Hotel 71 Mezz Lender LLC v. Nat'l Ret. Fund

• Court: United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
• Citation: 9 F.Supp.3d 863
• Docket Number: No. 13 C 03306.,13 C 03306.
• Parties: HOTEL 71 MEZZ LENDER LLC and Oaktree Capital Management, L.P., Plaintiffs, v. The NATIONAL RETIREMENT FUND, Defendant. The National Retirement Fund and The Trustees of the National Retirement Fund, Counter Plaintiffs, v. Hotel 71 Mezz Lender LLC, Oaktree Capital Management, L.P., and John Does 1–10, Counter Defendants.
• Decision Date: 03 March 2014

9 F.Supp.3d 863

HOTEL 71 MEZZ LENDER LLC and Oaktree Capital Management, L.P., Plaintiffs
v.
The NATIONAL RETIREMENT FUND, Defendant.

The National Retirement Fund and The Trustees of the National Retirement Fund, Counter Plaintiffs
v.
Hotel 71 Mezz Lender LLC, Oaktree Capital Management, L.P., and John Does 1–10, Counter Defendants.

No. 13 C 03306.

United States District Court, N.D. Illinois, Eastern Division.

Signed March 3, 2014.

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Christopher B. Wilson, Kathleen A. Stetsko, Daniel Arlen Zazove, Perkins Coie LLP, Chicago, IL, for Plaintiffs/Counter Defendants.

Jaimie Caren Davis, Ronald E. Richman, Schulte Roth & Zabel, LLP, New York, NY, Jeremy Michael Barr, Michele M. Reynolds, Dowd, Bloch & Bennett, Chicago, IL, for Defendant/Counter Plaintiffs.

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MEMORANDUM OPINION AND ORDER

RUBÉN CASTILLO, Chief Judge.

This action arises from a dispute over whether an Order entered by the United States Bankruptcy Court for the Northern District of Illinois (the “Order”) releases Oaktree Capital Management, L.P. (“Oaktree”) and Hotel 71 Mezz Lender LLC (“Hotel 71 Lender”) (collectively, “Plaintiffs”) from withdrawal liability incurred under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. and owed to The National Retirement Fund (the “NRF” or “Defendant”) and its Board of Trustees (“Trustees”). Plaintiffs seek a declaration pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, that the Order, which enforced the Second Amended Liquidating Plan of Reorganization (the “Plan”) resolving the dissolution of Chicago H & S Hotel Property, L.L.C. (“Chicago H & S”), releases Plaintiffs from any withdrawal liability and enjoins the NRF from asserting any claim against Plaintiffs. The NRF and Trustees bring a counterclaim against Plaintiffs and all other trades and businesses under common control with Chicago H & S (“John Does 1–10”, and collectively with Plaintiffs, the “Controlled Group”) seeking to collect withdrawal liability, interest, liquidated damages, and attorneys' fees and costs pursuant to ERISA.

RELEVANT FACTS¹

Hotel 71 Lender is a Delaware limited liability company with its principal place of business in Wilmington, Delaware. (R. 31, Def.'s Rule 56.1 Resp. ¶ 1.) Oaktree is a Delaware limited partnership with its principal place of business in Los Angeles, California. (Id. ¶ 2.) The NRF, formerly known as UNITE HERE National Retirement Fund, is a multi-employer pension fund, jointly administered by union and employer trustees. (Id. ¶ 3.) The NRF is established and maintained pursuant to Section 302(c)(5) of the Labor Management Relations Act, 29 U.S.C. § 186(c)(5), for the purpose of providing retirement and related benefits to eligible participants and beneficiaries. (R. 40, Pls.' Rule 56.1 Resp. ¶¶ 2, 4.) The Trustees are the plan sponsor of the NRF. (Id. ¶ 3.)

A. Purchase of Hotel 71

In 2005, Chicago H & S purchased Hotel 71, a 40–story, 437–guestroom, full service hotel located at 71 East Wacker Drive in Chicago, Illinois. (R. 31, Def.'s Rule 56.1 Resp. ¶ 7; R. 40, Pls.' Rule 56.1 Resp. ¶ 9.) Chicago H & S borrowed heavily to finance this acquisition, including $100 million as a senior mortgage loan (the “Senior loan”), as well as a $27.3 million mezzanine loan² (the “Mezz loan”). (R. 31, Def.'s Rule 56.1 Resp. ¶ 8.) Oaktree, through

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Hotel 71 Lender, provided financing for the Mezz loan. (Id. ¶ 9.) As the new owner of Hotel 71, Chicago H & S became a party to several pre-existing collective bargaining agreements with union workers employed at the hotel, including the Agreement Between Joint Chicago Executive Board Of The Unite Here, Local 1 And Unite Here Local 450 And Chicago H & S Hotel Property, LLC (D/B/A Hotel 71) (hereafter, the “CBA”). (Id. ¶ 10.) As part of the CBA, Chicago H & S was required to make pension contributions on behalf of union employees to what was then the HEREIU Pension Fund. (Id . ¶ 11.) The NRF is successor in interest to the HEREIU Pension Fund. (Id. )

