Opinion
Civil Action No. 18-142
10-26-2018
STEELWORKERS PENSION TRUST, by DANIEL A. BOSH, CHAIRMAN, Plaintiff, v. THE RENCO GROUP, INC., et al., Defendants.
Judge Bissoon
REPORT AND RECOMMENDATION
I. Recommendation
It is respectfully recommended that the Motion to Dismiss filed by Defendants (ECF No. 14) be denied.
II. Report
Plaintiff, Steelworkers Pension Trust ("SPT") by its chairman, Daniel A. Bosh, brings this action under the Employee Retirement Security Act of 1974, 29 U.S.C. §§ 1001-1500 (ERISA), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) against Defendants, The Renco Group, Inc., and its subsidiaries, Ilshar Capital, LLC, Blue Turtles, Inc., Unarco Material Handling Inc., Inteva Products, LLC, the Doe Run Resources Corp. and US Magnesium LLC (together, "Renco"). Plaintiff alleges that Defendants owe interim withdrawal liability payments in the amount of $114,057,804.14, as a result of their failure to make withdrawal liability payments pending their disputes of such liability as required by ERISA.
Presently pending before the Court for disposition is Defendants' motion to dismiss (ECF No. 14). Plaintiff has filed a brief in opposition (ECF No. 25) and Defendants have filed a reply brief (ECF No. 26) and the motion is now ripe for disposition. For the reasons that follow, the motion should be denied.
Facts
The SPT is a non-profit, multiemployer defined benefit pension plan within the meaning of ERISA, 29 U.S.C. §§ 1002(37) and 1301(a)(3). Daniel A. Bosh is the Chairman of the SPT and is authorized to bring this action on its behalf. (Compl. ¶¶ 5-6.)
ECF No. 1.
The SPT has been providing monthly retirement benefits to its participants and their families since 1953. These pension benefits are funded by employer contributions negotiated by various labor unions. SPT has over 500 contributing employers and over 112,000 participants. (Compl. ¶ 7.)
Renco is a private holding company with annual revenues of over $5 billion. In 2011, Renco purchased several steel mills that employed thousands of employees who were members of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union ("United Steelworkers"). The steel mills were "contributing employers" to the SPT. A "contributing employer" under ERISA is an entity that has a contractual obligation to make contributions to a pension plan, such as the SPT. (Compl. ¶¶ 8, 10-12.)
After the purchase, Renco operated those steel mills under several variations of the name RG Steel. Plaintiff alleges that RG Steel remained a contributing employer to the SPT after the Renco purchase. In fact, RG Steel was the third largest contributing employer of the SPT. (Compl. ¶¶ 13-14.)
As a contributing employer to the SPT, RG Steel would owe the SPT for its pro rata share of any unfunded pension liabilities should it partially or completely withdraw from the SPT. "Withdrawal liability" is a contributing employer's pro-rata share of a multiemployer, defined benefit pension plan's unfunded vested benefits. 29 U.S.C. § 1381(b)(1). ERISA provides for withdrawal liability in order to protect multiemployer pension plans (such as the SPT) by requiring employers who withdraw from such plans to pay their share of any unfunded vested benefits. 29 U.S.C. § 1381(b)(1). (Compl. ¶¶ 15-17.)
Withdrawal liability is intended to: (A) ensure that the financial burden of the vested pension benefits of a contributing employer's employees will not be shifted to the other contributing employers of the pension plan; and (B) eliminate any incentive for a contributing employer to withdraw from a pension plan to avoid funding its employees' vested pension benefits. Not only is a contributing employer liable for any withdrawal liability that it incurs, but so too are members of the contributing employer's "controlled group," who are jointly and severally liable along with the contributing employer. 29 U.S.C. § 1301(b)(1). (Compl. ¶¶ 18-19.)
An entity is part of a contributing employer's controlled group if it owns at least 80% of the contributing employer. 26 C.F.R. § 1.414(c)-2(b). Plaintiff alleges that, because The Renco Group owned 100% of RG Steel, it was part of the "RG Steel Controlled Group." Moreover, since The Renco Group owned at least 80% of the other Defendants, they were also part of the RG Steel Controlled Group. Plaintiff contends that Defendants were all jointly and severally liable for any withdrawal liability triggered by RG Steel. (Compl. ¶¶ 20-23.)
On May 31, 2012, RG Steel filed a Chapter 11 Bankruptcy Petition in the United States District Court for the District of Delaware. In or around August 2012, RG Steel permanently ceased its steelmaking operations when it terminated all of its remaining United Steelworkers employees. Those August 2012 events effected a complete withdrawal from the SPT and triggered withdrawal liability for RG Steel under ERISA. 29 U.S.C. § 1383. So long as Renco owned at least 80% of RG Steel and each of the Defendants, all of the Defendants were members of the RG Steel Controlled Group such that they would each be liable for RG Steel's withdrawal liability. 29 U.S.C. § 1301(b)(1). (Compl. ¶¶ 24-27.)
