Regarding multiemployer pension plans, the U.S. Court of Appeals for the Seventh Circuit has long held that a purchaser can incur withdrawal liability in an asset transaction because of the federal successor liability doctrine. (See Chicago Truck Drivers, Helpers & Warehouse Workers Union (Indep.) Pension Fund v. Tameskin, Inc., 59 F.3rd 48 (7th Cir. 1995) and Upholsterers’ Int’l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323 (7th Cir. 1990).) In general, where one company sells its assets to another company, the purchaser is not liable for the debts and liabilities of the seller. However, under the successor liability doctrine, a purchaser can be liable for the seller’s withdrawal liability to a multiemployer pension plan if the plan can show that (1) the purchaser had notice of the claim for withdrawal liability before the acquisition and (2) there is substantial continuity in the operation of the business before and after the sale.
Recently, the Seventh Circuit addressed the notice requirement of the federal successor liability doctrine where withdrawal from a multiemployer pension plan occurred after a sale of assets. In Tsareff v. ManWeb Services, Inc., 794 F.3d 841 (7th Cir. 2015), the purchaser argued that the successor liability doctrine did not apply because it could not know the amount of withdrawal liability before the acquisition. The plan countered that the purchaser knew before the acquisition that the seller could be contingently liable for withdrawal liability.
In Tsareff, the Seventh Circuit noted that in an asset sale, the amount of withdrawal liability won’t be known before the acquisition. The court stated that notice of a contingent liability is sufficient to satisfy the notice requirement under the successor liability doctrine, even if the amount of liability was unknown before the acquisition. Otherwise, a successor employer could avoid liability simply because the multiemployer pension plan hadn’t calculated the precise amount of the withdrawal liability before the acquisition.
In Tsareff, as in most acquisitions, the purchaser examined the seller’s liabilities prior to the acquisition. The record was clear that the purchaser knew that the seller had a contingent withdrawal liability to the multiemployer pension plan. The Seventh Circuit held that notice of a potential or contingent liability was sufficient notice under the federal successor liability doctrine. The case was remanded for consideration of the continuity requirement, which is the second part of the successor liability doctrine.
At least in the Seventh Circuit, if a prospective purchaser has notice that the seller may have potential or contingent liability upon withdrawal from a multiemployer pension plan, and if there is continuity of business operations after the sale, the purchaser may be liable for the seller’s unpaid withdrawal liability. A prospective purchaser in the jurisdiction of the Seventh Circuit should try to estimate the seller’s potential withdrawal liability from any multiemployer pension plans, in order to seek a purchase price reduction and/or an indemnity from the seller for this liability.