Hotel 71 Mezz Lender LLC v. Fund

• Decision Date: 06 February 2015
• Docket Number: No. 14–2034.,14–2034.
• Citation: 778 F.3d 593
• Parties: HOTEL 71 MEZZ LENDER LLC, a Delaware limited liability company, et al., Plaintiffs/Counter–Defendants–Appellees, v. The NATIONAL RETIREMENT FUND, Defendant/Counter–Claimant–Appellant, and The Trustees of the National Retirement Fund, Counter–Claimant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

778 F.3d 593

HOTEL 71 MEZZ LENDER LLC, a Delaware limited liability company, et al., Plaintiffs/Counter–Defendants–Appellees,

v. The NATIONAL RETIREMENT FUND, Defendant/Counter–Claimant–Appellant,andThe Trustees of the National Retirement Fund, Counter–Claimant–Appellant.

No. 14–2034.

United States Court of Appeals,Seventh Circuit.

Argued Nov. 5, 2014.

Decided Feb. 6, 2015.

Christopher Brennan Wilson, Attorney, Daniel A. Zazove, Attorney, Perkins Coie LLP, Chicago, IL, for Plaintiff–Appellee.

Holly H. Weiss, Attorney, Ronald E. Richamn, Schulte, Roth & Zabel, New York, NY, Jeremy M. Barr, Attorney, Dowd, Bloch & Bennett, Chicago, IL, for Defendant–Appellant.

Before BAUER, ROVNER, and TINDER, Circuit Judges.

ROVNER, Circuit Judge.

The price a litigant pays for filing a flawed or unconvincing motion for summary judgment ordinarily is denial of the motion, not loss of the case. But the district court in this case appears to have treated the lack of sufficient evidentiary support for the motion as a reason to enter summary judgment against the movant. See Hotel 71 Mezz Lender LLC v. Nat'l Retirement Fund, 9 F.Supp.3d 863, 873–74 (N.D.Ill.2014). The court did so in the absence of a cross-motion for summary judgment on the issue that it found to be dispositive, and without first giving the unsuccessful movant notice that it was entertaining the possibility of entering summary judgment against it or the opportunity to respond. Because we are not convinced that the movant had no plausible arguments to make in opposition to an adverse grant of summary judgment, we vacate the judgment and return the case to the district court for further proceedings.

I.

In this action, the National Retirement Fund (“NRF”) and its trustees seek to hold Hotel 71 Mezz Lender LLC (“Mezz Lender”) and Oaktree Capital Management, L.P. (“Oaktree”) responsible for multiemployer pension fund withdrawal liability pursuant to section 4201 of the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), 29 U.S.C. § 1381. Oaktree, through Mezz Lender, provided financing for the acquisition of a hotel by Chicago H & S Hotel Property LLC (“H & S”). When H & S later defaulted on the loan, it was taken into bankruptcy and the hotel was liquidated. NRF contends that the sale of the hotel triggered withdrawal liability on the part of H & S and any other “trade or business” under common control with it—including both Oaktree and Mezz Lender. See 29 U.S.C. § 1301(b)(1). Oaktree and Mezz Lender, on the other hand, contend that the claim of withdrawal liability—whatever its merits—is barred by the bankruptcy reorganization plan pursuant to which the hotel was sold.

NRF, formerly known as the UNITE HERE National Retirement Fund and successor-in-interest to the HEREIU Pension Fund, is a multiemployer pension fund that provides retirement and related benefits to unionized workers; it is administered by a board of trustees that includes both union and employer representatives. Collective bargaining agreements covering certain union workers require employers to make regular contributions to NRF on behalf of their employees. During the time period relevant to this case, Hotel 71, a full-service, 437–room hotel on Chicago's Wacker Drive, was a party to one such agreement obligating it to make contributions to NRF's predecessor, the HEREIU Pension Fund, on behalf of the hotel's housekeepers, bartenders, bellhops, laundry workers, and various other employees.

H & S purchased Hotel 71 in 2005. The purchase was financed by a $100 million senior mortgage loan as well as a $27.3 million mezzanine loan. Oaktree funded the mezzanine loan to H & S (actually to an LLC that was H & S's sole manager and member, but we may omit that detail) through Mezz Lender. Upon completion of the purchase, H & S succeeded to the obligations imposed by several collective bargaining agreements with the hotel's workforce, including the obligation to make contributions to the HEREIU Pension Fund. We shall hereafter refer to the pension fund and its trustees simply as NRF or the “pension fund.”

