Mealey's (June 28, 2016, 1:50 PM EDT) -- CHICAGO — A Seventh Circuit U.S. Court of Appeals panel on June 24 remanded for trial a case in which an auto mechanics’ pension board claims that Full Circle Group Inc. (FCG) has withdrawal liability for fund contributions as a successor to an insolvent company (Board of Trustees of the Automobile Mechanics’ Local No. 701 Union and Industry Pension Fund v. Full Circle Group Inc., et al., No. 15-2497, 7th Cir.; 2016 U.S. App. LEXIS 11600).
(Opinion available. Document #54-160713-042Z.)
The panel reversed in part U.S. Judge Charles P. Kocoras of the Northern District of Illinois’ grant of summary judgment to FCG and its subsidiaries, finding that evidence suggests that FCG’s president knew about the pension fund and the possibility of withdrawal liability and that summary judgment on a theory of successor liability was “premature.”
The Board of Trustees of the Automobile Mechanics’ Local No. 701 Union and Industry Pension Fund, a multiemployer defined benefit pension plan sponsored by Mechanics’ Local Union No. 701, sued FCG and its subsidiaries, Full Circle Repair LLC, Full Circle Development LLC, Watts Chemical LLC and Full Circle Shipyard LLC, seeking to impose withdrawal liability on them.
MPPAA
The Multiemployer Pension Plan Amendments Act of 1980 amended the Employee Retirement Income Security Act by imposing liability on employers who withdraw, partially or completely, from participation in an underfunded multiemployer pension fund, reducing the fund’s already diminished resource for paying the pensions to which employees of the fund’s members are contractually entitled.
The pension board’s appeal is from Judge Kocoras’ grant of summary judgment in favor of FCG and the resulting entry of a final judgment in its favor.
FCG bought the assets of a shipping and shipyard services company, Hannah Maritime Corp. (HMC), 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 Hannah 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.
HMC Insolvency
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. In the meantime, HMC had become insolvent, which prompted the instant suit in which the fund seeks to impose HMC’s liability to the fund on FCG as HMC’s successor.
Judge Kocoras 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 FCC’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.
Judge Kocoras granted summary judgment in favor of FCG for two reasons. The first was lack of evidence that FCG President Mark Hannah knew about the pension fund and the possibility of withdrawal liability before signing the asset acquisition agreement. The second was that even if Mark Hannah did know about the pension contributions when he signed the agreement, he may not have known about the withdrawal liability — it would not be assessed until after HMC ceased operations.
Evidence Of Notice
“Mark Hannah may never have heard of withdrawal liability or known that the union pension fund was underfunded (implying that the employer and any successor to the employer had withdrawal liability), but knowing that he was dealing with a union pension fund he was on notice that there was a possibility of such liability,” the appeals panel said in an opinion written by Circuit Judge Richard Posner. “A lack of familiarity with the concept of withdrawal liability cannot be an excuse; he had lawyers to advise him on FCG’s legal obligations.
“Further evidence of notice is the fact known if not to him then (again) to his advisers that most union pension funds are underfunded: 81 percent in 2005 and that year 39 percent hadn’t even had 80 percent of the funds they would have needed in order to be able to pay the benefits they were required to pay. . . . So defined-benefit plans are common in unionized firms and there is a high probability of such a plan’s being underfunded.”
Judge Posner wrote that enough evidence was presented of continuity of business between HMC and FCG to preclude summary judgment in favor of FCG on grounds of discontinuity and enough notice that FCG (Mark Hannah) had notice of HMC’s pension fund liability to preclude summary judgment on the ground that FCG lacked notice of possible successor liability.
Judge Kocoras also granted summary judgment in favor of FCG with regard to a second claim made by the pension fund, that of alter-ego liability. If FCG is the same company as HMC and thus by definition its alter ego, then HMC’s withdrawal liability is FCG’s liability, Judge Posner wrote.
Fraudulent Intent
“But we have held that fraudulent intent is required for alter ego liability, Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 85 F.3d 1282k, 1287-88 (7th Cir. 1996), and it has not been shown in this case,” Judge Posner wrote. “The pension fund notes cases in other circuits which suggest that fraudulent intent, while a factor in deciding whether there is alter ego liability, is not necessarily an essential factor.
“But in his case at least, if fraudulent intent is subtracted as a factor all that is left are factors that establish successor liability. And as to those factors the district court’s grant of judgment in favor of FCG was premature. The case must therefore be returned to the district court for a trial.”
Senior Circuit Judge William Joseph Bauer and Circuit Judge Ann Claire Williams concurred.
Local No. 701 pension fund is represented by Jeffrey A. Krol, Dennis R. Johnson and Joseph E. Mallon of Johnson & Krol in Chicago. Full Circle is represented by David Andrew Moore of Laner Muchin Ltd. in Chicago.
(Additional documents available: Appellant brief. Document #54-160713-043B. Appellee brief. Document #54-160713-044B.)...