Employees of a company bought by Berkshire Hathaway Inc. can sue Berkshire on the grounds it violated the Employee Retirement Income Security Act in freezing the purchased company's pension plan, a federal appeals court has ruled.
The unanimous ruling, handed down this week by the 5th U.S. Circuit Court of Appeals, involves a pension plan and a 401(k) plan offered by Acme Brick Co., a subsidiary of Justin Industries Inc., which Berkshire acquired in 2000 under an agreement that restricted Berkshire from causing Acme to reduce benefit accruals in the pension plan or contributions to the 401(k) plan.
Prior to Berkshire's acquisition, Acme matched 50% of employees' 401(k) plan contributions up to 5% of employee compensation.
According to the lawsuit brought by Acme employees — Judy Hunter, Anita Gray, Bobby Lynn Allen v. Berkshire Hathaway Inc., Acme Building Brands Inc. — Berkshire first contacted Acme in 2006 about freezing its pension plan. But after being advised that doing so would violate the merger agreement, Berkshire dropped the issue until 2012, when it told Acme it wanted to reduce retirement benefits.
During the 2012 talks, Acme discovered it had mistakenly reduced its 401(k) plan match to 25% of employee contributions, the decision noted. But Berkshire directed that the match remain at 25%, and forced Acme to bar employees hired on or after March 1, 2013, from participating in the pension plan. Later, Acme, following a threat by Berkshire that it would divest the company, completely froze the pension plan, but restored the 50% match of employees' 401(k) contributions, the suit noted.
A group of Acme employees challenged the actions, arguing the 2000 agreement between Berkshire Hathaway and Justin required maintenance of pension accruals and 401(k) plan matching contributions. A U.S. District Court later dismissed that challenge.
The district court said the 2000 agreement was “operative for a reasonable amount of time. And because plaintiffs' complaint did not allege that 14 years was an unreasonable amount of time,” the district court dismissed plaintiffs' claims, the appeals court noted.
But the appeals court disagreed.
“Plaintiffs' entire theory rests on the premise that the amendment allegedly caused by Berkshire, whether 14 years after the merger or 40 years after the merger, is unreasonable under the circumstances and violates the merger agreement and the plans,” the appeals court said.
As a result, the appeals court ruled, “plaintiffs have pleaded sufficient facts to assert a plausible claim to relief against Berkshire,” and all the claims against Berkshire can proceed except for two: breach of contract and breach of fiduciary duties claims.
The three-judge panel remanded the case to U.S. District Court for the Northern District of Texas for further hearings.
Berkshire Hathaway did not respond to a request for comment.