Plaintiff alleges that, in January 2012, in an attempt to evade or avoid that controlled group liability, Renco divested itself of just over 20% of its ownership of RG Steel less than five months before RG Steel filed for bankruptcy (the "Cerberus Transaction"). Renco did not divest all of its interest in RG Steel; rather, it retained 75.5% ownership, and therefore the controlling interest, in RG Steel. By doing so, Renco believed that it would be able to retain control over its subsidiary, RG Steel, yet avoid controlled group liability (including withdrawal liability to the SPT) that would be triggered when it placed RG Steel into bankruptcy a few months later and RG Steel ceased covered operations. (Compl. ¶¶ 28-30.)
However, Plaintiff notes that, pursuant to ERISA, such a transaction can be disregarded and withdrawal liability can be collected from a former member of a contributing employer's controlled group where that entity removed itself from the controlled group in a transaction which had as a principal purpose an intent to evade or avoid controlled group liability. 29 U.S.C. § 1392(c). (Compl. ¶ 31.) The SPT contends that the Cerberus Transaction had as a principal purpose an intent to evade or avoid controlled group liability, and therefore that transaction can be disregarded and withdrawal liability can be asserted against Defendants. The SPT has thus assessed Defendants for that withdrawal liability. (Compl. ¶ 32.)
Similarly, the Pension Benefit Guarantee Corporation ("PBGC"), an independent agency of the United States government, filed a lawsuit in the United States District Court for the Southern District of New York in January 2013 asserting that the Cerberus Transaction had a principal purpose of evading controlled group liability for RG Steel's single-employer pension plans and seeking to hold Defendants liable for the same. The PBGC further alleged that Renco only closed the Cerberus Transaction by committing fraud against the PBGC to prevent it from terminating RG Steel's single-employer pension plans and locking Renco into the RG Steel Controlled Group prior to the closing of the Cerberus Transaction. (Compl. ¶ 33.)
After a bench trial, but before the Court's decision, Renco entered into a settlement with the PBGC whereby Renco agreed to accept its full controlled group liability for the RG Steel single-employer pension plans. Even though Renco assumed all of its controlled group liability for the RG Steel single-employer plans, Renco continues to deny its controlled group liability to the SPT. (Compl. ¶¶ 34-35.)
After the RG Steel withdrawal from the SPT, Cheiron, the SPT's independent actuary, calculated RG Steel's withdrawal liability. Cheiron initially calculated RG Steel's withdrawal liability to be $86,181,976. Based on this figure, Cheiron calculated the withdrawal liability payment plan to be 11 equal quarterly payments of $8,252,337, followed by a final payment of $1,002,611. (Compl. ¶¶ 36-38 & Ex 1.)
The SPT's actuary subsequently revised the withdrawal liability calculation, reducing Defendants' liability to $82,150,432. (Compl. ¶ 90 & Ex. 10.)
ERISA provides that when a pension plan makes an assessment of withdrawal liability, it shall notify the contributing employer of both the amount of the liability and the schedule for liability payments. 29 U.S.C. § 1399(b)(1). ERISA requires that employers (and members of the employer's controlled group) who have been assessed with withdrawal liability make interim payments even while they dispute the assessment:
Withdrawal liability shall be payable in accordance with the schedule set forth by the plan sponsor under subsection (b)(1) of this section beginning no later than 60 days after the date of the demand notwithstanding any request for review or
appeal of determinations of the amount of such liability or the schedule.29. U.S.C. § 1399(c)(2). This is known as the "Pay Now - Dispute Later Rule." (Compl. ¶¶ 39-41.)
A withdrawn employer has the choice to pay its withdrawal liability via a lump sum payment or via "interim payments" under a payment plan determined pursuant to ERISA. 29 U.S.C. § 1399(c). On April 14, 2015, counsel for the SPT sent counsel for Renco the full Cheiron Report, advising Defendants of the total withdrawal liability assessment and the interim payment amounts due to the SPT. (Compl. ¶¶ 42-43 & Ex. 2.) The SPT sought to hold Defendants liable for RG Steel's withdrawal liability due to the SPT's finding that a principal purpose of the Cerberus Transaction was to evade or avoid withdrawal liability, and therefore that transaction could be disregarded and the SPT could treat the Defendants as remaining in the RG Steel Controlled Group. (Compl. ¶ 44.)
Plaintiff alleges that, as of April 14, 2015, Defendants were aware of the withdrawal liability assessment against RG Steel, the total amount of that assessment, the schedule of interim payments as calculated by the actuary, and the fact that the SPT was seeking from Defendants the full amount of RG Steel's withdrawal liability. Once Renco's counsel received notice of the interim payment amounts, and the payment schedule, Defendants were required under ERISA to begin making interim payments under that schedule. 29 U.S.C. § 1399(c)(2). (Compl. ¶¶ 45-46.)
