Einhorn v. M.L. Ruberton Constr. Co. v. Ronald L. Tobia

• Decision Date: 21 January 2011
• Docket Number: No. 09–4204.,09–4204.
• Citation: 632 F.3d 89
• Court: U.S. Court of Appeals — Third Circuit
• Parties: William J. EINHORN, Administrator of the Teamsters Pension Trust Fund of Philadelphia & Vicinity and the Teamsters Health and Welfare Trust Fund of Philadelphia & Vicinity, Appellantv.M.L. RUBERTON CONSTRUCTION COMPANYv.Ronald L. Tobia, Esq.; Tobia & Sorger Esquires, LLC; David M. DeClement, Esq.

632 F.3d 89

190 L.R.R.M. (BNA) 2001

50 Employee Benefits Cas. 1813

William J. EINHORN, Administrator of the Teamsters Pension Trust Fund of Philadelphia & Vicinity and the Teamsters Health and Welfare Trust Fund of Philadelphia & Vicinity, Appellant

v.M.L. RUBERTON CONSTRUCTION COMPANY

v.Ronald L. Tobia, Esq.; Tobia & Sorger Esquires, LLC; David M. DeClement, Esq.

No. 09–4204.

United States Court of Appeals, Third Circuit.

Argued Sept. 15, 2010.Filed: Jan. 21, 2011.

Jo Bennett, Frank C. Sabatino (Argued), Stevens & Lee, Philadelphia, PA, Attorneys for Appellant.Melissa C. Angeline, Lawren H. Briscoe, Jonathan Landesman (Argued), George E. Pallas, Cohen, Seglias, Pallas, Greenhall & Furman, Philadelphia, PA, Attorneys for Appellee M.L. Ruberton Construction Company.David M. Kupfer (Argued), Carroll, McNulty & Kull, Basking Ridge, NJ, Attorney for Appellee Ronald L. Tobia, Esq.Before: SLOVITER, BARRY, and SMITH, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This appeal asks us to consider the circumstances in which a purchaser of assets bears liability for delinquent employee benefit fund contributions under the Employee Retirement Income Security Act (“ERISA”) as a successor in interest to the seller of those assets. Appellant William J. Einhorn, on behalf of employee benefit funds established pursuant to ERISA, brought suit to recover unpaid contributions from Appellee M.L. Ruberton Construction Company. According to Einhorn, Ruberton was obligated to contribute to the benefit funds under two collective bargaining agreements as a successor employer to the original signatory, Statewide Hi–Way Safety, Inc. The District Court applied the traditional common law rule of successorship liability, found that Ruberton was not a continuation of Statewide, and granted Ruberton's motion for summary judgment. Einhorn appeals.¹

I.

Einhorn is the Administrator of the Teamsters Pension Trust Fund and Welfare Fund of Philadelphia and Vicinity (collectively, “the Funds”). The Funds are multiemployer benefit plans established pursuant to various provisions of ERISA, 29 U.S.C. § 1001 et seq., and Section 302(c)(5) of the Labor Management Relations Act (“LMRA”), 29 U.S.C. § 186(c)(5).

Statewide, a highway construction company with facilities in New Jersey, plays an integral role in the dispute, although it is not a party to this lawsuit. Under two collective bargaining agreements (“CBAs”) with Teamsters Local Union No. 676, Statewide was required to make contributions to the Funds.

In 2005, Statewide faced a series of financial hardships and the prospect of being debarred from public contract work in New Jersey based on allegations of fraud. Meanwhile, the Funds began an audit of Statewide's payroll records, which revealed delinquencies owed under the aforementioned CBAs. The delinquencies, including liquidated damages, totaled close to $600,000.

Around this time Ruberton, a general construction company, learned of Statewide's financial difficulties and entered into negotiations with Statewide for Ruberton's purchase of Statewide's assets. Local 676 learned of the potential transaction and filed suit for an injunction because it feared that Ruberton, a non-union employer, would not agree to become party to Statewide's CBAs. The District Court issued a temporary restraining order (“TRO”) enjoining consummation of the sale. Soon after the TRO was issued, negotiations began among Local 676, Statewide, and Ruberton, this time with the union's rights represented.

At the first meeting, Einhorn discussed Statewide's delinquent contributions to the Funds with Statewide's Principal Officer George Smith Jr. and Ruberton's President Andrew Berenato. Berenato testified that at that meeting he heard Einhorn tell Smith that Statewide owed the Funds “about a half a million dollars.” App. at 169. Some days later, there was a second meeting among the same individuals.

According to Berenato, Ruberton's principal objective during the second meeting, since they “knew there was a problem with Statewide and the Funds,” was to ensure that Ruberton “would not be held the successor to them and liable for that debt.” App. at 166. For his part, Einhorn aimed to protect the Funds' interest in delinquent and future contributions. Local 676 sought to ensure that Ruberton would hire its workers hitherto employed by Statewide, rather than continuing to use non-union workers. By the end of this meeting, two agreements were executed.

