Henry Feinberg v. Rm Acquisition, LLC

In the
United States Court of Appeals
For the Seventh Circuit
No. 10-1890
HENRY FEINBERG, et al.,
Plaintiffs-Appellants,
v.
RM ACQUISITION, LLC,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 09 C 659—Wayne R. Andersen, Judge.
ARGUED OCTOBER 26, 2010—DECIDED JANUARY 6, 2011
Before POSNER, FLAUM, and SYKES, Circuit Judges.
POSNER, Circuit Judge. This appeal from the dismissal of
a suit under ERISA requires us to consider the rights of
participants in a retirement plan when the plan’s sponsor
sells all the assets out of which plan benefits might be
paid and distributes the proceeds of the sale, thereby
becoming a shell, but the buyer does not assume any of
the seller’s liabilities under the plan. Such cases are rare
because retirement plans ordinarily must be funded, and

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2 No. 10-1890
a funded plan either would be transferred to the new
company or would remain with the old company (with
the plan’s funds intact), or would be terminated and the
funds distributed to the participants. But the plan in this
case—the Rand McNally & Company Supplemental
Pension Plan—is what is called a “top hat” plan. Created
in order to provide senior executives with deferred com-
pensation (benefits on top of those provided by the com-
pany’s basic pension plan), In re New Valley Corp.,
89 F.3d 143, 148-49 (3d Cir. 1996); Sally Lerner Galati,
Note, “The ERISA Hokey-Pokey: You Put Your Top Hat
In, You Put Your Top Hat Out,” 5 Nev. L.J. 587, 589-93
(2005), top hat plans are unfunded. See 29 U.S.C.
§§ 1051(2), 1081(a)(3), 1101(a)(1). The plan designated the
company as the plan administrator. The plaintiffs are
former senior executives of Rand McNally & Company
who were participants in the plan. For simplicity we’ll
pretend that the first listed plaintiff, Feinberg, is the
only one.
Rand McNally declared bankruptcy in 2003. We have
not been vouchsafed the details, but we do know that the
final decree in the bankruptcy proceeding left the top
hat plan “unimpaired,” meaning simply that no part of
the debt created by the plan had been discharged or
modified in the bankruptcy proceeding.
In 2007, several years after emerging from bankruptcy,
Rand McNally sold all its assets to RM Acquisition, LLC,
a company that had been created by a private-equity
firm. The contract of sale provided that RM would
acquire, along with Rand McNally’s assets, some but

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No. 10-1890 3
not all of its liabilities. Among the liabilities not acquired
were those of the top hat plan. After the sale, Rand
McNally had no assets (presumably the sale proceeds
went either to creditors or, in the form of a dividend, to
the company’s shareholders, but the record is silent on
the matter), so could not continue paying benefits.
Feinberg sued Rand McNally, and the plan itself, along
with RM. But when he discovered that Rand McNally,
though it had never been dissolved, had no assets, he
dropped it from the suit, along with the plan, also not
dissolved but also assetless (for remember that it was
an unfunded plan, so that the only assets out of which
benefits could have been paid were assets of Rand
McNally, which no longer had any). The district court
granted RM’s motion to dismiss the suit for failure
to state a claim.
Feinberg argues that RM is liable to him for the benefits
promised by the plan because it is (he contends) the
“de facto plan administrator.” The de jure administrator
it is not. Although the plan designates as administrator
not only Rand McNally but also “any successor to [Rand
McNally] by reason of merger, consolidation, the purchase
of all or substantially all of [Rand McNally’s] assets, or
otherwise,” the successor would have to consent, as by
taking over the plan without rejecting the successorship
clause; RM did not consent, implicitly or otherwise.
The proper defendant in a suit for benefits under an
ERISA plan is, in any event, normally the plan itself, see
ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B); Blickenstaff
v. R.R. Donnelley & Sons Co. Short Term Disability Plan,