On March 10, 2016, having received no interim payments, counsel for the SPT sent counsel for Renco a 60-day cure letter pursuant to ERISA section 4219(c)(5), 29 U.S.C. § 1399(c)(5). (Compl. ¶ 47 & Ex. 3.) Defendants failed to make any payments after receiving of the 60-day cure letter. Defendants have disputed whether Renco remained in the RG Steel Controlled Group, arguing that because Renco shed over 20% of its equity in RG Steel through the Cerberus Transaction, it no longer owned at least 80% of RG Steel at the time of RG Steel's withdrawal, was no longer in the RG Steel Controlled Group, and so could not be held jointly and severally liable for RG Steel's withdrawal liability. The SPT disagreed and determined that a principal purpose of the transaction whereby Renco reduced its ownership of RG Steel from 100% to 75.5% was to evade or avoid withdrawal liability such that the transaction can be disregarded and withdrawal liability would be owed from Defendants as members of the RG Steel Controlled Group. 29 U.S.C. § 1392(c). (Compl. ¶¶ 48-50.)
Defendants thereafter initiated arbitration pursuant to ERISA to determine their liability to the SPT. The SPT initially resisted arbitration, believing that Defendants had waived arbitration by failing to timely file a request for review of the withdrawal liability assessment. The SPT therefore filed an action in this Court to collect on the withdrawal liability. See Civ. A. No. 16-190. (Compl. ¶¶ 51-52.) This Court dismissed that action, finding that ERISA required the parties to arbitrate all disputes, including both the dispute over whether Defendants had waived arbitration and the dispute over whether a principal purpose of the Cerberus Transaction was to evade and avoid controlled group liability. On June 19, 2017, the Court ordered the parties to proceed to arbitration before Arbitrator Ira Jaffe. (Compl. ¶¶ 53-54 & Ex. 4.)
The parties briefed the Arbitrator on all of the legal issues relating to Defendants' interim payments obligation, including the issue of the date that Defendants were given notice of the assessment of withdrawal liability, and thus the date on which their interim obligation began. (Compl. ¶¶ 58-59 & Exs. 6-8.) On December 1, 2017, the Arbitrator issued an Interim Ruling on Motion for Interim Payments, along with an Interim Award that granted the SPT's motion for interim payments. (Compl. ¶ 60 & Ex. 9.) The Arbitrator rejected the SPT's claim that Renco had waived its right to challenge the Fund's assessment of withdrawal liability. The Arbitrator determined that the date Defendants were given notice of the withdrawal liability assessment was April 14, 2015, and thus their first interim payment was due 60 days thereafter. Subsequent interim payments were then owed every three months until the payment plan was completed. (Compl. ¶ 61.) The Arbitrator further determined that the Cerberus Transaction had a principal purpose of evading or avoiding withdrawal liability and that Renco was an "employer" for purposes of withdrawal liability.
On December 14, 2017, the Arbitrator issued an order which required Defendants to: 1) pay the SPT delinquent interim payments in the amount of $85,992,445 owed from April 14, 2015 to December 14, 2017; 2) pay the SPT interest in the amount of $4,037,410.44 for that same time period, at the rate set forth in 29 C.F.R. § 4219.32(b); and 3) make a final interim payment to the SPT in the amount of $1,536,447 by March 14, 2018. (Compl. ¶ 63 & Ex. 11.) Plaintiff indicates that, despite this order, Renco has refused to make these payments or indeed any payments to the SPT. (Compl. ¶ 69.)
Procedural History
Plaintiff filed this action on January 31, 2018. Jurisdiction is based on the federal question presented by the ERISA and MPPAA claims, 29 U.S.C. §§ 1132(a)(3), 1132(e), 1132(f), 1451(c). (Compl. ¶ 3). Count I seeks a confirmation of the Interim Ruling and Interim Order made by the Arbitrator on December 1 and December 14, 2017, respectively. Count II seeks interim payments totaling $114,057,804.14 pursuant to 29 U.S.C. § 1399(c)(2), plus interest, liquidated damages, legal costs and attorney's fees.
On April 2, 2018, Defendants filed a motion to dismiss (ECF No. 14). On May 11, 2018, Plaintiff filed a brief in opposition (ECF No. 25) and on June 1, 2018, Defendants filed a reply brief (ECF No. 26).
