Members of the Board of Administration of the Toledo Area Industries UAW Retirement Income Plan v. OBZ, Inc. et al

Filing 40

Order denying defendant's Motion to dismiss for failure to state a claim (Related Doc # 34 ). The Clerk shall forthwith schedule a status/scheduling conference. Judge James G. Carr on 10/20/17.(C,D)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
WESTERN DIVISION

Members of the Board of
Administration of the Toledo Area
UAW Retirement Income Plan,

Case No. 3:15CV00756

Plaintiff,
v.
ORDER
OBZ, Inc., et al.,
Defendants.

This is an ERISA pension withdrawal liability case in which plaintiff, Members of the
Board of Administration of the Toledo Area UAW Retirement Income Plan, claims defendant,
RAKA Corp. (d/b/a Lockrey Manufacturing) (Lockrey), remains liable for defendant OBZ,
Inc.’s (f/k/a Toledo Wire Products Inc.) (Toledo Wire) withdrawal liability under the Employee
Retirement Income Security Act (ERISA) and the Multiemployer Pension Plan Amendments Act
(MPPAA).
Jurisdiction exists under 28 U.S.C. § 1331.
Pending is defendant Lockrey’s motion to dismiss for failure to state a claim. (Doc. 34).
Plaintiff has filed a response (Doc. 37) to which defendant Lockrey has replied. (Doc. 38).
For the following reasons, I deny the motion.

Background
In September, 2014, Lockrey, a Toledo-based company, entered into an asset purchase
agreement with Toledo Wire, another Toledo-based company engaged in the wire-forming
business. The purpose of the sale was for Lockrey to become a wire-forming company. For
$250,000 Lockrey purchased a portion of Toledo Wire’s assets and its customer list.
Unlike Lockrey, a nonunion employer, Toledo Wire operated as a union company and
participated in a multiemployer pension plan (the Plan) under a collective bargaining agreement
(CBA) with The International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America. For ERISA purposes, Toledo Wire was a “contributing
employer” with respect to the Plan.
Pursuant to the CBA, Toledo Wire made monthly contributions to the Plan on behalf of
its unionized workers until May, 2013. On that date, Toledo Wire ceased operations covered by
the CBA. The result was a complete withdrawal from the Plan.
Toledo Wire remained liable, however, for withdrawal liability under the MPPAA, which
plaintiff alleges Lockrey knew about before entering into the asset purchase agreement. In
accordance with ERISA and the MPPAA, on October 17, 2013, the Plan informed Toledo Wire
of its withdrawal liability, calculated at $644,311. In November, 2013, Toledo Wire made its
first withdrawal liability payment to the Plan and continued to make such payments to the Plan
until October, 2014.
As noted above, in September, 2014, Toledo Wire sold the majority of its assets to
Lockrey. Although Lockrey continued to do the same type of work in the jurisdiction of the CBA
for which contributions were previously required of Toledo Wire, Lockrey did not make any

2

contributions to the Plan or withdrawal liability payments following its purchase of Toledo
Wire’s assets.
According to plaintiff, Lockrey has since continued Toledo Wire’s operations, thus
operating as Toledo Wire’s successor. This, plaintiff asserts, is evidenced by:


The purpose of the sale was for Lockrey to enter the same type of business in which
Toledo Wire previously engaged;



Lockrey required Toledo Wire to change its name as a condition of sale;



Lockrey held itself out as acquiring Toledo Wire to the public on its website;



Lockrey acquired all of Toledo Wire’s employees;



Lockrey hired a former Toledo Wire employee who left Toledo Wire prior to the sale;



Former Toledo Wire customers were notified of the sale and the effect that the sale would
have on payments and invoices—namely, that future payments would be made to
Lockrey;



Lockrey retained over half of Toledo Wire’s former customers until at least October,
2016; and



