Pension Benefit Guaranty Corp. v. Findlay Indus., Inc.

Decision Date04 September 2018
Docket NumberNo. 17-3520,17-3520
Parties PENSION BENEFIT GUARANTY CORPORATION, Plaintiff-Appellant, v. FINDLAY INDUSTRIES, INC., ET AL., Defendants, Philip D. Gardner Inter Vivos Trust Agreement Dated January 20, 1987; September Ends Co. ; Back In Black Co.; Robin L. Gardner, Executor of Estate of Michael J. Gardner, Defendants-Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

COUNSEL ARGUED: Merrill D. Boone, Pension Benefit Guaranty Corporation, Washington, D.C., for Appellant. Caroline H. Gentry, Porter Wright Morris & Arthur, LLP, Dayton, Ohio, for Appellees. ON BRIEF: Merrill D. Boone, Lori A. Butler, Pension Benefit Guaranty Corporation, Washington, D.C., for Appellant. Caroline H. Gentry, Porter Wright Morris & Arthur, LLP, Dayton, Ohio, James D. Curphey, Porter Wright Morris & Arthur, LLP, Columbus, Ohio, for Appellees.

Before: DAUGHTREY, McKEAGUE, and DONALD, Circuit Judges.

DAUGHTREY, J., delivered the opinion of the court in which DONALD, J., joined, and McKEAGUE, J., joined in part. McKEAGUE, J. (pp. 613–21), delivered a separate opinion concurring in part and dissenting in part.


Following the financial collapse of the Studebaker Company in 1963, more than 11,000 autoworkers lost 85 percent of their vested pension interest when the company's retirement plan was terminated. The resulting political pressure culminated in passage of the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 – 1461 (ERISA), which regulates private-sector pension and health funds. In addition to setting up requirements for defined pension-benefit plans, as part of ERISA Congress also created the Pension Benefit Guaranty Corporation (PBGC), which insures uninterrupted payment of benefits under those plans upon their termination. The program is designed to be self-financed, funded primarily by insurance premiums paid by sponsoring companies and also from assets acquired from terminated plans and recovered from underfunded plan sponsors when bankruptcy occurs. To keep premiums as low as possible, ERISA provides that the sponsor of a terminated plan and the "trades or businesses" related to the sponsor through ties of common ownership (known as "control group members") are jointly and severally liable to PBGC for underfunded benefit liabilities.

It was against this background that PBGC sued to collect more than $30 million in underfunded pension liabilities from Findlay Industries following the shutdown of its operation in 2009, apparently a casualty of the worsening economy at the time. When Findlay could not meet its obligations, PBGC looked to hold liable a trust started by Findlay's founder, Philip D. Gardner (the Gardner Trust), treating it as a "trade or business" under common control by Findlay. PBGC also asked the court to apply the federal-common-law doctrine of successor liability to hold Michael J. Gardner, Philip's son, liable for some of Findlay's debt. Michael, a 45 percent shareholder of Findlay and its former-CEO, had purchased Findlay's assets and started his own companies using the same land, hiring many of the same employees, and selling to Findlay's largest customer.1 The district court refused to hold either the trust or Michael and his companies liable.

In determining whether the Gardner Trust was a "trade or business" under Findlay's common control, the district court rejected the approach of our sister circuits that apply a "categorical test" to determine liability. The categorical test treats any entity leasing to a commonly controlled entity as a trade or business under ERISA. Instead of the categorical test, the district court applied a fact-intensive test cribbed from Commissioner v. Groetzinger , 480 U.S. 23, 24, 107 S.Ct. 980, 94 L.Ed.2d 25 (1987), a case interpreting the term "trade or business" as used in the tax code, 26 U.S.C. §§ 162(a), 62(a)(1). The court held, under the so-called " Groetzinger test," that the trust was not liable. Next, after analyzing the requirements for creating and invoking federal common-law principles of successor liability, the district court declined to apply successor liability in this case. We conclude that the district court erred on both fronts.

First, an entity that owns land and leases it to an entity under common control should be considered, categorically, a "trade or business" under ERISA. As noted below, this interpretation recognizes the differences between ERISA and the tax code, satisfies the purposes of ERISA, and brings this court into agreement with its sister circuits. In addition, under the facts of this case, successor liability is necessary to implement the fundamental ERISA policy of protecting employees, in part by guaranteeing that employers who have promised pensions uphold their part of the deal. Refusing to apply successor liability here would allow Findlay to make promises to employees, fail to uphold those promises, and then engage in clever financial transactions that leave PBGC to pay millions in pension liabilities. Holding Findlay responsible, on the other hand, is a commonsense answer that fulfills ERISA's goals.

