[SOLVED] Heavenly Hana, LLC v. Hotel Union & Hotel

Heavenly Hana, LLC v.
Hotel Union & Hotel Industry of Hawaii Pension Plan
United States Court of Appeals, Ninth Circuit, 891 F.3d 839 (2018).
Background and Facts, The Hotel Union & Hotel Industry of Hawaii Pension Plan is a multiemployer plan that represents over 12,000 members who work at unionized hotels in Hawaii. Ohana Hotel Company, which operated Ohana Hotel on the island of Maui, contributed to the plan for its hotel employees but underfunded the contributions for years. The plan’s annual funding notices revealed the underfunding and were publicly available online. Ohana agreed to sell the hotel to Heavenly Hana, LLC, and its parent company, Amstar-39. Amstar had previously owned and operated a hotel that participated in a multiemployer pension plan. The purchase agreement stated that Ohana contributed to such a plan. Before the deal closed, however, Ohana withdrew from the plan without informing Amstar. The withdrawal triggered liability to the plan for the amounts still owed. The plan’s administrators demanded that the new owner (Heavenly Hana and Amstar) cover the liability. Amstar filed a suit in a federal district court against the plan, contesting the demand. The court entered a judgment in Amstar’s favour. The plan appealed.
In the Language of the Court
THOMAS, Chief Judge:
Under a constructive notice standard, purchasers are deemed to have notice of any facts that one using reasonable care or diligence should have Requiring purchasers to make reasonable inquiries into the existence of withdrawal liability advances the interest in preventing underfunding in multiemployer pension plans. Imposing this burden [has] little negative impact on the fluid transfer of corporate assets. Purchasers [can] simply investigate the possible liability and negotiate a purchase price [or other accommodation] that would take it into account. [Emphasis added.]
Of the three relevant parties to successor withdrawal liability—the seller, the purchaser, and the pension plan—purchasers are in the best position to ensure withdrawal liability is accounted for during an asset sale. Sellers have no incentive to disclose potential liabilities because such liabilities are likely to drive the sale price in one direction only: down. Pension plans cannot be asked to investigate sales rumours, track down the identity of all potential purchasers, avoid confidentiality or contract interference concerns, and send notice of its publicly available funding status directly to potential purchasers. Rather, pension plans are only responsible for (1) determining the amount of the employer’s withdrawal liability, (2) notifying the employer of the amount of the withdrawal liability, and (3) collecting the amount of the withdrawal liability from the employer. Purchasers, in contrast, have the incentive to inquire about potential withdrawal liability in order to avoid unexpected post-transaction liabilities. Applying a constructive notice standard in this case leads us to conclude that Amstar had constructive notice because a reasonable purchaser would have discovered Ohana’s withdrawal liability. Amstar previously operated a hotel that participated in a multiemployer pension plan.
The Agreement [between Amstar and Ohana] plainly informed Amstar that Ohana had contributed to a multiemployer pension plan. Finally, the Plan’s annual funding notices, which indicated a state of underfunding, were publicly available.
Decision and Remedy; The U.S. Court of Appeals for the Ninth Circuit reversed the lower court’s judgment. “The undisputed facts indicate that Amstar should have determined that Ohana would incur withdrawal liability.”
Critical Thinking
• Legal Environment What actions might a purchasing corporation take to determine if withdrawal liability exists?
• What If the Facts Were Different? Suppose that Amstar’s lawyers had advised, “Absent an express assumption of liability, a purchasing corporation does not assume a selling corporation’s withdrawal liability.” Would the result have been different? Why or why not?

Question: Heavenly Hana, LLC v. Hotel Union & Hotel