B. Chicago H & S Files for Bankruptcy

Chicago H & S eventually ran into financial difficulties, and in 2007, it defaulted on both the Senior and Mezz loans. (Id. ¶ 12.) In October 2007, following the default, Hotel 71 Lender acquired a 100% ownership interest in Chicago H & S through a Uniform Commercial Code foreclosure sale in an effort to collect on its loan. (Id. ¶ 12; R. 40, Pls.' Rule 56.1 Resp. ¶ 8.) The parties dispute whether Oaktree owned or controlled Hotel 71 Lender, (R. 31, Def.'s Add'l Facts ¶ B; R. 31–2, Ex. I, Chicago H & S's Statement of Financial Affairs ¶ 21(b)), or simply managed it, (R. 39, Pls.' Resp. Add'l Facts ¶ B; R. 30–8, Ex. 7, Gibson Dunn Letter). On October 29, 2007, Chicago H & S filed a Chapter 11 petition in the United States Bankruptcy Court for the Northern District of Illinois (the “Bankruptcy Court”). (R. 40, Pls.' Rule 56.1 Resp. ¶ 12.) The NRF filed a proof of claim on February 15, 2008, for contingent withdrawal liability in the event that Chicago H & S decided to withdraw from making its contributions to the NRF. (Id. ¶ 13.)

C. The Bankruptcy Proceedings and Plan

Chicago H & S filed a reorganization plan with the Bankruptcy Court on December 13, 2007, and amended the plan on March 17, 2008. (Id. ¶ 14.) Bankruptcy Judge Eugene R. Wedoff held multiple hearings regarding the confirmation of the Plan during March 2008. (R. 39, Pls.' Resp. Add'l Facts ¶¶ C–D.) On March 21, 2008, after multiple days of contested hearings, the Bankruptcy Court approved the Plan. (R. 31, Def.'s Rule 56.1 Resp. ¶ 14.) Section 13.1 of the Plan provides:

The distributions to be received by creditors, or contemplated, under this Plan are in full and final satisfaction and settlement of any and all Claims arising in connection with [Chicago H & S's] Chapter 11 case that such creditors may have against the Releasees, the Debtor's estate, the estate assets and the assets contemplated under this Plan to satisfy Claims, and all such claims are released. For the avoidance of doubt, nothing in this section is intended, or shall be construed, to release, modify or otherwise affect any direct claim or direct cause of action that creditors have, or might have, against any third parties that arose prior to the Petition Date.

(Id. ¶ 20; R. 30–1, Ex. A, Plan ¶ 13.1.) The Plan defines “Releasees” as “the Debtor, its current owner and any officers, members and managers of its current owner, any professional retained by the current owner, the Trustee, Canyon/Brickman, (except as to claims of the Trustee) the Committee and any professional retained by the Committee.” (R. 31, Def.'s Rule 56.1 Resp. ¶ 21; R. 30–1, Ex. A, Plan at 9.) Section 13.4 of the Plan provides an injunction barring claims involving any matter released under Section 13.1:

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[A]ll holders of Claims shall be permanently enjoined from commencing or continuing in any manner, any suit, action or other proceeding, on account of any Claim, Interest, obligation, debt, right, cause of action, remedy or liability released or to be released pursuant to the Plan[.]

(R. 31, Def.'s Rule 56.1 Resp. ¶ 22; R. 30–1, Ex. A, Plan ¶ 13.4.) Throughout Chicago H & S's bankruptcy case, the NRF received notice of: the sale of Hotel 71; the hearing to confirm the sale of Hotel 71; the Plan; and the entry of the Order confirming the Plan. (R. 31, Def.'s Rule 56.1 Resp. ¶ 15.) The NRF did not object to any of the proposed reorganization plans, including the Plan confirmed by the Bankruptcy Court. (Id. ¶ 16.)

In July 2008, pursuant to the Plan, the Bankruptcy Court approved the sale of Hotel 71 to the holder of the Senior loan for approximately $105 million. (Id. ¶ 17.) The purchaser expressly assumed liability for Chicago H & S's collective bargaining agreements, including the CBA, and continued to make all required pension contributions to the NRF. (Id. ¶ 25.) The proceeds from the sale of Hotel 71 were used to pay various creditors, including the NRF. (Id. ¶ 17.) Following the sale of Hotel 71, the NRF received distributions from the sale in the amounts of $44,969.02 on June 21, 2011, and $23,974.38 on May 3, 2013. (R. 39, Pls.' Resp. Add'l Facts ¶¶ Z–AA.)

Despite the fact that the purchaser of Hotel 71 assumed liability under the CBA, the NRF filed a proof of claim in the bankruptcy case for withdrawal liability triggered by the sale of Chicago H & S in the amount of $1,276,271.33. (R. 40, Pls.' Rule 56.1 Resp. ¶ 22.) The Chicago H & S bankruptcy estate contested the withdrawal liability claim. (R. 31, Def.'s Rule 56.1 Resp. ¶ 28.) In August 2009, after a series of negotiations, the NRF and Chicago H & S stipulated to resolve all of the NRF's claims, including its claim for withdrawal liability, by permitting the NRF a single, general unsecured claim of $550,000. (Id.; R. 30–2, Ex. D, Stipulation.)

D. NRF Asserts Withdrawal Liability Against...