Plumbers Funds Convince

7th Circuit that Second Company

was Successor to the First

             In Sullivan v. Running Waters Irrigation, Inc. and JV Equipment Leasing LLC, __F3rd__, No. 13-1308 (7th Cir. 2014), the issue was whether two companies, Running Waters Irrigation (“RWI”) and JV Equipment Leasing (“JVE”) were successors to Alpine Irrigation Company (“Alpine”), under ERISA. 

             Finding successorship under ERISA is easier than under state common law.  Union trust funds can go after the purchaser of a business, even if it is not a sham sale, provided: 1) the purchaser had notice of the trust funds benefits claim before the acquisition, and 2) there was a substantial continuity of operation before and after the sale. 

             Here, the owner of Alpine closed the company in 2009 and at the same time of the closing his son set up RWI and JVE.  Like Alpine RWI is in the residential irrigation business, although RWI mostly services them; Alpine did more installations.  JVE bought most of Alpine’s equipment and leases it to RWI.  RWI relies on Alpine’s customer list to service past Alpine customers and almost all of RWI’s customers come from Alpine.  All but one of RWI’s employees used to work for Alpine.

             The court of appeals found that the son had had thorough knowledge of Alpine’s operations and that the lower court appropriately implied that he was on notice of the funds’ claims before he set up RWI and JVE.  As to substantial continuity, the court saw through the cleavage of Alpine into RWI and JVE.  It was true that RWI never bought Alpine’s assets but the economic realities were that the son’s companies, taken as a whole, operated as a substantial continuation of Alpine. 

             RWI also contended that Alpine serviced and installed home irrigation systems but RWI services and consults. The court dismissed this as an artificial distinction, pointing to the identical nature of Alpine’s and RWI’s customers.

             Employers seeking to reinvent themselves to get out from under their signatory status should be careful how the new company is designed and actually operates.  This decision tells us that going from installation to servicing in the same trade is no guarantee of escape. And bringing over the employees from company A to dominate the workforce at company B is “just asking for it.”