Source: https://www.skadden.com/insights/publications/2014/11/japanese-acquirer-resolves-pensionrelated-liabilit
Timestamp: 2019-04-18 21:04:52+00:00

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The court’s decision that it had jurisdiction over Asahi (a non-U.S. corporation) should be carefully considered by non-U.S. companies that own or seek to acquire U.S.-based companies with significant pension liabilities.
Under ERISA, an employer that is a contributing sponsor with respect to a single employer defined benefit pension plan is liable for any unfunded pension liabilities that exist at the time the plan is terminated. Similarly, a contributing employer that withdraws from a multiemployer pension plan is liable for its allocable share of the plan’s unfunded pension liabilities at the time of withdrawal.
a parent organization that is a trade or business (or, in certain cases, an investor group consisting of five or fewer individuals, trusts or estates) owns, directly or indirectly, a controlling interest in the contributing employer and the trade or business.
Case law addressing the ability of the PBGC to obtain and enforce a lien against non-U.S. entities recognizes that a court must first address whether the court has personal jurisdiction over the defendant non-U.S. entity. A court may find two types of personal jurisdiction (i) general (or all-purpose) jurisdiction or (ii) specific (or case-linked) jurisdiction.
General jurisdiction generally requires a higher level of business activity in the United States than typically results from a non-U.S. company’s ownership of a U.S. subsidiary. In contrast, specific jurisdiction may apply where (i) the non-U.S. defendant purposely has directed its activities at the U.S. and (ii) the claim arises out of the activities directed at the U.S. When a non-U.S. defendant maintains continuous and systematic contacts with the United States, general jurisdiction exists and a U.S. court can hear any and all claims against the defendant.
In PBGC v. Satralloy, Inc.,9 a federal district court held that in order to adjudicate whether a PBGC lien is properly assertable against a non-U.S. company, the PBGC must establish the minimum contacts necessary for the court to have personal jurisdiction over the defendant, i.e., the party against whom the PBGC is asserting the lien.10 The court dismissed the claims by the PBGC for lack of personal jurisdiction, stating that being a controlled group member, by itself, did not amount to sufficient minimum contacts to establish personal jurisdiction.11 The court subsequently reconsidered its decision and found that the dismissal was improper as to one of the parties because the PBGC made a prima facie case for personal jurisdiction when it asserted that the non-U.S. company acted through a U.S. agent.12 The court remanded the case for rehearing on the issue of jurisdiction over the non-U.S. company, noting that, while a parent-subsidiary relationship is not, in and of itself, sufficient to establish personal jurisdiction, such relationship may serve as a basis for jurisdiction if the subsidiary acts as the “alter ego” of the parent.
Although the Asahi court did not address the extraterritorial enforceability of any judgment obtained under ERISA, the court did find that it had personal jurisdiction over Asahi with respect to the PBGC’s claims and that, notwithstanding Asahi’s status as a non-U.S. entity, Asahi was liable for unfunded benefit liabilities under 29 U.S.C. § 1362 and for termination premiums under 29 U.S.C. §§ 1306(a)(7) and 1307(e)(2) by virtue of being a member of a controlled group that included Metaldyne.
The Asahi district court determined that Asahi had directed its activities at the United States by acquiring Metaldyne with prior knowledge of the pension liability issues, and that this was sufficient to establish personal jurisdiction over Asahi. The district court highlighted the fact that Asahi had hired a U.S. company to conduct due diligence on Metaldyne for the specific purpose of identifying Metaldyne’s pension plan obligations, and the court cited additional evidence showing that Asahi senior officers were aware of both the underfunded status of the Metaldyne plan and of the potential for controlled group liability.
The Asahi district court also determined that the PBGC’s claim was based on Asahi’s status as a controlled group member, which resulted from its acquisition of Metaldyne, and that the PBGC claim against Asahi therefore arose out of the activities that Asahi had directed at the United States. The Asahi court distinguished the Seventh Circuit’s Goldfarb decision by noting that in that case, “liability had to have been triggered by some act of the defendant,” i.e., the decision to withdraw from a multiemployer plan, whereas in Asahi liability was controlled by “mere ownership at the time of termination.”15 However, in both the Asahi and Goldfarb cases, the liability of the non-U.S. entity arose as a result of it being a member of the same controlled group as the entity whose action (the withdrawal from the multiemployer plan in Goldfarb and the termination of the single employer plan in Asahi) resulted in the original liability upon which the controlled group liability was based.
The Asahi district court disagreed with the Goldfarb court’s test for determining personal jurisdiction, criticizing the Seventh Circuit’s ruling that specific jurisdiction exists against a non-U.S. defendant only where the action “directly arise[s] out of the specific contacts” between the defendant and the forum state as imposing “a more stringent test than the one required by the Supreme Court.”16 Having found personal jurisdiction over Asahi, the district court held that Asahi could be held liable on a controlled group theory for both any unfunded pension liabilities and any termination premiums. The Asahi district court therefore implicitly determined that such liabilities may be imposed on non-U.S. members of a controlled group.
