Northwest Administrators Inc v. Santa Clarita Convalescent Corporation

Filing 59

ORDER granting defendant's 37 Motion for Summary Judgment; directing the Clerk of Court to enter judgment in favor of defendant 23801 Newhall Avenue, LLC, and against plaintiff. Signed by Judge Robert S. Lasnik. (SWT)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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_______________________________________
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NORTHWEST ADMINISTRATORS, INC., )
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Plaintiff,
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v.
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SANTA CLARITA CONVALESCENT
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CORPORATION, et al.,
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Defendants.
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_______________________________________)

No. C17-1001RSL
ORDER GRANTING DEFENDANT’S
MOTION FOR SUMMARY
JUDGMENT

This matter comes before the Court on “Defendant 23801 Newhall Avenue, LLC’s

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Motion for Summary Judgment.” Dkt. # 37. Plaintiff seeks to hold defendant 23801 Newhall

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Avenue, LLC, jointly and severally liable for a liability its predecessor, Santa Clarita

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Convalescent Corporation (“SCCC”), incurred when it withdrew from an underfunded multi-

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employer pension plan. 23801 Newhall purchased a 99-bed skilled nursing facility from SCCC

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through an Asset Purchase Agreement that closed on January 5, 2015. Plaintiff subsequently

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learned of the transfer and assessed withdrawal liability against SCCC as of the date of the

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transfer. The Court entered judgment against SCCC for the full amount claimed. 23801 Newhall

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seeks dismissal of the claims against it because, as an asset purchaser with no knowledge of

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SCCC’s withdrawal liability, equity does not favor imposing SCCC’s statutory liability on

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23801 Newhall.1

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Because the Court finds this argument persuasive, it need not determine whether plaintiff was obligated
to send written notice of the calculated withdrawal liability and a demand for payment to both the predecessor and
successor companies under 29 U.S.C. § 1399(b)(1).
ORDER GRANTING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT

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Having reviewed the memoranda, declarations, and exhibits submitted by the parties,2 the

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Court finds that 23801 Newhall is entitled to judgment as a matter of law. The general rule is

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that the purchaser of assets does not acquire the seller’s liabilities related to those assets.

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Resilient Floor Covering Pension Tr. Fund Bd. of Trustees v. Michael’s Floor Covering, Inc.,

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801 F.3d 1079, 1090 (9th Cir. 2015). An exception arises under the Employee Retirement

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Income Security Act of 1974 (“ERISA”), as amended by the Multi-Employer Pension Plan

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Amendments Act, 29 U.S.C. § 1001-1461, where there is substantial continuity in the business

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operations after the sale and the buyer had prior notice of the seller’s withdrawal liability.

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Resilient Floor, 801 F.3d at 1092-93. It is undisputed that 23801 Newhall continued to operate

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the skilled nursing facility after the sale. With regards to the second element of the successor

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liability analysis, plaintiff argues that a reasonable fact finder could infer that, at the time of

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purchase, 23801 Newhall knew that SCCC faced withdrawal liability and/or should have known

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of the potential liability.

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The evidence does not support a finding of actual knowledge. The only evidence in the

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record shows that 23801 Newhall and its principal, Henry Kim, had not previously purchased,

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owned, or operated an entity affiliated with a labor union or participating in a multi-employer

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pension plan. In the Asset Purchase Agreement, SCCC expressly warranted that it did not

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sponsor, maintain, or contribute to any pension or benefit plans. 23801 Newhall was unfamiliar

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with the concept of withdrawal liability. The fact that SCCC had and disclosed a collective

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bargaining agreement with the Teamsters union does not support a finding of actual notice of

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potential withdrawal liability: a collective bargaining agreement can exist separately from any

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obligation to fund employee pension or benefit plans and, even if such a plan exists, withdrawal

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liability does not automatically arise when an employer sells the assets of the business. Nor does

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the fact that 23801 Newhall negotiated a broad indemnification provision which covered

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This matter can be decided on the papers submitted. Defendant’s request for oral argument is therefore
DENIED.
ORDER GRANTING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT

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liabilities arising under ERISA suggest actual knowledge of a multi-employer pension plan or

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potential withdrawal liability: the evidence shows the language was imported from a prior

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transaction that did not involve any union participation at all.

