Pension Protection Act Blog

Three attorneys walk into a bar after a long day at the 8th Circuit Court of Appeals. One is an ERISA attorney, one is a trial attorney, and one is a mergers & acquisition attorney. The bartender takes one look at them, and says…..

Yesterday, the 8th Circuit Court of Appeals discussed issues created by such a trio of attorneys in Titan Tire Corp. v. Pirelli Tire, No. 07-1092 (CA8 Jan. 29, 2008) in a case involving an asset purchase of a company and an actuarial miscalculation. In 1994, Titan purchased a tire manufacturing plan from Pirelli through an asset purchase agreement. As part of the purchase, Titan assumed the liability to cover Pirelli’s obligations for retirement benefits to former Pirelli’s who were continuing in employment with Titan. Pirelli remained liable for retirement benefits accrued by employees before Titan’s purchase of the plan. The asset purchase agreement required Pirelli to pay Titan an amount equal to the actuarial present value of the vested accrued benefits to cover Pirelli’s pension liability. In 1996, approximately 2 years after the asset purchase, Pirelli transferred almost $56 million to Titan to cover these pension liabilities.

In 2003, a participant filed suit against Titan claiming that his benefits were calculated using the wrong start date. His benefits had been calculated using the start date of March 9, 1987, when his correct start date was February 12, 1970. Titan filed a third-party complaint against Pirelli, claiming that Pirelli was responsible for the miscalculation and seeking indemnification from Pirelli under the asset purchase agreement. In calculating the amount due under the asset purchase agreement, actuaries for both Titan and Pirelli had calculated the participant’s benefit using an incorrect start date, resulting in Pirelli transferring $37,520 less than what its pension liability would have been if the participant’s correct start date had been used in the actuaries’ calculations.

A provision in the asset purchase agreement required the parties to bring all claims for breaches of representations and warranties within one year of the close of the transaction. Titan argued that they were unable to bring the claim within one year of the close of the transaction because the transaction closed in 1994, and Pirelli paid the amount for the pension liability in 1996, two years after the close of the transaction. The district court dismissed this claim, finding that the breach of contract claim occurred when Pirelli warranted the incorrect actuarial valuations, and not the date of transfer of the funds, so the claim was barred as it was brought outside the one-year time frame called for in the asset purchase agreement.

The 8th Circuit then affirmed the district court’s finding that Titan had not properly pled the ERISA claim when Titan brought its third-party complaint against Pirelli. The 8th Circuit reasoned that the federal rules of civil procedure require only that a complaint contain a short and plain statement providing fair notice of the plaintiff’s claim and grounds for relief. The Court found that to provide fair notice to Pirelli, Titan was required to provide sufficient notice that it was seeking relief or making a claim based on ERISA. The Court stated that:

Titan failed to include an ERISA claim as a separate count, failed to invoke ERISA as part of its claims for relief and failed to do anything indicating its intent to pursue a claim based on ERISA beyond merely citing the jurisdictional provision of the statute.

The 8th Circuit then affirmed the district court’s finding that Titan had failed to sufficient plead the ERISA claim, and affirmed the district court’s decision that Pirelli was not required to indemnify Titan for the miscalculation of one participant’s pension benefits.

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