Nutt v. Stafford Kees

Nutt v. Stafford Kees et al., No. 14-3364 (8th Cir. Aug. 12, 2015)
The 8th Circuit reversed the district court (E.D. Ark. - Jonesboro), ruling that equitable successor liability did not render successor liable for delinquent contributions and breach of fiduciary duty under ERISA. After insolvent former employer violated ERISA by failing to make necessary contributions to an employees' ERISA plan, former employer sold nursing home business to buyer, who then leased assets to defendant by assignment. Because defendant had no notice of potential liability at time of assignment, no ability to bargain for protections, and no ability to abandon lease upon learning of liability because of health care restrictions that prevented doing so, defendant was not liable under equitable successor liability. Because court determined that successor liability did not apply, it declined to reach broader threshold issues of whether successor liability applied in ERISA context, and if so, if the federal common law applied as opposed to state common law.
Procedural context:
Plaintiffs sued former employers and successors to former employers in U.S. District Court, and district court found successors to former employers liable on theory of successor liability. Successors appealed to 8th Circuit.
Husband and wife (Nutts) were employed by entity (Healthcare) that owned and operated a nursing home through a separate entity (Nursing Home). Healthcare withheld funds from the Nutts paychecks for "pre-tax insurance." Nutts believed the funds were withheld to pay for health insurance. Husband was injured in ATV accident and incurred $233,000 in medical expenses. Because Healthcare had failed to pay insurance premiums, Nutts health insurance had lapsed. Nutts attempted to have Healthcare cure the default by paying delinquent premiums. Healthcare encouraged Nutts to file bankruptcy. At the same time, Healthcare's principal, "Kees," entered into sale agreement to sell Healthcare and Nursing Home to turnaround specialist "Cooper." In interim period before sale closing, Cooper entered into lease with Kees underwhich Cooper operated nursing home and paid rent to Kees/Healthcare/Nursing Home. Still in the pre-closing period, Cooper assigned this lease to "OTLC." After the assignment, OTLC met with the Nutts, learned of the outstanding medical bills and lapsed health insurance issue, and promptly fired the Nutts. The Nutts sued Healthcare, Nursing Home, Kees, and OTLC. After Healthcare and Nursing Home's attorney withdrew, the court entered default judgment against them. Following a bench trial, the court found Kees individually liable under ERISA for breach of fiduciary duty and delinquent contributions. Because neither Kees, Healthcare, nor Nursing Home could satisfy the judgment, the court entered judgment against OTLC as well on the theory of equitable successor liability. OTLC appealed.
Gruender, Melloy, Benton

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