Successor Liability For Benefit Plan Contributions In Asset Purchases - - Two January 2011 Court Cases


As the economy slowly improves and we see more merger and acquisition activity, those involved in such transactions should be aware of recent shifts in the traditional common law rule of successor liability. There once was a time when the buyer of a seller’s assets (not stock) could choose not to assume the seller’s ERISA plans and safely exclude liability for contributions and benefits under such plans in the purchase agreement. However, courts have begun to carve exceptions to the rule that liabilities are not transferred in an asset sale unless the buyer is merely a continuation of the seller. The common law rule has been expanded based on a series of federal cases that imposed successor liability when necessary to protect important employment-related policies (beginning with the U.S. Supreme Court’s ruling in Golden State Bottling Co. v. NLRB, 414 U.S. 168). As discussed below, two recent cases in the 3rd and 7th Circuits illustrate application of this expanded rule, but come to different conclusions due to the facts presented.

Einhorn v. M.L. Ruberton Construction Co. (3rd Circuit, 1/21/11)

This case involved a multiemployer defined benefit plan and a multiemployer health and welfare plan (the “plans’). The Third Circuit followed a 1990 7th Circuit case that found a purchaser of assets could be held liable under ERISA for the seller’s delinquent contributions to a multiemployer fund provided that (i) there is sufficient evidence of continuity of operations and (ii) the purchaser had knowledge of the liability of the seller (Upholsterers’ International Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2nd 1323).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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