The first agreement, between Local 676 and Statewide, guaranteed that the union would dismiss the injunction suit without prejudice, and Statewide promised to cooperate fully with the Funds' payroll audit and to timely remit all future contributions. The second agreement, between Local 676 and Ruberton, provided that Ruberton would hire, subject to its work needs, the existing workforce of Statewide covered by the existing CBA, that such employment would be governed by that CBA on an interim basis, and a newly negotiated CBA would cover all Ruberton employees. Neither agreement addressed Ruberton's potential successor liability to the Funds for the delinquent contributions.²

Four days after the second meeting, on October 10, 2005, Statewide sold its assets to Ruberton for $1.6 million in cash.³ Ruberton began making contributions to the Funds in December that year. Simultaneous with the sale, a real estate holding company related to Ruberton, RAL Real Estate, L.L.C., leased Statewide's facility in Folsom, New Jersey. Under the lease agreement another entity related to Ruberton, Brianna L.L.C., thereafter exercised its option to purchase the facility from Statewide and leased the facility to Ruberton. Ruberton hired more than half of Statewide's former employees in the months following the sale, including its Vice President and thirty-three percent shareholder, and took over several of Statewide's projects. Approximately two months after the sale, Ruberton auctioned off many of the assets it had purchased from Statewide that were not used in the expanded operations, realizing just more than $600,000.

Statewide remained in business for some time after the asset sale using subcontractors to provide the necessary equipment and labor. Ruberton was one such subcontractor, billing Statewide more than $400,000 for rented employees and equipment. In January 2006, Statewide ceased all field operations. A shareholder from Statewide retained an office at the site now occupied by Ruberton to wind down the business. Ruberton's profits increased as a result of the sale and the company is still engaged in the highway construction business.

On December 13, 2005, Einhorn filed an action against Statewide and Ruberton. Einhorn alleged that Statewide owed the Funds pursuant to the operative CBAs and that Ruberton owed the Funds as a successor in interest to Statewide. The parties reached a settlement agreement on March 16, 2006, wherein Statewide agreed to pay the delinquent contributions in a series of installments. Statewide breached the settlement agreement and Einhorn filed the present action against Ruberton in June 2006.⁴ The following week, Einhorn obtained a judgment against Statewide in the prior suit for the breach, which Einhorn has been unable to enforce.⁵

II.

The District Court had jurisdiction under 29 U.S.C. §§ 1132, 185(a), as well as 28 U.S.C. § 1331. We have appellate jurisdiction under 28 U.S.C. § 1291.⁶

We exercise de novo review of the District Court's resolution of the parties' cross motions for summary judgment. See Startzell v. City of Phila., 533 F.3d 183, 192 (3d Cir.2008). Similarly, we exercise plenary review over the District Court's “choice and interpretation of legal precepts.” Am. Soc'y for Testing v. Corrpro Cos., Inc., 478 F.3d 557, 566 (3d Cir.2007) (citation and quotations omitted).

III.

At issue in this appeal is whether Ruberton may be held liable for Statewide's debts to the Funds under a theory of successor liability. It is settled that successor liability may be imposed for delinquent ERISA fund contributions in the context of a merger. Teamsters Pension Trust Fund of Phila. & Vicinity v. Littlejohn, 155 F.3d 206, 208–10 (3d Cir.1998) (holding that under the federal common law, the surviving entity in a merger is liable for the debts of the predecessor regardless of whether the successor had pre-merger notice of such debts). As the District Court found and is undisputed by the parties, however, the transaction between Statewide and Ruberton was not a merger. Rather, the transaction here was one in which a corporate entity bought the assets of another corporate entity. Liability under that situation is not well settled.

At the District Court, both parties assumed that the Seventh Circuit's decision in Upholsterers' Int'l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323 (7th Cir.1990), provided the applicable rule of law in the case. Artistic Furniture held that a successor purchaser of assets may be liable for the seller's delinquent ERISA fund contributions to vindicate important federal statutory policy where the buyer had notice of the liability prior to the sale and there was sufficient evidence of “continuity of operations” between the entities. Id. at 1327–29. In so holding, the Seventh Circuit departed from the general common law rule that an entity that purchases the assets of another does not assume the seller's liabilities unless one of the following exceptions applies: the purchaser expressly or impliedly assumed liability; the transaction amounted to a de facto merger; the purchasing corporation is a mere continuation of the seller; or the transfer of assets was for the fraudulent purpose of escaping liability for unpaid debts. Id. at 1325–26.

The District Court declined to follow the expanded successorship doctrine espoused by the Seventh Circuit in Artistic Furniture. Guided by this court's precedents, the District Court distinguished Golden...