Pension Ben. Guar. Corp. v. White Consol. Industries, Inc., 92-3676

CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)
Citation998 F.2d 1192
Docket NumberNo. 92-3676,92-3676
Parties, 26 Fed.R.Serv.3d 173, 16 Employee Benefits Cas. 2601, Pens. Plan Guide P 23881D PENSION BENEFIT GUARANTY CORPORATION, Appellant, v. WHITE CONSOLIDATED INDUSTRIES, INC., c/o CT Corporation Systems Registered Agent.
Decision Date30 June 1993

George R. Clark, Reed, Smith, Shaw & McClay, Nancy S. Heermans (Argued), Pension Ben. Guar. Corp., Washington, DC, for appellant.

Robert S. Garrett, Egler, Garrett & Egler, Pittsburgh, PA, William G. McGuinness, Alexander R. Sussman (Argued), Fried, Frank, Harris, Shriver & Jacobson, New York City, for appellee.

Before COWEN, ROTH and ROSENN, Circuit Judges.


COWEN, Circuit Judge.

White Consolidated Industries, Inc. ("WCI") sold a group of unprofitable businesses and their associated underfunded pension plans to a newly formed corporation. WCI, however, remained contractually obligated to make substantial contributions to the plans for five additional years. More than six years after the stated closing date of this sale, the largest of these pension plans terminated. The Pension Benefit Guaranty Corporation ("PBGC"), which is obligated to pay the guaranteed benefits of this plan to the beneficiaries, seeks to recover for these unfunded obligations from WCI, the predecessor employer.

The district court dismissed the PBGC's amended complaint in its entirety. We hold that the PBGC has stated a legally sufficient claim under 29 U.S.C. § 1369 (1988). Section 1369's requirement that a transaction "become[ ] effective" within five years of the plan termination is met because a transaction does not take effect until the previous plan sponsor stops making substantial payments to the pension plans. On the other hand, because section 1369 specifically addresses predecessor liability and applies to this transaction, we will not read an unexpressed predecessor liability rule into 29 U.S.C. § 1362 (1988). Additionally, the PBGC's claim that the transaction at issue is a sham also survives the motion to dismiss. We therefore will affirm in part and reverse in part the order of the district court, and remand for further proceedings consistent with this opinion.


On September 27, 1985, WCI sold a group of unprofitable businesses and nine associated underfunded pension plans to the newly formed Blaw Knox Corporation. On September 26, 1991, six years later, the PBGC filed a complaint against WCI seeking a declaration that WCI would be liable under 29 U.S.C. §§ 1362, 1369 for the transferred plans' unfunded benefit liabilities if and when they terminated. The PBGC amended its complaint after the largest Blaw Knox pension plan terminated. The amended complaint alleges the following facts, which we accept as true for purposes of this motion to dismiss. See Holder v. City of Allentown, 987 F.2d 188, 194 (3d Cir.1993).

WCI is primarily a manufacturer of home appliances. In 1981, WCI owned several unrelated businesses that manufactured steel rolls, metal castings and other industrial equipment (collectively "steel businesses"). The steel businesses had been incurring substantial operating losses for several years and their pension plans were grossly underfunded. WCI unsuccessfully attempted to sell these operations for several years. In 1984, WCI established a $94 million reserve for disposing of its steel businesses. A significant portion of this reserve corresponded to unfunded pension liability.

Because WCI was unable to sell its steel businesses, it invited the presidents of the businesses' divisions to make offers to purchase their divisions. Several presidents submitted offers with the caveat that WCI retain the associated pension liabilities. WCI rejected these offers.

WCI finally located a buyer willing to assume the pension fund liabilities. On September 27, 1985, WCI sold the steel businesses' assets to a newly formed corporation, Blaw Knox Corporation, which was set up by Cleveland businessman Robert Tomsich. The purchase and sale agreement required Tomsich to contribute one million dollars in unencumbered capital to Blaw Knox. 1 Aside from this one million dollars, which the PBGC alleges was never paid, Blaw Knox paid no money for the assets of the steel businesses, but merely assumed their liabilities. The only cash exchanged at closing was the $20 million WCI paid Blaw Knox in return for $23 million in accounts receivable WCI retained.

