The Seventh Circuit Court of Appeals reverses a lower court decision, finding that the defendant plastering company is liable for delinquent contributions to union health and welfare funds based on successor and alter-ego liability.
The plaintiffs include a group of union health and welfare funds. The defendant is a plastering company that is alleged to be the successor employer and alter ego of another plastering company that went bankrupt and owed delinquent contributions pursuant to a collective bargaining agreement (CBA).
The original plastering company entered into a CBA with a cement union in 2009. The CBA obligated it to make regular contributions to the funds. The original plastering company failed to make those required contributions, and the plaintiff funds filed suit to recover the delinquent payments. A judgment was entered in favor of the funds but, due to the bankruptcy of the original plastering company, the collection of the judgment was blocked.
The funds then sued the defendant, arguing that it is the successor and alter ego of the original plastering company and therefore liable for the delinquent contributions and for other ongoing violations under the CBA. The district court ruled in favor of the defendant, finding that the plaintiff funds did not produce enough evidence to proceed to trial. The funds then filed this appeal.
The defendant is owned and operated by the son of the owner of the original plastering company, and he opened the defendant company on the same day that the original plastering company received the judgment for delinquent contributions. In addition, the defendant hired all but one of the employees of the original plastering company and took on some of its customers and completed jobs that it had started.
The plaintiff funds rely on two legal theories to impose liability on the defendant for the debts and continuing obligations of the original plastering company: (1) that the defendant is a successor to the original plastering company, making it liable for the failure of that company to pay into the funds, and (2) that the defendant must abide by the CBA obligations of the original plastering company as an alter ego of the defunct company.
Both successor and alter-ego liability incorporate a scienter component coupled with an analysis of similarities between the old and new entities. Successor liability requires notice of the obligation by the new entity, while alter-ego liability requires more...