Park South Hotel v. New York Hotel Trades Council

• Decision Date: 23 October 1987
• Docket Number: No. 82 Civ. 7554 (JES).,82 Civ. 7554 (JES).
• Citation: 671 F. Supp. 1000
• Parties: PARK SOUTH HOTEL CORP., Plaintiff, v. NEW YORK HOTEL TRADES COUNCIL AND HOTEL ASSOCIATION OF NEW YORK CITY, INC. PENSION FUND, Defendant. Vito J. PITTA and Albert A. Formicola as Trustees of New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund, Additional Counter-claim Plaintiffs, v. PARK SOUTH ASSOCIATES, Formerly a New York Limited Partnership, Additional Counter-claim Defendant.
• Court: U.S. District Court — Southern District of New York

671 F. Supp. 1000

PARK SOUTH HOTEL CORP., Plaintiff, v. NEW YORK HOTEL TRADES COUNCIL AND HOTEL ASSOCIATION OF NEW YORK CITY, INC. PENSION FUND, Defendant.

Vito J. PITTA and Albert A. Formicola as Trustees of New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund, Additional Counter-claim Plaintiffs, v. PARK SOUTH ASSOCIATES, Formerly a New York Limited Partnership, Additional Counter-claim Defendant.

No. 82 Civ. 7554 (JES).

United States District Court, S.D. New York.

October 23, 1987.

Robinson, Silverman, Pearce, Aronsohn & Berman, New York City (Michael

O'Toole and Matthew Silverman, of counsel), for plaintiff.

Shea & Gould, New York City (Michael Lesch, of counsel), for defendant and additional counter-claim plaintiffs.

OPINION AND ORDER

SPRIZZO, District Judge:

Plaintiff, Park South Hotel Corporation ("Park South Corporation"), brings this action seeking a judgment declaring that the withdrawal liability provisions of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq. (1982), as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA" or "the Act"), 29 U.S.C. §§ 1381 et seq. (1982), are not applicable to the facts of this case. See Amended Complaint for Declaratory Relief ("Complaint") at ¶ 1.

The defendant is the New York Hotel Trades Council and Hotel Association of New York City Inc. Pension Fund ("the Fund"). The Fund is a multiemployer pension plan within the meaning of MPPAA. The Fund counterclaims seeking a judgment declaring that the plaintiff and Park South Associates, described in the counterclaim as a "former New York limited partnership," are jointly and severally liable to the Fund for withdrawal liability pursuant to MPPAA. See Answer to Amended Complaint and Counterclaims ("Answer") at ¶ 57 40. Vito J. Pitta and Albert A. Formicola, as trustees for the Fund (the "Trustees"), join the counterclaim as additional plaintiffs.¹

The Court has held a hearing² and both parties have filed post-hearing briefs. For the reasons which follow, the Court denies plaintiff's request for a declaratory judgment and grants the request of defendant and the additional counterclaim plaintiffs for a declaratory judgment.

I. BACKGROUND

The following facts are the sole facts which are material to this action. These facts are undisputed.

Until August 11, 1981, plaintiff Park South Corporation was the sole general partner of Park South Associates, a limited partnership organized under the laws of the State of New York. Park South Associates owned the Barbizon Plaza Hotel ("the Hotel").

Park South Associates was a member of the Hotel Association of New York City ("Hotel Association"), an employer bargaining association. Pursuant to a bargaining agreement between the Hotel Association and the New York Hotel Trades Council, AFL-CIO ("the Union"), Park South Associates was obliged to contribute to the defendant Fund on behalf of its employees at the Hotel.

On August 11, 1981, Park South Corporation and all of the limited partners in Park South Associates executed a Purchase Agreement selling 100% of the partnership interests in Park South Associates to Donald Trump. See Plaintiff's Exhibit ("PX") 8 at ¶ 3. It is this transaction and the circumstances surrounding this transaction which the Fund claims give rise to Park South Corporation's withdrawal liability. The details of this transaction are set forth below.

In addition to providing that Donald Trump would purchase 100% of the partnership interests, the Purchase Agreement provided that Trump "shall not be responsible, as a consequence of the purchase intended hereby, for any obligation between or among the former partners or for any obligation of the former partners or any of them to any third party." See PX 8 at ¶ 18 (BB)(v) (emphasis added). Moreover, just prior to the closing of the Purchase Agreement, the President of Park South Corporation and each of the former limited partners executed affidavits reaffirming that Mr. Trump would not be liable for any obligations of the selling partners to any third parties. See Defendant's Exhibit ("DX") J at ¶ 7(v); see also DX G.

These affidavits also warranted that Park South Associates is a "validly existing New York limited partnership, which has not been terminated by operation of law, except as same may be terminated by virtue of said Assignment of Partnership Interests." See DX J at ¶ 3 (emphasis added). The affidavits also stated that they were executed "for the purpose and with the intent of inducing Donald J. Trump" to purchase the partnership interests. See id. at ¶ 14.

