Resilient Floor Covering Pension Trust Fund Bd. of Trs. v. Michael's Floor Covering, Inc.

• Decision Date: 11 September 2015
• Docket Number: No. 12–17675.,12–17675.
• Citation: 801 F.3d 1079
• Parties: RESILIENT FLOOR COVERING PENSION TRUST FUND BOARD OF TRUSTEES; Resilient Floor Covering Pension Trust Fund, Plaintiffs–Appellants, v. MICHAEL'S FLOOR COVERING, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

801 F.3d 1079

RESILIENT FLOOR COVERING PENSION TRUST FUND BOARD OF TRUSTEES; Resilient Floor Covering Pension Trust Fund, Plaintiffs–Appellants

v.MICHAEL'S FLOOR COVERING, INC., Defendant–Appellee.

No. 12–17675.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 10, 2015.

Filed Sept. 11, 2015.

Donna L. Kirchner (argued), Katherine McDonough, George M. Kraw, Kraw and Kraw Law Group, Mountain View, CA, for Plaintiffs–Appellants.

Robert B. Miller (argued), Kilmer, Voorhees & Laurick, PC, Portland, OR, for Defendant–Appellees.

Appeal from the United States District Court for the Northern District of California, Jacqueline Scott Corley, Magistrate Judge, Presiding. D.C. No. 3:11–cv–05200–JSC.

Before: RICHARD A. PAEZ and MARSHA S. BERZON, Circuit Judges and DAVID A. EZRA,^* District Judge.

OPINION

BERZON, Circuit Judge:

We decide in this case two related issues: (1) whether a successor employer, both generally and in the construction industry in particular, can be subject to withdrawal liability under the Multiemployer Pension Plan Amendments Act (“MPPAA”), 29 U.S.C. § 1381 –1453, amendments to the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.; and (2) if so, what factors are most relevant to determining whether a construction industry employer is a successor for purposes of imposing MPPAA withdrawal liability. We conclude that a construction industry successor employer can be subject to MPPAA withdrawal liability, so long as the successor took over the business with notice of the liability. We also hold that the most important factor in assessing whether an employer is a successor for purposes of imposing MPPAA withdrawal liability is whether there is substantial continuity in the business operations between the predecessor and the successor, as determined in large part by whether the new employer has taken over the economically critical bulk of the prior employer's customer base.

The district court, after a bench trial, held Defendant–Appellee Michael's Floor Covering, Inc. (“Michael's”) not liable as a successor employer. In doing so, the district court weighed continuity of the workforce as the most important factor, and, moreover, applied an incorrect test to determine whether there was continuity of the workforce. We therefore reverse and remand for further proceedings applying the correct standards.

I.

A.

Studer's Floor Covering, Inc. (“Studer's”) was a construction industry employer that sold and installed floor covering materials to commercial and residential customers. From the 1960s until it ceased doing business on December 31, 2009, Studer's operated out of a storefront and warehouse on Anderson Avenue in Vancouver, Washington. At the time of its closing, Studer's was a party to a collective bargaining agreement with the Linoleum, Carpet and Soft Tile Applicators Local Union No. 1236, pursuant to which Studer's made contributions to the Resilient Floor Covering Pension Trust Fund (“the Fund”), a multiemployer defined benefit pension plan covered by the MPPAA amendments to ERISA. See 29 U.S.C. § 1002(37)(A).

Toward the end of 2009, the president and chairman of Studer's, Scott Studer, informed his sales staff that Studer's would close at the end of the year. Shortly after that announcement, one of those staff members, Michael Haasl, told Studer “that he intended to bid for projects for the sale and installation of floor covering materials for his own company,” Michael's Floor Covering, LLC (“Michael's”). Haasl incorporated Michael's in October 2009.¹

On November 30, 2009, while Studer's was still in operation, Michael's obtained a lease on the same storefront and warehouse Studer's had long occupied. That lease's term began on January 1, 2010, the day immediately after Studer's' lease terminated. Around the same time, Haasl purchased signs for the Michael's location very similar to those that Studer's used. Both spelled out the name “Michael's”/“Studer's” in red cursive, and “Floor Coverings” in black block capitals, on a white background. Additionally, at Michael's' request, Studer's gave its authorization to Quest, Studer's' telephone service provider, for Michael's to take over Studer's' business telephone numbers at the end of 2009.

Studer's sold most, though not all, of its tools, equipment, and inventory at a publicly advertised liquidation sale in the fall of 2009. At that sale, Michael's purchased about 30% of Studer's' tools, equipment and inventory.