On July 18, 2018, the Arbitrator issued an Interim Opinion and Award, which the SPT submitted to the Court as an attachment to a notice on July 20, 2018 (ECF No. 28-1). The Arbitrator found that a principal purpose of the Cerberus Transaction was to evade or avoid withdrawal liability and therefore Defendants were liable for the withdrawal liability of RG Steel. Renco submitted a response on July 23, 2018 (ECF No. 29) and the SPT submitted a reply on July 26, 2018 (ECF No. 30). Finally, Renco submitted a notice on August 7, 2018 (ECF No. 31). In these various notices, the parties requested that the Court hold a status conference and therefore a status conference was scheduled for September 13, 2018 (ECF No. 32). At the conclusion of the status conference, the Court indicated that Renco's motion to dismiss would be taken under advisement and that no further briefing would be necessary (ECF No. 34).
On September 25, 2018, the Arbitrator issued a Final Award, which Renco submitted to the Court as an attachment to a letter on September 26, 2018 (ECF No. 35-1). The Final Award incorporated the Arbitrator's December 1, 2017 Interim Ruling, the December 14, 2017 Interim Order and the July 18, 2018 Interim Opinion and Award. Defendants contend that the SPT's complaint seeking enforcement of the Arbitrator's interim payments rulings has been rendered moot by the issuance of the Final Award.
Finally, the SPT submitted a letter in response to Renco's notice on September 27, 2018 (ECF No. 36). The SPT denies that its complaint is now moot and contends that Renco is free to file a separate action to vacate the Final Award, just as it is free to file an action to confirm the Final Award. On October 1, 2018, Renco filed an action to vacate the Arbitrator's Final Award. The case was docketed at No. 18-1311. On October 3, 2018, Renco filed motions to consolidate the new case with this one. Finally, on October 4, 2018, the SPT filed a motion for preliminary injunction (ECF No. 40).
Standard of Review
The Supreme Court has issued two decisions that pertain to the standard of review for failure to state a claim upon which relief could be granted. The Court held that a complaint must include factual allegations that "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "[W]ithout some factual allegation in the complaint, a claimant cannot satisfy the requirement that he or she provide not only 'fair notice' but also the 'grounds' on which the claim rests." Phillips v. County of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008). In determining whether a plaintiff has met this standard, a court must reject legal conclusions unsupported by factual allegations, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements;" "labels and conclusions;" and "'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 556 U.S. at 678 (citations omitted). Mere "possibilities" of misconduct are insufficient. Id. at 679. The Court of Appeals has summarized the inquiry as follows:
To determine the sufficiency of a complaint, a court must take three steps. First, the court must "tak[e] note of the elements a plaintiff must plead to state a claim." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1947, 173 L.Ed.2d 868 (2009). Second, the court should identify allegations that, "because they are no more than conclusions, are not entitled to the assumption of truth." Id. at 1950. Third, "whe[n] there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief." Id. This means that our inquiry is normally broken into three parts: (1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged.Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).
The Court of Appeals has explained that: "In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) (citation omitted). Therefore, the Interim Ruling and Interim Order, the Interim Opinion and Award, and the Final Award may all be considered without converting the motion into a motion for summary judgment.
Defendants argue that: 1) the SPT never provided appropriate notice pursuant to § 1399(b)(1) to Renco; 2) Renco is not an "employer" under ERISA because it was not in the RG Steel Controlled Group when RG Steel withdrew from the SPT in 2012; 3) although interim payments are facially constitutional, in this case, when a huge amount is at stake, Renco's "employer" status is questionable and no effective notice was provided, it would violate due process to require Renco to make interim payments; and 4) imposing interim withdrawal liability would be inequitable in this case when the Arbitrator is about to resolve the main issue, and since the SPT dragged out this process, it should not profit from its own delay.
Plaintiff responds that: 1) its notice was not deficient; 2) the Arbitrator has already rejected the argument that Renco was not part of the RG Steel Controlled Group and Renco's citations are to cases in which companies were never MPPAA employers, not situations in which companies were former employers; 3) the SPT is not a state actor, so Renco's due process arguments are irrelevant, and the constitutionality of interim payments has been upheld many times; and 4) Renco cannot argue that the delay in this case relieves it of the obligation to make interim withdrawal payments, and the SPT's claims for liquidated damages, costs and attorney's fees would survive the Arbitrator's decision in any event.
In a reply brief, Defendants argue that: 1) the April 2015 notice was not a demand for payment but an offer to discuss the calculations transmitted under the heading of a settlement discussion (it is also inadmissible under Federal Rule of Evidence 408) and ERISA contains no option of "substantial compliance" with its procedures; 2) Renco was not in the RG Steel Controlled Group at the time of its withdrawal; 3) the Court's order to make interim payments would violate due process, regardless of whether SPT is a state actor, particularly in an as-applied (as opposed to facial) challenge; and 4) the Third Circuit has never held that there can be no equitable exception to interim payments, the final award is about to be issued and that will end the matter of interim payments, and Plaintiff cannot obtain liquidated damages, fees or costs in the absence of Renco's liability.