Lockrey used all of Toledo Wire’s assets after the sale and currently uses approximately
fifty percent of those assets.
When Toledo Wire stopped making withdrawal liability payments to the Plan, the Plan

advised Toledo Wire owners that Toledo Wire remained under the same legal obligation for
withdrawal liability regardless of any change in ownership. Toledo Wire did not make any
additional payments, and the withdrawal liability amount remains unsatisfied.
Due to Toledo Wire’s failure to make withdrawal payments, on April 17, 2015, plaintiff
filed suit against defendants Toledo Wire (referred to as OBZ, Inc. in plaintiff’s initial
complaint) and Ann Obertacz, part owner of OBZ, Inc., asserting claims of withdrawal liability
pursuant to MPPAA and ERISA.
3

On April 14, 2017, plaintiff filed an amended complaint to join Lockrey as a new
defendant under a theory of successor liability. Specifically, in Count Two, plaintiff asserts that
Lockrey is liable for the $644,000 in withdrawal liability owed by Toledo Wire.
Defendant Lockrey now moves for dismissal of Count Two and dismissal as a party
defendant.
Standard of Review
A complaint must contain a “short and plain statement of the claim showing the pleader
is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
To survive a motion to dismiss under Rule 12(b)(6), the complaint “must contain
sufficient factual matter, accepted as true, to state a claim that is plausible on its face.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. A complaint’s “[f]actual allegations must be enough to raise a
right to relief above the speculative level, on the assumption that all of the complaints allegations
are true.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007) (internal citations
omitted).
I must “construe the complaint in the light most favorable to the plaintiff.” Inge v. Rock
Fin. Corp., 281 F.3d 613, 619 (6th Cir. 2002). Plaintiff, however, must provide “more than labels
and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly, supra, 550 U.S. at 555.
In ruling on a motion to dismiss, I may consider “the Complaint and any exhibits attached
thereto, public records, items appearing in the record of the case and exhibits attached to
defendant’s motion to dismiss so long as they are referred to in the Complaint and are central to
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the claims contained therein.” Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th
Cir. 2008).
Discussion
A. Withdrawal Liability Under the MPPAA1
“Congress enacted the MPPAA to protect the financial solvency of multiemployer
pension plans.” Bay Area Laundry & Dry Cleaning Pension Trust Fund v. Ferbar Corp. of
California, Inc., 522 U.S. 192, 196 (1997); see also Pension Benefit Guarantee Corp. v. R.A.
Gray & Co., 467 U.S. 717, 722 (1984) (recognizing Congress’ intent for MPPAA as reducing
“the adverse consequences that resulted when individual employers terminate[d] their
participation in, or withdr[e]w from, multiemployer plans”).
MPPAA requires an employer withdrawing from a multi-employer fund to pay its share
of “unfunded vested benefits.” 29 U.S.C. § 1381(b)(1). An employer completely withdraws from
a fund when it “permanently ceases to have an obligation to contribute under the plan” or
“permanently ceases all covered operations under the plan.” 29 U.S.C. § 1383(a).

1

In the present action, the issue is not whether Toledo Wire was liable for withdrawal liability
when it withdrew from the Plan. That fact was established by the fact that plaintiff calculated Toledo
Wire’s withdrawal liability, notified Toledo Wire, and demanded payment, which Toledo Wire accepted
when it began making withdrawal liability payments. Instead, as discussed in the next section, my focus is
on the application of federal common law successor liability to this case and whether Lockrey is liable for
the previously established withdrawal liability of its predecessor—Toledo Wire. As such, I do not include
a full and complete analysis of the specific MPPAA provisions outlining the procedures a plan sponsor
must follow to calculate withdrawal liability and the procedures an employer must follow to object to that
calculation.

