U.S. District Court Holds That a Foreign Parent Company Can Be Liable for Pension Liabilities of Its U.S. Subsidiary

Sullivan & Cromwell LLP - November 8, 2013
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The U.S. District Court for the District of Columbia recently held in Pension Benefit Guaranty Corporation v. Asahi Tec Corporation that (i) it had personal jurisdiction over Asahi Tec Corporation (“Asahi”), a Japanese corporation, and (ii) Asahi was liable for the underfunded defined benefit pension plan liabilities of Asahi’s bankrupt U.S. subsidiary, Metaldyne Corporation (“Metaldyne”), under the ERISA rule that imposes joint and several liability on ERISA controlled group members. The court held that it had specific personal jurisdiction over Asahi based on its finding that Asahi (1) knew about Metaldyne’s underfunded pension plan which was governed by ERISA, (2) understood that it could be liable for termination of the plan and (3) specifically factored in the underfunded liability in its valuation of Metaldyne. If the Asahi decision is upheld and followed, it could open the door for numerous lawsuits by the Pension Benefit Guaranty Corporation (“PBGC”) against foreign parent companies for the U.S. pension plan liabilities of their U.S. subsidiaries that go bankrupt or otherwise default on their pension obligations.