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July 12 — A federal appeals court gave the green light to participants in the Acme Building Brand Inc.'s retirement plans to continue with their fiduciary breach claims against parent company Berkshire Hathaway Inc. for allegedly causing Acme to reduce certain benefits in violation of the companies' merger agreement ( Hunter v. Berkshire Hathaway, Inc. , 2016 BL 222091, 5th Cir., No. 15-10854, 7/11/16 ).
In the July 11 opinion, a three-judge panel reversed in part the district court's decision that dismissed the participants' lawsuit against Acme and Berkshire for alleged violations to the Employee Retirement Income Security Act. The appeals court found that the companies' merger agreement imposed an unlimited restriction on Berkshire that prevent it from causing Acme to reduce certain benefits.
The case stems from the 2000 acquisition of Justin Industries Inc.—then Acme's parent company—by Berkshire. As part of the merger agreement, Berkshire agreed to not cause Acme to reduce employees' benefits under the company's pension and 401(k) plans.
According to court documents, in 2006 Berkshire started making attempts to have Acme reduce the retirement benefits. Acme advised Berkshire that changes to the plans would violate the merger agreement. Berkshire kept pushing for the plan amendments.
As a result, several participants sued Acme and Berkshire for fiduciary breach. The employees sought a court declaration that the plans' terms were amended by the merger agreement to restrict changes to it and that any amendment would violate the plans' terms.
The district court said that the restrictive clauses in the merger agreement were silent regarding their duration and that they shouldn't operate in perpetuity but only for a reasonable period of time. Because the participants didn't allege that the adoption of the plan amendment 14 years after the merger agreement was reasonable, the district court dismissed their claims.
The appeals court affirmed the dismissal against Acme because under the merger agreement it could amend the company's plans. Acme didn't violate the merger agreement when it adopted the amendment because the agreement didn't place restrictions on Acme's ability to alter or amend the plans.
However, that clause didn't extend to Berkshire, the court said.
The district court erred in reading the employees' lawsuit as one that sought “unalterable, lifetime benefits,” the court said. The lawsuit didn't seek only lifetime, unalterable benefits; it sought to enforce a contractual commitment rather than a vested benefit under ERISA, the court said.
The participants' theory rested on the premise that the amendment allegedly caused by Berkshire, whether 14 years after the merger or 40 years after the merger, was unreasonable under the circumstances, and violated the agreement and the plans, the court said. As such, the participants alleged sufficient facts to assert a claim for relief against Berkshire, the court said.
The opinion was written by Judge Edith Brown Clement and joined by Judge Priscilla Richman Owen and District Judge Daniel P. Jordan III sitting by designation.
Keller Rohrback LLP represented the participants. Miller & Chevalier Chartered and Cantey Hanger LLP represented Berkshire and Acme.
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