To effectuate the sale of the partnership interests to Donald Trump, the parties to the sale executed an Amended and Restated Certificate of Limited Partnership ("Amended Partnership Certificate"), see PX 9, and an Amended and Restated Partnership Agreement ("Amended Partnership Agreement"), see PX 10, for Park South Associates. Both of these documents provide that all of the former partners in Park South Associates (both general and limited) are withdrawing from the limited partnership. In addition, the documents provide that Donald Trump is admitted as the general partner and Donald Trump and Barbizon Plaza Realty Corporation are admitted as limited partners.³

The sale of the partnership interests effectively transferred control over the Hotel from the previous general partner, Park South Corporation, to Donald Trump. Nonetheless, the formal ownership of the Hotel remained under the name of Park South Associates. According to the plaintiff, the transfer of the Hotel to Donald Trump was structured as a sale of the partnership interests rather than as an outright sale of the Hotel solely to avoid real estate transfer taxes and the possibility that a transfer of title would trigger an upward reassessment of the valuation of the Hotel for real estate tax purposes. See Transcript of Hearing ("Tr.") at 260-61; Plaintiff's Post-Trial Memorandum at 6.

For convenience, when referring solely to Park South Associates as it was constituted prior to the sale of the partnership interests, the Court will refer to the limited partnership as "Park South Associates I." Likewise, the Court will hereafter refer to the limited partnership after the sale as "Park South Associates II." Following the sale of the partnership interests, Park South Associates II agreed to recognize the Union as the collective bargaining agent of the Hotel employees, see DX N, and to continue to employ the Hotel employees.⁴ In addition, Park South Associates II continued to contribute to the Fund on behalf of those employees.

As a consequence of the events described above, by letter dated December 1, 1981, the Fund demanded payments for withdrawal liability in the aggregate amount of $1,016,900 from Park South Corporation. By letter to the Fund dated February 5, 1982, Park South Corporation disputed that demand, asserting that the "purchase of the partnership interests was not an event triggering withdrawal liability under MPPAA." DX H. In support of its claim that no withdrawal had occurred, the letter explained that:

The partnership interests in Park South Associates were purchased by Donald J. Trump on August 11, 1981. Prior thereto Park South Associates was the owner and operator of the Barbizon Plaza Hotel. It still is. Contributions continue to be made to the Pension Plan for the same employees pursuant to a collective bargaining agreement with the same union.

Id.

Beginning on or about April 2, 1982, the plaintiff began making quarterly payments of the demanded withdrawal liability to the Fund under protest and reserved the right to dispute the application of MPPAA's withdrawal liability provisions to the facts of this case.

II. DISCUSSION

A multiemployer pension plan is a pension plan in which several employers in an industry pool their funds to provide pension protection for their employees. Prior to the enactment of MPPAA, employer withdrawals from those plans posed a significant threat to the stability of the plans. As explained to Congress by the Pension Benefits Guarantee Corporation ("PBGC"):⁵

A key problem of ongoing multiemployer pension plans, especially in declining industries, is the problem of employer withdrawal. Employer withdrawals reduce a plan's contribution base. This pushes the contribution rate for remaining employers to higher and higher levels in order to fund past service liabilities, including liabilities generated by employers no longer participating in the plan, so-called inherited liabilities. The rising costs may encourage — or force — further withdrawals, thereby increasing the inherited liabilities to be funded by an ever-decreasing contribution base. This vicious downward spiral may continue until it is no longer reasonable or possible for the pension plan to continue.

See Textile Workers Pension Fund v. Standard Dye & Finishing Co., 725 F.2d 843, 848 (2d Cir.1984) (quoting Pension Plan Termination Insurance Issues: Hearing Before the Subcommittee on Oversight of the Committee on Ways and Means, House of Representatives, 95th Cong., 2d Sess. 22 (1978)).

Congress responded to the problem of employer withdrawals by enacting MPPAA. See generally Washington Star Co. v. International Typographical Union Negotiated Pension Plan, 729 F.2d 1502, 1503-05 (D.C. Cir.1984); Textile Workers Pension Fund v. Standard Dye & Finishing Co., 725 F.2d 843, 847-49 (2d Cir.1984); Peick v. Pension Benefit Guaranty Corp., 539 F.Supp. 1025 (N.D.Ill. 1982), aff'd, 724 F.2d 1247 (7th Cir.1983), cert. denied, 467 U.S. 1259, 104 S.Ct. 3554, 82 L.Ed.2d 855 (1984).⁶ Pursuant to MPPAA, if an employer withdraws from a multiemployer pension plan, that employer must pay certain sums to the plan to discharge its withdrawal liability. By requiring employers to pay these sums, Congress hoped to stem the "downward spiral" of continuing employer withdrawals. See T.I.M.E.-DC, Inc. v....