Upholsterers' Intern. Union Pension Fund v. Artistic Furniture of Pontiac

• Decision Date: 11 December 1990
• Docket Number: No. 89-3058,89-3058
• Citation: 920 F.2d 1323
• Parties: , 117 Lab.Cas. P 10,452, 13 Employee Benefits Ca 1138 UPHOLSTERERS' INTERNATIONAL UNION PENSION FUND, Plaintiff-Appellant, v. ARTISTIC FURNITURE OF PONTIAC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1323

920 F.2d 1323

59 USLW 2400, 117 Lab.Cas. P 10,452,

13 Employee Benefits Ca 1138

UPHOLSTERERS' INTERNATIONAL UNION PENSION FUND, Plaintiff-Appellant, v. ARTISTIC FURNITURE OF PONTIAC, Defendant-Appellee.

No. 89-3058.

United States Court of Appeals Seventh Circuit.

Argued Sept. 28, 1990.

Decided Dec. 11, 1990.

Karen I. Engelhardt, Jacobs, Burns, Sugarman & Orlove, Chicago, Ill., M. Eugene Wright, Wright & Wright, Danville, Ill., for plaintiff-appellant.

Edward A. Berman, Antonette C. Hue-Laitsch, Chicago, Ill., William L. Townsley, Sebat, Swanson, Banks, Garman & Townsley, Danville, Ill., for defendant-appellee.

Before POSNER and FLAUM, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

FLAUM, Circuit Judge.

The trustees of the Upholsterer's International Union pension fund brought suit against Artistic Furniture of Pontiac in district court, alleging that the company was liable for its predecessor Pontiac Furniture's delinquent pension fund contributions. The district court granted summary judgment in favor of Artistic Furniture and denied the trustees' motion for summary judgment. We reverse in part and affirm in part.

I.

From 1980 to 1985, Pontiac Furniture Inc. ("Pontiac") manufactured upholstered chairs and recliners at a plant in Pontiac, Illinois. Pontiac's employees were members of the Upholsterer's International Union. Under Pontiac's collective bargaining agreement with the union local, the company was obligated to make fixed contributions on behalf of its workers to the union's multiemployer pension fund ("Fund").

Pontiac began experiencing financial difficulties in the early 1980s. By 1984, the company's situation had deteriorated to the point where one of its creditors, James Talcott, who held a security interest in Pontiac's inventory, equipment, machinery, and furniture, exercised his right to review and veto its proposed payments to other more junior creditors. The Fund was among those not paid by Pontiac from March, 1984 to August, 1985.

On August 28, 1985, Talcott foreclosed on his loan to Pontiac and sold the company's assets to Artistic Furniture ("Artistic"). Artistic's stock was owned by four individuals--Steve Connor, Joe Townsley, Ronald Roesink, and Earl Kessler--none of whom had any previous ownership interest in Pontiac. Artistic's officers and directors were different than those of Pontiac, with the exception of Larry Bork, Pontiac's Vice President of Finance, who stayed on to hold the same position with Artistic, and occupied a seat on Artistic's Board of Directors.

During the weeks before the foreclosure and subsequent sale, Artistic's management negotiated a new collective bargaining agreement with Pontiac's bargaining unit employees in anticipation of taking over Pontiac's operation. The agreement reached was similar to the agreement in effect between the union and Pontiac, and was designed to ensure a smooth transition between the two companies. Substantially all employees formerly employed by Pontiac were retained by Artistic and their seniority was honored. Artistic did not, however, represent to the union or to Talcott that it would assume liability for Pontiac's pension fund contribution shortfall.

On February 11, 1986, the Fund sued Pontiac in district court, alleging that Pontiac had failed to fulfill its obligation to contribute to the union's pension plan. Soon thereafter, the Fund amended its complaint to allege that Artistic, as the successor of Pontiac, was jointly and severally liable for the delinquent contributions. On August 3, 1987 the district court entered judgment against Pontiac in the amount of $89,609.95. The union, apparently, was not able to collect its judgment against Pontiac. The suit against Artistic continued, and two years later, following the close of discovery, both parties moved for summary judgment. The district court denied the Fund's motion and granted Artistic's, finding that there existed no commonality of ownership between Artistic and Pontiac that would mandate the imposition of liability and that Artistic was not otherwise liable for Pontiac's debt on a theory of successor liability.

The Fund's trustees appeal the district court's decision and request that we both reverse the district court and enter summary judgment in the Fund's favor. We now reverse the district court's grant of summary judgment to Artistic but affirm the court's denial of the Fund's motion.

