Sixth Circuit extends pension liability to asset purchaser’s family trust


abandoned factory

The Sixth U.S. Circuit Court of Appeals (Ohio, Kentucky, Tennessee and Michigan) recently expanded successor liability for an underfunded pension plan to an asset purchaser holding common control over assets purchased from the plan sponsor. Asset purchasers do not traditionally assume a target’s pension plan liability. Indeed, most seek to actively avoid such liability through use of an asset purchase transaction rather than a stock sale. Regardless, the Sixth Circuit found reason to break from that norm under common law successor liability based on the close relationship of a target’s assets and their purchaser.1

This decision provides valuable analysis of the court’s interpretation of a “trade or business” to which common law federal successor liability may apply for the protection of employees under the Employee Retirement Income Security Act (ERISA).


Findlay Industries went out of business in 2009, leaving a deeply underfunded pension plan. The Pension Benefit Guaranty Corporation (PBGC) endeavored to locate assets to satisfy the pension obligations, namely a 1986 trust created by the founder plus assets purchased from the company in 2009 by the founder’s son. The trust held two pieces of property in favor of the founder’s children, who eventually owned and ran a majority of Findlay Industries. The trust leased the properties back to Findlay Industries, allowing the company to enjoy unrestricted and exclusive use of them. After Findlay Industries closed, its equipment, inventory and receivables for two plants were purchased by F.I. Asset Acquisition LLC, a company in which Michael Gardner was a significant member. Michael Gardner, a child of the founder and CEO of Findlay Industries, proceeded to transfer the assets to several other recently formed companies that he owned entirely. Gardner’s companies hired former Findlay Industries employees to work at two former Findlay sites, making the same products and selling them to Findlay’s customers.

Arguments & Decision

The PBGC alleged that Gardner’s corporate restructuring shed over $18 million of pension liabilities (now, upwards of $30 million with interest and penalties), while his new businesses recognized $11.9 million in net income over several years. However, rather than argue the case purely as a corporate reorganization blunder under ERISA, PBGC asked the court to rely on federal common law successor liability to hold Gardner and his companies liable for the pension liability.

Common law successor liability promotes taking substance over form. The court was persuaded by Gardner’s knowledge of Findlay’s value and liabilities as its CEO, board member and 45-percent shareholder but attempted only to take on the valuable assets and operations. The lack of an arm’s length transaction was sufficient for the court to apply successor liability in this case.


Businesses should always be aware of the net position of a transaction target’s pension plans and enter only arm’s length transactions to avoid liabilities for those plans. Corporate restructuring is not a viable method of shedding pension liabilities. Entities under common control with the sponsor of an underfunded pension plan should take note. Arm’s length asset purchases remain a safer transaction to avoid a target’s pension liabilities, but the PBGC and the courts will dig into the facts to ensure ERISA’s employee protections and controlled group liability hold fast.

Another case to watch

In Members of Bd. Of Admin. Of Toledo Area Indus. UAW Ret. Income Plan v. OBZ, Inc.,2 the District Court for the Northern District of Ohio ruled on a Motion for Summary Judgment that an asset purchaser (Lockrey) and its insolvent seller are liable for $644,311 in retirement plan withdrawal liability after Toledo Wire sold its assets to Lockrey Manufacturing. Toledo Wire never overtly disclosed the pension liability to Lockrey’s principals; however, the due diligence documents, such as the collective bargaining agreement and plant closure agreement, were sufficient constructive notice for Lockrey’s assumption of the pension withdrawal liability. The court analyzed Lockrey’s continuing employment of Toledo Wire employees and solicitation of Toledo Wire’s customers with 90 percent continuity. The court acknowledged that common law instructs that a successor corporation is not liable for debts unless expressly assumed, particularly in asset-only purchase agreements. But, the court notes, such theories are not absolute when equitable doctrines under ERISA and the Multiemployer Pension Protection Amendments Act of 1980 warrant liberal construction in favor of plan and employee protections. Where the asset purchaser had constructive notice of the liability prior to the sale and there is sufficient continuity of operations, successor-liability is assumed by the purchaser in this district. The court also found that the seller’s personal use of $97,000 of assets was recoverable by the plan.

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