Durango-Ga. Paper Co. v. H.G. Estate, LLC
| Decision Date | 29 September 2011 |
| Docket Number | CV 207-122 |
| Parties | DURANGO-GEORGIA PAPER CO.; DURANGO-GEORGIA CONVERTING CORP.; and DURANGO-GEORGIA CONVERTING, LLC; BY AND THROUGH BRIDGE ASSOCIATES, LLC, AS LIQUIDATING TRUSTEE OF THEI1 BANKRUPTCY ESTATES AND AS ADMINISTRATOR OF THE DURANGO-GEORGIA PAPER COMPANY PENSION PLAN FOR HOURLY EMPLOYEES, Plaintiffs, v. H.G. ESTATE, LLC; THE HOWARD GILMAN FOUNDATION, INC., f/k/a GILMAN INVESTMENT COMPANY, f/k/a GILMAN PAPER COMPANY; W.O. CORPORATION; GILMAN BUILDING PRODUCTS COMPANY; GILMAN BUILDING PRODUCTS, LLC; and MAXVILLE CORPORATION Defendants. |
| Court | U.S. District Court — Southern District of Georgia |
On September 30, 2010, Defendants H.G. Estate, LLC, the Howard Gilman Foundation, Inc., and W.O. Corporation ("Pension Defendants") filed a motion to dismiss the "pension-related" claim set forth in what is styled as "Plaintiffs' Third AmendedComplaint."1 (Doc. no. 48.) Concurrently therewith, the remaining Defendants, Gilman Building Products Company, Gilman Building Products LLC, and Maxville Corporation ("Non-Pension Defendants"), filed their own motion seeking to dismiss Plaintiffs' Third Amended Complaint or, in the alternative, to clarify the procedural posture of the case going forward. (Doc. no. 49.) For the reasons stated herein, Defendants' motions are GRANTED to the extent set forth in this Order.
The following facts are taken from the Complaint filed by Plaintiffs. Gilman Paper Company owned and operated a paper mill in St. Marys, Georgia. The company established a pension plan ("Pension Plan") for its hourly employees in approximately 1960. The Pension Plan was maintained without interruption until the St. Marys paper mill ("Mill") closed in 2002.
The Howard Gilman Foundation was incorporated in 1981 by Mr. Howard Gilman, who, at that time, owned one-hundred percent of the corporation's stock. In 1988, Gilman Investment Company was incorporated as a wholly-owned subsidiary of the Howard Gilman Foundation. Gilman Investment Company was created for the purpose of consolidating the capitalization, financing, andaccounting functions of Mr. Gilman's various business interests. The Gilman Paper Company became a wholly-owned subsidiary of Gilman Investment Company, and the Mill remained an unincorporated operating division of Gilman Paper Company.
Until 1996, Gilman Investment Company controlled all cash generated by the Mill and paid the Mill's current obligations, including the funding of the Pension Plan. The profits from the Mill were also used to support other Gilman interests. During the 1990s, the Mill became legally insolvent according to its balance sheets. During this time, Gilman Investment Company continued to pay the bills of the Mill.
In January 1998, Mr. Gilman died. At that time, Gilman Investment Company owned and operated four principal subsidiaries and divisions, with holdings that included two lumber mills, a railroad, three converting plants, the Mill, Gilman Building Products, and other ventures. At the time of Mr. Gilman's death, Gilman Building Products was the only Gilman business making money. Consequently, money from Gilman Building Products was used to fund the remaining Gilman businesses, including Gilman Paper Company.
Mr. Gilman's will directed the executors of his estate to maintain control over the operation and management of the Gilman businesses and to sell the businesses under certain terms andconditions. A year after Mr. Gilman's death, the Gilman businesses restructured and collapsed several corporate layers.2
Upon restructuring, H.G. Estate, LLC, was organized to take the place of the now-defunct Gilman Investment Company. H.G. Estate owned St. Marys Railroad, LLC, and the New Gilman Paper Company, the entity that owned the Mill. H.G. Estate also owned Converting Corporation, which in turn owned the membership interest in Converting, LLC. Another H.G. Estate subsidiary was W.O. Corporation, which was the Gilman company that held and administered the Mill's Pension Plan. H.G. Estate continued to pay the current bills for the H.G. Estate subsidiaries, but did not fund any long-term or contingent obligations, including, but not limited to, the Pension Plan and maintenance of the Mill.
1. Sale of the Paper Mill
In 1999, H.G. Estate, the Foundation, W.O. Corporation, Gilman Building Products Company, and other related Gilman enterprises approached Banc of America Securities, LLC, ("BOAS"), a national mergers and acquisitions firm, to assist in the marketing and sale of the paper mill located in St. Marys, Georgia, and its related paper marketing and distributionbusiness. A principal broker assigned responsibility for the marketing effort to Nicholas V. Beare.
