Seventh Circ. EEOC v Vucitech & Successor Liability

As a standard rule, an asset purchaser does not suppose the seller’s liabilities, together with its ERISA obligations. Courts, nevertheless, have formulated an exception to this basic rule by using the doctrine of successor liability.  Successor legal responsibility is an equitable doctrine requiring a courtroom to “strike a correct balance among on the 1 hand avoiding wrongdoers from escaping liability and on the other hand facilitating the transfer of company property to their most worthwhile works by using. EEOC v. Vucitech, 842 F.2d 936, 944-45 (7th Cir. 1988).

The doctrine was to start with applied to labor legislation obligations, and then to employment law statements.  Eventually, its get to was expanded to ERISA obligations, in the sort of employer withdrawal liability and contribution delinquencies.  Successor legal responsibility delivers multiemployer money with a opportunity 2nd assortment focus on, specifically a successor, delivered that particular continuity and notice necessities are happy.  Indeed, as the Seventh Circuit has mentioned, “a 2nd probability is exactly the issue of successor legal responsibility.” Chicago Truck Motorists, Helpers and Warehouse Staff Union Pension Fund v. Tasemkin, Inc., 59 F.3d 48, 51 (7th Cir. 1995). Several resources have used this to their benefit by aggressively (usually successfully) pursuing statements from putative successors.

On the other hand, this federal typical law doctrine is not an unbiased bring about of action, as illustrated in E. Cent. Illinois Pipe Trades Overall health & Welfare Fund v. Prather Plumbing & Heating, Inc.,  No. 20-2525, 2021 U.S. Application. LEXIS 20083 (7th Cir. July 7, 2021) (“Prather Plumbing”), which included father-son plumbing organizations. The father’s business was unionized, and owed two multiemployer resources almost $300,000, collectively. Following functioning for his father’s plumbing organization, the son then started out his have plumbing small business utilizing around $25,000 well worth of gear purchased from his father’s firm. The son’s enterprise also hired some of his father’s former workers and serviced some of his father’s former clients. Not amazingly, when the father’s business enterprise closed at the identical time as his son’s was getting shaped, the cash sought to gather from the son’s firm on a principle of successor liability.

The district courtroom granted summary judgment for the defendant on equitable grounds, reasoning that a $25,000 acquisition primary to a $300,000 liability would have been patently unfair. The appellate court docket, even so, vacated and remanded, on jurisdictional grounds. The Seventh Circuit uncovered that a assert for successor legal responsibility, a federal typical law doctrine, was not a lead to of action arising underneath federal regulation.  As a result,  it was inadequate to set up federal problem jurisdiction within the this means of 28 U.S.C. § 1331.

The Seventh Circuit reiterated that federal courts are courts of limited jurisdiction they can “exercise judicial ability only more than people categories of Situations and Controversies authorized in the Structure and by Congress.” Congress has applied this jurisdictional authority by way of the federal question jurisdiction statute: 28 U.S.C. § 1331. This provision confers jurisdiction in excess of federal queries: the “district courts shall have unique jurisdiction of all civil actions arising below the Constitution, regulations, or treaties of the United States.”

In Prather Plumbing, the cash argued that their successor legal responsibility assert by definition arose less than federal legislation. Right after all, a claim arising under federal common law “necessarily provides a federal concern.” The Seventh Circuit, even so, disagreed.

The Court noticed that absent instances not present, “a scenario arises below federal regulation when federal law produces the bring about of motion asserted.” Prather Plumbing, 2021 U.S. Application. LEXIS 20083, at *8-*9 (quoting Gunn v. Minton, 568 U.S. 251, 257 (2013)). In the absence of such a federal result in of motion, § 1331 is not happy and the courtroom lacks jurisdiction.

Applying these ideas, the Court held that the successor liability claim was not a federal induce of action. Id. at *15-*16 (relying on Peacock v. Thomas, 516 U.S. 349 (1996) (motion to pierce company veil and gather from company officer for ERISA judgment in opposition to defunct company was not a induce of motion below ERISA or any other federal statute)). Accordingly, without any federal statutory correct of motion for successor liability (underneath ERISA or in any other case), the assert did not arise below federal legislation and the Court docket, for that reason, lacked subject subject jurisdiction.

Prather Plumbing demonstrates the procedural and jurisdictional complexities that occur in satisfies asserting successor liability statements. The circumstance also highlights the challenges connected with multiemployer funds desperate to connect the dots concerning union employers, their successors, and non-union employers, as nicely as the relevance of consumers thoroughly thinking about the reach of these resources in M&A transactions.


Jackson Lewis P.C. © 2021
Nationwide Legislation Assessment, Quantity XI, Range 211