Renco Grp., Inc. v. Steelworkers Pension Tr.
| Decision Date | 30 September 2019 |
| Docket Number | Civil Action No. 18-1311 |
| Parties | THE RENCO GROUP, INC., et al., Plaintiffs, v. STEELWORKERS PENSION TRUST, Defendant. |
| Court | U.S. District Court — Western District of Pennsylvania |
MEMORANDUM AND ORDER
Plaintiffs, The Renco Group, Inc., and its subsidiaries, Ilshar Capital, LLC, Blue Turtles, Inc., Unarco Material Handling Inc., Inteva Products, LLC, the Doe Run Resources Corp. and US Magnesium LLC (collectively referred to as "Renco") have brought this action under the Employee Retirement Security Act of 1974, 29 U.S.C. §§ 1001-1500 (ERISA), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) against Defendant, Steelworkers Pension Trust ("SPT") by its chairman, Daniel A. Bosh.
Renco seeks to vacate a final arbitration award issued in favor of SPT on September 25, 2018 by Arbitrator Ira F. Jaffe ("the Arbitrator"). The Arbitrator held that Renco was responsible for the withdrawal liability claimed by SPT against Renco's former wholly-owned subsidiary, RG Steel, LLC ("RG Steel") - when it filed voluntary petitions under Chapter 11 of the Bankruptcy Code and permanently ceased operations on May 31, 2012 - because Renco remained a member of RG Steel's controlled group. Although Renco sold 24.5% of RG Steel to Cerberus Capital Management, L.P. ("Cerberus") on January 17, 2012 ("the Cerberus Transaction"), thus removing Renco from RG Steel's controlled group, the Arbitrator concluded that this transaction had a principal purpose of evading or avoiding Renco's withdrawal liability, and, thus, should be disregarded pursuant to § 4212(c) of ERISA, 29 U.S.C. § 1392(c).
Before the Court are Renco's Motion for Partial Summary Judgment (ECF No. 24), seeking to vacate the Arbitrator's Final Award; and SPT's Motion for Summary Judgment (ECF No. 34), seeking confirmation. The Motions have been fully briefed, and oral argument was held on July 31, 2019. For the reasons that follow, Renco's Motion will be denied and SPT's Motion granted.
On February 22, 2016, SPT commenced an action against Renco in this Court at Civil Action No. 16-190, alleging that Renco was responsible for $86,181,976.00 in withdrawal liability incurred by RG Steel to SPT. SPT alleged that Renco had exited RG Steel's controlled group through a transaction having a principal purpose of evading or avoiding withdrawal liability, and therefore, the transaction must be disregarded pursuant to 29 U.S.C. § 1392(c). Renco filed a motion to dismiss on the ground, inter alia, that SPT's substantive claims had to be arbitrated in the first instance. On August 22, 2016, a Report and Recommendation ("R&R") was issued, recommending that the motion be granted and that the parties be directed to arbitrate SPT's claims. On September 21, 2016, the Court adopted the R&R (Civ. A. No. 16-190, ECF No. 55) and its ruling was affirmed by the Court of Appeals for the Third Circuit on May 31, 2017. (Civ. A. No. 16-190, ECF No. 73.)
The Court appointed the Arbitrator in June of 2017. (Civ. A. No. 16-190, ECF No. 72). As part of the arbitration, the parties filed extensive pre-hearing and post-hearing briefs, and seven days of hearings were held between September 26, 2017 and March 22, 2018.The record also incorporated facts from a lawsuit commenced by the Pension Benefit Guaranty Fund ("PBGC") in January of 2013 in the United States District Court for the Southern District of New York against various members of the Renco Group (PBGC v. The Renco Group, No. 13-cv-621) ("the PBGC Litigation").1
Before the arbitration concluded, SPT filed an action in this Court against Renco, on January 31, 2018, at Civil Action No. 18-142. In that case, SPT sought the imposition of interim withdrawal liability against Renco. The parties eventually stipulated to the amount of interim withdrawal liability and other damages, except for the applicable interest rate, said issue being the subject of a pending motion for summary judgment in 18-142.
On July 18, 2018, the Arbitrator issued a 76-page Interim Ruling and Award on the merits of SPT's withdrawal liability claim against Renco. The Arbitrator ruled in SPT's favor, finding that, under 29 U.S.C. § 1392(c), a principal purpose of the Cerberus Transaction was to evade or avoid withdrawal liability, such that Renco effectively was a member of the RG Steel controlled group on the date RG Steel ceased operations. The Arbitrator concluded that Renco was liable to SPT for the full amount of withdrawal-liability attributable to RG Steel.
