The buyer knew about the seller’s union debt before closing. The fight is over whether the concrete manufacturing business of the buyer after the closing was substantially the same as the seller’s concrete manufacturing business.
M&A Stories
January 17, 2023
Introduction
When purchasing the assets of a concrete manufacturer, the buyer must be cautious of assuming responsibility for any outstanding union debts, such as underfunded pensions.
Background
In this case, the buyer was aware of the seller’s union debt prior to the closing of the deal. The current dispute revolves around whether the buyer’s concrete manufacturing business, after the transaction, can be considered substantially similar to the seller’s previous business.
Key Details:
1. The buyer, who also owned a construction company, regularly bought 75% of the seller’s concrete output.
2. The seller relied on union drivers for deliveries and was obligated to contribute to the union pension fund.
3. Before the closing, the seller stopped making pension contributions, leading the union to file a lawsuit against the buyer, seeking to recover the $279K pension shortfall.
The Lawsuit
The court determined that if the buyer was aware of the pension shortfall before the closing and continued the same business substantially, they would be held liable for the pension shortfall. The court confirmed that the buyer had prior knowledge of the shortfall, making the primary issue whether the buyer indeed continued the same business substantially.
The union requested summary judgment in its favor before the trial, arguing that the buyer had substantially continued the seller’s business. However, the court denied this request, stating that determining the substantial continuation of operations required weighing multiple reasonable interpretations of the facts, which is better suited for determination at trial.
See Central Pennsylvania Teamsters Pension Fund v. Waggoner, Civil No. 5:20-cv-05560-JMG, United States District Court, E.D. Pennsylvania, (December 15, 2022).
Commentary
One important question to consider is whether the buyer consulted a union pension expert before finalizing the deal. Various factors contribute to determining substantial continuation:
1. Factors in favor include the buyer acquiring all of the seller’s equipment and vehicles, retaining the seller’s trade name and telephone number, and advertising as the oldest and most experienced concrete company.
2. Factors against substantial continuation include the absence of management and workforce continuity. The buyer retained only one employee from the seller, who now performs different job duties. Additionally, the buyer now employs 15-20 additional workers.
By carefully examining these factors, a clearer understanding of the buyer’s liability in this case can be reached.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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