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In the absence of evidence of actual knowledge, plaintiff argues that, once the collective

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bargaining agreement was disclosed, 23801 Newhall had a duty to investigate further to

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determine whether SCCC was participating in a multi-employer pension plan and whether

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withdrawal liability could be triggered by the transaction. The Ninth Circuit recently clarified

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that an asset purchaser can be held liable for the seller’s withdrawal liability if it had

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constructive knowledge of the liability. Under that standard, “purchasers are deemed to have

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notice of any facts that one using reasonable care or diligence should have.” Heavenly Hana

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LLC v. Hotel Union & Hotel Indus. of Hawaii Pension Plan, 891 F.3d 839, 845 (9th Cir. 2018)

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(internal quotation marks omitted). The Ninth Circuit reasoned that “[r]equiring purchasers to

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make reasonable inquiries into the existence of withdrawal liability advances the congressional

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interest in preventing underfunding in multi[-]employer pension plans.” Id. at 846. The court’s

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ruling clearly and intentionally incentivizes purchasers to identify any potential withdrawal

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liability and ensure that it is accounted for during an asset purchase. Id. at 846-47.

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Still, “the origins of successor liability are equitable, [and] fairness is a prime

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consideration in its application.” Id. at 846 (quoting Resilient Floor, 801 F.3d at 1091). A

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constructive knowledge standard is not the same as strict liability: withdrawal liability will

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transfer to a successor only if (a) the purchaser, using reasonable care or diligence, would have

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discovered the withdrawal liability and (b) imposition of liability would be fair given the

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circumstances. Id. at 847. In Heavenly Hana, the purchaser operated other hotels that

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participated in multi-employer pension plans, knew that the seller contributed to such a plan,

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and, in previous deals, had instructed its due diligence team to investigate potential withdrawal

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liability. In this transaction, the purchaser chose to negotiate a provision requiring the seller to

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provide notice of any plan deficiencies: it made no effort to review the annual funding notices
ORDER GRANTING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT

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the seller had received alerting it to deficiencies or the plan administrator’s public website

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containing the deficiency notices. At the same time, the purchaser sent a due diligence team,

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including engineers, to evaluate the physical premises it was buying and ultimately negotiated a

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significant reduction in the purchase place based on their findings. The Ninth Circuit concluded

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that, “[i]n these circumstances, a reasonable purchaser would have taken additional actions to

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determine if withdrawal liability existed,” such as reviewing the publicly available documents,

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asking for copies of all notices the seller had received, and/or requiring the seller to obtain from

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the plan an estimated amount of withdrawal liability. Id.
In this case, all 23801 Newhall knew was that SCCC was a party to a collective

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bargaining agreement. 23801 Newhall had no previous experience or familiarity with multi-

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employer pension plans or the concept of withdrawal liability. SCCC expressly stated that it was

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not participating in any pension or benefit plans. Plaintiff argues that a thorough reading of the

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collective bargaining agreement would have shown that SCCC misrepresented this important

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fact and may have led 23801 Newhall to the plan administrator, which could then have provided

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information regarding SCCC’s potential withdrawal liability. 23801 Newhall was not assuming

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any right or obligations under the collective bargaining agreement, however: given the

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information 23801 Newhall had, further investigation was simply not indicated.
Plaintiff has not produced any evidence to rebut Mr. Kim’s statements regarding 23801

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Newhall’s state of knowledge, relative sophistication regarding pension matters, or the

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negotiation of the Asset Purchase Agreement. The Court finds, based on the undisputed facts,

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that 23801 Newhall did not have actual or constructive notice of SCCC’s potential withdrawal

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liability at the time of the asset purchase. The Court further finds that the imposition of

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withdrawal liability on the successor in these circumstances would be unfair even when balanced

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against the protective purposes of the federal statutes at issue.

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//
ORDER GRANTING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT

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For all of the foregoing reasons, defendant’s motion for summary judgment is

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GRANTED. The Clerk of Court is directed to enter judgment in favor of defendant 23801

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Newhall Avenue, LLC, and against plaintiff.

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Dated this 9th day of November, 2018.

A
Robert S. Lasnik

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United States District Judge

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ORDER GRANTING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT

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