II.

We turn first to the district court's legal findings regarding the applicability of a theory of successor liability to the instant action. As this court has previously noted, the issue of successor liability is "dreadfully tangled, reflecting the difficulty of striking the right balance between the competing interests at stake." E.E.O.C. v. Vucitech, 842 F.2d 936, 944 (7th Cir.1988). We must endeavor to balance the well-articulated federal interest in ensuring that employers maintain properly funded pension plans and the social interest in facilitating the market in corporate and other productive assets. We appreciate the district court's efforts to strike this balance, but feel constrained to disagree with its ruling that labor law successorship principles cannot support the imposition of liability upon Artistic. However, we do not reverse the district court's denial of summary judgment to the Fund because material facts relevant to the imposition of liability remain in dispute.

A.

The general common law rule, designed to maximize the fluidity of corporate assets, is that "a corporation that merely purchases for cash the assets of another corporation does not assume the seller corporation's liabilities." Travis v. Harris Corp., 565 F.2d 443, 446 (7th Cir.1977). Traditionally, this rule has been limited by four exceptions. Successors have been held liable where (1) there is an express or implied assumption of liability; (2) the transaction amounts to a consolidation, merger, or similar restructuring of the two corporations; (3) the purchasing corporation is a "mere continuation" of the seller; and (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts. See id. at 446 (citations omitted).

However, "[t]he perimeters of the labor-law doctrine of successorship [ ] have not been so narrowly confined." Golden State Bottling Co. v. NLRB, 414 U.S. 168, 182 n. 5, 94 S.Ct. 414, 424 n. 5, 38 L.Ed.2d 388 (1973). Rather, the Supreme Court and this Circuit have imposed liability upon successors beyond the bounds of the common law rule in a number of different employment-related contexts in order to vindicate important federal statutory policies.

In Golden State Bottling, for example, the Supreme Court held that liability under the National Labor Relations Act could be imposed on a successor for a predecessor's unlawful discharge of an employee. The Court ruled that an employer who substantially assumes a predecessor's assets, continues the predecessor's operations without interruption or substantial change, and who has notice of a pending unfair labor practice charge at the time of acquisition can be required to remedy the unfair labor practice. ¹ The Board's remedy in Golden State required reinstatement with back pay of the aggrieved employee. The Court affirmed the Board's remedial order against the successor in order to promote the free exercise of employees' rights under the NLRA and make whole the victimized employee. Id. at 184-85, 94 S.Ct. at 425-26. Speaking to the economic justifications underlying the common law presumption against successor liability, the Court found the imposition of liability to be of relatively minimal economic cost: because "the successor must have notice before liability can be imposed, 'his potential liability for remedying unfair labor practices is a matter which can be reflected in the price he pays for the business....' " Id. at 185, 94 S.Ct. at 425, (quoting Perma Vinyl Corp., 164 N.L.R.B. 968, 969 (1967)).

Golden State and its progenitor, John Wiley & Sons Inc. v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964), have provided the foundation for a series of cases in which this court and others have concluded that the balance between the need to effectuate federal labor and employment discrimination policies and the need, reflected in the traditional common law rule, to facilitate the fluid transfer of corporate assets is best struck by the imposition of successor liability. In Musikiwamba v. ESSI Inc., 760 F.2d 740 (7th Cir.1985), this court extended the labor law successorship doctrine to a Sec. 1981 claim for employment discrimination. Three considerations motivated the court's decision: the existence of an "overriding federal policy against unfair [ ] employment practices," the recognition that "the victim of the illegal employment practice is helpless to protect his rights against an employer's change in the business," and the recognition that "the successor can provide relief at minimum cost." 760 F.2d at 746.

Similarly, in Wheeler v. Snyder Buick, Inc., 794 F.2d 1228 (7th Cir.1986), we drew upon these justifications to impose liability upon a successor for a predecessor's Title VII violation. We reasserted our belief that "in the context of Congressional prohibition of discrimination in employment, judicial importation of the concept of successor liability is essential to avoid undercutting Congressional purpose by parsimony in provision of effective remedies." 794 F.2d at 1237. Relevant to the imposition of liability ² were the following factors: (1) whether the successor employer had prior notice of the claim against the predecessor; (2) whether the predecessor is able, or was able prior to the purchase, to provide the relief requested; and (3) whether there has been sufficient continuity in the business operations of the predecessor and successor. Id. at 1236. We found the first two factors to be critical because of our belief...