The U.S. Court of Appeals for the Second Circuit upheld a lower court ruling that C&S Wholesaler Grocers, Inc. (C&S) was not responsible for a $58 million payment to a Teamsters pension fund. A unanimous three-judge panel of the court noted that an ERISA provision could make a successor liable for pension payments in some circumstances. However, the panel concluded that the provision did not apply in the case of New York State Teamsters Conference Pension and Retirement Fund et al. v. C&S Wholesale Grocers Inc., case number 20-1185, U.S. Court of Appeals for the Second Circuit.
ERISA contains a provision aimed at preventing companies from evading pension liabilities in business transactions. However, that provision is meant for transactions in which an employer stops paying into the pension fund and enters a transaction with the principal purpose of evading liability.
C&S bought Penn Traffic’s wholesale business and agreements with independent grocery retailers in 2007 and 2008 after Penn fell into financial trouble. However, C&S explicitly declined to purchase Penn’s warehouse due to concerns about pension liability.
Based on these facts, the court stated that C&S did not qualify as a successor of Penn Traffic because a nonemployer specifically decided not to take on any potential pension liability. Making a sensible business decision to avoid liability by refusing to purchase a possibly encumbered asset such as Penn’s warehouse does not mean that C&S evaded liability for the pension fund.
Penn ultimately filed for bankruptcy in 2009, which led to the closure of its warehouse in 2010. These events led to a $63.6 million pension withdrawal liability bankruptcy claim. Unfortunately, the bankruptcy estate could cover only $5 million of that liability, leading to the New York State Teamsters Conference Pension and Retirement Fund filing this suit against C&S in 2016.
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