Retirement Plan of the UNITE HERE National Retirement Fund v. Kombassan Holding A.S.

Summarized by Janice Grubin , Barclay Damon, LLP
15 years 2 weeks ago

Citation:

No. 07-4143 (2d Cir. December 21, 2010)

Tag(s):

2nd Circuit

Ruling:

The Court held that Kombassan was liable for the ERISA withdrawal liabiity of HOM based on Kombassian being the alter ego of the HOM shareholders in continuing to exercise complete control over HOM. The Court based its ruling on the policy considerations for utilizing a flexible alter ego test in the ERISA context and the interlocked relationship of the various Kombassan-related entities. Further, the Court rejected the appellant’s argument that the alter ego theory could only be used where it could be proven that the entities involved did not exist simultaneously and that a change in ownership or operations was accomplished in order to avoid the parent company’s obligations, thereby making it a “sham transaction” or “disguised continuance.” Because the Court agreed with the District Court that Kombassan was liable for HOM’s withdrawal liability under the alter ego theory, it did not reach the District Court’s alternative basis for liability of judicial estoppel. Finally, the Court affirmed the District Court’s admissibility of the Plan’s liability calculation as an ordinary business record.

Procedural context:

Kombassan Holding A.S. (“Kombassan”) appealed from a judgment of the District Court for the Southern District of New York (the “District Court”) holding it liable to the Retirement Plan of the UNITE HERE National Retirement Fund and its trustees (the “Plan”) for withdrawal liability incurred by the entity Hit or Miss (“HOM”) pursuant to sections 502(a)(3) and 4301(a) of the Employee Retirement Income Security Act of 1974 (“ERISA”) in a total amount, including prejudgment interest, of $1,076,360.83 plus attorneys fees to be calculated following the appeal. AFFIRMED

Facts:

In 1998, Kombassan acquired 100% of the stock of HOM, a Massachusetts-based women’s clothing retailer. At the closing and as provided for under the stock purchase agreement, Kombassan assigned the agreement to four Turkish corporations (the “Assignees”) to circumvent Turkish law, which prohibited Turkish companies from investing more than $5 million outside of Turkey without the permission of the Turkish government. Hasim Bayram, Kombassan’s chairman, signed the assignment agreement five times, once on behalf of Kombassan and four times as the chairman of each of the Assignees, who were pre-existing companies not involved in the retail fashion industry. Although Bayram served as chairman of the Assignees, each Assignee had separate offices, separate employees and separate bank accounts, and Kombassan was not a majority shareholder in most of the Assignees during the relevant period. HOM’s president, Donna Moore, testified that she was hired by Bayram, reported and communicated with him on a weekly basis and Bayram made all the decisions for HOM in the name of Kombassan only. When HOM was facing financial difficulties during the spring of 2000, Moore turned to Bayram for assistance. HOM filed Chapter 11 in November, 2000 and its disclosure statement listed ten HOM equity interest holders, including Kombassan and the Assignees. In various representations made to the bankruptcy court about its relationship to HOM, Kombassan stated that: (i) it controlled the HOM board; (ii) it held directly or indirectly 100% of the HOM common stock; and (iii) it was a Turkish conglomerate engaged in, among other things, the business of retail women’s clothing. Kombassan’s website also announced that its purchase of HOM “marked an important step in Kombassan Holding’s international strategy.” In January 2001, Kombassan agree to provide $3 million in operating costs to HOM, which it identified as its “wholly owned indirect subsidiary.” However, HOM closed its doors about 2 months later, ending its ERISA obligation to continue making contributions to the Plan. After the Plan was notified that HOM had ceased operations and had completely withdrawn from the Plan, it informed Kombassan that it considered Kombassan to be responsible for HOM’s withdrawal liability under ERISA’s common control doctrine. A three-day trial ensued, after which the District Court found Kombassan liable.

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