U.S. Fifth Circuit Allows Action Against Parent Company for Alleged Breach of Voluntarily Assumed Duties

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Following the purchase of Acme Building Brands by Berkshire Hathaway, Acme reduced its contributions to Acme’s 401(k) plan, allegedly due to pressure from the new parent company, Berkshire Hathaway Get More Information. While the U.S. Fifth Circuit affirmed the dismissal of breach of fiduciary duty claims against Berkshire Hathaway and all ERISA claims against Acme, the Court reversed the District Court’s dismissal of additional claims against Berkshire Hathaway:

 

“Employers generally are free under ERISA to modify or terminate plans, but if the plan sponsor cedes its right to do so, it will be bound by that contract…. This court has recognized that a reservation-of-rights clause in a plan document, which allows a company to amend or terminate a plan at any time, ‘cannot vitiate contractually vested or bargained-for rights. To conclude otherwise would allow the company to take away bargained-for rights unilaterally’ …. Section 5.7 imposes a limitation on Berkshire in that Berkshire may not cause Acme to reduce enumerated benefits. But that provision does not restrict Acme itself from reducing future Pension Plan benefit accruals or 401(k) Plan employer contributions if Acme acts independently. Thus, plaintiffs do not seek vested benefits because they acknowledge that Acme, acting independently, can terminate the benefits. Section 5.7’s limitation on Berkshire imposes ‘no temporal limit,’ but that fact does not mean that plaintiffs seek vested, unalterable lifetime benefits. Instead, we view plaintiffs’ allegations as seeking to enforce a provision of the merger agreement that limits the scope of future ERISA plan amendments…. Acme can make any changes to the ERISA plans, but Berkshire can ‘not cause the Company [Acme] to … (ii) reduce any benefit accruals … [or] (iii) reduce the employer contribution….’ Additionally, the restrictive provisos here, like the provision in Halliburton, impose no time limit for how long Berkshire is prevented from causing Acme to reduce certain benefits. Here, the district court highlighted that the restrictive provisos in the merger agreement were silent regarding their duration. Thus, it concluded that such restrictions should not operate in perpetuity but only for a reasonable time. Because plaintiffs failed to assert that the adoption of the amendment fourteen years after the merger agreement was unreasonable, the district court dismissed their claims. We disagree with this conclusion. Plaintiffs’ entire theory rests on the premise that the amendment allegedly caused by Berkshire, whether fourteen years after the merger or forty years after the merger, is unreasonable under the circumstances, and violates the merger agreement and the plans. Thus, we hold that plaintiffs have pleaded sufficient facts to assert a plausible claim to relief against Berkshire.”

 

Hunter v. Berkshire Hathaway, No.15-10854, 2016 WL 3710253 (5th Cir. July 11, 2016).

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