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4 No. 10-1890
378 F.3d 669, 674 (7th Cir. 2004), rather than the plan
administrator, because the plan is the obligor. To sue
the administrator for plan benefits is like suing a corpora-
tion’s CEO to collect a corporate debt. And the plan in
this case, though, as we said, it is assetless, like Rand
McNally, has not been formally terminated and probably
cannot be, because the benefits that it promised vested
when the executives continued working for Rand
McNally long enough to qualify. Kemmerer v. ICI Americas
Inc., 70 F.3d 281, 287-88 (3d Cir. 1995). But when the lines
between the plan, the plan administrator, and the plan
sponsor are indistinct or contested, the plaintiff’s designa-
tion of the “wrong” defendant can be forgiven provided
the “right” defendant is not misled. See Mote v. Aetna
Life Ins. Co., 502 F.3d 601, 610-11 (7th Cir. 2007); Mein v.
Carus, 241 F.3d 581, 584-85 (7th Cir. 2001); Musmeci
v. Schwegmann Giant Super Markets, Inc., 332 F.3d 339, 349-
50 (5th Cir. 2003). Recall that the plan’s successorship
provision designates the purchaser of all of Rand
McNally’s assets—which is RM—as the plan admin-
istrator. With the plan and its sponsor/administrator all
empty eggshells, Feinberg had, in any event, no practical
alternative to suing RM.
RM is Rand McNally’s successor in the sense of having
become the owner of Rand McNally’s assets. But the
purchase of a company’s assets, even all of them, does not
in itself make the purchaser the “owner” of the seller’s
liabilities. Gray v. Mundelein College, 695 N.E.2d 1379, 1388-
89 (Ill. App. 1998); Brandon v. Anesthesia & Pain Management
Associates, Ltd., 419 F.3d 594, 599 (7th Cir. 2005) (applying
Illinois law); Leannais v. Cincinnati, Inc., 565 F.2d 437, 439

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No. 10-1890 5
(7th Cir. 1977); Kaiser Foundation Health Plan v. Clary &
Moore, P.C., 123 F.3d 201, 204-05 (4th Cir. 1997); Oppen-
heimer v. Prudential Securities Inc., 94 F.3d 189, 193
(5th Cir. 1996). You can purchase all the assets of a com-
pany and explicitly decline to assume any of its liabilities,
and your declination will be valid unless the transaction
is a fraud against creditors or the selling and the pur-
chasing company aren’t meaningfully separate, as in a
corporate reorganization. Eg., Gray v. Mundelein College,
supra, 695 N.E.2d at 1388-89; Leannais v. Cincinnati, Inc.,
supra, 565 F.2d at 439.
RM did not assume the top hat plan’s liabilities; nor,
so far as appears, did it connive with Rand McNally to
deprive participants of their top hat benefits; nor was it
(again so far as appears) a mere continuation of Rand
McNally under another name. So Feinberg has not made
a case for successor liability—at least under the conven-
tional common law principles of successorship liability
summarized above. A complication is that “when a
claim arising from a violation of federal rights is
involved, the courts allow the plaintiff to go against the
purchaser of the violator’s business even if it is a true
sale . . ., provided that two conditions are satisfied. The
first is that the successor had notice of the claim before
the acquisition . . . . The second condition is that there
be substantial continuity in the operation of the busi-
ness before and after the sale, and is satisfied if no major
changes are made in that operation.” EEOC v. G-K-G,
Inc., 39 F.3d 740, 747-48 (7th Cir. 1994); see also Golden
State Bottling Co. v. NLRB, 414 U.S. 168, 182-85 and n. 5
(1973); Upholsterers’ Int’l Union Pension Fund v. Artistic

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6 No. 10-1890
Furniture of Pontiac, 920 F.2d 1323, 1325-29 (7th Cir. 1990);
Trustees for Alaska Laborers-Construction Industry Health
& Security Fund v. Ferrell, 812 F.2d 512, 515-16 (9th Cir.
1987). This expands the common law rule for the sake
of beneficiaries of federal statutes relating mainly to
labor, including pensioners; the common law rule looks
only to identity of ownership between seller and buyer
and not to identity of operations between a seller and
a buyer that may have been dealing at arm’s length. But
the federal rule cannot help Feinberg without a
showing that “no major changes [were] made in [the]
operation” of Rand McNally’s business after the sale
to RM. He has attempted no such showing.
So his claim against RM under section 502 (nonpay-
ment of ERISA benefits) fails. There may conceivably
have been a fraud but if so it is likely to have been com-
mitted by Rand McNally rather than by RM. Suppose
Rand McNally distributed to its shareholders, in the
form of a dividend, all the money it received from the
sale of its assets to RM. Because a dividend is not an
exchange for reasonably equivalent value, that would be
a fraud by Rand McNally on its creditors, including the
participants in Rand McNally’s top hat plan, and the
participants could seek redress against the share-
holders under state law. 740 ILCS 160/1 et seq.; General
Electric Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074,
1079-81 (7th Cir. 1997) (applying Illinois law); Boyer v.
Crown Stock Distribution, Inc., 587 F.3d 787, 792 (7th Cir.
2009). The suit if successful would generate funds out of
which to pay in whole or part any judgment that the
participants had obtained against Rand McNally for

