Number 1122

January 18, 2011

Client Alert
Latham & Watkins
Tax Department

Asahi: The PBGC’s Continued Attack On

Non-US Controlled Group Members

While the public may be hopeful that PBGC’s theory regarding Asahi’s alleged
it has seen the worst of the recent liability and analyzes the PBGC’s
economic downturn, the United States complaint.
Pension Benefit Guaranty Corporation
(the “PBGC”) continues to address
Liability of Non-US Entities
its growing burden with respect to
underfunded pension plans by seeking for Pension-Related Claims
to strengthen its ability to recover the of a US Controlled Group
shortfall due on the termination of those Member
plans. One recent development suggests
“One recent that the PBGC will increase its attempts Pursuant to the Employee Retirement
Income Security Act of 1974, as
development to recover such underfunding not only
from US entities which sponsor pension amended (“ERISA”), each member
suggests that plans, but also their foreign affiliates, of a “controlled group” is jointly and
the PBGC will whether or not these affiliates have severally liable for the pension-related
liabilities of the other members of such
increase its direct business in the United States.
controlled group. The PBGC has made
attempts to recover On November 12, 2010, the PBGC filed clear its view that a foreign entity can
[] underfunding a complaint in the district court for the be a member of a controlled group.2
District of Columbia seeking pension- Accordingly, the PBGC has, in some
not only from US related damages from the Japanese limited cases, sought recovery for
entities which parent of a wholly owned US subsidiary.1 pension-related claims from foreign
sponsor pension In its complaint, the PBGC alleges that affiliates of US entities, and Asahi
Asahi Tec Corporation (“Asahi”), as may presage a new vigor in pressing
plans, but also their a member of the controlled group of such claims.
foreign affiliates, Metaldyne Corporation (“Metaldyne”),
whether or not these is liable for (1) the underfunding related
to the termination of the Metaldyne Personal Jurisdiction Over a
affiliates have direct pension plan, (2) termination premiums Foreign Entity In a US Court
business in the due to the PBGC with respect to such
The PBGC does not bring claims against
United States.” plan and (3) the PBGC’s litigation costs
foreign controlled group members
in connection with recovery of those
in all cases and commentators have
liabilities. The aggregate amount of
suggested that such claims are limited
claims (1) and (2) is approximately
by the PBGC’s concern that it will be
$175.6 million. This article addresses the

