Under the Employee Retirement Income Security Act of 1974 (ERISA), members of a control group of entities are jointly and severally liable for certain liabilities related to underfunded defined benefit plans. This liability arises under ERISA and goes far beyond general principles extending liability based on theories of “alter ego” or “piercing the corporate veil.” How these rules apply to entities that are located outside of the United States has not been well settled.
There is nothing in the control group rules of ERISA that would explicitly exclude a foreign entity from being a member of the control group. Several times in the past, the Pension Benefit Guaranty Corporation (PBGC) has tried to proceed against a foreign entity in a U.S. court, but the actions were dismissed because the courts found that they did not have jurisdiction over the foreign entity.
Asahi Tec Corporation, a Japanese corporation, had acquired Metaldyne Corporation in 2007. The PBGC alleged that as part of Asahi’s due diligence in the acquisition, Asahi learned about the underfunding in Metaldyne’s defined benefit plan and about Asahi’s potential liability as a member of the control group.
The U.S. District Court for the District of Columbia found that Asahi was subject to specific jurisdiction within the United States because of the act by which it acquired Metaldyne knowing of the pension liability. The district court did not find that it had jurisdiction over Asahi because of any actions with respect to the operation or termination of the pension plan. Rather, it focused solely on and found jurisdiction arising from Asahi’s knowing acquisition of a U.S. corporation and the potential liability it had brought along with it.
While this victory for the PBGC is procedural in nature, it is important in that Asahi may ultimately be found jointly and severally liable for the liability merely because of its ownership of Metaldyne.
It should be noted that the PBGC has, at times, tried to proceed in foreign jurisdictions to assert liability. As of this time, none of those actions have gone as far as a determination by a foreign court of the rights and powers of the PBGC outside of the United States.
Given the huge liabilities being faced by the PBGC with respect to underfunded defined benefit plans, we can expect the PBGC to continue to take actions with respect to foreign entities and to pursue liability under control group theory. (Pension Benefit Guaranty Corporation v. Asahi Tec Corp., D.D.C., 2012)