UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
October 26, 2009
WILLIAM EINHORN, ADMINISTRATOR OF THE TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA AND VICINITY AND THE TEAMSTERS HEALTH AND WELFARE TRUST FUND OF PHILADELPHIA AND VICINITY, PLAINTIFF,
M.L. RUBERTON CONSTRUCTION COMPANY, DEFENDANT / THIRD PARTY PLAINTIFF,
RONALD TOBIA, ESQ.; TOBIA & SORGER ESQUIRES, LLC; AND DAVID DECLEMENT, ESQ., THIRD PARTY DEFENDANTS.
The opinion of the court was delivered by: Irenas, Senior District Judge
Presently before the Court are four motions for summary judgment. This Opinion addresses only the principal action: Plaintiff Einhorn's suit against Defendant M.L. Ruberton Construction Company ("Ruberton"), in which cross motions for summary judgment are pending. A separate opinion will, if necessary, address the third party action, involving Ruberton's legal malpractice claims against Third Party Defendants Ronald Tobia, Esq.; Tobia & Sorger Esquires, LLC (collectively the "Tobia Defendants"); and David DeClement, Esq.
The cross motions for summary judgment in the principal action raise one central issue: in this ERISA*fn1 action,*fn2 under a theory of successor liability, may Ruberton be held liable for delinquent contributions to the Funds*fn3 administered by Plaintiff Einhorn? Because the Court holds that Ruberton may not be held liable as a matter of law, Ruberton's Motion for Summary Judgment will be granted, and Einhorn's Motion for Summary Judgment will be denied.
This suit is the third of three related cases that have been brought before this Court over the past four years. In the first suit, Teamster's Local Union No. 676 v. Statewide Hi-Way Safety, Inc., (05-4652)(JEI) ("the Injunction Suit"), Local 676, who had collective bargaining agreements with Statewide (see discussion infra), sought to enjoin Statewide from selling its assets to Ruberton. As will be discussed in further detail later, the Injunction Suit was quickly settled, and Statewide sold its assets to Ruberton shortly thereafter. It is that asset sale which, Einhorn presently alleges, created a predecessor-successor relationship between Statewide and Ruberton.
In the second suit, Einhorn v. Statewide, George R. Smith Jr., and Ruberton, (05-5774)(JEI)("the Delinquency Suit"), Einhorn sought to recover allegedly delinquent payments to the Funds, which Statewide was obligated to make pursuant to its collective bargaining agreements with Local 676. While Einhorn alleged that the delinquencies arose prior to the asset sale, he also alleged that Ruberton was liable for the delinquencies as Statewide's successor. Like the previous Injunction Suit, the Delinquency Suit was also settled. In the agreement settling the Delinquency Suit, Statewide agreed to pay the alleged delinquencies in exchange for Einhorn waiving a portion of the liquidated damages to which the Funds would otherwise be entitled, if Einhorn prevailed in the lawsuit.*fn4 Statewide never paid the full amount due under the Settlement Agreement, leading to the instant suit, where Einhorn has sued only Ruberton, attempting to recover what Statewide failed to pay ("the Successor Suit").*fn5
Statewide and Ruberton Before the Asset Sale
Statewide was a heavy highway construction company with facilities in Folsom, New Jersey. Specifically, Statewide's business consisted of highway paving, highway drainage and installation of guide rails, signage and fencing. (Pl's State. of Undisp. Facts ¶ 31-32; Def's State. of Undisp. Facts ¶ 17)
Statewide had three collective bargaining agreements (CBAs) relevant to the instant case: one with Teamsters Local Union No. 331, and two with Local 676. Statewide was required to make contributions to the Funds under all three agreements.