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Latham & Watkins | Client Alert
unable to find a court to hear such
claims and/or that pursuing such
claims would interfere with broader
US foreign policy concerns. A US court
can only adjudicate pension-related
claims against foreign entities, such as
Asahi, if it has personal jurisdiction over
such entities. Therefore, if a foreign
defendant does not have sufficient
contacts with the United States, the
case will be dismissed. Meeting
this requirement is one of the key
impediments to any PBGC claim in a
US court against a foreign member of a
controlled group.
Past Case Law: The
PBGC Has Been Largely
Unsuccessful In Prior Actions
The PBGC has not prevailed in face of
jurisdictional challenges in prior cases
regarding pension-related liabilities.
Two cases illustrate key challenges
which the PBGC seeks to overcome in
the Asahi complaint.
In the first case, GCIU-Employer
Retirement Fund v. Goldfarb Corp.,3
the PBGC unsuccessfully attempted to
recover multiemployer pension plan
liabilities from the Canadian parent of
a US entity. The Seventh Circuit held
that mere ownership of a majority of
the equity interest in a US subsidiary
and ERISA’s broad “definition of
corporate affiliation as an element of . .
. liability” were insufficient to establish
personal jurisdiction.4 It further reasoned
that the basis of the lawsuit did not
directly arise out of the Canadian
parent’s contact with the United States,
namely its involvement with its US
subsidiary’s lenders.
In the second case, in connection with
a motion for reconsideration in PBGC
v. Satralloy, Inc.,5 the PBGC did not
establish jurisdiction, but the court did
make some helpful comments regarding
the PBGC’s attempt to recover pension-
related liabilities from two UK entities.
The district court in Satralloy reaffirmed
2 Number 1122 | January 18, 2011
that mere inclusion in the controlled
group of, and ownership by, a US entity
were not contacts sufficient to subject
a foreign entity to personal jurisdiction.
The court did, however, remand the
case for rehearing on the issue of
jurisdiction over one foreign controlled
group member, noting that, while a
parent-subsidiary relationship is not,
in and of itself, sufficient to establish
personal jurisdiction, such relationship
may serve as a basis for jurisdiction if
the subsidiary acts as the “alter ego” of
the parent.
Distinguishing Asahi: Moving
Away From Precedent
Given the decisions in Goldfarb and
Satralloy, the PBGC’s Asahi complaint
attempts to distinguish clearly its facts
from those cases. In its complaint,
the PBGC focuses on three main
distinctions: (1) Asahi’s knowledge
and due diligence in connection with
its purchase of Metaldyne, (2) Asahi’s
historical use of Metaldyne as an “alter
ego” or “agent” and (3) Asahi’s prior
admission in litigation that it is doing
business in the United States and is
subject to personal jurisdiction.
Asahi’s Actions in Connection
With its Acquisition of Metaldyne
Directly Related to its Pension-
Related Liabilities
In Goldfarb, the court, in holding that
it had no jurisdiction, noted that none
of the foreign parent’s actions in the
United States “directly” resulted in
the withdrawal from the applicable
multiemployer plan. Further, the court
noted it could not be shown that any
actions by Goldfarb with respect to the
sale of the related US entity related to
the decision to withdrawal from the
multiemployer plan.
In the Asahi complaint, the PBGC
goes to significant lengths to show
that, in 2007, Asahi purchased
Metaldyne with full knowledge of the
Latham & Watkins | Client Alert
assumption of Metaldyne’s pension-
related liabilities. The PBGC alleges
that “Asahi Tec learned about the
[Metaldyne Corporation] Pension
Plan, that the [Metaldyne Corporation]
Pension Plan had unfunded benefit
and other pension-related liabilities
and that, as a member of Metaldyne’s
controlled group, it would be jointly
and severally liable with Metaldyne…”
and emphasizes that Asahi agreed to
purchase Metaldyne regardless of any
assumed pension-related liabilities.
Therefore, the PBGC alleges that Asahi’s
purchase of Metaldyne directly took into
consideration the pension plan liability
and the related obligations.
Metaldyne is the “Alter Ego” or
“Agent” of Asahi
Addressing the court’s position in
Satralloy, the PBGC also alleges that
Metaldyne acted as the “alter ego” and
“agent” of Asahi, stating in its complaint
that Asahi “controlled and directed
Metaldyne’s operations and made
Metaldyne its agent and alter ego to do
business in the US.” Further, the PBGC
notes that Asahi and Metaldyne both
share the same chief executive officer,
which was suggested by the court in
Satralloy to be potential evidence of an
“alterego” relationship.
Asahi Previously Submitted to the
Jurisdiction of the US Courts
Lastly, the Asahi complaint emphasizes
that Asahi had admitted to doing
business in the United States previously
and submitted to US court jurisdiction in
previous litigation. While this argument
was not at issue in Goldfarb or Satralloy,
it may present another basis for the
PBGC to argue for jurisdiction in the
US courts.
After Asahi: The Effects of the
Ruling By the US Courts
The facts set forth in the PBGC’s
complaint in Asahi may support
jurisdiction of a US court, but even if
3 Number 1122 | January 18, 2011
unsuccessful, the PBGC may still be
able to seek and obtain judgment (or
force settlement) on its pension-related
claims against Asahi in Japanese
or other foreign courts. In doing so,
even though the PBGC may avoid the
jurisdictional issues faced in the US
courts as previously discussed, it will
face many material intrajurisdictional
issues instead. For example, the success
of a claim in a foreign court could
hinge on such court’s recognition of
US laws (under principles including
comity (acceptance of laws of a court
of another jurisdiction), and related
exceptions, e.g., “revenue rule,” the
“public law” exception, tax treaties, etc.)
and, further, the US and foreign courts’
analyses of the extraterritorial reach of
ERISA. Nonetheless, with increasing
cooperation by international pension
authorities,6 one may expect the PBGC
to consider bringing claims in foreign
jurisdictions in the near future.
Conclusion
The PBGC’s ultimate success in
obtaining jurisdiction in Asahi will turn
on the facts and circumstances of Asahi’s
relationship with its US subsidiary, but
regardless of the outcome, it seems
apparent that the PBGC will continue
to target all possible sources of recovery
for the underfunding of pension plans.
US entities and their foreign controlled
group members should remain on alert.
Any person considering a debt or equity
investment in a target company should
consider and address pension-related
liabilities of the target and its controlled
group in light of the PBGC’s increased
focus on foreign controlled group
members as exemplified in Asahi.
Latham & Watkins | Client Alert

Endnotes
1
Complaint, PBGC v. Asahi Tec Corp., No. 10-cv-
01936 (D.D.C. filed November 12, 2010).
2
Pension Benefit Guaranty Corp., Opinion 97-1
(May 5, 1997).
3
565 F.3d 1018 (7th Cir. 2009).
4
Note that the controlled group issues for claims
by multiemployer plans and the PBGC are
essentially identical and thus, Goldfarb should
have precedential weight for similar situations
related to PBGC claims for liability of single-
employer pension plans.
5
No. C-2-90-0630, 1993 U.S. Dist. LEXIS 21422
(S.D. Ohio Aug. 6, 1993).
6
See, e.g., Memorandum of Understanding
Between Pension Benefit Guaranty Corporation
and Pension Protection Fund and the
Pensions Regulator Concerning Cooperation
in the Exchange of Information (Nov. 4,
2009), available at http://www.pbgc.gov/about/
memorandum.html.

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