Teed v. Thomas & Betts Power Solutions, L.L.C.

• Decision Date: 26 March 2013
• Docket Number: Nos. 12–2440,12–3029.,s. 12–2440
• Citation: 711 F.3d 763
• Parties: Brian TEED, et al., Plaintiffs–Appellees, v. THOMAS & BETTS POWER SOLUTIONS, L.L.C., Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

711 F.3d 763

Brian TEED, et al., Plaintiffs–Appellees,

v.THOMAS & BETTS POWER SOLUTIONS, L.L.C., Defendant–Appellant.

Nos. 12–2440, 12–3029.

United States Court of Appeals,Seventh Circuit.

Argued Jan. 9, 2013.

Decided March 26, 2013.

Larry A. Johnson, II (argued), Cross Law Firm, Waukesha, WI, for Plaintiffs–Appellees.

Andrew J. Voss (argued), Attorney, Littler Mendelson P.C., Minneapolis, MN, for Defendant–Appellant.

James H. Kaster, Attorney, David E. Schlesinger, Attorney, Nichols Kaster, PLLP, Minneapolis, MN, for Amicus Curiae National Employment Lawyers' Association.

Before POSNER, FLAUM, and WILLIAMS, Circuit Judges.

POSNER, Circuit Judge.

Before us are appeals in two closely related collective actions for overtime pay under the Fair Labor Standards Act; for simplicity we'll pretend that they are just one suit and that there is just one appeal. The original named defendants were JT Packard & Associates, the plaintiff's employer, and Packard's parent, S.R. Bray Corp. We don't know why the parent was made a defendant. It was not the plaintiffs' employer, and a parent corporation is not liable for violations of the Fair Labor Standards Act by its subsidiary unless it exercises significant authority over the subsidiary's employment practices. In re Enterprise Rent–A–Car Wage & Hour Employment Practices Litigation, 683 F.3d 462, 469 (3d Cir.2012); cf. Antenor v. D & S Farms, 88 F.3d 925, 935–36 (11th Cir.1996). The record doesn't indicate that Bray exercised such authority over Packard's employment practices.

But this is an aside. What is important is that the district judge allowed the plaintiffs to substitute Thomas & Betts Power Solutions, LLC, for the original defendants, the reason being that its parent, Thomas & Betts Corporation, had bought Packard's assets and placed them in a wholly owned subsidiary, the substituted defendant. Essentially that company is Packard renamed, and we'll continue to refer to it under that name when we are talking about the company as a company; when we are talking about it as the substituted defendant we'll call it Thomas & Betts.

By virtue of the substitution, Thomas & Betts is the entity against which the plaintiffs seek damages for Packard's alleged violations of their rights under the Fair Labor Standards Act when Packard was owned by Bray. Thomas & Betts objected to being substituted, and its objection, rejected by the district court, is the sole basis of the appeal, which is from a final judgment for some $500,000 in damages, attorneys' fees, and costs, pursuant to a settlement agreement that is conditional however on the outcome of this appeal. We must decide whether Thomas & Betts is, as the district court held, liable by virtue of the doctrine of successor liability for whatever damages may be owed the plaintiffs as a result of Packard's alleged violations.

When a company is sold in an asset sale as opposed to a stock sale, the buyer acquires the company's assets but not necessarily its liabilities; whether or not it acquires them is the issue of successor liability. Most states limit such liability, with exceptions irrelevant to this case, to sales in which a buyer (the successor) expressly or implicitly assumes the seller's liabilities. Wisconsin, the state whose law would apply if the underlying claim were based on state law, is such a state. Columbia Propane, L.P. v. Wisconsin Gas Co., 261 Wis.2d 70, 661 N.W.2d 776, 784 (2003). But when liability is based on a violation of a federal statute relating to labor relations or employment, a federal common law standard of successor liability is applied that is more favorable to plaintiffs than most state-law standards to which the court might otherwise look. See, e.g., John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 548–49, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) (Labor Management Relations Act); Golden State Bottling Co. v. NLRB, 414 U.S. 168, 184–85, 94 S.Ct. 414, 38 L.Ed.2d 388 (1973) (National Labor Relations Act); Wheeler v. Snyder Buick, Inc., 794 F.2d 1228, 1236 (7th Cir.1986) (Title VII); Upholsterers' Int'l Union Pension Fund v. Artistic Furniture, 920 F.2d 1323, 1327 (7th Cir.1990) (ERISA); EEOC v. G–K–G, Inc., 39 F.3d 740, 747–48 (7th Cir.1994) (Age Discrimination in Employment Act); Sullivan v. Dollar Tree Stores, Inc., 623 F.3d 770, 781 (9th Cir.2010) (Family and Medical Leave Act); cf. Musikiwamba v. ESSI, Inc., 760 F.2d 740, 746 (7th Cir.1985) (42 U.S.C. § 1981—racial discrimination in contracting). In particular, a disclaimer of successor liability is not a defense.