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B. Successor Liability
Plaintiff alleges that Lockrey is a successor of Toledo Wire. In its motion to dismiss and
reply brief, Lockrey largely ignored plaintiff’s claim regarding Lockrey’s alleged successor
liability. Rather than explicitly disputing the successor allegation, Lockrey relied solely on the
argument that because it is not and has never been a party to any CBA that created an obligation
to contribute to the Plan, it is not an “employer” for purposes of ERISA and the MPPAA and,
therefore, cannot be liable for Toledo Wire’s withdrawal liability.
Defendant’s argument, however, misses the mark. There is no dispute that Lockrey was
not a signatory to the CBA governing the Plan and, thus, was not bound, at least initially, by the
CBA. The issue here, however, is whether the doctrine of successor liability applies and renders
Lockrey liable as a successor employer—not as an original party to the CBA with an obligation to
contribute to the Plan—for the debt owed to plaintiff by Toledo Wire, its predecessor.
Most states adhere to the general rule of:
nonliability for acquiring corporations, with the following exceptions: The
purchaser may be liable where: (1) it assumes liability; (2) the transaction amounts
to a consolidation or merger; (3) the transaction is fraudulent and intended to
provide an escape from liability; or (4) the purchasing corporation is a mere
continuation of the selling company.
Bender v. Newell Window Furnishings, Inc., 681 F.3d 253, 259 (6th Cir. 2012); see also Yolton v.
El Paso Tenn. Pipeline Co., 435 F.3d 571, 586 (6th Cir. 2006) (“[A] successor corporation
generally is not liable for its predecessors liabilities unless expressly assumed.”).
However, federal courts have created a federal common law successorship doctrine that
imposes liability upon successors beyond the common law in an effort to protect important
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employment law policies. See Golden State Bottling Co. v. NLRB, 414 U.S. 168 (1973) (analyzing
successor liability in the context of labor obligations and acknowledging the need to “strik[e] a
balance between the conflicting legitimate interests of the bona fide successor, the public, and the
affected employee to effectuate national labor policy”); see also Einhorn v. M.L. Ruberton Const.
Co., 632 F.3d 89, 95 (3d Cir. 2011) (applying Golden State Bottling Co., supra, 414 U.S. 168, to
the ERISA context because “the federal policies underlying ERISA and the [MPPAA] are no less
important, and no less compel the imposition of successor liability than do the policies animated
the NLRA, Title VII, or other statutes to which the doctrine has been extended”) (internal citation
and quotation marks omitted); Upholsterers’ Int’l Union Pension Fund v. Artistic Furniture of
Pontiac, 920 F.2d 1323, 1327 (7th Cir. 1990) (“[W]e do not see any reason why successor
liability should not in principle apply to actions seeking recovery of delinquent multiemployer
pension fund contributions.”).
Under the federal common law standard, upon which plaintiff’s argument as to Lockrey
relies, “a purchaser of assets may be liable for delinquent ERISA fund contributions to vindicate
important federal statutory policy where the buyer had [1] notice of the liability prior to the sale
and [2] there exists sufficient evidence of continuity of operations between the buyer and seller.”
Einhorn, supra 632 F.3d at 99; see also Upholsterers’ Int’l Union Fund, supra, 920 F.3d at 1329
(holding application of successor liability appropriate “in those cases where the vindication of an
important federal statutory policy has necessitated the creation of an exception to the common
law rule, where the successor has had prior notice of the liability in question, and where there has
existed sufficient evidence of continuity of operations between the predecessor and successor”).
As the Third Circuit noted, these elements exist to protect buyers entering into
transactions without knowledge of a seller’s liabilities to avoid discouraging corporate
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transactions. Einhorn, supra, 632 F.3d at 96 (“The requirement of notice and the ability of the
successor to shield itself during negotiations temper concerns that imposing successor liability
might discourage corporate transactions.”); Upholsters’ Int’l Union Pension Fund, supra, 920
F.2d at 1327 (“[I]t would be inequitable to hold a successor liable when it was unable to take the
liability into account in negotiating the acquisition price or when the predecessor was capable of
paying and merely attempted to externalize the liability onto another party.”); Tsareff v. ManWeb
Servs., Inc., 794 F.3d 841, 849 (7th Cir. 2015) (“The notice requirement is animated by concerns
that it is inequitable to impose successor liability upon an innocent purchaser who did not have
an opportunity to protect itself by obtaining indemnification or negotiating a lower purchase
price.”).
On the other hand, federal courts recognize that “[s]hielding a successor employer from
liability when the company had knowledge of the potential liability and still had bargaining
power with regard to the transaction runs counter to the policies underlying the doctrine of
successor liability.” Tsareff, supra, 794 F.3d at 849.
While this issue has not yet been addressed by the Sixth Circuit,2 several federal courts
in other jurisdictions have applied successor liability in the ERISA context where a party seeks
to hold a successor liable for its predecessor’s delinquent ERISA contributions or MPPAA
withdrawal liability.3