Statewide experienced financial trouble throughout 2003, 2004, and 2005. (Pl's State. of Undisp. Facts ¶ 36; Def's State. of Undisp. Facts ¶ 25-26)*fn6 Indeed, in 2005, Statewide's financial situation went from bad to worse when the State of New Jersey began investigating Statewide for fraud in connection with state highway projects, and Statewide faced the prospect of being debarred from public contract work in New Jersey. (Def's State. of Undisp. Facts ¶ 29)*fn7 Around the same time, the Funds began an audit of Statewide's payroll records, which revealed delinquencies owed under all three CBAs. (Pl's State. of Undisp. Facts ¶ 47; Def's Response ¶ 47) According to Einhorn, those delinquencies totaled $495,638.17, with additional liquidated damages of $94,606.02. (Pl's State. of Undisp. Facts ¶ 49; Def's Response ¶ 49)
Then Ruberton entered the picture. Ruberton, with its offices in Hammonton, New Jersey, performed general commercial construction, mainly in Southern New Jersey. (Pl's State. of Undisp. Facts ¶¶ 56-58; Def's Response ¶¶ 56-58; Def's State. of Undisp. Facts ¶ 10) Prior to 2005 and the negotiations leading up to the asset purchase, Ruberton had no CBAs with any union. (Pl's State. of Undisp. Facts ¶ 72)
In 2005, Ruberton's business, while not suffering to the same extent as Statewide, was slowing. (Def's State. of Undisp. Facts ¶ 30; Pl's State. of Undisp. Facts ¶ 60). Thus, Ruberton began looking for the right business opportunity. (Def. State. of Undisp. Facts ¶ 30; Pl's Response ¶ 30) Having heard rumors of Statewide's troubles, in July, 2005, Ruberton's President, Andrew Berenato, approached Statewide "to see if there was any opportunity there for us." (2008 A. Berenato Dep. at 146)
Not long after the first contact between Statewide and Ruberton, Local 676 apparently learned of the potential transaction between the two companies. Fearing that Ruberton (a non-union employer) would not agree to become a party to Statewide's CBA, Local 676 filed the Injunction Suit in late September, 2005.*fn8 Just two days after this Court issued a temporary restraining order enjoining the consummation of the Statewide - Ruberton transaction, negotiations among Local 676, Statewide, and Ruberton began in an effort to settle the Injunction Suit and go forward with the transaction.
Negotiations Resulting in the Settlement of the Injunction Suit
On September 29, 2005, Local 676 (through its President,*fn9 Howard Wells), Statewide (through it's President, George Smith, Jr.), Ruberton (through its President, Andrew Berenato), and the Funds (through Einhorn) attended a meeting to discuss the issues raised by the Injunction Suit.*fn10 During that meeting, Einhorn and Smith, Jr. discussed Statewide's delinquent contributions to the Funds. (2008 A. Berenato Dep. at 114-15; 2008 Einhorn Dep. at 41-42, 47-48; Smith, Jr. Dep. at 112; Sahli Dep. at 56-57)
Andrew Berenato testified that he first became aware of Statewide's defaulted obligations at this meeting. (2008 A. Berenato Dep. at 162) Indeed, Berenato testified that he specifically heard Einhorn tell Smith, Jr. that Statewide owed the Funds approximately $500,000. (Id. at 114-15)
The nature of the potential Statewide - Ruberton transaction was also discussed. Ronald Sahli, Esq., counsel for Statewide, explained that Statewide intended to only "'sell iron'" (i.e., heavy highway construction equipment) to Ruberton. (Sahli Dep. at 63; see also 2008 Einhorn Dep. at 40, 43; 2006 Wells Dep. at 16-18; Tobia Dep. at 164) Sahli explained that Statewide intended to "finish out its own jobs" using leased equipment. (Sahli Dep. at 63-64; see also 2008 Einhorn Dep. at 40, 43; 2006 Wells Dep. at 17)
On October 6, 2005, a second, longer meeting was held among the same people who attended the prior meeting.*fn11 According to Andrew Berenato, Ruberton's main objective at the meeting was to ensure that Ruberton would not be liable for Statewide's debts to the Funds. He testified, "the main thing on that meeting for M.L. Ruberton was that, since we knew there was a problem with Statewide and the Funds, that we certainly would not be held the successor to them and liable for that debt." (2008 A. Berenato Dep. at 102; see also 2008 A. Berenato Dep. at 213)
