Benefits and Compensation

Successor Company May Be Liable for Benefits Claim on Predecessor Plan

In this time of corporate restructuring, successor liability in relation to ERISA benefit plans is something to plan carefully in all of its dimensions before complicated, expensive claims take you by surprise.

A case involving a top-hat deferred compensation plan — in which a federal court denied a successor employer’s motion to dismiss it from claims against the acquired entity’s ERISA plan — is a good reminder of this issue.

Carolyn C. Jeter was a participant in a “top hat” deferred compensation plan, the Century 21 Bob Capes Realtors Commission Advantage Plan. The plan sponsor (Bob Capes) sold its assets to (or “merged” with) Caldwell Banker United Realtors in November 2008. She requested a plan distribution in spring 2008; was told funds were not available in early 2009; but she got a promissory note for more than $300,000 from Bob Capes in April 2009. The promissory note’s deadline for payment (April 2010) came and went, and was not paid.

She brought an ERISA claim against the plan, Bob Capes — and she added Caldwell Banker, the successor organization, to the list of defendants.

Caldwell Banker moved to dismiss charges against it, saying that the basis for Jeter’s claim — that Caldwell Banker had merged with Bob Capes — wasn’t specific enough. The transaction in November 2008 was an asset sale, and not a merger; ERISA’s lenient standards for successor liability don’t apply to unfunded “top hat” plans; the plan is the only proper defendant; and Jeter had relinquished all her interest under the plan.

In rejecting those arguments, the U.S. District Court for the District of South Carolina emphasized Jeter’s description of the relationship between Caldwell Banker and Bob Capes as a merger. The rejection of Caldwell Banker’s motion to dismiss comes on the heels of several other cases ruling on successor liability, including:

Einhorn v. M.L. Ruberton Construction Co., in which a buyer of assets was held liable for the sellers’ unpaid plan contributions; and

Feinberg v. RM Acquisition, in which the buyer of a bankrupt business was not liable for its top hat plan benefits.

Clearly the book on successor liability is still being written. However, employers and their plans should take care to limit their potential liability in similar situations, especially in asset transactions. Be sure to consult an ERISA attorney for advice on ways to mitigate potential liability and protect your plan’s assets.