United States: Buyers Beware: Sixth Circuit Holds That Asset Purchaser Can Be Sued For Predecessor's Unpaid Pension Liability

Last Updated: November 1 2018
Article by Jordan Schreier

In a typical asset sale transaction, the purchaser takes great care to disclaim any responsibility for the seller's business debts. When the seller is a sponsor of a defined benefit pension plan, this typically includes a disclaimer for any pension liability (e.g., unpaid plan contributions, PBGC premiums, and liability upon plan termination). The purchaser will refuse to assume the plan and will expressly list pension liability as an "excluded liability" in the sales agreement. Normally, the exclusion of pension liability is effective in protecting the purchaser.

Common Law Successor Liability

Over the past few decades, federal courts, particularly in the 7th and 9th Circuits, have established a common law "successor liability" exception which has allowed multiemployer pension plans to successfully sue asset purchasers to collect unpaid multiemployer withdrawal liability arising from the sellers' multiemployer pension plan participation, if the purchasers were successor to the sellers' business. To be a successor, there had to be substantial continuity between the purchaser and the seller and the purchaser had to have had notice of the seller's withdrawal liability. Until recently, this successor liability concept had not been formally applied in the single employer pension plan context.

The Findlay Industries Case

On September 4, 2018, in Pension Benefit Guaranty Corp. v. Findlay Industries, Inc., et al., the 6th Circuit Court of Appeals (covering Michigan, Ohio, Kentucky and Tennessee) expanded the multiemployer successor liability concept to a single employer pension plan, holding that a successor liability theory could be applied to determine whether the transferees of a single employer pension plan sponsor's assets should be liable for the sponsor's underfunded pension plan liability.

Findlay Industries was an automotive supplier that went out of business in 2009 with an underfunded pension plan. Michael Findlay, the son of Findlay's founder, formed a company which purchased all of Findlay's equipment, inventory and receivables and assumed some of Findlay's debt. He eventually transferred the acquired assets to two other companies owned in part by him. The court noted that that Michael Findlay was very involved in the sale and transfer of assets, had been Findlay's CEO and a director, owned a portion of Findlay's stock and participated in considering a separate offer to sell Findlay to a third party. The court noted that Michael's new companies operated two of Findlay's former plants, employed many former Findlay employees, and served Findlay's largest customer.

Michael's companies' acquisition of Findlay's assets excluded Findlay's underfunded pension plan. The PBGC ultimately took over the plan. The plan had termination liability of approximately $30 million which Findlay was unable to pay. The PBGC sued Michael's companies alleging that they had successor liability for Findlay's pension obligations under federal common law because they substantially continued Findlay's operations and had notice of its pension plan liabilities.

The 6th Circuit held that Michael's companies could be sued for successor liability under federal common law. The court said that allowing a successor liability claim promotes one of ERISA's fundamental policies of enforcing employers' promises to their employees and guarantees that substance matters over form. The court noted that Findlay failed to keep its pension promises to its employees, and instead of using its assets to meet these obligations, it sold the assets to its CEO, leaving the PBGC to pay millions of dollars in pension liabilities, allowing Michael's companies to profit using Findlay's former assets. The court said that permitting Michael's companies to avoid successor liability claims would encourage other companies to use creative financial transactions to evade their pension obligations.

In response to the concern that allowing a successor liability claim to proceed would impair the ability of failing businesses to reorganize, the 6th Circuit emphasized that finding a successor liability theory could be applied in this case did not mean that successor liability would apply in every case. The court said that "[A]ll that we decide today is that when there is a sale that is not conducted at arm's length, successor liability can apply."


It has been clear for some time that an asset purchaser can be liable for its predecessor's multiemployer pension plan withdrawal liability under a successor liability theory, at least in some federal circuits. Now, for the first time, a federal circuit court has allowed the successor liability theory to apply to in the single employer pension plan context. Parties involved in asset purchase transactions in situations where the seller has maintained its own pension plan will need to pay close attention to the status of the seller's pension liabilities. Although the court said it was limiting its decision to sales that were not arm's length, it is not difficult to imagine asset purchaser pension successor liability claims expanding over time into a broader category of transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Jordan Schreier
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