Explore a recent M&A development where a Nebraska-based buyer faces legal challenges after the seller failed to disclose an existing union contract. Dive into the details of the case and understand the implications for M&A transactions.
M&A Stories
November 5, 2018
In a recent M&A development, a Nebraska-based buyer of waterproofing and restoration services found itself entangled in a legal dispute with the seller over undisclosed union obligations. The seller, initially presenting as a non-union company during the 2014 negotiations, failed to disclose an existing union contract.
The buyer, asserting that the seller misrepresented its union status, requested a copy of the contract during negotiations but received none. The situation escalated in April 2016 when the seller’s union filed a lawsuit in a Wichita federal court, alleging the seller’s failure to meet employee benefit plan contributions, a violation of ERISA statutes.
During the legal proceedings, it came to light that the buyer might also be liable for the seller’s obligations. The union added the buyer to its lawsuit, claiming successor liability. In defense, the buyer argued that the seller made false statements during the asset purchase negotiations, portraying itself as a non-union entity.
The court, finding the buyer’s allegations plausible, permitted the buyer to sue the seller. The buyer faces a dual challenge—defending against the union’s direct claim and pursuing a lawsuit against the seller for damages resulting from undisclosed union obligations.
In hindsight, the buyer could have mitigated risks by insisting on reviewing the union contract before closing, involving an expert in union liability. This case underscores the importance of full disclosure in M&A transactions to minimize the potential for costly post-closing disputes.
Case Reference:
BAC Local Union 15 Welfare Fund v. Williams Restoration Company, Inc., Case No. 16-2242-KHV-GEB, United States District Court, D. Kansas (October 26, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
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Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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