We therefore find it necessary to reverse the rulings below and remand the case to the district court.

Statutory Background

Private employers are not required to offer pension plans, but if they do, ERISA requires that the pension plans meet certain standards and retain certain protections. That way, "if a worker has been promised a defined pension benefit upon retirement—and if he has fulfilled whatever conditions are required to obtain a vested benefit—he actually will receive it." Nachman Corp. v. Pension Benefit Guar. Corp. , 446 U.S. 359, 375, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980). Before ERISA, lack of oversight and legal standards often left pension plans without enough money, and employees who counted on those funds with nothing for retirement. Id. at 374–75, 100 S.Ct. 1723.

As a "major part of Congress'[s] response to [that] problem," ERISA instituted a termination-insurance program, PBGC. Id. at 375, 100 S.Ct. 1723. Although ERISA's funding, disclosure, and other standards made it more likely that pension plans would have the money that they had promised their beneficiaries, Congress built in the extra protection of PBGC-operated insurance. Subchapter III of ERISA requires PBGC to charge participating companies premiums so that if a pension plan fails, PBGC can "provide for the timely and uninterrupted payment of pension benefits to participants and beneficiaries." 29 U.S.C. § 1302(a).

Despite the significant increases in coverage ushered in by ERISA, a few years after its introduction, PBGC warned Congress "that ERISA did not adequately protect plans from the adverse consequences that resulted when individual employers terminate their participation in, or withdraw from, multiemployer plans" set up under collective bargaining agreements. Pension Benefit Guar. Corp. v. R.A. Gray & Co. , 467 U.S. 717, 722, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984). In other words, the statute provided the necessary protection for when a company ended its own pension plan, but when multiple companies pooled assets into a single pension plan, a withdrawing employer risked saddling the remaining companies with all of the plan's liabilities. In response, Congress passed the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. §§ 1381 – 1461 (MPPAA), amending ERISA to ensure that multiemployer plans also served the statute's goals.

Under the MPPAA, multiemployer plans are subject to many of the same standards as single-employer plans. For example, the MPPAA requires multiemployer plans to pay premiums for PBGC insurance, just as single-employer plans are required to do. 29 U.S.C. §§ 1321 – 1322a. And PBGC holds employers directly liable for underfunded—but promised—benefits, interest, and penalties, whether the liable employer is part of a single-employer pension plan or a multiple-employer pension plan. 29 U.S.C. §§ 1362, 1381.

Factual and Procedural Background

Findlay Industries was a company that produced auto parts before going out of business in 2009. Since 1964 it had offered pension benefits to some of its employees, and by the time production was stopped, its pension obligation was underfunded by millions of dollars. To satisfy that liability, PBGC looked to assets that might be treated as Findlay's—specifically, a trust started by Findlay's founder and assets purchased from the company by the founder's son in 2009.

The Trust: At the end of 1986, Findlay transferred two pieces of property to the company's founder and owner, Philip D. Gardner. Less than a month later, Gardner transferred the property to an irrevocable trust. The trust was to provide for Gardner's sisters through the end of their lives, at which point the trust was to be distributed equally to Gardner's two sons—Philip J. and Michael Gardner. In addition, son Philip J. was the trustee and Michael was his successor.

From at least 1993 until 2009, when Findlay folded, the trust leased the two plots of land back to Findlay. Thus, for the majority of the time that the trust existed, it was leasing back to Findlay the very land that Findlay, through Gardner, had donated to the trust. Gardner's last sister died in early 2014, and a month later the entire trust was split between his sons, who ran and owned a majority of Findlay in its final years.

The Assets: In May 2009, after Findlay failed, a company named F I Asset Acquisition LLC purchased all of the equipment, inventory, and receivables from two of Findlay's plants. The two plants contained all of Findlay's equipment and machinery of value. The sale had a price tag of $2.2 million in cash and $1.2 million in assumed trade debt. It appears that Findlay's former assets then were transferred from F I Asset Acquisition to Michael Gardner and another company owned entirely by...

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