The Funds' objective at the meeting was mainly to protect their interest in delinquent and future contributions. The Funds were not a party to the Injunction Suit, therefore Einhorn's participation in the meeting, to the extent the meeting was geared toward settling the Injunction Suit, was limited. (2008 Einhorn Dep. at 80, 91) Einhorn explained the Funds' position at that meeting:
I'm not really in the driver's seat here, I'm not a party to [the Injunction Suit], but if the [StatewideRuberton] sale goes through and there are going to be funds released, we want a portion of those funds. We want the audit [of Statewide] completed. We want continuation of, if [Statewide is] going to continue operations, we don't want any further delinquencies to occur. (Id. at 80)
Local 676's objective was to ensure that if the asset sale proceeded, Ruberton would hire the ten Local 676 workers who worked for Statewide at the time, rather than hiring non-union workers. (Tobia Dep. at 156-57, 173, 178, 200)
Two separate agreements were drafted and signed at the October 6th meeting: one between Local 676 and Statewide; and one between Local 676 and Ruberton. In the Local 676 - Statewide Agreement, Local 676 agreed to dismiss the Injunction Suit without prejudice, and Statewide, among other things, agreed to cooperate fully with the Funds' payroll audit and to timely remit all future Funds contributions.*fn12 (Def's Ex. 13)
The Local 676 - Ruberton Agreement provides, in relevant part, M.L. Ruberton agrees that it will hire, subject to its work needs, the existing workforce of [Statewide] that perform work covered by Statewide's collective Bargaining agreement with Local 676, IBT. . . . Ruberton agrees that such employment shall be governed by the existing Local 676, IBT - Statewide CBA on an interim basis until a new CBA is negotiated. . . . in accordance with the above, the parties agree that a new CBA will be negotiated by Local 676, IBT and Ruberton to replace the existing agreement within a reasonable period of time but no later than the expiration of the existing agreement, and such new CBA will cover all employees of Ruberton whether hired from Statewide or currently employed by Ruberton. (Def's Ex. 14)
Both agreements were drafted from scratch and signed at the meeting, mainly because there was a very short window of time in which to get the injunction lifted and proceed with the asset sale.*fn13 (Tobia Dep. at 192, 196) Neither agreement expressly addressed the issue of Ruberton's potential successor liability to the Funds. As Einhorn is quick to note, neither agreement waived any successorship claim against Ruberton. However, the Funds were not a party to either agreement, and as Ruberton is quick to note, neither agreement states that Ruberton will guarantee or become liable for Statewide's debts to the Funds.
The Asset Sale
Four days later, on October 10, 2005, Statewide*fn14 sold its assets to Ruberton for $1.6 million in cash. The agreement provided that "[Ruberton] will acquire, all of the assets related to [Statewide's] Business." (Def's Ex. 15) Those assets included, among other things, all "office equipment, furnishings and fixtures, machinery, vehicles and construction equipment"*fn15; "access to all sales and business records and information;" "access to all [of Statewide's] telephone and facsimilie numbers;" "rights under all leases for Equipment;" "all permits, licenses, franchises, [etc.];" and "all of Statewide's inventory." (Id.) The section entitled "Excluded Assets" is "[i]ntentionally left blank" (Id.), however, Smith, Jr. testified that Ruberton did not purchase Statewide's accounts receivable, which he estimated amounted to more than $5 million. (Smith, Jr. Dep. at 45-46, 136)
The Asset Purchase Agreement makes no mention of Statewide's liabilities generally*fn16 , nor does it reference Statewide's debts specifically to the Funds.
Simultaneously with the execution of the Asset Purchase Agreement, related entities of Statewide and Ruberton-- Smith Properties, LLC, and RAL Real Estate, LLC, respectively-- entered into a Lease Purchase Agreement for Statewide's facility in Folsom, New Jersey. (Exhibit to George Smith, Jr. Dep.)*fn17
Through the agreement, Smith Properties granted RAL Real Estate a leasehold interest with an option to purchase the property for one million dollars. The agreement states that the property's purchase price "is a part of the total purchase price of 2.6 Million Dollars ($2,600,000.00) for certain assets and real property." (Id.)