Notice Requirements
ERISA requires that:
As soon as practicable after an employer's complete or partial withdrawal, the plan sponsor shall—
(A) notify the employer of—
(i) the amount of the liability, and
(ii) the schedule for liability payments, and
29 U.S.C. § 1399(b)(1). Plaintiff cites the April 14, 2015 email as its notice. It stated as follows:
(B) demand payment in accordance with the schedule.
Per your request, attached please find the calculations and payment plan data for RG Steel's complete withdrawal from the Steelworkers Pension Trust in 2012.
As you know, our position is that the Renco Group was still part of the controlled group when the complete withdrawal was triggered since the January 2012 Cerberus Transaction was designed to evade and avoid withdrawal liability.
Consequently, in light of the various Notices of Appearances filed by attorneys for the Renco Group in the RG Steel bankruptcy prior to the SPT's filing of its Proof of Claim, the Renco controlled group had notice of the withdrawal liability assessment such that it missed the opportunities to file a Request for Review and to trigger the MPPAA arbitration to dispute the attached calculations.
Nonetheless, per our discussion, I am willing to discuss the calculations with you. (ECF No. 1 Ex. 2.) The email attached the September 27, 2013 Cheiron Report which calculated withdrawal liability in the amount of $86,181,976, to be paid in 11 payments of $8,252,337 each and a final payment of $1,002,611 (ECF No. 1 Ex. 1).
Defendants contend that the April 14, 2015 email was insufficient for the following reasons: 1) it is inadmissible as a settlement negotiation pursuant to Federal Rule of Evidence 408; 2) it did not state the amount of liability but only an estimate; 3) it did not provide a schedule of payments and did not indicate when the first payment was due; 4) it did not "demand" payment; and 5) the SPT did not serve the email and the attached withdrawal liability on Renco "as soon as practicable." Plaintiff responds that: 1) the email was from Neil Gregorio, counsel for the SPT, not from Defendants, so even if it contained inadmissible settlement negotiations (which the SPT contends it did not), the SPT could waive any protection of its own email, and in any event, it could still serve as a trigger for Defendants' obligation to make interim payments; 2) the email attached the September 27, 2013 Cheiron Report, which clearly set forth the withdrawal liability amount; 3) the Cheiron Report set forth a payment schedule of 11 quarterly payments of $8,252,337 and a final payment of $1,002,611 and, regardless of whether the email contained the date for the first payment, the MPPAA requires that the first payment be made 60 days after notice is sent; 4) even without the word "demand," the email stated that Defendants owed withdrawal liability since the Cerberus Transaction was designed to evade and avoid withdrawal liability; and 5) there is no mandatory time period for concluding that the notice was not served "as soon as practicable" and Renco suffered no prejudice due to any alleged delay.
Defendant replies that: 1) settlement negotiations are not admissible "on behalf of any party," Fed.R.Evid. 408(a)(2), and it is clear that the April 14, 2015 email was a statement of the SPT's position that Renco had waived its right to arbitration, an issue on which it invited "further discussion"; 2) there is no "substantial compliance" provision in the statute; and 3) the statute requires the plan to set a schedule and then the first payment is due in accordance with the schedule not later than 60 days after the date of the demand.
With respect to the issue of settlement negotiations, the Arbitrator found that the April 2015 notice was not barred from consideration:
Finally, the Employer argued that because the April 14, 2015 email that transmitted the September 27, 2013 calculation and payment schedule prepared by Cheiron to the Employer's Counsel had in its subject line "SPT-RB Steel-Renco - INADMISSIBLE SETTLEMENT DISCUSSIONS" that the April 14, 2015 date could not be utilized as the date for which Renco first received notice that complied with Section 4219(b)(1) of MPPAA - i.e., the date on which it first received notice of the amount of withdrawal liability, the payment schedule, and received a demand to pay in accord with that schedule. This claim is rejected. There was no evidence that the April 14, 2015 communication to Renco was anything other than a transmittal of the information contained in the September 27, 2013 Cheiron report and a statement by Fund Counsel of its position as to the Proof of Claim constituting Section 4219(b)(1) notice and demand to the Renco controlled group and the Fund's position that Renco had lost its opportunity to challenge the withdrawal liability assessment through the request for review and arbitration process.(ECF No. 1 Ex. 9 at 12.) The Court similarly concludes that the April 14, 2015 email was a combination of a transmittal of the information contained in the September 27, 2013 Cheiron Report and a statement by the SPT of its position that Renco owed withdrawal liability. Despite the subject line of the email, there is no evidence that it contained inadmissible settlement discussions and a review of the contents of the email belies Renco's contentions. In addition, the email did not "invite discussion" on the issue of withdrawal liability, but only as to the issue of the calculations. Moreover, Defendants cite no authority to support the argument that, even if the communication contained settlement negotiations, it could not simultaneously serve as notice of withdrawal liability.
