Failed ERISA Suit Is Neither Bird Nor Plane

(CN) - Though one cannot escape ERISA obligations as easily Superman dons "Clark Kent's glasses," a pension fund failed to support its suit with the alter-ego doctrine, a federal judge ruled.

The dispute at issue involves Thermal Specialties Inc. (TSI), a Texas corporation owned by Robert and Paula Caffey that provided services and products related to industrial furnaces, heat treatment and insulation, for more than 30 years.

TSI maintained for many years collective-bargaining agreements with the local and international Bricklayers Union, which required it to contribute to employee pension funds.

When the Caffeys decided to retire in 2008, they hired Mitchell Myers with the expectation that he would later purchase TSI's assets.

Myers eventually bought substantially all of TSI's assets for $12 million to $13 million in June 2009 on behalf of an Oklahoma company he wholly owned, Thermal Specialties Acquisition Co.

TSAC, Myers' company, refused, however, to assume the collective-bargaining agreements.

Within a month of the sale, the union filed a charge with the National Labor Relations Board (NLRB) for unfair labor practices, asserting that TSAC was an alter ego or disguised continuance of TSI.

The board disagreed, however, with its acting regional director, Naomi Stuart, citing "the lack of substantially identical common ownership, the lack of control of the successor business by the predecessor or its principals, and the arms-length nature of the sale precludes a finding of alter-ego status."

This held true even though TSAC kept the same management, business purpose, operation and customers, Stuart said.

Pension fund trustees, led by James Boland, then filed a federal complaint in Washington, seeking to hold the companies jointly and severally liable for deficient pension contributions since July 1, 2011.

U.S. District Judge James Boasberg granted the companies summary judgment Wednesday, opening the decision with a reference to one of pop culture's most famous disguises.

"Because Superman cannot escape his debts - or his ERISA obligations - by putting on Clark Kent's glasses, courts generally hold employers liable for pension agreements made by their 'alter egos,'" Boasberg wrote. "Relying on that alter-ego doctrine, trustees of the pension funds sued TSAC and TSI. All parties now move for summary judgment. In this case, however, TSAC and TSI are not as identical as the superhero and his civilian double. Because their ownership is decidedly different, the court will grant TSI's and TSAC's motions and deny plaintiffs'.

Ultimately, TSI and TSAC are not the same firm, according to the ruling.

"Here, TSAC acquired substantially all of TSI's assets in a sufficiently arms-length transaction," Boasberg wrote. "Before the sale, the Caffeys owned the assets of the company; thereafter, Myers and his LLC did. The only relationship between the Caffeys and Myers was a legitimate business one. That genuine difference in ownership and control after a bona fide transaction proves dispositive.

"Nor does the evidence here suggest any flim-flammery," Boasberg added. "Perhaps most importantly, plaintiffs never explain why the Caffeys would have wanted to flush money down the drain by selling their business for less than what it was worth. Unlike a typical sham deal, moreover, negotiations between Caffey and Myers were protracted. They even delayed the sale so that they could better estimate TSI's market value. Caffey and Myers also carefully accounted for and divided hundreds of thousands of dollars of profits in the interim, refining the distribution plan in each partnership agreement."

The court tossed aside claims that Myers was a co-owner of TSI before the sale.

"At core, those agreements created a profit-sharing arrangement - compensation for Myers's work while he and Caffey awaited valuation of TSI's assets," Boasberg wrote. "When employers share profits with employees (as they often do), the employees do not become owners." (Parentheses in original.)

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