C&S Wholesale Grocers Can’t Duck $58M Pension Lawsuit

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

C&S Wholesale Grocers Inc. may be liable for more than $58 million in pension obligations following its 2008 acquisition of a Syracuse, N.Y., food retail company ( N.Y. State Teamsters Conference Pension & Ret. Fund v. C&S Wholesale Grocers, Inc. , 2017 BL 143765, N.D.N.Y., No. 5:16-cv-00084-FJS-ATB, 5/1/17 ).

A federal judge found on May 1 that C&S could be liable for the multiemployer pension plan obligations as the successor of Penn Traffic Co. even though Penn Traffic continued to exist after being acquired by C&S and after going through bankruptcy proceedings. The judge’s ruling on this issue of first impression was based in part on decisions of the U.S. Courts of Appeals for the Seventh and Ninth Circuits, which have used theories of successor liability to force companies to pay the pension fund withdrawal obligations of the employers they acquire.

The Teamsters union pension fund that sued C&S also accused the company of impermissibly structuring its takeover of Penn Traffic to evade or avoid pension withdrawal liability. C&S argued that the takeover was merely “prudent business judgment,” and the judge appeared to agree. He said that the transaction didn’t leave Penn Traffic insolvent or unable to make any pension payments—the company paid more than $5 million in assessed withdrawal liability—which defeated the pension fund’s claim of evasion.

The judge also rejected the pension fund’s attempt to use a joint employer theory of liability against C&S after noting some disagreement among the federal circuit courts on this question. The Sixth Circuit has held that an “employer” obligated to pay pension fund withdrawal liability includes a company with an obligation arising under labor law, while the Seventh, Eighth and Ninth circuits have held that the obligation must arise through contract.

Despite calling the Sixth Circuit approach “persuasive,” the judge said the pension fund hadn’t alleged facts that would support imposing joint employer liability in any event. That’s because the contract between C&S and Penn Traffic stripped C&S of any control over Penn Traffic’s employees, the judge said.

As a result, the judge allowed the pension fund to move forward with its claim for pension payments under a theory of successor liability, but he dismissed the fund’s remaining claims.

Senior Judge Frederick J. Scullin Jr. of the U.S. District Court for the Northern District of New York wrote the opinion.

Groom Law and Paravati Karl Green & Debella represented the pension fund. Jones Day and Hancock Estabrook represented C&S.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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