2

In McCollum v. Life Ins. Co. of N. Am., 495 Fed. App’x 694, 706 n.12 (6th Cir. 2012), the
Sixth Circuit had the opportunity to apply the successor liability analysis in an ERISA case but declined
to do so because the plaintiff in that case “[did] not contend that successor liability in the ERISA context
is different than common-law successor liability.”
3

See, e.g., Mass. Carpenters Cent. Collection Agency v. Belmont Concrete Corp., 139 F.3d 304,
308 (1st Cir. 1998) (“Although developed in the labor law context, alter ego or successor liability
analysis has been applied to claims involving employee benefit funds brought under ERISA and the

8

LMRA.”); Stotter v. Div. of Graduate Plastics Co., Inc. v. Dist. 65, United Auto Workers, 991 F.2d 997,
1002 (2d Cir. 1993) (holding arbitrator did not exceed his authority when finding a successor employer
liable for delinquent contributions owed under the predecessor employer’s CBA with a union); Einhorn
v. M.L. Ruberton Const. Co., 632 F.3d 89, 99 (3d Cir. 2011) (remanding for the district court to apply the
successorship doctrine in ERISA case where employee benefit plans sued purchaser of employer’s assets
to recover unpaid contributions owed under collective bargaining agreements); Tsareff v. Manweb
Servs., Inc., 794 F.3d 841, 846 (7th Cir. 2015) (holding that notice of contingent withdrawal liability
satisfies the successor liability notice requirement and a contrary holding would create a “loophole”
foreclosing multiemployer plan sponsors “from seeking withdrawal liability from asset purchasers who
would otherwise qualify as successors, and the plans would be left ‘holding the bag’”); Upholsterers’
Int’l Union Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323, 1328 (7th Cir. 1990) (holding that
successor liability applies in the ERISA context and stating that the opposite conclusion “would be
contrary to congressional pension policy”); Haw. Carpenters Trust Funds v. Waiola Carpenter Shop,
Inc., 823 F.2d 289 (9th Cir. 1987) (applying the substantial continuity test to determine whether a
successor was liable for delinquent contributions following an asset purchase); Resilient Floor Covering
Pension Trust Fund Bd. of Trustees v. Michael’s Floor Covering, Inc., 801 F.3d 1079, 1093 (9th Cir.
2015) (“We see no reason why the successorship doctrine should not apply to MPPAA withdrawal
liability just as it does to the obligation to make delinquent ERISA contributions.”); Reed v. EnviroTech
Remediation Servs., Inc., 834 F. Supp. 2d 902, 910 (D. Minn. 2011) (“Liability for delinquent employee
benefit contributions may also attach to a successor corporation, under certain circumstances.”); Bd. of
Trustees of Unite Here Local 25 v. MR Watergate LLC, 677 F. Supp. 2d 229, 231 (D.D.C. 2010)
(applying a nine-part test—reflecting the notice and continuity of operations elements—to determine
whether purchaser of assets is a successor employer subject to withdrawal liability); Trs. of the Utah
Carpenters & Cement Masons Pension Trust v. Daw, Inc., 2009 WL 77856, *3 (D. Utah) (holding buyer
liable for seller’s withdrawal liability under ERISA); see also 14 Fletcher, Cyc. Corp. § 6755 (“Although
asset sales do not ordinarily result in successor liability, federal courts in the labor law field have taken a
far more liberal approach [than the common law] in imposing the obligations of a seller of assets on the
purchaser. This approach has been followed to hold a successor liable where the predecessor employer
had failed to meet its payment obligations under a multiemployer plan. . . . Withdrawal from a
multiemployer plan can generate withdrawal liability for successor corporations.”).