In the wake of the Asahi decision, a non-U.S. company that conducts customary due diligence in the course of an acquisition of a U.S.-based company is at risk of being found to have purposely directed its activities at the U.S., thereby meeting the first prong of the test for special jurisdiction. In the event that the non-U.S. company acquires the U.S.-based company and becomes a member of a controlled group with the U.S.-based company, any pension-related liabilities of the U.S.-based company may be viewed as arising out of the activities that the non-U.S. company directed at the United States, thereby meeting the second prong of the test for special jurisdiction. Once personal jurisdiction is established, the non-U.S. company likely will be held liable on the controlled group theory for any pension-related liabilities of the U.S. corporation.
While other courts ultimately may disagree with the Asahi court’s analysis in finding personal jurisdiction,17 non-U.S. corporations are on notice that pension liabilities of a U.S.-based target company might attach to the non-U.S. acquirer.
The Asahi case underscores the importance for all potential acquirers (particularly non-U.S. companies) of consulting with counsel early in the diligence process to consider investment structures that would mitigate the risk that the acquirer would be subject to significant legacy liabilities.
1 PBGC v. Asahi Tec Corp., 979 F. Supp. 2d 46, 57 (D.D.C. 2013).
2 The PBGC settled a separate dispute with Metaldyne over the pension plan in February 2010, receiving a $141.2 million claim against the bankruptcy estate. The PBGC’s recovery from the debtor was limited to its portion of unsecured creditor distributions. PBGC is estimated to have received distributions of less than $3 million on account of the allowed claim.
3 PBGC v. Asahi Tec Corp., 829 F. Supp. 3d 118 (D.D.C. 2012). The district court granted Asahi leave to file an interlocutory appeal on the jurisdictional issue, which the D.C. Circuit Court of Appeals denied in July 2012 on the grounds that Asahi had failed to demonstrate that “exceptional circumstances” justified an interlocutory appeal.
4 Under the terms of the settlement, Asahi agreed to pay $39.5 million to resolve the PBGC’s action with no admission of liability or jurisdiction. The PBGC had sought more than $190 million in damages from Asahi.
5 PBGC Op. Ltr. 97-1 (May 5, 1997).
7 See, e.g., EEOC v. Arabian Oil Co., 499 U.S. 244, 248 (1991) (“It is a longstanding principle of American law ‘that legislation of Congress, unless a contrary intention appears, is meant to apply only to the territorial jurisdiction of the United States.’”) (citation omitted).
8 PBGC Op. Ltr. 97-1 (May 5, 1997).
9 1992 U.S. Dist. LEXIS 22829 (S.D. Ohio July 16, 1992).
12 PBGC v. Satralloy, Inc., 1993 U.S. Dist. LEXIS 21422 (S.D. Ohio Aug. 6, 1993).
13 565 F. 3d 1018 (7th Cir. 2009).
15 PBGC v. Asahi Tec Corp., 839 F. Supp. 2d 118, 128 (D.D.C. 2012).
17 See, e.g., GCIU-Employer Retirement Fund v. Goldfarb Corp., 565 F.3d 1018 (7th Cir. 2009) (mere ownership of a controlling interest in a U.S. subsidiary not enough to establish personal jurisdiction over Canadian parent in suit by a multiemployer pension plan seeking to recover withdrawal liability).
18 In In re Ivaco, the PBGC filed proofs of claim in Ontario, Canada, against Ivaco and certain of its Canadian subsidiaries for liability related to the pension plan of the U.S. subsidiary of Ivaco. Ivaco and certain of its affiliates had filed in Ontario Superior Court for protection under the Companies’ Creditors Arrangement Act (the Canadian equivalent of chapter 11). Although the matter settled before the court addressed the controlled group liability issue and the issue of whether PBGC claims under ERISA are enforceable in Canada was not determined, it demonstrates the PBGC’s willingness to pursue such claims against non-U.S. entities in foreign courts. See Approval Order, In re Ivaco, No. 03-CL-4932 (Aug. 4, 2005). The case does not, however, clarify whether the PBGC would prevail on pension-related claims in foreign courts. Even if a non-U.S. jurisdiction generally respects U.S. law, comity exceptions such as the revenue rule (a common law exception to comity barring the recovery of tax or revenue claims of foreign sovereigns) or the public law rule (barring statutory claims based on a public or penal purpose) may limit the enforceability of ERISA controlled group liability claims in non-U.S. courts. The issue becomes admittedly more interesting if the PBGC successfully sues the non-U.S. company in the U.S. and then seeks to enforce any resulting judgment abroad (e.g., through a treaty).

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