Given Blaw Knox's undercapitalization, the steel businesses' history of operating losses, and the dismal forecasts for the steel industry, WCI knew that Blaw Knox had no reasonable opportunity to meet the pension obligations it assumed. WCI also knew that under amendments to the Employment Retirement Income Security Act ("ERISA") under consideration by Congress, WCI could be liable for the unfunded benefits of the pension plans if the plans terminated within five years of the closing of its deal with Tomsich. Therefore, PBGC alleges that WCI, for the purpose of evading its pension liabilities, structured the transaction to ensure that the Blaw Knox pension plans survived for five years.

To ensure the viability of the plans for five years, the purchase and sale agreement required WCI to contribute four million dollars annually for five years directly to the Blaw Knox pension plans. The contract also required Blaw Knox to pay $1.2 million per year for five years to the plans. In addition, Blaw Knox was contractually obligated to open a $15 million irrevocable letter of credit to indemnify WCI for any liability it might incur relating to the Blaw Knox pension plans, including specifically any claim of the PBGC arising from the termination of these plans. Blaw Knox also agreed to indemnify WCI for pension plan liability incurred in excess of the letter of credit. To support the indemnity agreement, WCI retained a security interest in substantially all of Blaw Knox's assets. Termination of any underfunded Blaw Knox pension plan constituted a default under the security agreement and gave WCI the right to repossess all of the assets securing Blaw Knox's indemnity.

The transaction also protected Tomsich. He received a seventy-eight percent ownership interest in Blaw Knox. Some Blaw Knox managers and executives of Nesco, a diversified holding company of which Tomsich was president, owned the remaining shares. Because Tomsich's interest was less than eighty percent, if the plans failed, Tomsich would not be jointly liable with Blaw Knox under ERISA as part of a control group.

WCI's position would have improved no matter what happened. WCI believed that if the plans failed five years after the deal closed, it would not be responsible for termination liability. If WCI was found liable for the termination liability, however, it could foreclose on virtually all the transferred assets and collect from Blaw Knox under the letter of credit.

From 1986 through 1990, WCI made its annual four million dollar contribution to the plans. Blaw Knox was forced to liquidate assets to meet its annual contractually required $1.2 million contribution. In February 1992, seventeen months after WCI's last contribution to the plans, the largest Blaw Knox plan literally ran out of money. The PBGC therefore had to terminate the plan. See 29 U.S.C. § 1342(a) (1988 & Supp. III 1991) (PBGC must terminate plan that does not have assets available to pay currently due benefits). The unfunded liabilities of this plan are estimated at $82 million. The PBGC is now paying the guaranteed pension benefits to the beneficiaries of this plan. Blaw Knox has not made the 1991 or 1992 contributions to the other Blaw Knox plans, which are currently underfunded by an estimated $20 million.

WCI filed a motion to dismiss the amended complaint in its entirety for failure to state a claim under Fed.R.Civ.P. 12(b)(6). The district court dismissed all five counts of the PBGC's amended complaint. The PBGC appeals the dismissal of Counts I, III, IV and V.


To decide a motion to dismiss, courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record. See 5A C. Wright & A. Miller, Federal Practice and Procedure § 1357, at 299 (2d ed.1990); Watterson v. Page, 987 F.2d 1, 3-4 (1st Cir.1993); Emrich v. Touche Ross & Co., 846 F.2d 1190, 1198 (9th Cir.1988). WCI, however, asks us to consider the purchase and sale agreement between WCI and Blaw Knox, which it attached to its motion to dismiss. The PBGC's complaint is based on this contract and describes some of its terms, but the PBGC did not attach the purchase and sale agreement as an exhibit to its complaint.

We previously left open whether a court may properly consider a concededly authentic document upon which the complaint is based when the defendant attaches such a document to its motion to dismiss. See Goodwin v. Elkins & Co., 730 F.2d 99, 104 n. 9 (3d Cir.), cert. denied, 469 U.S. 831, 105 S.Ct. 118, 83 L.Ed.2d 61 (1984). We now hold that a court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document. See Cortec Indus., Inc. v. Sum Holding, L.P., 949 F.2d 42, 48 (2d Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1561, 118 L.Ed.2d 208 (1992); Goodwin, 730 F.2d at 113 (Becker, J., concurring); cf. Watterson, 987 F.2d at 4 (court did not consider document plaintiff attached in response to defendant's motion to dismiss). Otherwise, a plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to attach a dispositive document on which it relied. See Goodwin, 730 F.2d at 113 (Becker, J., concurring).

Our decision will not undermine the rationale underlying Rule 12(b)(6)'s requirement that a motion to dismiss be converted to a summary judgment motion if a court...

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