Explore the legal complexities of a recent M&A case in Santa Clarita, California, where a buyer faced unexpected challenges related to the seller’s unfunded multi-employer pension plan obligation. Gain insights into the court’s decision and the implications for buyers in industries with union affiliations.
M&A Stories
August 31, 2018
In a recent M&A case, a buyer of a 99-bed skilled nursing facility in Santa Clarita, California found themselves entangled in a legal battle over the seller’s unfunded multi-employer pension plan obligation. The situation serves as a cautionary tale for those navigating acquisitions in industries with union affiliations.
The buyer, who acquired the facility through an asset purchase agreement in January 2015, faced a lawsuit from a multi-employer pension plan post-closure. The buyer argued lack of knowledge regarding the pension liability, emphasizing that they had no prior experience with labor unions or multi-employer pension plans.
Despite the buyer’s unawareness, the court highlighted the buyer’s duty to exercise reasonable care in due diligence. The recent change in federal law clarified that buyers can be held liable for unfunded union pension obligations if they had constructive knowledge of the liability. Constructive knowledge implies being aware of facts that diligent investigation should have uncovered.
The court rejected the buyer’s argument that negotiating a broad indemnification provision under ERISA shielded them from liability. It emphasized the need for buyers to delve deeper into collective bargaining agreements and associated pension obligations, especially in the context of recent legal developments.
This case underscores the complexity and risks associated with acquiring businesses with union employees. Buyers in such scenarios are advised to seek legal counsel with expertise in handling union-related issues during business acquisitions.
Case Reference:
Northwest Administrators, Inc. v. Santa Clarita Convalescent Corporation, No. C17-1001RSL, United States District Court, W.D. Washington, Seattle, (June 27, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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