In re Caesars Entm't Operating Co.

• Decision Date: 12 November 2015
• Docket Number: No. 15 B 1145 Jointly administered,15 B 1145 Jointly administered
• Citation: 540 B.R. 637
• Parties: In re: Caesars Entertainment Operating Co., Inc., et al., Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

540 B.R. 637

In re: Caesars Entertainment Operating Co., Inc., et al., Debtors.

No. 15 B 1145 Jointly administered

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

Signed November 12, 2015

540 B.R. 638

Attorneys for debtors Caesars Entertainment Operating Co., Inc., et al.: James H.M. Sprayregen, David R. Seligman, Stephen C. Hackney, Kirkland & Ellis LLP, Chicago, IL; Paul M. Basta, Nicole L. Greenblatt, Kirkland & Ellis LLP, New York, NY

Attorneys for the Board of Trustees of the National Retirement Fund, the National Retirement Fund, and the Legacy Plan

540 B.R. 639

of the National Retirement Fund: Ronald E. Richman, Lawrence V. Gelber, Alan R. Glickman, David M. Hillman, Schulte Roth & Zabel LLP, New York, NY; Ronald Barliant, Goldberg Kohn Ltd., Chicago, IL

MEMORANDUM OPINION

A. Benjamin Goldgar, United States Bankruptcy Judge

Before the court for ruling are two motions of debtors Caesars Entertainment Operating Co., Inc. (“CEOC”) and some of its subsidiaries to enforce the automatic stay against the Board of Trustees of the National Retirement Fund and the National Retirement Fund itself (collectively, the “NRF”). The NRF is a pension fund that sponsors a plan in which five Caesars companies were participating employers. The first motion asserts the NRF violated the stay when it expelled the five Caesars employers from the plan. The second motion charges the NRF with violating the stay again when it sent two other Caesars companies a notice and demand for payment of the withdrawal liability. The debtors want both the expulsion and the notice and payment demand declared void.

For the reasons set forth below, the motions will be denied.

1. Jurisdiction

The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1334(a)and the district court's Internal Operating Procedure 15(a). A motion to enforce the automatic stay is a core proceeding under 28 U.S.C. § 157(b)(2). Johnson v. Smith,575 F.3d 1079, 1083 (10th Cir.2009); In re Williams,474 B.R. 604, 605 (Bankr.N.D.Ill.2012).

2. Background

The facts are taken from the parties' papers, the exhibits to the declarations of Stephen Hackney (one in Case No. 15 B 1145 and another in Adversary Proceeding No. 15 A 131), the exhibits to the declaration of David Hillman, and the court's docket. No facts are in dispute.¹

The debtors in these jointly-administered chapter 11 cases are the primary operating units of a larger group of companies the debtors commonly describe as “the Caesars gaming enterprise” (collectively, “Caesars”). The debtor in the lead case is CEOC. The debtors in the other cases are subsidiaries of CEOC.

The NRF is a multiemployer pension fund established under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. § 1001 et seq.,that provides benefits to more than 400,000 people. The NRF sponsors two pension plans called the “Legacy Plan” and the “Adjustable Plan.” Each is a defined benefit plan subject to ERISA. The Legacy Plan is in “critical” status because it is projected to have a substantial funding deficiency during the next ten years. In 2014, the NRF therefore froze the Legacy Plan effective December 31, 2014, and created a new Adjustable Plan effective January 1, 2015. All employers required to contribute to the Legacy Plan must contribute to the Adjustable Plan.

540 B.R. 640

Five subsidiaries and affiliates of CEOC are employers (the “Caesars employers” or simply the “employers”) that have collective bargaining agreements under which the employers must make contributions to the NRF. The employers are Bally's Park Place, Inc., Boardwalk Regency Corp., Chester Downs & Marina, LLC, Parball Corp., and Harrah's Operating Co. CEOC owns 99.5% of Chester and 100% of Bally's, Boardwalk, and Parball. Harrah's is 100% owned by Caesars Entertainment Resort Properties (“CERP”), which in turn is owned by Caesars Entertainment Corp. (“CEC”), the majority owner of CEOC. CEOC is not now and never has been a participating employer in the NRF.²

At some point before December 2014, a dispute arose between the NRF and Caesars. Caesars contends the NRF demanded unreasonable concessions from it and threatened to expel the Caesars employers from the NRF if the concessions were not granted. In late December 2014, the NRF entered into a standstill agreement with CEC, CEOC, and CERP under which the NRF agreed not to expel any of the employers, and the Caesars parties agreed not to incur an “Insolvency Event” (a defined term) without first giving the NRF five days notice.

