Steelworkers Pension Trust v. Renco Grp., Inc.
| Decision Date | 26 October 2018 |
| Docket Number | Civil Action No. 18-142 |
| Parties | STEELWORKERS PENSION TRUST, by DANIEL A. BOSH, CHAIRMAN, Plaintiff, v. THE RENCO GROUP, INC., et al., Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
It is respectfully recommended that the Motion to Dismiss filed by Defendants (ECF No. 14) be denied.
Plaintiff, Steelworkers Pension Trust ("SPT") by its chairman, Daniel A. Bosh, brings 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 Defendants, 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 (together, "Renco"). Plaintiff alleges that Defendants owe interim withdrawal liability payments in the amount of $114,057,804.14, as a result of their failure to make withdrawal liability payments pending their disputes of such liability as required by ERISA.
Presently pending before the Court for disposition is Defendants' motion to dismiss (ECF No. 14). Plaintiff has filed a brief in opposition (ECF No. 25) and Defendants have filed a reply brief (ECF No. 26) and the motion is now ripe for disposition. For the reasons that follow, the motion should be denied.
The SPT is a non-profit, multiemployer defined benefit pension plan within the meaning of ERISA, 29 U.S.C. §§ 1002(37) and 1301(a)(3). Daniel A. Bosh is the Chairman of the SPT and is authorized to bring this action on its behalf. (Compl. ¶¶ 5-6.)1
The SPT has been providing monthly retirement benefits to its participants and their families since 1953. These pension benefits are funded by employer contributions negotiated by various labor unions. SPT has over 500 contributing employers and over 112,000 participants. (Compl. ¶ 7.)
Renco is a private holding company with annual revenues of over $5 billion. In 2011, Renco purchased several steel mills that employed thousands of employees who were members of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union ("United Steelworkers"). The steel mills were "contributing employers" to the SPT. A "contributing employer" under ERISA is an entity that has a contractual obligation to make contributions to a pension plan, such as the SPT. (Compl. ¶¶ 8, 10-12.)
After the purchase, Renco operated those steel mills under several variations of the name RG Steel. Plaintiff alleges that RG Steel remained a contributing employer to the SPT after the Renco purchase. In fact, RG Steel was the third largest contributing employer of the SPT. (Compl. ¶¶ 13-14.)
As a contributing employer to the SPT, RG Steel would owe the SPT for its pro rata share of any unfunded pension liabilities should it partially or completely withdraw from the SPT."Withdrawal liability" is a contributing employer's pro-rata share of a multiemployer, defined benefit pension plan's unfunded vested benefits. 29 U.S.C. § 1381(b)(1). ERISA provides for withdrawal liability in order to protect multiemployer pension plans (such as the SPT) by requiring employers who withdraw from such plans to pay their share of any unfunded vested benefits. 29 U.S.C. § 1381(b)(1). (Compl. ¶¶ 15-17.)
Withdrawal liability is intended to: (A) ensure that the financial burden of the vested pension benefits of a contributing employer's employees will not be shifted to the other contributing employers of the pension plan; and (B) eliminate any incentive for a contributing employer to withdraw from a pension plan to avoid funding its employees' vested pension benefits. Not only is a contributing employer liable for any withdrawal liability that it incurs, but so too are members of the contributing employer's "controlled group," who are jointly and severally liable along with the contributing employer. 29 U.S.C. § 1301(b)(1). (Compl. ¶¶ 18-19.)
An entity is part of a contributing employer's controlled group if it owns at least 80% of the contributing employer. 26 C.F.R. § 1.414(c)-2(b). Plaintiff alleges that, because The Renco Group owned 100% of RG Steel, it was part of the "RG Steel Controlled Group." Moreover, since The Renco Group owned at least 80% of the other Defendants, they were also part of the RG Steel Controlled Group. Plaintiff contends that Defendants were all jointly and severally liable for any withdrawal liability triggered by RG Steel. (Compl. ¶¶ 20-23.)
On May 31, 2012, RG Steel filed a Chapter 11 Bankruptcy Petition in the United States District Court for the District of Delaware. In or around August 2012, RG Steel permanently ceased its steelmaking operations when it terminated all of its remaining United Steelworkers employees. Those August 2012 events effected a complete withdrawal from the SPT andtriggered withdrawal liability for RG Steel under ERISA. 29 U.S.C. § 1383. So long as Renco owned at least 80% of RG Steel and each of the Defendants, all of the Defendants were members of the RG Steel Controlled Group such that they would each be liable for RG Steel's withdrawal liability. 29 U.S.C. § 1301(b)(1). (Compl. ¶¶ 24-27.)