Statewide and Ruberton After the Asset Sale
Soon after the Lease Purchase Agreement was signed, Ruberton moved into the Folsom complex.*fn18 (2008 A. Berenato Dep. at 8-9)*fn19 However, George Smith Jr., testified that Statewide continued to operate out of the Folsom facility as well, although it had only two to four "direct" employees. (Smith. Jr. Dep. at 29-30; 33)
Approximately two months after the asset sale, Ruberton sold at auction many of the assets it purchased from Statewide. (Def's Ex. 16)*fn20 Rick Berenato testified that Ruberton "sold all the equipment that was associated with [Statewide's] paving division and anything else that we deemed not necessary, excess equipment." (R. Berenato Dep. at 11) Rick Berenato estimated that Ruberton derived approximately $616,235 from the sale of assets that formerly belonged to Statewide. (Pl's State. of Undisp. Facts ¶ 82; Def's Response at ¶ 82)
As already noted, Statewide continued in business after the asset sale. George Smith, Jr. estimated that Statewide was working on 30 projects as of January, 2006, using subcontractors who "have the type of equipment [Statewide] need[ed] to do the job." (Smith, Jr. Dep. at 34) Ruberton was one of the subcontractors Statewide used on "some" of the projects. (Id. at 36) Smith, Jr. explained,
[i]f somebody calls me to go do something on a job, I'll rent [Ruberton's] man [sic] and equipment for the day to go do it. There's no agreement, no written anything, I just go do it on a day-to-day basis and get done what has to be done. If I know they can do it or if not I have to go to somebody else. . . .
First I call [Ruberton] and ask them if they have anybody that they'll rent . . . and if they say no, then I got to go out into the marketplace to find somebody to do the work. (Id. at 38) Indeed, the record indicates that in 2005, Ruberton billed Statewide more than $400,000 for employees and equipment that Statewide rented. (Pitale Dep. at 61, 64) On the other hand, Smith further testified that there were "at least three or four" times since the asset sale that Ruberton had declined to rent its employees and equipment to Statewide. (Id. at 39)
In the three months after the asset sale, Ruberton hired many former Statewide employees.*fn21 (Pl's State. of Undisp. Facts ¶¶ 66-70; Def's Responses ¶¶ 66-70) Of particular note, Ruberton hired some of Statewide foremen and supervisors, including Glen Smith, Statewide's Vice President and 33% shareholder. (Pl's State. of Undisp. Facts ¶ 74; Def's Response ¶ 74) Specifically, Glen Smith's title at Ruberton was "operating engineer" and his duties included operating equipment. (2008 A. Berenato Dep. at 43) There is no evidence in the record establishing that Smith had any ownership interest in Ruberton, nor does the evidence show that he was a vice-president at Ruberton, as he had been at Statewide.
Ruberton also took over work on many Statewide projects.*fn22
Rick Berenato testified how this happened:
[We (Ruberton) said to the customers,] you had this with Statewide . . . we're willing to do it in lieu of them at the same price, and as long as they okayed it, you know, we would do it. . . . [B]asically we just explained to [the customers] that Statewide was primarily, in essence, out of business and that we had bought all of their equipment and hired some of their key personnel and that we would be willing to fulfill the obligations of the contracts, and in a lot of cases we had new contracts made out to Ruberton. Some of the smaller jobs were just done with purchase orders.
(R. Berenato Dep. at 32-34) In 2005, Ruberton worked on 25 projects that originated with Statewide. (Pl's State. of Undisp. Facts at ¶ 78; Def's Response at ¶ 78)
"Under Rule 56(c), summary judgment is proper 'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)).
In deciding a motion for summary judgment, the Court must construe the facts and inferences in a light most favorable to the nonmoving party. Pollock v. Am. Tel. & Tel. Long Lines, 794 F.2d 860, 864 (3d Cir. 1986). "'With respect to an issue on which the nonmoving party bears the burden of proof, the burden on the moving party may be discharged by 'showing'- that is, pointing out to the district court- that there is an absence of evidence to support the nonmoving party's case.'" Conoshenti v. Pub. Serv. Elec. & Gas, 364 F.3d 135, 145-46 (3d Cir. 2004) (quoting Celotex, 477 U.S. at 325). The role of the Court is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
The summary judgment standard is not affected when the parties file cross-motions for summary judgment. See Appelmans v. City of Phila., 826 F.2d 214, 216 (3d Cir. 1987). Such motions "'are no more than a claim by each side that it alone is entitled to summary judgment, and the making of such inherently contradictory claims does not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives judicial consideration and determination whether genuine issues of material fact exist.'" Transportes Ferreos de Venez. II CA v. NKK Corp., 239 F.3d 555, 560 (3d Cir. 2001) (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968)). If after review of cross-motions for summary judgment, the record reveals no genuine issues of material fact, then judgment will be entered in favor of the deserving party in light of the law and undisputed facts. Iberia Foods Corp. v. Romeo, 150 F.3d 298, 302 (3d Cir. 1998).
