902 F.3d 597
6th Cir.2018Background
- Findlay Industries terminated its pension plan after going out of business in 2009, leaving PBGC with over $30 million in underfunded pension liabilities.
- PBGC sued to recover liabilities from related parties: an irrevocable trust (the Gardner Trust) that owned land Findlay leased, and successor companies controlled by Michael J. Gardner that bought Findlay’s assets post-closure.
- The Trust was funded when Findlay’s founder transferred two parcels to the Trust in 1986; the Trust leased that land back to Findlay for years and later vested in the founder’s sons (one of whom succeeded as trustee and was a Findlay officer/owner).
- Michael Gardner (45% shareholder, former CEO) arranged purchase of Findlay’s assets via entities he controlled for $3.4 million; those assets generated substantial profits afterward while PBGC covered pension shortfalls.
- The district court dismissed PBGC’s claims: it applied the Supreme Court’s Groetzinger fact-intensive test (from tax law) and held the Trust was not a “trade or business,” and it refused to create federal common-law successor liability for the purchasers.
- The Sixth Circuit reversed and remanded: it held leasing to a commonly controlled employer is categorically a “trade or business” under ERISA and that federal common-law successor liability can apply on these facts to vindicate ERISA’s protective purposes.
Issues
| Issue | Plaintiff's Argument (PBGC) | Defendant's Argument (Gardner Trust / Successors) | Held |
|---|---|---|---|
| Whether an entity that leases property to a commonly controlled employer is a “trade or business” under ERISA | Leasing to a commonly controlled employer should be treated categorically as a trade or business so the lessor shares liability | Groetzinger fact-intensive test (from tax law) applies; Trust’s noncommercial primary purpose defeats status as trade or business | Leasing to a commonly controlled employer is categorically a trade or business for ERISA purposes; Groetzinger is inapposite |
| Whether federal common-law successor liability should be created/applied to hold purchasers (Michael and his companies) liable for Findlay’s pension debt | Federal common-law successor liability is appropriate here because ERISA’s purposes require substance-over-form and to prevent evasion of pension obligations | ERISA/§1369(b) covers corporate reorganizations; Congress limited successor liability so courts should not expand liability via federal common law | On these facts, federal common-law successor liability is available and necessary to promote fundamental ERISA policies; remand for further proceedings |
Key Cases Cited
- Commissioner v. Groetzinger, 480 U.S. 23 (Sup. Ct.) (fact-intensive tax-law test for “trade or business”)
- Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359 (Sup. Ct.) (ERISA’s remedial purpose and PBGC termination-insurance background)
- Messina Prods., LLC v. Central States, 706 F.3d 874 (7th Cir.) (categorical rule for leases to commonly controlled employers)
- Vaughn v. Sexton, 975 F.2d 498 (8th Cir.) (family trust leasing to sponsor treated as a trade or business)
- DiGeronimo Aggregates, LLC v. Zemla, 763 F.3d 506 (6th Cir.) (three-part test for creating federal common law under ERISA)
- Mason & Dixon Tank Lines, Inc. v. Central States, 852 F.2d 156 (6th Cir.) (purpose of common-control rule: prevent circumvention of ERISA obligations)
- Resilient Floor Covering Pension Trust Fund Bd. of Trustees v. Michael’s Floor Covering, 801 F.3d 1079 (9th Cir.) (applying successor-liability principles in pension contexts)