CHICAGO (CN) – The successor to Rand McNally is not responsible for the bankrupt company’s unfunded executive pension plan, the 7th Circuit ruled.
Rand McNally – a publisher of maps, atlases and textbooks – declared bankruptcy in 2003. The proceedings left the company’s supplemental pension plan for senior executives unimpaired – none of the debt created by the plan had been discharged or modified.
McNally sold all of its assets and some liabilities to RM Acquisition in 2007, but the “top hat” pension plan was not among them. After the sale McNally could not continue to pay the plan’s benefits.
Former senior executives who participated in the plan sued to recover the promised benefits, arguing that RM is liable as the “de facto plan administrator.”
McNally, RM and the plan were originally named as defendants, but the executives dropped McNally when they discovered it had no assets.
“The proper defendant in a suit for benefits under a ERISA plan is … normally the plan itself … rather than the plan administrator, because the plan is the obligor,” Judge Richard Posner wrote for the three-judge appellate panel. “To sue the administrator for plan benefits is like suing a corporation’s CEO to collect a corporate debt.”
The 7th Circuit took up the case after an Illinois federal court dismissed the action, finding that RM had not accepted liability for the plan at the time of the purchase.
The lower court’s ruling was upheld on appeal since there was no explicit transfer of the plan.
For liability to transfer, “the successor would have to consent, as by taking over the plan without rejecting the successorship clause,” Posner wrote. “RM did not consent, implicitly or otherwise.”
If McNally distributes the money it received from the RM acquisition to its shareholders as a dividend, executives could sue McNally and seek redress against the shareholders under state law, the ruling states. RM, however, has no obligation toward Feinberg.
“A buyer of assets has, with exceptions inapplicable to this case, no obligation to assume the seller’s liabilities,” Posner wrote.