As already stated, the issue is whether Ruberton may be held liable for Statewide's debts to the Funds. The Third Circuit has not addressed the factual scenario presented here, where a corporate entity buys the assets of another corporate entity.*fn23
The parties both assume that Upholsterers' International Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323 (7th Cir. 1990), provides the applicable rule of law in this case. Artistic Furniture held that a successor entity may be liable for the predecessor's debt arising from delinquent ERISA fund contributions "where  the successor has had prior notice of the liability in question, and  where there has existed sufficient evidence of continuity of operations between the predecessor and successor." 920 F.2d at 1327.*fn24 As the Seventh Circuit explained, the two-pronged test expanded liability for delinquent fund contributions, departing from "[t]he general common law rule . . . that a corporation that merely purchases for cash the assets of another corporation does not assume the seller corporation's liabilities." Artistic Furniture, 920 F.2d at 1326.
For the reasons set forth herein, the Court concludes that the common law rule, rather than Artistic Furniture's expanded liability standard, must be applied in this case.
The Seventh Circuit derived its successor liability standard from Golden State Bottling Co., Inc. v. NLRB, 414 U.S. 168 (1973), concluding that the same rationale supporting expanded successor liability in Golden State supported expanded liability for delinquent ERISA fund contributions. See Artistic Furniture, 920 F.2d at 1326-27. But Golden State is distinguishable from both Artistic Furniture and the instant case.
Golden State held that an asset purchaser could be held liable as a successor for the unfair labor practice of a predecessor. 414 U.S. at 171. At issue in that case was a National Labor Relations Board ("NLRB") order against the predecessor company directing the company to reinstate a delivery truck driver (a Teamsters member) and pay him backpay with interest. Id. at 170.*fn25 The Supreme Court affirmed the Ninth Circuit's holding that the NLRB could enforce the order against the successor company. Golden State, 414 U.S. at 171. The case was a suit under the National Labor Relations Act,*fn26 not ERISA.
The Supreme Court stated, "when a new employer . . . has acquired substantial assets of its predecessor, and continued, without interruption or substantial change, the predecessor's business operations" and does so "with knowledge of the outstanding Board order," the successor employer may be held liable "for remedying the unfair labor practices" of the predecessor employer. Golden State, 414 U.S. at 184, 171, 185 (internal quotation and citation omitted). In so holding, the Supreme Court affirmed the NLRB's reasons justifying the imposition of liability, as stated in Perma Vinyl Corp., 161 N.L.R.B. 968 (1967):
'In imposing this responsibility upon a bona fide purchaser, we are not unmindful of the fact that he was not a party to the unfair labor practices and continues to operate the business without any connection with his predecessor. However, in balancing the equities involved there are other significant factors which must be taken into account. Thus, [i]t is the employing industry that is sought to be regulated and brought within the corrective and remedial provisions of the Act in the interest of industrial peace. When a new employer is substituted in the employing industry there has been no real change in the employing industry insofar as the victims of past unfair labor practices are concerned, or the need for remedying those unfair labor practices. Appropriate steps must still be taken if the effects of the unfair labor practices are to be erased and all employees reassured of their statutory rights. And it is the successor who has taken over control of the business who is generally in the best position to remedy such unfair labor practices most effectively. The imposition of this responsibility upon even the bona fide purchaser does not work an unfair hardship upon him. When he substituted himself in place of the perpetrator of the unfair labor practices, he became the beneficiary of the unremedied unfair labor practices. Also, his potential liability for remedying the unfair labor practices is a matter which can be reflected in the price he pays for the business, or he may secure an indemnity clause in the sales contract which will indemnify him for liability arising from the seller's unfair labor practices.'
