Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 3

Successor Liability. In 2004, the Watergate Hotel in Washington, D.C., obtained a loan from PB Capital. At this time, hotel employees were represented by a union. Under a collective bargaining agreement, the hotel had agreed to make contributions to an employees' pension fund run by the union. In 2007, the hotel was closed due to poor business, although the owner stated that the hotel would reopen in 2010. Despite this expectation, PB Capital-which was still owed $40 million by the hotel owner-instituted foreclosure proceedings. At the foreclosure sale, PB Capital bought the hotel and reopened it under new management and with a new workforce. The union sued PB Capital, contending that it should pay $637,855 owed by the previous owner into the employees' pension fund. Should PB Capital, as the hotel's new owner, have to incur the previous owner's obligation to pay into the pension fund under the theory of successor liability? Why or why not? [ Board of Trustees of Unite Here Local 25 v. MR Watergate, LLC, 677 F.Supp.2d 229 (D.D.C. 2010)] (See Mergers and Acquisitions.)