"Due to the remedial purpose of ERISA and the MPPAA, the MPPAA's notice provisions are liberally construed to protect pension plan participants." Board of Trustees of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164, 175 (3d Cir. 2002) (citation omitted). See also IUE AFL-CIO Pension Fund v. Barker & Williamson, Inc., 788 F2d 118, 121 (3d Cir. 1986); Central States, Southeast and Southwest Areas Pension Fund v. Basic American Indus., Inc., 252 F.3d 911, 918 (7th Cir. 2001); Amalgamated Lithographers of Am. v. Unz & Co., Inc., 670 F. Supp. 2d 214, 225 (S.D.N.Y. 2009); Teamsters Pension Trust Fund v. Laidlaw Indus., 745 F. Supp. 1016, 1026 (D. Del. 1990). Renco attacks all of the cases cited by the SPT as inapposite: Foodtown and IUE involved notice to a company being sufficient for notice to its alter ego, Central States merely stated in dicta that a prior notice might have been sufficient but did not expressly rule on the question, the notice in Lithographers met all statutory requirements, and the court in Laidlaw (which found proper notice despite the lack of a schedule) reached its decision without any reasoning and in contravention of the plain language of the statute. Nevertheless, Defendants cite no cases that reject a substantial compliance standard and hold that the statute's requirements must be strictly construed. The principle of these cases applies here.
The Arbitrator addressed this issue in his Interim Ruling and concluded that:
The predicate for an obligation by an employer to make interim withdrawal liability payments is the issuance of a valid notification and demand for withdrawal liability payment. Section 4219(b)(1) requires that this include notification of the amount of the liability and the schedule for liability payments and also that the Fund demand payment in accordance with the schedule. The date on which this occurred was April 14, 2015 - the date on which Neil Gregorio, Esq., Counsel for the Fund, sent an email to Ira M. Golub, Esq., Counsel for Renco, attaching the details as to the calculations and payment plan data for RG Steel's withdrawal from the Fund and stating the position of the Fund that the Cerberus Transaction was designed to evade or avoid withdrawal liability; that Renco Group was, therefore, still part of the RG Steel controlled group when the complete withdrawal was triggered; and demanding payment.(ECF No. 1 Ex. 9 at 6.)
In dueling footnotes, the parties debate whether the Complaint in Civ. A. No. 16-190, filed on February 22, 2016, was itself sufficient to notify Renco of its withdrawal liability. (ECF No. 25 at 6 n.4; ECF No. 26 at 6 n.3.) The Court need not reach this issue. It is noted, however, that in NYSA-ILSA Pension Trust Fund v. American Stevedoring, Inc., 2013 WL 1234957, at *4 (S.D.N.Y. Mar. 26, 2013), the court rejected the employer's argument that the complaint was insufficient because it did not attach the prior notice, stating "This hair-splitting, hyper-technical argument has not merit because the Complaint adequately set for the amount and payment schedule"). Renco has also ignored Board of Trustees, National Shopmen Pension Fund v. Northern Steel Corp., 657 F. Supp. 2d 155, 158-59 (D.D.C. 2009), which clearly held that, when an employer receives a complaint, it cannot dispute the validity of a prior notice.
The Court also concludes that the April 14, 2015 notice was sufficient to inform Renco that the SPT was asserting withdrawal liability, the amount and payment schedule and the date of the first payment could be calculated as no later than 60 days from April 14, 2015. Contrary to Renco's convoluted argument, § 1399(c)(2) states that the first payment is due no later than 60 days after the demand, notwithstanding what the schedule provides. This argument should be rejected.
Renco's Status as an Employer
Pursuant to ERISA, only "employers" owe interim withdrawal payments. 29 U.S.C. §§ 1399(c)(1)(A)(i) ("an employer shall pay the amount determined....), 1401(d) ("Payments shall be made by an employer...")
Defendants argue that Renco is not an "employer" under ERISA because it was not in the RG Steel Controlled Group when RG Steel withdrew from the SPT in 2012. Plaintiff responds that the Arbitrator has rejected this argument and that the cases Renco cites concerned companies that were never MPPAA employers, not former ones (the situation presented here). Defendants reply that the SPT relies on outdated cases and that a fund may not collect even interim payments until it is determined that a company is an employer under the statute.
Plaintiff cites cases holding that a company that was clearly a member of a controlled group at one time but now disputes the plan's determination of an evade or avoid transaction must make interim payments pending resolution of the dispute. Flying Tiger Line, Inc. v. Central States, Southeast & Southwest Areas Pension Fund, 704 F. Supp. 1277, 1292-93 (D. Del. 1989); Teamsters Pension Trust Fund of Phila. & Vicinity v. Headley's Exp. & Storage Co., 1993 WL 189933, at *4 (E.D. Pa. June 3, 1993). Defendants proffer no evidence that these cases are not good law.
