In the case of Sullivan v. Running Waters Irrigation Inc., the 7th U.S. Circuit Court of Appeals determined that the U.S. District Court for the Northern District of Illinois created a “clear picture of notice and continuity” in terms of Employee Retirement Income Security Act (ERISA) standards, and it “did not err in concluding that an interest had been transferred from Alpine [Irrigation Company] to RWI [Running Waters Irrigation] and JV [JV Equipment Leasing] within the meaning of Rule 25(c).”
According to the court opinion, RWI and JV were both owned by Jeffrey Zeh, son of the former owner of Alpine. JV had bought six pieces of equipment from Alpine, which it leased to RWI for use in service to RWI customers, most of which were former customers of Alpine.
In its decision, the appellate court cited the meaning of Federal Rule of Civil Procedure 25(c), which “allows the substitution of parties if an ‘interest’ is transferred, but relies on other substantive law to define interest.” While normally, a corporation purchasing the assets of another corporation does not assume the obligations of the transferor, there are exceptions, including one that “has developed in the context of ERISA actions, like this one, to recover delinquent pension fund contributions,” the appellate court said, citing Upholsterers’ Int’l Union Pension Fund v. Artistic Furniture of Pontiac as a precedent.
The appellate court explained that the ERISA test allows for plaintiffs to sue the successor companies if “(1) the successor had notice of the claim before the acquisition and (2) there is substantial continuity of operation of the business before and after the sale.” The appellate court determined that Robert Zeh's attestation that his son (Jeffrey Zeh) would know more about Alpine's operations than he did was proof enough that Jeffrey had notice of the claim. In addition, it rejected the defendants’ claim that the three companies—Alpine, RWI and JV—were isolated business entities because the facts showed the companies had “similar leadership, employees, customers, office space, equipment and services.”
As for the defendants’ claim that the Rule 25(c) motion was granted without a hearing, the appellate court cited Pinkston v. Madry, saying that the defendants did not “identify what they believe would have been revealed on cross-examination, what questionable evidence there was, or what credibility determinations needed to be made.” As such, said the appellate court, it was within the district court’s discretion to “resolve the Rule 25(c) motion…without an evidentiary hearing.”
Alpine Irrigation Company closed in 2009. Prior to this, it was in arrears on pension fund payments to the Chicago Journeyman Plumbers Union. The union filed suit to recover these funds. To enforce a judgment against Alpine, James Sullivan, the union’s trustee sought to discover Alpine’s assets.
That's when he discovered RWI and JV had been created in tandem with Alpine’s closing, and filed suit for the pension liability.
The full text of the court document can be found here.