The pause was brief. On January 8, 2015, Caesars notified the NRF that it was terminating the standstill agreement given the expected chapter 11 bankruptcies of CEOC and certain subsidiaries. CEC immediately filed an action against the NRF in the district court in New York contesting the NRF's right to expel the Caesars employers.

Four days later, on January 12, 2015, three of CEOC's second lien noteholders filed an involuntary petition against CEOC in the bankruptcy court in Delaware. The petition was directed only at CEOC; none of the five Caesars employers was made an alleged debtor.

That same day, the NRF trustees voted to expel the five Caesars employers from the NRF. (The employers were expelled although together they formed the largest contributor to the NRF with $13 million in annual contributions, although they had for decades made all the contributions required, and although the employers intended to continue making contributions and had no desire to withdraw from the NRF.) The NRF sent a notice dated January 12 to the five Caesars employers informing them of the expulsion. The notice was addressed only to the five employers; it was not addressed to CEOC. The notice said that nothing in it “shall, or shall be deemed to, constitute an action that would be a violation of the automatic stay” in the Delaware involuntary case.³

540 B.R. 641

On January 15, CEOC and more than 170 of its subsidiaries filed chapter 11 voluntary petitions in this district.⁴Of the Caesars employers expelled from the NRF, three (Bally's, Boardwalk, and Parball) are debtors in the voluntary cases. The other two (Chester and Harrah's) are not. Neither is CEC or CERP.

About a month after the voluntary petitions were filed, on February 13, the NRF sent CEC and CERP a notice assessing their withdrawal liability under ERISA and demanding payment. See29 U.S.C. § 1399(b)(1). The notice said that CEC, CERP, “and all members of their controlled group that have not filed for bankruptcy” had “incurred a complete withdrawal” from the NRF, making the “Employer” (as the notice defined those entities) subject to ERISA withdrawal liability.⁵The withdrawal liability, the notice added, totaled $363,622,615, payable in quarterly installments of $5,981,493.64 the first of which was due March 15, 2015. The notice was not sent to CEOC or any of the other debtors in the voluntary cases. The NRF did not demand payment from CEOC or any other debtor, and the notice specifically said it was “addressed solely to those members of the Employer that are not debtors....”

When neither CEC nor CERP paid the March 15 installment, the NRF filed an action against them in the district court in New York. Neither CEOC nor any of the debtors was named as a defendant. (The complaint's caption names as “John Doe” defendants “all other trades or businesses under common control” with CEC or CERP “that have not filed for bankruptcy.”)

Shortly before the March 15 installment was due, the debtors filed a motion in the voluntary cases to enforce the automatic stay under section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a). The motion noted that the involuntary petition against CEOC had given rise to the stay, since “a petition filed under section ... 303 ... operates as a stay” of certain creditor action. Id.The motion asserted that the NRF's January 12 decision to expel the employers violated the stay—specifically, sections 362(a)(1) and (3)—because ERISA subjected to withdrawal liability not only the expelled employers but also CEOC. The debtors asked to have the expulsion declared void.

Shortly after the March 15 installment was due, the debtors filed a second motion, this one noting that the voluntary cases had given rise to the stay, since “a petition filed under section 301” likewise “operates as a stay” of certain creditor action. 11 U.S.C. § 362(a). The motion asserted that the NRF's February 13 notice and demand for payment violated the stay—specifically, sections 362(a)(3) and (6)—because ERISA deemed the demand a demand for payment not only from CEC and CERP but also from CEOC and the other debtors.

540 B.R. 642

The debtors asked to have the notice and payment demand declared void.⁶

The NRF denies violating the stay and objects to both motions. The NRF concedes the stay bars it from pursuing the debtors for withdrawal liability—except through a proof of claim in the voluntary cases, which the NRF has filed. But the NRF insists it has not done so, pointing out it has taken no action against any debtor.⁷Non-debtors, on the other hand, are...