On January 27, 2022, the U.S. Court of Appeals for the Second Circuit issued an opinion in New York State Teamsters Conference Pension and Retirement Fund, et al. v. C&S Wholesale Grocers, Inc. holding that the theory of successor liability can be applied to collect withdrawal liability from employers under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In doing so, the Second Circuit joined the Courts of Appeals for the Third, Seventh and Ninth Circuits that have also concluded that successor liability can be applied to withdrawal liability under ERISA.
Background
At issue in the case was a dispute between C&S Wholesale Grocers, Inc. (“C&S”) and the New York State Teamsters Conference Pension and Retirement Fund (“Fund”) regarding withdrawal liability owed as a result of Penn Traffic Company’s withdrawal from the Fund. Penn Traffic employed members of Teamsters Local 317 at its Syracuse warehouse and, pursuant to its collective bargaining agreement with the union, was required to make contributions to the Fund. In 2008, C&S purchased certain portions of Penn Traffic’s business, but it did not purchase the Syracuse warehouse or employ Penn Traffic employees that were members of the Teamsters Local 317.
Penn Traffic subsequently declared Chapter 11 bankruptcy and closed the Syracuse warehouse, triggering a complete withdrawal from the Fund and the Fund assessed withdrawal liability against Penn Traffic in the amount of $63.6 million. The Fund filed a claim for the withdrawal liability in Penn Traffic’s bankruptcy proceeding but was able to recover only $5 million. The Fund then pursued C&S for the remaining $58 million in withdrawal liability on four theories of liability, including the doctrine of successor liability.
The district court dismissed the Fund’s claims on three of the four theories of liability, leaving the Fund’s claim of successor liability as the only viable claim. The court ultimately granted C&S’s motion for summary judgment finding that C&S was not responsible for Penn Traffic’s withdrawal liability under the theory of successor liability based on the facts of the case. The Fund appealed the district court’s ruling on the successor liability claim, as well as the dismissal of its other theories of liability, to the U.S. Court of Appeals for the Second Circuit.
Successor Liability
Generally, the law provides that a company that purchases the assets of another company does not assume the seller’s liabilities. However, the U.S. Supreme Court has recognized that a successor company may be deemed to have assumed the liabilities of its predecessor company, if (1) the successor had notice of its predecessor’s liability, and (2) there is substantial continuity of identity in the business enterprise.
Prior to its decision in C&S Wholesale, the Second Circuit had only recognized the application of the successor liability theory in delinquent contributions cases and had not addressed whether successor liability can be applied in the context of withdrawal liability. However, when directly presented with the question in C&S Wholesale, the Second Circuit firmly held that “the theory of successor liability is applicable to withdrawal liability under ERISA.”
C&S argued that successor liability should not be applied to collect withdrawal liability because it would amount to prohibited federal common lawmaking. The Second Circuit disagreed and pointed out that the theory of successor liability exists in labor law in the context of collective bargaining under the National Labor Relations Act; accordingly, the doctrine can be extended to pursue the payment of withdrawal liability under ERISA, which also carries out the goals of federal labor policy.
Although the Fund prevailed on its argument that the theory of successor liability should be applied to claims for withdrawal liability, it ultimately lost the case on the facts because it was not able to prove that C&S was a successor to Penn Traffic. In this regard, the Second Circuit upheld the district court’s finding that there was not a “substantial continuity of identity” in the business operations of Penn Traffic and C&S. The Second Circuit found it very persuasive that C&S did not purchase the Syracuse warehouse as part of its 2008 transaction or employ any of the employees there who were members of the Teamsters Local 317.
Conclusion
Although the Fund ultimately did not prevail in its attempt to hold C&S responsible for Penn Traffic’s withdrawal liability, the Second Circuit’s holding on the applicability of successor liability to withdrawal liability claims under ERISA makes it clear that the doctrine is available to plans seeking to collect withdrawal liability from successor employers in the Second Circuit. Whether a claim for successor liability will ultimately result in a favorable judgment for a plan depends on the specific facts and circumstances of each case.
We continue to monitor withdrawal liability cases as the law in this area develops. Please contact Slevin & Hart for more information about this case and how it could affect your plan’s ability to collect withdrawal liability.
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