H & S defaulted on both the senior and mezzanine loans in 2007. On October 3, 2007, Mezz Lender acquired H & S in a Uniform Commercial Code (“UCC”) Article 9 foreclosure sale with the intent to place H & S in bankruptcy and attempt to collect the outstanding balance of its loan there. Mezz Lender immediately brought in Patrick O'Malley, a restructuring specialist from a management consulting firm, to run the company. H & S filed for bankruptcy protection pursuant to Chapter 11 of the Bankruptcy Code within the month, and thereafter Mezz Lender participated in the negotiation of a plan of reorganization. The bankruptcy court approved the finalized reorganization plan on March 21, 2008.

Pursuant to the approved plan, substantially all of H & S's assets—principal among them being Hotel 71–were sold in July 2008 to H & S's senior lender. NRF and its trustees view the sale as a “complete withdrawal” by H & S from the pension fund, which triggered withdrawal liability on the part of H & S and any trade or business under common control with it—including, in NRF's view, Mezz Lender and Oaktree. See 29 U.S.C. §§ 1301(b)(1), 1381.¹ Counsel for NRF sent a notice and demand letter setting forth that position to Mezz Lender on April 1, 2013. NRF ultimately reached a settlement with H & S itself pursuant to which NRF was permitted a general unsecured claim of $550,000 against the bankruptcy estate; and it appears that NRF was able to collect less than $70,000 on that claim. Nearly all of the more than $2.1 million in withdrawal liability and accrued interest that NRF attributes to H & S and the other members of its controlled group thus remains unpaid.

Section 13.1 of the reorganization plan approved by the bankruptcy court contains a provision stating that any distributions received by creditors or contemplated by the plan are in full satisfaction of any and all claims arising in connection with H & S's Chapter 11 case that creditors might have against “Releasees,” whom the plan defines to include the debtor (H & S), its then-owner (Mezz Lender), and any officers, members, or managers of the debtor's owner, and that all such claims are released. Section 13.4 in turn enjoins any effort to pursue the claims released by section 13.1. Mezz Lender and Oaktree read these provisions as releasing them from any claim by NRF for withdrawal liability and barring any effort by NRF to pursue them.

Mezz Lender and Oaktree (which we will refer to collectively as the “Oaktree parties”) filed suit in the district court seeking a declaratory judgment that the reorganization plan released any claim of withdrawal liability arising from H & S's actions in the Chapter 11 proceeding, including the sale of its assets, and enjoined NRF from pursuing any claim of withdrawal liability against either Oaktree or Mezz Lender. NRF answered the complaint and in turn filed counterclaims against Mezz Lender, Oaktree, and John Does 1–10—the latter representing anyone else in H & S's controlled group—asserting that each was jointly and severally liable for withdrawal liability.

When the parties appeared before the district court to address the Oaktree parties' request for a preliminary injunction against NRF—which the Oaktree parties ultimately withdrew—counsel indicated to the court that they believed that the case could be promptly resolved by way of cross-motions for summary judgment, and neither side indicated that discovery was necessary in order to present those motions. The district court accordingly set a briefing schedule, and the parties pursued their respective positions in their cross-motions.

The Oaktree parties contended in their motion that the release and injunction provisions of the reorganization plan barred NRF from pursuing any claim of withdrawal liability against them. NRF, in response, contended that those provisions did not apply to its claims of withdrawal liability; and, in its own cross-motion for summary judgment against Mezz Lender,² NRF affirmatively contended that Mezz Lender was in fact responsible for withdrawal liability because, inter alia, it was a trade or business under common control with H & S. Its summary judgment memorandum, however, focused on the common-control question and the procedural requirements for asserting withdrawal liability and passed over in silence the legal criteria for identifying a trade or business on which such liability may be imposed and made no argument as to why Mezz Lender constituted such a trade or business. See R. 36 at 8–9. ³ Mezz Lender itself did not seek summary judgment on this point; rather, it contended that “the record [was] rife with factual issues which preclude[d] the Court from entering summary judgment in favor of NRF” on the withdrawal liability claim. R. 38 at 9. In particular, Mezz Lender emphasized that whether it constituted a trade or business for purposes of withdrawal liability was a fact-bound question, that NRF had yet to make a case for the notion that Mezz Lender qualified as a trade or business, and that, consequently, it was premature for the court to render a judgment on this question. R. 38 at 9; see also9 F.Supp.3d at 873 (acknowledging Mezz Lender's position).

The district court turned to Mezz Lender's cross-motion for summary judgment first. The court noted that the motion discussed only Mezz Lender's putative withdrawal liability; it made no argument as to the potential liability of Oaktree and John Does 1 through 10. As a result, NRF had, in the court's view, “waive[d] [any] argument that Oaktree and John Does 1–10 are jointly and severally liable for Chicago H & S's withdrawal liability,” 9 F.Supp.3d at 871 n. 3; only the claim against Mezz Lender had been preserved. The parties agreed that Mezz Lender was the one and only owner of H & S when its assets were sold in June 2008; consequently, the court found that Mezz Lender was...