Plaintiff alleges that, in January 2012, in an attempt to evade or avoid that controlled group liability, Renco divested itself of just over 20% of its ownership of RG Steel less than five months before RG Steel filed for bankruptcy (the "Cerberus Transaction"). Renco did not divest all of its interest in RG Steel; rather, it retained 75.5% ownership, and therefore the controlling interest, in RG Steel. By doing so, Renco believed that it would be able to retain control over its subsidiary, RG Steel, yet avoid controlled group liability (including withdrawal liability to the SPT) that would be triggered when it placed RG Steel into bankruptcy a few months later and RG Steel ceased covered operations. (Compl. ¶¶ 28-30.)
However, Plaintiff notes that, pursuant to ERISA, such a transaction can be disregarded and withdrawal liability can be collected from a former member of a contributing employer's controlled group where that entity removed itself from the controlled group in a transaction which had as a principal purpose an intent to evade or avoid controlled group liability. 29 U.S.C. § 1392(c). (Compl. ¶ 31.) The SPT contends that the Cerberus Transaction had as a principal purpose an intent to evade or avoid controlled group liability, and therefore that transaction can be disregarded and withdrawal liability can be asserted against Defendants. The SPT has thus assessed Defendants for that withdrawal liability. (Compl. ¶ 32.)
Similarly, the Pension Benefit Guarantee Corporation ("PBGC"), an independent agency of the United States government, filed a lawsuit in the United States District Court for the Southern District of New York in January 2013 asserting that the Cerberus Transaction had aprincipal purpose of evading controlled group liability for RG Steel's single-employer pension plans and seeking to hold Defendants liable for the same. The PBGC further alleged that Renco only closed the Cerberus Transaction by committing fraud against the PBGC to prevent it from terminating RG Steel's single-employer pension plans and locking Renco into the RG Steel Controlled Group prior to the closing of the Cerberus Transaction. (Compl. ¶ 33.)
After a bench trial, but before the Court's decision, Renco entered into a settlement with the PBGC whereby Renco agreed to accept its full controlled group liability for the RG Steel single-employer pension plans. Even though Renco assumed all of its controlled group liability for the RG Steel single-employer plans, Renco continues to deny its controlled group liability to the SPT. (Compl. ¶¶ 34-35.)
After the RG Steel withdrawal from the SPT, Cheiron, the SPT's independent actuary, calculated RG Steel's withdrawal liability. Cheiron initially calculated RG Steel's withdrawal liability to be $86,181,976. Based on this figure, Cheiron calculated the withdrawal liability payment plan to be 11 equal quarterly payments of $8,252,337, followed by a final payment of $1,002,611. (Compl. ¶¶ 36-38 & Ex 1.)2
ERISA provides that when a pension plan makes an assessment of withdrawal liability, it shall notify the contributing employer of both the amount of the liability and the schedule for liability payments. 29 U.S.C. § 1399(b)(1). ERISA requires that employers (and members of the employer's controlled group) who have been assessed with withdrawal liability make interim payments even while they dispute the assessment:
Withdrawal liability shall be payable in accordance with the schedule set forth by the plan sponsor under subsection (b)(1) of this section beginning no later than 60 days after the date of the demand notwithstanding any request for review orappeal of determinations of the amount of such liability or the schedule.
29. U.S.C. § 1399(c)(2). This is known as the "Pay Now - Dispute Later Rule." (Compl. ¶¶ 39-41.)
A withdrawn employer has the choice to pay its withdrawal liability via a lump sum payment or via "interim payments" under a payment plan determined pursuant to ERISA. 29 U.S.C. § 1399(c). On April 14, 2015, counsel for the SPT sent counsel for Renco the full Cheiron Report, advising Defendants of the total withdrawal liability assessment and the interim payment amounts due to the SPT. (Compl. ¶¶ 42-43 & Ex. 2.) The SPT sought to hold Defendants liable for RG Steel's withdrawal liability due to the SPT's finding that a principal purpose of the Cerberus Transaction was to evade or avoid withdrawal liability, and therefore that transaction could be disregarded and the SPT could treat the Defendants as remaining in the RG Steel Controlled Group. (Compl. ¶ 44.)
Plaintiff alleges that, as of April 14, 2015, Defendants were aware of the withdrawal...
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