According to Scott Studer, although “Studer's did not sell, give[,] or otherwise assign its customer lists or any portion of its customer information to Michael's[,] Mike Haasl knew the identity of many of Studer's['] customers and suppliers through his work over the course of 19 years as a salesman for Studer's.” Michael's used those existing business relationships in developing its business.

The district court found that “Michael's performs much the same work as Studer's,” though Michael's added product lines to its showroom that Studer's had not carried. For example, the purchasing manager for one major business customer of both Studer's and Michael's, New Tradition Homes, testified that Michael's was asked to “pick up where [Studer's] left off” and did; that “the type of work done” by Michael's and Studer's was “[t]he same”; and that there were no “differences in the type of work done by Michael's Floor Covering as opposed to what was done by Studer's Floor Covering.” That same purchasing manager also reported that New Tradition Homes did not “put out a request for bids to replace Studer's.” Although New Tradition Homes' “usual bid process” did involve competitive bidding from “a broader number of potential suppliers,” it did not require bidding in this instance, because a “sales rep that [they] were very comfortable with was starting his business,” referring to Haasl and Michael's. He also noted that there was only “[v]ery minimal” “disruption caused by the transition from Studer's to Michael's”: “[m]ostly it was internal with our systems. We had to make sure that our purchase orders went out on one day to Studer's and then on the next day to Michael's Floor Coverings.”

In Michael's' first two years of operation, it employed eight installers; otherwise, Michael's outsourced installation work to independent contractors. Of the eight employee installers, five had previously worked for Studer's at one time or another. Several of those installers stated that the range of work they did for Michael's was substantially similar to, although slightly broader than, the work they had previously done for Studer's.

The proportion of Studer's customers retained by Michael's depends on the mode of calculation used. The district court found that “many of Studer's ['] customers became Michael's['] customers.” The Fund asserts that Michael's obtained the bulk of its business during its start-up phase from Studer's' customers, largely business customers. For example, all but seven of Michael's' business customers in its first three months of operation had been Studer's' customers during Studer's last year of business. Michael's counters that only 80 or so of the 868 customers Michael's served in its first two years were former Studer's clients; this head count includes both large commercial customers with repeat contracts for housing developments and apartment buildings, and individual homeowners, who are more likely to contract on a one-time basis and for fairly small jobs.

B.

The MPPAA amendments to ERISA provide, in part, that “[i]f an employer withdraws from a multiemployer [pension] plan in a complete withdrawal ..., then the employer is liable to the plan” for “withdrawal liability.” 29 U.S.C. § 1381(a).² Withdrawal liability “is the amount determined [under the statutory calculation method] ... to be the allocable amount of unfunded vested benefits” accrued at the time of the employer's withdrawal. § 1381(b) ; see also § 1391. For “employer[s] that ha[ve] an obligation to contribute under a plan for work performed in the building and construction industry,” however, there is no withdrawal liability if they cease operations entirely for at least five years. § 1383(b)(1). The dispute in this case concerns whether this construction industry exception applies here because Studer's permanently ceased performing work covered by the Fund, or whether, instead, it does not apply, because Michael's essentially took over the work Studer's would have done, yet did not make contributions to the Fund.

Taking the latter position, the Fund, believing Michael's to be Studer's' successor, assessed withdrawal liability in the amount of $2,291,014.00 against Studer's and Michael's and sued Michael's to recover that amount. After discovery, the Fund and Michael's filed cross-motions for summary judgment. Michael's moved for summary judgment on the grounds that the Fund could not establish that Michael's was a successor of Studer's, and, even if Michael's were Studer's' successor, the Fund could not show Michael's was subject to its predecessor's withdrawal liability, for two reasons: first, Studer's had not itself continued business in the area; and second, Michael's did not have adequate notice of Studer's' liability. The Fund moved for partial summary judgment on the ground that Michael's was a successor to Studer's, so a statutory withdrawal triggering liability occurred when Michael's continued Studer's' business but failed to make contributions to the Fund.

At the hearing on the parties' cross-motions for summary judgment, the district court suggested that the parties consent to converting the motion to a bench trial on the successorship question only (that is, not on the question whether, if a successor, Michael's had sufficient notice of the liability). The parties orally agreed to a bench trial “on the record.”

About two weeks after the summary judgment hearing, the Fund filed a motion for leave to supplement the record with additional...