Firm Incurs No Withdrawal Liability For Bona-Fide Sale Of Business
CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. GEORGIA-PACIFIC (March 29, 2011)
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In the early 1990s, Georgia-Pacific contributed to the multiemployer Central States, Southeast and Southwest Areas Pension Fund on behalf of employees in three different divisions. In 1994 and 1995, it laid off workers in its wood-pulp division and stopped its contributions for that division. In 1997, the company laid off workers in its building division and ceased those contributions. Then, in 2004, the company sold its building-products division. The new owner began contributing to the Fund and posted a bond. The Fund claims that Georgia-Pacific owes approximately $5 million in withdrawal liability. Georgia-Pacific, on the other hand, asserts that it has no liability under ERISA § 1384 because it ceased operations "solely because" of an arms-length sale of assets to an unrelated party. The parties proceeded to arbitration, as required by the statute. The arbitrator ruled in Georgia-Pacific's favor. Judge Pallmeyer (N.D. Ill.) enforced the arbitrator's award. The Fund appeals.
In their opinion, Chief Judge Easterbrook and Judges Flaum and Ripple affirmed. The Court noted that withdrawal payments are necessary to ensure the continued viability of underfunded multiemployer plans. The purpose of § 1384 is to prevent a windfall to a plan. But what does "solely because" mean? The Court found no appellate court jurisprudence on that question. The Fund argued that the arms-length sale was not the sole cause for Georgia-Pacific no longer contributing to the Fund. It cited the earlier layoffs as additional contributors. The Court identified and elaborated on the problems created by the Fund’s approach and concluded that the proper statutory construction requires consideration only of the transaction at issue. If no withdrawal liability would have accrued to the seller had there been no sale, then no withdrawal liability should accrue to the seller when the sale does go through. The Court recognized an exception to this general rule if an employer manipulates its business planning to avoid withdrawal liability. Here, the arbitrator was asked to consider whether the three stages of Georgia-Pacific's fund withdrawal should be considered as one. The arbitrator concluded that each stage was independent. The Court found that factual conclusion adequately supported by the evidence.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select