Golden State, 414 U.S. at 171 n.2 (quoting Perma Vinyl; emphasis added). Thus, the Court explained, "the Perma Vinyl line of cases has involved striking a balance between conflicting legitimate interests of the bona fide successor, the public, and the affected employee. . . . [with] an emphasis upon protection for the victimized employee." Id. at 181 (emphasis added). The Court continued, "'the rightful prerogative of owners independently to rearrange their business and even eliminate themselves as employers [must] be balanced by some protection to the employees from a sudden change in the employment relationship.'" Id. at 182 (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 549 (1964)*fn27 ).
In suits for delinquent ERISA fund contributions, the balance of equities is markedly different: while the "prerogative of owners independently to rearrange their business," Golden State, 414 U.S. at 182, remains unchanged, the countervailing interest is not protection of employees from a change in the employment relationship. Suits for delinquent fund contributions do not arise out of the employer-employee relationship; rather, they arise out of an employer's contractual obligation to make monetary contributions to an ERISA fund.
The Third Circuit has made precisely this distinction. As noted above, supra n. 23, Einhorn v. Littlejohn held that successor liability for delinquent ERISA fund contributions could be imposed after a merger. 155 F.3d at 209. But in so holding, the Court distinguished Golden State and Livingston, explaining, those cases dealt with the application of labor law concepts and the terms of a collective bargaining agreement to a corporation other than the signatory to the agreement. Here . . . only the transfer of a valid and ordinary debt is at issue which just happens to have its genesis in the terms of a collective bargaining agreement.
Littlejohn, 155 F.3d at 209 (emphasis added). Rather than relying on Golden State and Livingston to impose liability, the Court relied upon the "almost universally accepted state law principle that when two corporations merge, the surviving corporation assumes the liabilities of the extinct corporation." Id. at 209 (citing, inter alia, 15 Pa.C.S.A. § 1929(b); N.J.S.A. 14A:10-6(e); and Del. Code. Ann. Tit. 8, § 259(a)).
As Littlejohn explicitly recognizes, the unique employer-employee relationship governed by federal labor law and policy is not implicated in this case; an "ordinary debt" is the subject of the parties' dispute. 155 F.3d at 209. This fundamental difference alters the balance of equities.
Absent imposing successor liability on a company that purchases substantially all of the assets of a predecessor, a wrongfully discharged employee has no job to which he may be reinstated. But basic corporate law teaches that an ERISA fund can collect delinquent contributions in the absence of successor liability. Before the sale of substantially all of a company's assets, the seller company has assets and liabilities. After the sale, the seller has cash and liabilities.*fn28 Indeed, for this very reason, an asset sale may facilitate collection of delinquent contributions-- the seller's assets have been liquidated into cash that may be used to satisfy debts.*fn29 Thus, an ERISA fund simply does not need the same protections as an individual employee.*fn30
Moreover, in cases such as this, in contrast to Golden State, the interests of businesses, the public, and individual employees often will be aligned in the balance of equities. When a company purchases the assets of another company with delinquent fund contributions (as opposed to an obligation to remedy unfair labor practices), the value of the debt may well exceed the value of the assets.*fn31 Imposing successor liability in that situation could discourage corporate transactions that might save a struggling business, along with employees' jobs.
Polius v. Clark Equipment Company makes a very similar point. 802 F.2d 75 (3d Cir. 1986). In Polius, the Third Circuit rejected expanded successor liability in product liability cases. Declining to "jettison well-established corporate law," the Court explained why it would not adopt the "continuity of enterprise approach" to successor liability:
Predictability is vital in the corporate field. Unforeseeable alterations in successor liability principles complicate transfers and necessarily increases transaction costs. Major economic decisions, critical to society, are best made in a climate of relative certainty and reasonable predictability.
The imposition of successor liability on a purchasing company long after the transfer of assets defeats the legitimate expectations the parties held during negotiation and sale. Another consequence that must be faced is that few opportunities would exist for the financially troubled company that wishes to cease business but has had its assets devalued by the extension of successor liability.