9

In addition to courts in other circuits, several district courts in the Sixth Circuit have
applied successor liability in ERISA cases. See, e.g., Sheet Metal, Air, Rail, & Transp. Workers
No. 33 Youngstown Dist. Collection & Admin. Agency, Inc. v. Total Air Sys., 2014 WL 2772668
(N.D. Ohio) (considering plaintiff’s claim to recover delinquent ERISA contributions under the
federal common law successor liability standard but holding summary judgment proper due to the
lack of evidence of continuity of operations); Bd. of Trustees of Plumbers v. R. & T. Schneider
Plumbing Co., 2015 WL 4191297 (S.D. Ohio) (recognizing, but declining to apply under the
factual circumstances, successor liability as a theory of relief in ERISA case); Schilling v. Interim
Healthcare of Upper Ohio Valley, Inc., 2008 WL 2355831 (S.D. Ohio) (applying the two
elements and finding successor liability proper where “business of [seller] and [buyer] is
essentially the same, the former employees of [seller] are now employed by [buyer] doing the
same jobs in the same working conditions, and [buyer] has the same . . . core customers as
[seller]”); Zawlocki v. Rama Tech LLC, 2005 WL 3991756 (E.D. Mich.) (holding defendant was
not liable under ERISA as a successor employer); Bennett v. Gilbert, 1998 WL 35434962, *2
(W.D. Mich.) (finding successor liability in the ERISA context promotes “Congressional intent to
protect plan participants and their beneficiaries” and holding defendant liable for contributions
unpaid by its predecessor where continuity of operations and knowledge of the liability were
established).
I agree with those circuits, as well as the district courts in the Sixth Circuit, that have held
federal common law successor liability applies to delinquent ERISA contribution claims. Further,
I agree with those circuits that have held federal common law successor liability applies to claims
brought by a multiemployer pension plan to recover withdrawal liability pursuant to the MPPAA.
The justification for my conclusion is akin to the Ninth Circuit’s analysis in Resilient Floor
10

Covering Pension Trust Fund Bd. of Trustees v. Michael’s Floor Covering, Inc., 801 F.3d 1079
(9th Cir. 2015). There, the court explicitly held a successor employer could be subject to MPPAA
withdrawal liability:
The primary reason for making a successor responsible for its predecessor’s
delinquent ERISA contributions is that, “[a]bsent the imposition of successor
liability, present and future employer participants in the union pension plan will
bear the burden of [the predecessor’s] failure to pay its share,” which will threaten
the health of the plan while the successor reaps a windfall. Artistic Furniture, 920
F.3d at 1328. That rationale applies with equal, if not greater, force to a
predecessor’s MPPAA withdrawal liability. A primary purpose of ERISA is “to
ensure that employees and their beneficiaries [a]re not . . . deprived of anticipated
retirement benefits by the termination of pension plans before sufficient funds have
been accumulated in the plans.” R.A. Gray & Co., 467 U.S. at 722. The MPPAA’s
purpose is better to effectuate ERISA’s purpose. By assessing proportional liability
to individual employers who withdraw from a plan, the MPPAA avoids
overburdening the remaining participating employers and increases the likelihood
that multiemployer plans remain fully funded. See id. at 722-25.
Id. at 1093-94.
Thus, the question in the present case becomes whether the amended complaint is
sufficient to state a claim of successor liability under the standard imposed by Twombly and Iqbal.
Reading the amended complaint in the light most favorable to plaintiff, I conclude it does, in fact,
do so.
The complaint alleges facts that arguably establish Lockrey’s status as a successor
employer. Plaintiff’s allegations with respect to Lockrey’s liability track the two elements
required to establish a company’s status as a successor employer under federal common law.
First, plaintiff’s complaint includes allegations regarding Lockrey’s notice of Toledo
Wire’s withdrawal liability. Plaintiff alleges, “Lockrey was on notice of the withdrawal liability
of Toledo Wire prior to the Sale.” (Amended Complaint, ¶104). Further, plaintiff alleges that
“Prior to the Sale, Lockrey and/or its attorneys were provided with documentation that

