White Consolidated Industries (WCI) sold its unprofitable steel businesses and nine severely underfunded pension plans to newly formed Blaw Knox Corporation in 1985. Blaw Knox paid no cash for the assets beyond assuming liabilities, and the PBGC alleged that it was undercapitalized and had no realistic prospect of meeting the plans’ obligations. WCI nonetheless agreed to contribute $4 million annually to the plans for five years, while Blaw Knox was to contribute $1.2 million annually. WCI also obtained indemnification rights, a letter of credit, and a security interest in nearly all of Blaw Knox’s assets.
The PBGC alleged that WCI structured the transaction to keep the plans alive through ERISA’s five-year predecessor-liability period and thereby evade termination liability. WCI made its required contributions through 1990. In February 1992, seventeen months after WCI’s final payment, the largest plan ran out of money and PBGC terminated it; its estimated unfunded liabilities were $82 million.
The PBGC sued WCI under ERISA §§ 1362 and 1369, alleging, among other things, statutory predecessor liability and that the sale was a sham. The district court dismissed all counts under Rule 12(b)(6). PBGC appealed the dismissal of Counts I, III, IV, and V.
Issue #1
Whether a court deciding a Rule 12(b)(6) motion may consider the purchase-and-sale agreement attached by WCI, as well as WCI’s correspondence with PBGC.
Holding
The court may consider the concededly authentic purchase-and-sale agreement because PBGC’s claims rest on it, but may not consider the PBGC correspondence merely because it might be obtainable through FOIA.
Reasoning
Ordinarily, a motion to dismiss is decided from the complaint, its attached exhibits, and matters of public record. But a defendant may supply an undisputedly authentic document on which the complaint is based. Otherwise, a plaintiff could avoid dismissal of a deficient claim simply by omitting the very document that governs the claim. Because PBGC’s allegations depended on the sale agreement and described its terms, PBGC had notice of its contents and no conversion to summary judgment was required.
The letters between WCI and PBGC were not public records in the relevant sense. Access through FOIA is conditional: a requester must submit a request, PBGC may invoke exemptions or deny disclosure, and the requester may need to pursue an appeal. Since no request had been made and no one knew whether PBGC would disclose these materials, their possible availability under FOIA did not permit consideration on a motion to dismiss.
Issue #2
Whether WCI’s sale of the pension plans became effective under ERISA § 1369 only when WCI stopped making substantial post-sale pension contributions.
Holding
Yes. For § 1369, a transaction becomes effective when the prior sponsor no longer provides substantial support for the transferred plans, not necessarily on the formal closing date.
Reasoning
Section 1369 distinguishes the date on which parties "enter into" a transaction from the date on which it "becomes effective." That difference in wording shows that effectiveness need not coincide with closing. The statutory language alone did not define the latter phrase, so the court considered the statute’s purpose and legislative history.
Congress enacted § 1369 to prevent employers from shifting large unfunded pension obligations to financially weaker companies in order to evade responsibility. The five-year rule uses the plan’s survival under its new sponsor as an objective proxy for whether that sponsor had a reasonable chance of honoring the plan’s obligations at transfer.
That proxy fails if the former sponsor itself keeps the plans afloat during the five-year period. Allowing a transferor to make substantial payments just long enough to clear the five-year mark would frustrate both § 1369’s anti-evasion purpose and ERISA’s broader premise that solvent employers should fund promised benefits.
PBGC adequately alleged substantial continuing support. WCI paid $4 million each year from 1986 through 1990, while Blaw Knox paid only $1.2 million annually. Thus, the complaint supported an inference that the transaction did not become effective until WCI’s final contribution in 1990, placing the 1992 termination within five years. Count IV therefore stated a viable § 1369 claim.
Issue #3
Whether each of WCI’s post-sale pension contributions was a separate evasive transaction under ERISA § 1369.
Holding
No. The contributions were fixed obligations created by the original sale agreement and were part of one transaction, rather than separately actionable transactions.
Reasoning
Section 1369 can reach more than a conventional sale; its reference to "any transaction" may cover post-sale payments designed to prolong a failing plan’s life until the five-year period expires. The statute therefore does not categorically exclude a later payment from qualifying as an evasive transaction.
But WCI’s payments were not newly arranged, contingent, or renegotiated after the sale. They were required by the original purchase-and-sale agreement and formed part of the structure of the 1985 transaction. The court therefore saw no basis to isolate each scheduled payment as a separate transaction. Count V was properly dismissed.
Issue #4
Whether ERISA § 1362 contains an implied predecessor-liability rule for this transaction under the International Harvester theory of implied termination.
Holding
No. Because § 1369 expressly governs predecessor liability for transactions becoming effective after January 1, 1986, the court would not imply a separate predecessor-liability rule into § 1362.
Reasoning
Before Congress enacted § 1369, a district court in the International Harvester litigation had read § 1362 to prevent an employer from escaping termination liability by transferring a deeply underfunded plan to an insolvent entity. That court treated the transfer as an implied plan termination when the transferor intended to evade obligations and the transferee had little economic prospect of success.
Congress subsequently enacted § 1369 as an explicit predecessor-liability provision. It codified an anti-evasion rule while replacing the difficult inquiry into the transferee’s prospects with a bright-line requirement that the plan terminate within five years after the transaction becomes effective.
When Congress addresses a subject expressly in one provision of a detailed statute but omits it from another, courts ordinarily treat that omission as deliberate. Since § 1369 specifically supplies the governing predecessor-liability rule here, § 1362 could not be expanded through an implied termination theory. Count III was properly dismissed.
Issue #5
Whether PBGC sufficiently alleged that WCI’s transfer of the steel businesses and pension plans was a sham that should be disregarded, leaving WCI liable as the employer at termination under ERISA § 1362.
Holding
Yes. PBGC alleged facts that could support a finding that the sale lacked a genuine business purpose or economic effect apart from escaping pension liability.
Reasoning
A sham transaction is one that is fictitious or has no genuine business purpose or economic effect. PBGC argued that the court should examine the pension-plan transfer separately, but the court held that the asset sale and pension assumption were intertwined: Blaw Knox’s assumption of the liabilities was part of the consideration for the steel businesses.
WCI argued that it had a legitimate objective because the steel businesses were losing money. Disposing of an unprofitable business can indeed be a valid business purpose. But the pleadings did not conclusively establish that reducing operating losses actually motivated this particular transaction.
PBGC alleged that WCI rejected offers to buy the businesses whenever WCI would have retained the pension liabilities; transferred the businesses to an undercapitalized company with no reasonable prospect of satisfying the plans; and structured the arrangement to preserve the plans through the five-year period. Those allegations supported an inference that WCI’s sole motivation was to shed pension obligations. At the pleading stage, that was enough for Count I to survive.