A Final Award was issued by the Arbitrator on September 25, 2018. The Final Award incorporated all prior Interim Rulings, Opinions and Awards. (Compl. Ex. A.) The Arbitrator found that Renco was liable for RG Steel's withdrawal liability in the amount of $78,664,224.00, plus interest.
Renco then commenced this action, on October 1, 2018, seeking to vacate the Arbitrator's Final Award. Jurisdiction is based on 29 U.S.C. §§ 1401(b)(2), 1451(a) and 1451(c). (Compl. ¶ 7). The Complaint alleges in Count I that the interim payment rulings should be vacated. In Count II, Renco contends that the Arbitrator's September 25, 2018 Final Award should be vacated.
Shortly thereafter, on October 24, 2018, SPT filed an action to confirm the Arbitrator's Final Award. SPT's action was docketed at Civil Action No. 18-1429, and it later was consolidated with this proceeding.
On January 4, 2019, Renco paid SPT $50 million. Shortly thereafter, the parties entered into a Consent Order (Civ. A. No. 18-142, ECF No. 63) - approved by the Court on January 10, 2019 (id. ECF No. 64) - under which Renco agreed to pay the principal balance of $28,664,224.00 by May 10, 2019.2
On December 28, 2018, Renco filed a Motion for Partial Summary Judgment (ECF No. 24), seeking to vacate the Arbitrator's Final Award. On March 15, 2019, SPT filed a Motion for Summary Judgment (ECF No. 34), seeking confirmation of the Award. On July 31, 2019, Magistrate Judge Dodge held oral argument on both Motions, as well as SPT's motion for summary judgment in Case No. 18-142, regarding the interest-issue.3
The Arbitrator began his Opinion and Award with the following observation:
No point would be served by attempting to summarize the entirety of the record evidence in this case (which included over 13,000 pages of exhibits marked as Fund or Employer exhibits, several hundred thousand pages of exhibits and depositions and transcripts from the PBGC litigation, and additional depositions and exhibits and expert reports and items produced in discovery in this arbitration). Nor will the contentions of the Parties be summarized other than as is relevant to an explanation of the ruling in this case; the post-hearing briefs and reply briefs alone total almost 400 pages. Rather, it should simply be noted that the entire record has been carefully reviewed by the Arbitrator prior to issuing the decision in this matter and that record evidence will be referenced as appropriate and necessary to explain the ruling in this case.
(Id. at 4-5.)4 As observed by SPT, the Arbitrator was required to state "the basis for the award, including such findings of fact and conclusions of law (which need not be explicitly designated as such) as are necessary to resolve the dispute." 29 C.F.R. § 4221.8(a)(1). The parties do not contend that the Arbitrator failed to properly state his bas(es) for the award.
The instant ruling will not be improved by a detailed-recitation of the background facts and events that occurred prior to the negotiations culminating in the Cerberus Transaction. Thus, the Court will restrict its present discussion to a brief summary of the history leading to the relevant events.5
In March 2011, RG Steel, LLC, which was wholly owned by RG Steel Holdings, LLC, and which in turn was wholly owned by Renco, purchased a number of mills and related properties from Severstal US Holdings, LLC, Severstal US Holdings II, Inc., and Severstal Sparrows Point, LLC; including three steel mills in Wheeling, Warren, and Sparrows Point. The Wheeling and Warren operations sponsored single employer, defined-benefit pension planscovered by Title IV of ERISA. RG Steel was a party to collective bargaining agreements that provided for contributions to be made to the Fund on behalf of bargaining unit employees at Wheeling and Sparrows Point.
As a result of this acquisition, Severstal exited the controlled group and Renco became a member of the controlled group that included RG Steel.
At the time of Renco's acquisition, RG Steel was the fourth largest steel company, capacity-wise, in the United States. A group of eleven lenders ("the Bank Group") provided a revolving line of credit for RG Steel's use, as needed, in the operations of the business. Ira Rennert, owner and founder of Renco, had prior experience owning and operating steel mills, having purchased WCI (Wheeling) in or around 1988 and operating it until its bankruptcy in 2003. He had excellent relations with the United Steelworkers of America ("USW" or "Union"), and RG Steel negotiated successor collective bargaining agreements with the USW covering the RG Steel facilities.
As the Arbitrator noted, there is no dispute that Renco was a large and successful entity. It was founded in 1975 by Ira Rennert as a private, family-owned investment holding company that, by 2012, owned and operated eight companies, with consolidated revenues in excess of $5 billion, and a robust balance sheet with significant equity and liquidity. Renco did not have outside partners or investors, and preferred to own and control all of its businesses. (Op. & Award at 31-32.)
Although Renco initially believed that it could profitably operate RG Steel, the reality turned out to be...
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