Buyer of business assets held not responsible for seller’s alleged federal forced labor liability

This case arises out of Trucker’s previous employment as a truck driver for Trucking Company. In short Seller leased tractor trailers to Trucker who then subleased the tractor trailers and their driving services to Trucking Company.

Trucker claimed that as a condition of Trucker’s employment for Trucking Company, Trucking Company required Trucker to lease tractors from Seller, and, under the lease agreement with Seller, Trucker could only drive for Trucking Company. If Trucker did not drive for Trucking Company, the Trucker claimed that Trucker would default on Trucker’s lease agreement with Seller, subjecting Trucker to an acceleration clause whereby Trucker would be required to pay the entire balance of the lease immediately to Seller.

On October 20, 2015, Trucker entered in to a lease agreement with Seller. That agreement terminated in December of 2015.

On September 19, 2016, Seller sold some of its assets to Buyer, another subsidiary of Seller’s parent company. The assets included Seller’s leasing agreements with the truck drivers that worked for Trucking Company.

On October 3, 2016, Buyer and Seller’s parent company split into two publicly traded companies, one as the world’s largest publicly traded fleet management company and the other, a large North American commercial finance company. Buyer went with the fleet management group and Seller went with the commercial finance group.

On December 19, 2017, Trucker filed a class action against Buyer, Seller, and Trucking Company, in a Kentucky federal district court seeking to recover damages for Seller’s alleged violation of the federal forced labor statute. Trucker alleged that the Seller obtained the continuous labor of Trucker by using threats of serious harm and operated a scheme, plan or pattern intended to cause Trucker to believe that non-performance of labor would result in serious financial and professional harm. Trucker alleged that this conduct violated the federal forced labor statute.

Buyer filed a motion asking the court to rule that it was not responsible for Seller’s alleged liability because Buyer purchased Seller’s assets and did not assume this Seller liability and was not otherwise responsible for Seller’s claimed liability in this lawsuit under some theory of successor liability.

Buyer replied that it not only did not agree to assume liability for Trucker’s claims, but that it would not be equitable and in keeping with federal policy to hold it liable as a successor when it did not have notice of Trucker’s claims, did not benefit from Seller’s alleged unlawful conduct, and Seller was able to provide Trucker the requested relief.

The court agreed with Buyer.

This case is referred to Carter v. Paschall Truck Lines, Inc., Civil Action No. 5:18-CV-041-TBR, United States District Court, W.D. Kentucky, Paducah, (January 23, 2019).

Comment. The court said that federal law in parts of the country won’t make buyer responsible for a seller’s federal employer liability unless the buyer knew about the liability before the closing. The court was not sure whether that is true in its region of the country which is under the appellate jurisdiction of the U.S. Court of Appeals for the 6th circuit which covers Kentucky, Tennessee, Michigan and Ohio.

This court also said that Buyer could not prove it had no notice by pointing to the asset purchase agreement where Seller said in effect it did not have such liability.

By John McCauley: I help people start, grow, buy and sell their businesses.



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Posted in asset purchase agreement, Buyer beware, federal employer liability, notice, seller rep of no federal employer liability, successor liability

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