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Latham & Watkins Benefits, Com pensation & Employment Practice
May 8, 2017 | Number
2132
Canadian Court Dismisses ERISA “Controlled Group” Claim
Decision creates a substantial barrier to controlled group claims in Canada, may provide a
template for other jurisdictions.
Key Points:
• ERISA controlled group liability is jo int and several for all members of a pension plan sponsor’s
controlled group, including foreign m embers.
• Little precedent exists on the questio n whether controlled group claim s are viable outside the US.
• Decision holds that the controlled gr oup claim fails in Canada as a m atter of law.
On May 1, 2017, the Supreme Cour t of British Columbia (the Court) hand ed down its decision in Walter
Energy Canada Holdings, Inc. (Re), 20 17 BCSC 709 [hereinafter Walter Can ada]. The decision holds that
an ERISA controlled group claim f ails because the claim raises a questio n of corporate personality —
namely, whether corporate separatenes s may be disregarded to impos e a plan sponsor’s liability on its
affiliates — and that the la w of the place of incorporation, rather th an US law, applies to such questi ons.
Because the laws of the places of incorpor ation, British Columbia and Alberta, do not include ERI SA, and
because ERISA’s controlled group pro visions were the sole basis for liab ility, the claim fails. The decision
creates an important guide to the lim its of controlled group liability in Can ada, and potentially in other
jurisdictions guided by the decision.
Why the case is important – testing the limits of “controlled group” claims
The Employee Retirement Income Sec urity Act of 1974, as amended (ERISA) imposes joint and s everal
liability on a plan sponsor and any m embers of its controlled group for m any pension-plan liabilities,
including termination liability for und erfunded single-employer plans and withdrawal liability for
multiemployer plans. In general, the term controlled group refers to a group of corporations or
unincorporated entities engaged in a “tr ade or business” with at least 80% com mon ownership. A
controlled group may include parent-s ubsidiary relationships in which the p arent owns (or is deemed to
own) 80% or more of the voting power or value of the stock of a subsidiary as well as certain affiliate
relationships.
ERISA’s controlled group provisions have the potential to transform a relatively valueless claim against an
insolvent plan sponsor into a valuab le claim against the larger corporate gr oup. Given the extent of
pension-plan underfunding, which ana lysts estimated at US$325 billion at the end of 2016 for the 410
Fortune 1000 companies sponsoring plans, the potential impact of controll ed group claims on recoveries,
and on corporate group liabilities, is h ighly significant. 1
