abused its discretion in this respect.
Finally we turn to the district court’s analysis of Tiernan &
Hoover’s underlying liability. The Plan argues that the ques-
tion of whether or not Tiernan & Hoover withdrew under the
statute was a question reserved for the arbitrator and, since
Tiernan & Hoover’s withdrawal was conclusively established
once it waived arbitration, the merits of this determination
were removed from the district court’s purview and should
not have been reviewed. We agree. The statute is clear: “any
dispute over withdrawal liability shall be arbitrated.” Robbins,
846 F.2d at 1056 (quoting I.A.M. Nat’l Pension Fund v. Clinton
Engines Corp., 825 F.2d 415, 417 (D.C. Cir. 1987)). Arbitration is
treated as an administrative remedy exhaustion requirement
and courts interpreting § 1401(a)(1) have been consistent in
their conclusion that “‘[a]rbitrate first’ is indeed a rule Con-
gress stated unequivocally.” Robbins, 846 F.2d at 1056. The
result may be harsh, but “the statute embodies a strong public
policy that any dispute [over withdrawal liability] be submit-
ted to arbitration.” Chicago Truck Drivers, Helpers & Warehouse
Workers Union (Indep.) Pension Fund v. Louis Zahn Drug Co., 890
F.2d 1405, 1410 (7th Cir. 1989). In short, “[a]rbitration reigns
supreme under the MPPAA,” Clinton Engines, 825 F.2d at 422,
thus the district court’s substantive review of Tiernan &
Hoover’s underlying withdrawal liability constitutes an error
of law, and by definition, an abuse of discretion.
16 No. 14-1618
III. CONCLUSION
For the aforementioned reasons, the district court’s grant of
judgment as a matter of law to ManWeb and denial of sum-
mary judgment to the Plan is reversed. Since the district court
did not address the successor liability continuity requirement,
this case is remanded to the district court for further proceed-
ings consistent with this opinion.