A company that cannot locate a buyer for all of its assets at a favorable price may be forced to sell its property piecemeal at a less advantageous figure. After dissolution, no successor would exist under any theory of successor liability, and in that event, the products liability plaintiff would still be without a collectable judgment. Thus, the benefits of alienability will have been lost to commerce with no commensurate benefit to plaintiffs.
Polius, 802 F.2d at 80, 83.
In Littlejohn, the Third Circuit looked to universal concepts of corporate law-- not Golden State and Livingston-- to craft the federal common law of successor liability to be applied in that ERISA case. Guided by Littlejohn, and Polius, this Court must conclude that similar universal concepts of corporate law should supply the federal common law rule of successor liability in this case. Thus, Artistic Furniture conflicts both with sound reason and with related precedents in this Circuit, and this Court will not follow it. Instead, as set forth next, the Court applies the traditional common law rule to determine whether Ruberton may be held liable for Statewide's delinquent contributions.
"Generally, at common law, when one company sells or transfers all its assets to another, the successor company does not embrace the liabilities of the predecessor simply because it succeeded to the predecessor's assets." ALCOA v. Beazer East, Inc., 124 F.3d 551, 565 (3d Cir. 1997) (internal citation and quotation omitted).*fn32 However, there are exceptions to the rule.
Liability may be imposed: "(1) where the purchaser of assets expressly or impliedly assumes the liabilities of the transferor; (2) where the transaction amounts to a de facto merger; (3) where the purchasing corporation is merely a continuation of the transferor corporation; and (4) where the transaction is fraudulently intended to escape liability." Id. at 565.*fn33
The only exception that might apply here is the mere continuation / de facto merger exception. See Berg Chilling Sys., Inc. v. Hull Corp, 435 F.3d 455, 468 (3d Cir. 2006) (following the "trend of the courts" in treating the mere continuation and de facto merger exceptions "identically.").*fn34
Factors relevant to the mere continuation / de facto merger analysis include: (1) continuity of ownership, management, personnel, physical location, assets and general business operations; (2) continuity of shareholders; (3) the seller corporation "ceases its ordinary business operations, liquidates, and dissolves as soon as legally and practically possible"; (4) "the purchasing corporation assumes those obligations of the seller ordinarily necessary for the uninterrupted continuation of normal business operations of the seller corporation"; and (5) whether the purchaser holds itself out as the effective continuation of the seller. Berg Chilling Sys., 435 F.3d at 468-69 (applying Pennsylvania law); Marshak v. Treadwell, -- F.3d --, 2009 WL 1886153 at *8 (3d Cir. July 2, 2009) (applying New Jersey law).
The record does not support a finding that Ruberton was a continuation of Statewide. First, there was no identity of ownership between the two companies, nor was there identity of management. See Berg Chilling Sys. 435 F.3d at 469 (noting that the continuity of ownership factor is often "critical to a successor liability claim."). Second, the undisputed record demonstrates that Statewide continued in existence after the asset sale, even renting equipment and personnel from Ruberton. Third, Ruberton assumed almost none of Statewide's obligations.*fn35
Lastly, the undisputed record demonstrates that Ruberton did not hold itself out to be a continuation of Statewide, rather, Rick Berenato testified, "[we (Ruberton) said to the customers,] you had this with Statewide . . . we're willing to do it in lieu of them at the same price. . . . [B]asically we just explained to [the customers] that Statewide was primarily, in essence, out of business." (R. Berenato Dep. at 32-34)(emphasis added)
Based on this record, a reasonable factfinder could only conclude that Ruberton's acquisition of Statewide's assets was not a de facto merger. Accordingly, no exception to the common law rule of non-liability applies in this case, and Ruberton's Motion for Summary Judgment will be granted. Einhorn's Motion for Summary Judgment will be denied.
For the foregoing reasons, the Court concludes that Ruberton may not be held liable as a successor to Statewide. Accordingly, Ruberton's Motion for Summary Judgment will be granted and Einhorn's Motion for Summary Judgment will be denied. The Court will issue an appropriate Order.
Joseph E. Irenas, S.U.S.D.J.