In preparation for the marketing of the paper mill, Beare and other representatives of BOAS had several conversations with Gilman representatives, including Bernard D. Bergreen, Steven M. Cropper, William "Bill" Davis, and Natalie P. Moody. On at least one occasion, Beare met Bill Davis for lunch. At the time, Bill Davis was serving as President and/or Chief Operating Officer of the paper mill. Plaintiffs allege that during this meeting Davis indicated that the paper mill was being sold, in part, because of the pension plan.
On December 17, 1999, Durango Paper Company acquired the New Gilman Paper Company, including the Mill, its affiliated companies, its converting plants, and the assets of the railroad, for $119.5 million in a stock purchase transaction. Thereafter, the names of certain entities were changed: the New Gilman Paper Company became Durango-Georgia Paper Company; Converting Corporation became Durango-Georgia Converting Corporation; and Converting, LLC, became Durango-Georgia Converting, LLC. These three entities are all Plaintiffs in this case.
On October 29, 2002, various creditors filed an involuntary-bankruptcy petition against Durango-Georgia Paper Company under Chapter 7 of Title 11 of the United States Code. On November 20, 2002, Durango-Georgia Paper Company successfully moved for conversion of the case to one under Chapter 11. In re Durango Georgia Paper Co., Chapter 11 Case No. 02-21669, Doc. No. 30 (Bankr. S.D. Ga. Nov. 20, 2002). On November 19, 2002, Durango-Georgia Converting Corporation and Durango-Georgia Converting, LLC, filed voluntary petitions for relief under Chapter 11. In re Durango Georgia Converting Corp., Chapter 11 Case No. 0221841 (Bankr. S.D. Ga. Nov. 19, 2002); In re Durango Georgia Converting, LLC, Chapter 11 Case No. 02-21840 (Bankr. S.D. Ga. Nov. 19, 2002).
The Chapter 11 plan and confirmation order entered on June 25, 2004, substantively consolidated Durango-Georgia Paper Company, Durango-Georgia Converting Corporation, and Durango-Georgia Converting, LLC, as well as their estates. In re Durango, Chapter 11 Case No. 02-21669, Doc. No. 963 (Bankr. S.D. Ga. filed June 25, 2004). These entities and their bankruptcy estates continue in existence under the direction and control of the Chapter 11 bankruptcy Trustee.
The Pension Benefit Guarantee Corporation ("PBGC") has filed two proofs of claims in Plaintiffs' bankruptcy case due tounderfunded pension liabilities.3 In re Durango, Chapter 11 Case No. 02-21669, Doc. No. 2493 (Bankr. S.D. Ga. filed July 12, 2007) . PBGC is a federal corporation created pursuant to the Employee Retirement Income Security Act ("ERISA"). See 29 U.S.C. § 1302. PBGC administers and enforces the termination insurance program created under Title IV of ERISA, which protects an employee's interest in accrued benefit rights when a defined benefits pension plan fails or terminates with insufficient funds. Connolly v. Pension Benefit Guar. Corp., 631 F. Supp. 640, 643 (CD. Cal. 1984).
Plaintiffs filed this suit against Defendants in the Bankruptcy Court as an adversary proceeding (the "Adversary Proceeding.) Durango v. H.G. Estate, LLC (In re Durango), No. 04-02275 (Bankr. S.D. Ga. Nov. 18, 2004). Defendants are the previous corporate owners of the bankrupt companies. Plaintiffs assert that Defendants sold the Mill with the principal purposeof evading present and future pension plan liabilities and contend Defendants should be held liable for pension plan underfunding pursuant to §§ 1362 and 1369 of ERISA. Additionally, Plaintiffs have alleged that they are entitled to equitable relief under § 1370 for Defendants' violations of § 1369.
Defendants moved to dismiss these claims, and the Bankruptcy Court recommended that this Court remove the reference as to these claims and submitted a report and recommendation within which it recommended dismissal of Plaintiffs' claims arising under 29 U.S.C. §§ 1362, 1369, and 1370. (Doc. no. 1.) The Bankruptcy Court concluded dismissal of the claims was proper for the following reasons: (1) the Trustee had no standing under § 1362 or § 1369; (2) Plaintiffs failed to allege sufficient facts to support a claim under § 1369; (3) the Trustee did not state a claim under § 1370 because the remedy sought was not equitable in nature; (4) the Trustee had no claim under § 1370 because any such claim was not ripe; and (5) even if amendment of the Complaint were allowed, the resulting claim would be too speculative.
Plaintiffs timely filed objections to the Bankruptcy Court's Report and Recommendation. (Doc. no. 2.) Upon due consideration, the Court overruled Plaintiffs' objections as to the portion of the Bankruptcy Court's order addressingPlaintiffs' standing under §§ 1362 & 1369 and sustained the objections pertaining to § 1370. (Doc. no. 40.) In light of its decision to sustain some of Plaintiffs' objections, the Court granted Plaintiffs leave to amend their Second Amended Complaint in order to allow them an opportunity to do the following: (1) assert additional factual allegations in support of their allegation Defendants entered into business transactions with...
To continue reading
Request your trial