11

demonstrated that Toledo Wire was subject to withdrawal liability [,and] Lockrey and/or its
agents were aware of the fact that Toledo Wire was paying withdrawal liability.” (Id. ¶¶48-49).
And finally, plaintiff alleges, “The agreement for the Sale recognized that the Plant Closing
Agreement between Toledo Wire and the United Auto Workers Union was provided to Lockrey
prior to the sale”; “The Plant Closing Agreement references that it does not waive the withdrawal
liability of Toledo Wire”; and “Lockrey was aware of Toledo Wire’s withdrawal liability at the
time of the Sale.” (Id. ¶¶66-68).
Second, plaintiff’s complaint includes allegations regarding the continuity of operations
between Lockrey and Toledo Wire following the asset purchase. Plaintiff alleges, “There is
sufficient evidence of continuity of operations between Toledo Wire and Lockrey before and after
the Sale to warrant imposing withdrawal liability on Lockrey under the theory of successor
liability applied to ERISA withdrawal cases under federal common law.” (Id. ¶112).
Plaintiff goes on to include facts supporting the continuity of operations allegation. For
example, plaintiff alleges that all Toledo Wire employees received jobs after the asset sale, and
“that was part of the deal.” (Id. ¶50). As part of the agreement, plaintiff alleges Lockrey required
Toledo Wire to change its name, which it did, “so that Lockrey could pass themselves off as a
successor to Toledo Wire and retain the customer base.” (Id. ¶52). Plaintiff also alleges that
Lockrey entered into the agreement with Toledo Wire for the sole purpose of becoming a
wire-forming company—the same type of business Toledo Wire operated—and following the
sale, Lockrey initially used all the equipment purchased from Toledo Wire and still uses about
fifty percent of that equipment.
And plaintiff continues by alleging:

12

Lockrey held itself out as acquiring Toledo Wire to the public on its website, not
merely purchasing its assets . . . so that it could show the customers that there was
substantial continuity in the operation of the Toledo Wire business before and after
the Sale.
All of the employees of Toledo Wire were acquired by Lockrey and worked for
Lockrey after the Sale.
Lockrey also employed a former Toledo Wire employee to help manage the
manufacturing of the wire-forming products.
Lockrey used most of the same equipment used by Toledo Wire in continuing the
Toledo Wire-forming business.
Products completed by Toledo Wire but shipped and invoiced after September 30,
2014 were to be made payable to Lockrey Manufacturing.
There was substantial continuity of Toledo Wire customers before and after the
Sale.
(Id. ¶¶105-11).
Taken together and accepted as true, these facts demonstrate “a claim to relief that is
plausible on its face.” Iqbal, supra, 556 U.S. at 678 (quoting Twombly, supra, 550 U.S. at 570).
Specifically, the facts alleged in this case, if true, suffice to establish “notice of the liability prior
to the sale” and “continuity of operations between the buyer and seller”—the two elements
required to establish successor liability. Einhorn, supra 632 F.3d at 99. The pleading standard
established

in

Iqbal

and

Twombly

“demands

more

than

an

unadorned,

the-defendant-unlawfully-harmed-me accusation,” but it “does not require ‘detailed factual
allegations.’” Iqbal, supra, 556 U.S. at 678 (quoting Twombly, supra, 550 U.S. at 555). Plaintiff’s
allegations—detailing Lockrey’s notice of Toledo Wire’s outstanding withdrawal liability prior to
the sale and Lockrey’s continuity of Toledo Wire operations after the sale—are more than
sufficient to “nudge [plaintiff’s] claims across the line from conceivable to plausible.” Twombly,
supra, 550 U.S. at 570.
13

Thus, I conclude it is appropriate for this case to proceed to discovery to further develop
the facts necessary to determine whether Lockrey is, in fact, a successor employer under the
federal common law doctrine of successor liability—specifically, Lockrey’s notice and
knowledge of Toledo Wire’s benefits liabilities and the continuity of operations between the two
companies.
Therefore, I deny defendant Lockrey’s motion to dismiss.
Conclusion
Plaintiff’s amended complaint includes factual allegations sufficient to state a plausible
claim for successor liability against defendant Lockrey.
It is, therefore,
ORDERED THAT: defendant’s motion to dismiss (Doc. 34) be, and the same hereby is,
denied.
The Clerk shall forthwith schedule a status/scheduling conference.
So ordered.
/s/ James G. Carr
Sr. U.S. District Judge

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