FEINBERG v. RM ACQUISITION (January 6, 2011)

Henry Feinberg used to be a senior executive at Rand McNally & Company. He participated in its unfunded, supplemental, deferred compensation plan. The company itself was the plan administrator. Rand McNally went through a bankruptcy and, several years later, sold all of its assets to RM Acquisition. The sales documents provided that RM was not acquiring the liabilities associated with the deferred compensation plan. Feinberg and others brought a suit under ERISA against the plan, Rand McNally, and RM. It later dismissed the plan and Rand McNally since neither had any assets. Judge Andersen (N.D. Ill) dismissed the complaint against RM for failure to state a claim. Feinberg appeals.

In their opinion, Judges Posner, Flaum, and Sykes affirmed. The Court noted the general rule that one can purchase the assets of a company without also purchasing its liabilities. Here, RM did just that. It specifically provided that it was not assuming the liabilities associated with the deferred compensation plan. But there is an exception to that rule regarding the successor liability of RM. If the claim arises from an alleged violation of federal rights and two conditions are met, the successor to the business may be liable. The two conditions are a) that the successor have notice of the claim before the acquisition, and b) there is substantial continuity in the business operations. However, Fienberg has made no showing of "substantial continuity" so his ERISA § 502 claim must fail. The Court noted that Fienberg could possibly have a claim against the company's shareholders if they received, as a distribution, the consideration the company received in exchange for its assets. The Court also rejected Fienberg's argument that he had a claim under § 510. That section makes it unlawful to "discharge, fined, suspended, expelled, discipline, or discriminate" against a plan beneficiary for exercising a right under the plan. Although the Court rejected the notion that the section applies only to employer/employee relationships, it nevertheless concluded that RM was not interfering with any participant's rights in the plan.