Second Circuit Rules Against Teamsters Retirement Fund in Claim for Withdrawal Liability Owed by Bankrupt Retail Grocery Operation

In New York State Teamsters Conf. Pension & Ret. Fund v. C & S Wholesale Grocers, Inc., No. 20-1185-CV, __F.4th__, 2022 WL 244144 (2d Cir. Jan. 27, 2022), a dispute over withdrawal liability, the Second Circuit decided four questions. First, did the district court err in dismissing the claim of Plaintiff New York State Teamsters Conference Pension and Retirement Fund (the “Fund”) that Defendant C & S Wholesale Grocers (“C & S”) “evaded and avoided” withdrawal liability under ERISA? The court held that the district court did not err in dismissing this claim. The Fund’s argument is based on the allegation that C & S failed to acquire the assets at issue from Penn Traffic when it structured its 2008 acquisition of Penn Traffic’s distribution in such a way to never assume control of a Syracuse warehouse or its employees. “A non-employer cannot be said to evade or avoid liability merely by declining to assume that liability in the first place. To hold otherwise would be to paradoxically and imprudently encumber with liability the perfectly sensible business decision precisely not to purchase an encumbered asset.”

Second, did the district court err in dismissing the Fund’s claim that C & S was subject to withdrawal liability under a theory of “common control?” The court held the district court did not err in dismissing the Fund’s common control liability theory since the Fund did not plead facts that would sustain a claim under Section 1301(b). The amended complaint stated that “C & S and Penn Traffic each stood to realize a profit or loss” based on whether the Syracuse warehouse business was successful. Even assuming the First Circuit’s eight-part test applies here, the Fund’s allegations do not establish a “partnership-in-fact.”

Third, did the district court err in not finding that C & S was subject to withdrawal liability as an “employer?” The Fund alleged that C & S agreed to reimburse a portion of labor costs Penn Traffic incurred on behalf of C & A and that was essentially a façade that allowed C & A to employ the Teamsters without officially doing so. The court rejected the Fund’s “subterfuge” theory of employer liability and found that the district court committed no error with regard to it.

Fourth, did the district court err in granting C & S’s motion for summary judgment on the Fund’s claim that C & S was subject to withdrawal liability as a “successor” under the “substantial-continuity doctrine?” The court held that it did not err because “C & S did not take over any significant part of—much less ‘substantially continue’—Penn Traffic’s relevant business: the Syracuse warehouse or the employment of its Union employees. C & S therefore is not subject to Penn Traffic’s withdrawal liability under a theory of successor liability.”