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No. 10-1890 7
defrauding them. But Feinberg hasn’t followed that
route—he’s obtained no judgment against Rand McNally,
and indeed has dropped it as a defendant—and we don’t
even know whether Rand McNally had any assets to
distribute to its shareholders when it was sold to RM.
But Feinberg argues that RM is liable to him not
only under section 502—the argument we’ve just re-
jected—but also under section 510 of ERISA. That provi-
sion is captioned “Interference with protected rights”
and makes it “unlawful for any person to discharge, fine,
suspend, expel, discipline, or discriminate against a
participant or beneficiary [in an ERISA plan] for exer-
cising any right to which he is entitled [under the pro-
visions of his plan or under ERISA] . . . or for the pur-
pose of interfering with the attainment of any right to
which such participant may become entitled under the
plan.” 29 U.S.C. § 1140.
RM argues that this provision kicks in only when an
employer fires an employee or takes some other action
deliberately to alter the employment relation in a way
that impairs the employee’s rights under the ERISA
plan. Language in some cases supports this narrow inter-
pretation, which limits the provision to alterations in
the employment relationship. McGath v. Auto-Body North
Shore, Inc., 7 F.3d 665, 667-70 (7th Cir. 1993); Deeming v.
American Standard, Inc., 905 F.2d 1124, 1127-28 (7th Cir.
1990); Becker v. Mack Trucks, Inc., 281 F.3d 372, 381-
83 (3d Cir. 2002); Woolsey v. Marion Laboratories, Inc.,
934 F.2d 1452, 1461-62 (10th Cir. 1991). But that language
is dictum. All that the cases hold is that terminating a

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8 No. 10-1890
plan or modifying its terms does not, in and of itself,
violate section 510. The cases use alteration of the em-
ployment relationship to illustrate what section 510
does forbid, and point out that words like “discharge,”
“fine,” and “discipline” refer to what an employer does
to an employee rather than to what a plan admin-
istrator does to a plan.
There is more to the statute. Not only do the words
“suspend,” “expel,” and “discriminate” denote actions
that can be taken against a participant or beneficiary
who is not an employee, but many participants and
beneficiaries are not employees; for example, many par-
ticipants are retired or former employees—Feinberg is a
former employee—and a plan beneficiary is normally a
member of a participant’s family rather than one of
the participant’s fellow employees. “[A] widow might
inherit shares in a closely-held corporation, and be dis-
criminated against, among all shareholders, in the pay-
ment of dividends. A university might deny admission
to the beneficiary of a deceased employee because the
applicant insisted on receiving death benefits due. A
company might decide not to repay money lent to it by
a deceased officer. A beneficiary who inherited a par-
ticipant’s intellectual property rights might not receive
licensing payments due thereunder.” Mattei v. Mattei, 126
F.3d 794, 807 n. 12 (6th Cir. 1997); see also Heimann v.
National Elevator Industry Pension Fund, 187 F.3d 493, 504-
08 (5th Cir. 1999). Such cases fit the statutory language.
They are examples of interfering with a participant’s
rights without terminating or modifying an ERISA plan.

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No. 10-1890 9
That isn’t this case, however. RM wasn’t trying to
interfere with any rights that the plaintiffs may have
had under the top hat plan. RM had nothing to do with
the plan. Suppose you bought a $250 lawnmower from
a hardware store and the owner of the store told you
the store owed a contractor $100 for fixing a hole in
the roof and asked would you like to assume that debt
and you said no, and later the owner defaulted on his
debt to the contractor. Could the contractor sue you
for interfering with his right to collect the debt? That
would be ridiculous. Feinberg’s argument seems less
ridiculous only because the defendant bought the
store’s entire assets. But the principle is the same, and
brings us back to Feinberg’s claim against RM under
ERISA’s section 502. A buyer of assets has, with excep-
tions inapplicable to this case, no obligation to assume
the seller’s liabilities.
AFFIRMED.
1-6-11

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