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Blaw Knox Retirement Income Plan v. White Consolidated Industries Inc.

argued: May 3, 1993.

THE BLAW KNOX RETIREMENT INCOME PLAN, BLAW KNOX PENSION PLAN, BLAW KNOX IAM PENSION PLAN, BLAW KNOX EQUIPMENT PENSION PLAN, BLAW KNOX DURALOY PENSION PLAN FOR SALARIED EMPLOYEES, BLAW KNOX DURALOY HOURLY PENSION PLAN AND FIDUCIARIES DEAN G. WILSON AND RICHARD A. MCINTYRE, APPELLANTS
v.
WHITE CONSOLIDATED INDUSTRIES, INC., AND JOHN DOE(S)



On Appeal from the United States District Court for the Western District of Pennsylvania. (D.C. Civil Action No. 91-01629).

Before: Cowen, Roth and Rosenn, Circuit Judges.

Author: Roth

Opinion OF THE COURT

ROTH, Circuit Judge :

This is a companion case to , Pension Benefit Guar. Corp. v. White Consolidated Indus. Inc., 998 F.2d 1192 (3d Cir. 1993). The Blaw Knox Pension Plans and their fiduciaries (the "Plans") filed a complaint in the United States District Court for the Western District of Pennsylvania against White Consolidated Industries ("WCI") on the same day as the Pension Benefit Guaranty Corporation (the "PBGC") brought its above-captioned action against WCI. The Plans' amended complaint includes allegations against WCI that are also contained in the PBGC's complaint. Therefore we issue our opinion in this case simultaneously with our opinion in the related action.*fn1

This case arises from WCI's transfer of a group of unprofitable businesses and their nine associated underfunded pension plans to the Blaw Knox Corporation ("BKC"). The Plans filed a five count amended complaint on November 19, 1991, six years after WCI's transfer of the plans to BKC. The amended complaint alleged that the transaction resulted in: a breach of fiduciary duty by WCI in violation of section 404 of ERISA, 29 U.S.C. § 1104, a prohibited transaction in violation of section 406, 29 U.S.C. § 1106, interference with the Plans' participants' pension rights in violation of section 510, 29 U.S.C. § 1140, an improper termination under section 4062, 29 U.S.C. § 1362, and a transaction to evade liability under section 4069, 29 U.S.C. § 1369.

WCI filed a motion to dismiss all five counts of the complaint and a motion for summary judgment on Counts I, II, and III. The district court entered a memorandum opinion dismissing all five counts of the Plans' complaint and denying as moot WCI's motion for summary judgment. We hold that the Plans have stated a legally sufficient claim for relief in Count V, under 29 U.S.C. § 1369. Therefore, we will affirm in part and reverse in part the district court's order and will remand for further proceedings consistent with this opinion.

I.

The Plans are six employee pension benefit plans within the meaning of § 3(2)(A) of ERISA, 29 U.S.C. § 1002(2)(A), and two of the Plans' fiduciaries within the meaning of § 3(21) of ERISA, 29 U.S.C. § 1002(21).*fn2 Among other locations, the Plans are administered in Pittsburgh, Pennsylvania. The appellee, WCI, is a Delaware corporation conducting business throughout the United States.

The Plans filed their complaint on September 26, 1991 and their amended complaint on November 15, 1991. We accept as true the following allegations contained in their amended complaint in light of WCI's motion to dismiss. See Holder v. City of Allentown, 987 F.2d 188, 194 (3d Cir. 1993).

Prior to September 27, 1985, WCI owned eight divisions*fn3 (the "BK Divisions") that manufactured steel rolls, metal castings and other industrial equipment for steel mills. Employees of the BK Divisions were participants in and earned pension benefits under the plans. On September 27, 1985, WCI sold the BK Divisions and the associated plans to the newly formed BKC. The Plans maintain that at the time of the negotiation of the sale, BKC was unable to make the contributions to the plans due under ERISA's minimum funding requirements. Furthermore, the Plans assert that it was unlikely then and at any time in the future that BKC would be able to make the required plan payments.

The Plans allege that one of WCI's principal purposes in selling the BK Divisions was to avoid WCI's liability for the plans' unfunded benefits. Through the sale, WCI shifted that liability to BKC. The Plans charge that, as part of the negotiations of the sale, WCI understated the amount of the plans' unfunded liabilities and that BKC relied on the alleged understatement when it decided to purchase the assets of the BK Divisions. The Plans assert that BKC paid no money for the assets of the BK Divisions, but assumed WCI's unfunded plan obligations as consideration for the transfer.

The Plans contend that the pension rights of the plans' participants and beneficiaries were adversely affected as a result of WCI's sale. Additionally, the Plans aver that the Agreement of Purchase and Sale (the "agreement") executed in conjunction with the sale gave WCI control over the plans in certain respects: (a) purportedly requiring that BKC indemnify WCI for any liability arising out of the termination of any of the plans; (b) specifying what contributions BKC would have to make to the plans after the date of the sale; and (c) specifying how BKC was required to use any surplus assets resulting from the termination of any of the plans.

Moreover, the Plans allege that WCI maintained control over the plans through contingency arrangements in the agreements, to wit: either the failure of BKC to meet any of the requirements of the agreements, the termination by BKC of any of the plans that were underfunded, or the assertion of any claim or demand against WCI by BKC relating to the plans constituted events of default permitting WCI to repossess all of BKC's inventory, accounts receivable and motor vehicles. Additionally, under the agreement ...


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