We must consider whether the federal standard applies when liability is based on the Fair Labor Standards Act, and if so whether, properly applied, the standard authorized the imposition of successor liability in this case.

Packard provided, and continues under its new ownership by Thomas & Betts to provide, maintenance and emergency technical services for equipment designed to protect computers and other electrical devices from being damaged by power outages. All of Packard's stock was acquired in 2006 by Bray, though Packard retained its name and corporate identity and continued operating as a stand-alone entity. The workers' FLSA suit was filed two years later.

Several months after it was filed, Bray defaulted on a $60 million secured loan that it had obtained from the Canadian Imperial Bank of Commerce and that Packard, Bray's subsidiary, had guaranteed. To pay as much of the debt to the bank as it could, Bray assigned its assets—including its stock in Packard, which was its principal asset—to an affiliate of the bank. The assets were placed in a receivership under Wisconsin law and auctioned off, with the proceeds going to the bank. Thomas & Betts was the high bidder at the auction, paying approximately $22 million for Packard's assets. One condition specified in the transfer of the assets to Thomas & Betts pursuant to the auction was that the transfer be “free and clear of all Liabilities” that the buyer had not assumed, and a related but more specific condition was that Thomas & Betts would not assume any of the liabilities that Packard might incur in the FLSA litigation. After the transfer, Thomas & Betts continued to operate Packard much as Bray had done (and under the same name, as we noted), and indeed offered employment to most of Packard's employees.

If Wisconsin state law governed the issue of successor liability, Thomas & Betts would be off the hook because of the conditions. But as we said, they do not control, or even figure, when the federal standard applies. As usually articulated, that standard requires consideration of the following factors instead (see Wheeler v. Snyder Buick, Inc., supra, 794 F.2d at 1236;Musikiwamba v. ESSI, Inc., supra, 760 F.2d at 750–51):

(1) Whether the successor had notice of the pending lawsuit, which Thomas & Betts unquestionably had when it bought Packard at the receiver's auction; this is a factor favoring successor liability.

(2) Whether the predecessor (Packard or Bray—remember that both were defendants originally) would have been able to provide the relief sought in the lawsuit before the sale. The answer is no, because of Packard's and Bray's insolvency caused by Bray's defaulting on the bank loan. The answer counts against successor liability by making such liability seem a windfall to plaintiffs. But this depends on how long before the sale one looks.

(3) Whether the predecessor could have provided relief after the sale (again no—Packard had been sold, with the proceeds of the sale going to the bank, along with Bray's remaining assets). The predecessor's inability to provide relief favors successor liability, as without it the plaintiffs' claim is worthless.

(4) Whether the successor can provide the relief sought in the suit—Thomas & Betts can—without which successor liability is a phantom (this is a “goes without saying” condition, not usually mentioned).

(5) Whether there is continuity between the operations and work force of the predecessor and the successor, as there is in this case, which favors successor liability on the theory that nothing really has changed.

Judges tend to be partial to multifactor tests, which they believe discipline judicial decisionmaking, providing objectivity and predictability. But this depends on whether the factors making up the test are clear, whether they are valid, whether each is weighted so that the test can be applied objectively even if the factors don't all line up on one side of the issue in every case (they don't in this case, for example), and whether the factors are exhaustive or illustrative—if the latter, the test is open-ended, hence indefinite. The federal standard does not satisfy all these criteria. But applying a slight variant of the standard, the district judge concluded that there was successor liability in this case, and her analysis is thoughtful and persuasive.

We reach the same conclusion that she did, though by a slightly different route. We suggest that successor liability is appropriate in suits to enforce federal labor or employment laws—even when the successor disclaimed liability when it acquired the assets in question—unless there are good reasons to withhold such liability. Lack of notice of potential liability—the first criterion in the federal standard as usually articulated—is an example of such a reason. We'll examine other possible reasons applicable to this case shortly; but first we need to decide whether a federal standard should ever apply when the source of liability is the Fair Labor Standards Act.

The idea behind having a distinct federal standard applicable to federal labor and employment statutes is that these statutes are intended either to foster labor peace, as in the National Labor Relations Act, or to protect workers' rights, as in Title VII, and that in either type of case the imposition of successor liability will often be necessary to achieve the statutory goals because the...