Sixth Circuit Update: Successor Company Could Not Escape Withdrawal Liability Under Alter Ego Theory of Liability –Even After Bankruptcy of Former Company

March 2019
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Sullivan, Ward, Asher & Patton, P.C., obtained a significant decision in the United States Sixth Circuit Court of Appeals on behalf of its client, a multiemployer pension fund.  The court held the Fund was entitled to collect withdrawal liability from the corporate successor of a bankrupt contributing employer, and upheld a judgment against the successor company nearly triple the amount of the withdrawal liability assessment sought in the bankruptcy proceedings.    

On March 21, 2019, the Sixth Circuit issued its decision in Trustees of Operating Engineers Local 324 Pension Fund v. Bourdow Contracting, 919 F.3d 368 (6th Cir. 2019). The action arose from the withdrawal of Bourdow Trucking, a contributing employer to the 324 Pension Fund.  The 324 Pension Fund filed an action in federal district court to collect this withdrawal liability.  During the course of this litigation, Bourdow Trucking filed for Chapter 7 bankruptcy. The 324 Pension Fund filed a proof of claim in the bankruptcy action in the amount of $1,272,187, which was the withdrawal liability owed plus interest to date.  The 324 Pension Fund recovered $52,034 in the bankruptcy action.   

 The 324 Pension Fund also filed an action in federal district court to recover the withdrawal liability from Bourdow Contracting, an alter ego of Bourdow Trucking.  The district court found that Bourdow Contracting was an alter ego of Bourdow Trucking, and thus liable for the withdrawal liability.  The district court entered a judgment against Bourdow Contracting in the amount of $3,221,981, which was the total amount of Bourdow Trucking’s withdrawal liability, less the amount paid to the 324 Pension Fund in the bankruptcy proceeding, plus interest to date of judgment and attorneys’ fees awarded pursuant to 29 U.S.C. Sec. 1132(g)(2).

Bourdow Contracting appealed the finding of alter ego status and the amount of the judgment to the Sixth Circuit.  The Sixth Circuit upheld the decision of the district court on both issues.  In doing so, the court reaffirmed the Sixth Circuit test for alter ego:

The …test for determining whether two companies are alter egos . . . look[s] to see “whether the two [companies] have substantially identical management, business[] purpose, operation, equipment, customers, supervision, and ownership.” Id. (quoting Fullerton Transfer, 910 F.2d at 336). An employer's "intent to evade" its labor  obligations is also a factor. Id.  In applying these factors, no individual factor is determinative; instead, “all the relevant factors must be considered together.” Id. (quoting NLRB v. Allcoast Transfer, 780 F.2d 576, 582 (6th Cir. 1986)). 

Bourdow, p. 376.  The court found these factors, including an intent to evade labor obligations, weighed in favor of the district court’s finding.    

As to the amount, the Sixth Circuit upheld the district court’s determination that Plaintiff was entitled to a judgment of $3,221,981, rejecting Bourdow Contracting’s argument that the proof of claim filed by the Plaintiff pension fund in underlying bankruptcy proceedings precluded this result.  The Sixth Circuit stated that “the res judicata effect of Plaintiff’s proof of claim [in the bankruptcy court] does not bar litigation of the amount of Defendant’s liability. Thus, the district court did not err by determining that Plaintiff was entitled to a judgment in the amount of $3,221,981.”  Bourdow, p. 384. 

A copy of the full opinion can be found here: http://www.opn.ca6.uscourts.gov/opinions.pdf/19a0049p-06.pdf

David J. Selwocki, Matthew I. Henzi and Jessica L. Schuhrke of Sullivan, Ward, Asher & Patton P.C. represented the 324 Pension Fund Trustees in Bourdow