On paper, the rule is straightforward: if a company sponsors a defined benefit pension plan or participates in a union/multiemployer pension plan in the United States, all members of that company’s controlled group of corporations (e.g., parents, subsidiaries, and affiliates connected through a common equity ownership of 80 percent or more), including foreign corporations, are jointly and severally liable for that company’s pension-related liabilities. Such pension liabilities include, among others, the company’s failure to comply with the minimum funding standards of Section 302 of the Employee Retirement Income Security Act (ERISA), failure to pay insurance premiums to the Pension Benefit Guaranty Corporation (PBGC) under ERISA Section 407, and failure to pay withdrawal liability to the board of trustees of a union pension plan under ERISA Section 4201.

For example, if a U.S. subsidiary of a foreign parent goes bankrupt and fails to pay its ERISA pension liabilities, the affected parties (such as the PBGC, the board of trustees, and retirees and other plan participants) may bring a collective action against the foreign parent in federal court.

In practice, however, if a foreign member of the company’s controlled group is not engaged in trade or business in the United States, its overall contacts with the United States are minimal, and it has not participated in that company’s day-to-day operations, particularly as it relates to the establishment, funding, and/or administration of the pension plan, U.S. federal or state courts will lack personal jurisdiction over the foreign member. Consequently, U.S. courts will generally dismiss any collective action against the foreign member, and the foreign member will likely avoid ERISA pension liability.

If, in the example above, the foreign parent did not have operations in, or substantial contacts with, the United States and it did not participate in the day-to-day operations of its U.S. subsidiary, the foreign parent will generally not be liable for the U.S. subsidiary’s ERISA pension liabilities.

GCIU-Employer Retirement Fund v. Coleridge Fine Arts, Case No. 19-3161 (10th Cir. 2020) is a recent case that illustrates this jurisdictional rule. The relevant facts are as follows: Coleridge Fine Arts, an Irish company not engaged in trade or business in the U.S., owned Greystone Graphics, Inc., a U.S. corporation that for years had been a participating employer in the GCIU-Employer Retirement Fund, a union pension plan covered by ERISA. Greystone ceased doing business in 2011, resulting in a complete withdrawal from the pension plan. After unsuccessfully trying to collect from Greystone, the pension plan filed suit against Coleridge in federal district court alleging that, because it was a member of Greystone’s controlled group of corporations, pursuant to ERISA Section 4001(b)(1), it was jointly and severally liable for Greystone’s nearly $4.5 million pension plan withdrawal liability. Coleridge replied that, because it was not engaged in trade or business in the United States and was neither directly involved in Greystone’s day-to-day operations nor Greystone’s dealings with the pension plan, U.S. courts lacked personal jurisdiction over it and the pension plan’s lawsuit against it had to be dismissed.

Both the district court and, on appeal, the U.S. Court of Appeals for the Tenth Circuit ruled for Coleridge. In support of its ruling, the Tenth Circuit observed that:

• ERISA’s provisions extending Greystone’s withdrawal liability to the pension plan among all members of its controlled group do not override the constitutional due process principle that U.S. courts cannot entertain legal actions against foreign entities over which U.S. courts lack personal jurisdiction.

• For personal jurisdiction purposes, Coleridge and Greystone are considered two distinct and separate entities. Therefore, the fact that Coleridge owned Greystone, without more, was insufficient for U.S. courts to have personal jurisdiction over Coleridge.

• For U.S. courts to have personal jurisdiction over Coleridge, the pension plan must establish that, either directly or indirectly through Greystone as its instrumentality or alter ego, Coleridge “purposefully directed” its business activities at the United States and the pension plan’s claims arose from Coleridge’s U.S.-related activities. For example, the personal jurisdiction requirement may be satisfied if Coleridge had control over, or was directly involved with, Greystone’s day-to-day management or operations, or played an active role in Greystone’s negotiations and dealings with the pension plan and/or the union related to the pension plan.

• Coleridge’s contacts with the United States and Greystone’s operations were too tenuous to establish personal jurisdiction. For example, Coleridge was not registered and did not conduct business in the United States; Coleridge did not have U.S. employees; business transactions between Coleridge and Greystone were limited; Coleridge and Greystone had separate budgets, payroll, and business records; Greystone’s business and financial matters were decided and implemented by its own managerial team; and, while some of Coleridge’s officers were also officers of Greystone, they had neither control nor ultimate authority over negotiations between Greystone and the union related to the pension plan. In sum, Coleridge’s contacts with Greystone were consistent with a conventional parent-subsidiary relationship and did not establish the sort of ongoing activities or participation within the United States required for personal jurisdiction purposes.

In light of the various forms of pension-related liability set forth under ERISA, particularly the looming multiemployer pension plan crisis, the Coleridge Fine Arts decision demonstrates the importance of maintaining business, financial, and managerial separation between companies that participate in U.S. pension plans and their foreign controlled group members not otherwise engaged in trade or business in the United States.