Rather, it cites to a footnote in a Third Circuit case which states that "a Fund may not collect even interim payments" until it is determined that a company "is an employer" under the statute. Board of Trustees of Trucking Employees of North Jersey Welfare Fund, Inc. - Pension Fund v. Centra, 983 F.2d 495, 502 n.10 (3d Cir. 1992). Again, however, that case involved a company that was not the actual owner until well after the withdrawal date, not a company that was previously an employer. The Court does not accept Defendants' contention that the Centra case rejected the series of cases cited by Plaintiff in a footnote and without citing them.
When presented with this argument, the Arbitrator concluded that:
The assertion that the Employer is not an "employer" for purposes of the claim for interim payments is rejected. There is no question that RG Steel was a contributing employer and that, prior to the transaction with Cerberus, Renco was part of the same controlled group that included RG Steel. In light of the Fund's determination that Renco remained a member of the controlled group by virtue of the provisions of Section 4212(c) of MPPAA, Renco must be regarded as an employer for purposes of this arbitration. Regardless of the ultimate disposition of the arbitration with respect to the Fund's determination, Renco was required to be treated as if it were responsible for interim payments until there is some determination in the arbitration that it was no longer a member of the controlled group as of the date of withdrawal. Congress clearly intended that entities that are asserted to be responsible for withdrawal liability due to Section 4212(c) also make interim withdrawal liability payments pursuant to section 4219 until an adjudication is made rejecting that determination. The Pension Protection Act ("PPA") provided limited exceptions to the obligation to make interim payments in certain Section 4212(c) situations - a provision that would not have been
necessary if the Employer's position in this case with respect to its status as an employer for purposes of being required to make interim payments were correct. Moreover, it is clear that the limited PPA exception to the "pay first, challenge later" provisions of MPPAA is inapplicable to the factual situation of this case.(ECF No. 1 Ex. 9 at 5-6.)
The Court should reach the same conclusion: RG Steel was a contributing employer and Renco was part of the same controlled group that included RG Steel. Although Renco contends that it is no longer part of the controlled group as a result of the Cerberus Transaction, the law requires that Renco be treated as an employer until such time as a determination is made that it was not an employer. 29 U.S.C. § 1392(c). Thus, Renco's argument that it cannot be held liable for interim withdrawal payments because it was not an employer should be rejected.
Due Process
Defendants argue that the "pay now, dispute later" provision of ERISA violates their right to due process, particularly when such a large amount ($114 million) is at stake, when proper notice is disputed, when their assets are "not liquid" and when they had to spend a year litigating the issue of arbitration after Plaintiff asserted that they had waived this right. Plaintiff responds that it is not a state actor (so due process arguments do not apply), and that numerous courts have upheld the constitutionality of interim payments. It also contends that proper notice was provided. In addition, it argues that Renco's assertion that this case goes "well beyond the bounds of most withdrawal liability disputes" not only cites material outside of the pleadings but also is without support, that their argument about not having liquid assets also goes outside the pleadings and is unsupported and irrelevant and that delays often occur in such cases. Defendants reply that an order of court granting Plaintiff relief would constitute state action and that this is an as-applied challenge, so the amount at issue may be considered.
Defendants admit that, although ordinarily depriving a person of property "violates the fundamental principles of due process," Sniadach v. Family Fin. Corp. of Bay View, 395 U.S. 337, 342 (1969), Congress and the courts have resolved this issue with respect to interim withdrawal payments under ERISA by providing that they must be refunded with interest if the allegedly employer ultimately prevails, 29 U.S.C. § 1401(d); Huber v. Casablanca Indus., Inc., 916 F.2d 85, 102-03 (3d Cir. 1990). See also Flying Tiger Line, Inc. v. Central States, Southeast & Southwest Areas Pension Fund, 704 F. Supp. 1277, 1294 (D. Del. 1989) (collecting cases). Defendants contend that the cases Plaintiff cites involved facial challenges to interim withdrawal payments, as opposed to their as-applied challenge. (ECF No. 26 at 8 n.5.) However, they have not explained why this makes a difference.
The Supreme Court abrogated Huber with respect to its interest calculation, Milwaukee Brewery Workers' Pension Plan v. Joseph Schlitz Brewing Co., 513 U.S. 414 (1995), but did not disturb the conclusion that the interim withdrawal payment scheme survives a due process challenge. --------
Rather, Defendants contend that, as applied to them, the interim withdrawal payment scheme violates due process because such a large amount of money is involved. Defendants support this contention by citing two cases, SUPERVALU, Inc. v. Board of Trustees of the Southwestern Pa. & W. Md. Area Teamsters & Employers Pension Fund, 500 F.3d 334, 338 (3d Cir. 2007) (about $4 million at issue); and Galgay v. Beaverbrook Coal Co., 105 F.3d 137, 138 (3d Cir. 1997) (seeking $146,242 in interim payments); and contending that the $114 million at issue in this case far exceeds those amounts. (ECF No. 15 at 14.) However, neither of these cases holds that there is a limit for purposes of due process. Moreover, Renco does not even contend that it cannot pay the interim payments: "Most of Renco's assets, while substantial, are not liquid. They are invested primarily in Renco's operating companies. Liquidating a sufficient number of assets to satisfy a $114 million 'interim' award would thus unnecessarily disrupt Renco's businesses." (ECF No. 15 at 15.) Defendants cite no case in which a court found interim withdrawal payments to violate a company's due process rights because of the size of the amount at issue, much less because the payments might require the company to liquidate some assets to satisfy the award.
