Explore the legal battle between a buyer and a seller’s union in this M&A case. Learn about the dispute, key legal arguments, and the importance of due diligence in asset purchases.
September 4, 2019
M&A Stories
Introduction:
In this ongoing saga, we delve into a post-closing dispute between a business asset buyer and a seller’s union. For the initial installment, refer to our earlier blog: Link.
The Deal:
Both the seller and buyer were engaged in waterproofing, concrete and masonry restoration, and roofing services in Nebraska and the Midwest. In November 2014, the seller sold its assets to the buyer. The buyer claims that the seller’s owner assured them that there was no existing union agreement and that they wouldn’t assume any union liability as per the asset purchase agreement.
The Lawsuit:
Post-closing, the seller’s union took legal action against the buyer in a Kansas federal district court, considering the buyer as a successor to the seller, aiming to recover unpaid union contributions. At this point, the seller had a balance of $427.90 in its bank account, having received $1.9 million from the asset sale, which the buyer alleges was funneled into the seller’s owner’s personal account. The buyer continues to make monthly asset sale payments of $6,351.75 (ongoing until 2021) and lease payments of $3,800 per month.
The union raised several legal theories and requested that the court rule that the buyer was responsible for the seller’s unpaid union contributions. Firstly, the union argued that the buyer bore responsibility as a successor under federal common law, with the primary question being whether the buyer was aware of the union contract. On this point, the court deemed it a factual matter to be determined by a jury, as the buyer asserted that the seller had assured them of no union liability.
Secondly, the union claimed that the buyer had demonstrated an intent to be bound by the seller’s union contract. While the buyer disputed most of the union’s factual claims supporting this assertion, they did admit to remitting contributions to the union during the first five months of ownership. However, they explained that this was done to prevent employees from losing health insurance while decisions regarding employee health insurance were being made. On this theory, the court stated that the determination would rely on facts, to be established later by a jury.
The battle rages on.
Comment:
It appears that the seller denied the existence of a union contract. A valuable lesson from this case for buyers is the importance of conducting thorough due diligence, especially when acquiring a business in an industry utilizing union labor.
Case Reference:
This case is referred to BAC Local Union 15 Welfare Fund v. Williams Restoration Company, Civil Action No. 19-649-RGA-SRF, Civil Action No. 16-2242-KHV, United States District Court, D. Kansas (July 12, 2019)
By John McCauley: I help companies and their lawyers minimize legal risk associated with small U.S. business mergers and acquisitions (transaction value less than $50 million).
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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