Finally, Defendants argue that their due process rights were violated when Plaintiff delayed this action by arguing that Renco had waived its right to arbitrate. Plaintiff responds by citing cases that involved delay and in which the courts awarded past-due interim payments. Robbins v. Pepsi-Cola Metro. Bottling Co., 636 F. Supp. 641 (N.D. Ill. 1986) (4-year delay); Keith Fulton & Sons, Inc. v. New England Teamsters & Trucking Indus. Pension Fund, 762 F.2d 1124, 1135-36 (1st Cir. 1984) (3-year delay); Central States, Southeast & Southwest Areas Pension Fund v. Murphy Bros., Inc., 772 F. Supp. 2d 918, 922 (N.D. Ill. 2011) (2-year delay). Defendants attempt to distinguish these cases on the grounds that they did not involve delay by the funds from timely demanded arbitration. However, Defendants cite no authority to support their claim that Plaintiff's delay in this case makes a difference for purposes of their due process challenge to interim withdrawal payments. This argument should be rejected.
Equity and Judicial Economy
Finally, Defendants contended that imposing withdrawal liability when the Arbitrator was about to decide the case was inequitable. Since the motion was briefed, the Arbitrator has issued his Final Award. Now, Defendants have changed tack and argue that withdrawal liability can no longer be imposed and that Plaintiff's Complaint has been rendered moot. The Court concludes that their first argument is moot and the second argument is unavailing.
ERISA provides that:
Payments shall be made by an employer in accordance with the determinations made under this part until the arbitrator issues a final decision with respect to the determination submitted for arbitration, with any necessary adjustments in subsequent payments for overpayments or underpayments arising out of the
decision of the arbitrator with respect to the determination. If the employer fails to make timely payment in accordance with such final decision, the employer shall be treated as being delinquent in the making of a contribution required under the plan (within the meaning of section 1145 of this title).29 U.S.C.A. § 1401(d). Defendants read this section as if it applied only "until the arbitrator issues a final decision," ignoring the fact that it goes on to talk about "adjustments in subsequent payments for overpayments or underpayments arising out of the decision of the arbitrator." The fact that an employer's interim withdrawal liability ends with an arbitrator's decision does not mean that an employer that has refused to make interim withdrawal liability payments can delay doing so until the arbitrator's decision and then argue that it does not owe any past interim withdrawal liability because the arbitrator has ruled. Moreover, the Third Circuit has held that:
In enacting the interim withdrawal liability provisions of MPPAA, 29 U.S.C. §§ 1399(c)(2), 1401(d), and the judicial mechanism for their enforcement, 29 U.S.C. § 1451(b) & (c), Congress has effectively determined that pension funds will be irreparably harmed unless employers are enjoined to make interim payments while litigation proceeds. By enacting the withdrawal liability provisions, Congress has concluded that the uninterrupted flow of payments is important in itself, and that the ultimate recovery of payments will not suffice to make the Fund whole. Congress has likewise determined that neither party's probability of success in litigation is relevant: interim payments must be made regardless.Galgay v. Beaverbrook Coal Co., 105 F.3d 137, 140 (3d Cir. 1997) (citation omitted). The court declined to find any equitable exceptions to the statutory provision on interim payments. Id. In addition, the Arbitrator found that there was no basis for finding the equities exempted Renco from making its required payments in this case. (ECF No. 1 Ex. 9 at 11.) To allow Renco to avoid interim withdrawal liability now because it delayed the adjudication of this matter until the Arbitrator issued his Final Award (after it argued that it would be inequitable to reach the question when the Arbitrator was about to issue this award) would turn the ERISA "pay now, dispute later" scheme on its head.
For these reasons, it is recommended that the Motion to Dismiss filed by Defendants (ECF No. 14) be denied.
Litigants who seek to challenge this Report and Recommendation must seek review by the district judge by filing objections by November 9, 2018. Any party opposing the objections shall file a response by November 26, 2018. Failure to file timely objections will waive the right of appeal.
Respectfully submitted,
s/Robert C. Mitchell
ROBERT C. MITCHELL
United States Magistrate Judge Dated: October 26, 2018