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Steelworkers Pension Trust v. Renco Group, Inc.

United States District Court, W.D. Pennsylvania

September 30, 2019

STEELWORKERS PENSION TRUST, Plaintiff,
v.
THE RENCO GROUP, INC., et al., Defendants.

          Patricia L. Dodge, Magistrate Judge.

          MEMORANDUM AND ORDER

          CATHY BISSOON, UNITED STATES DISTRICT JUDGE.

         I. MEMORANDUM

         Plaintiff Steelworkers Pension Trust, by its Chairman, Daniel A. Bosh (“SPT”) has commenced 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 U.S. Magnesium LLC (collectively referred to as “Renco”).

         Pending before the Court is Plaintiff’s Motion for Summary Judgment (ECF No. 73). The Motion has been fully briefed, and oral argument was held on July 31, 2019.[1] For the reasons that follow, SPT’s Motion will be granted with respect to its request for interest, attorney’s fees and costs; but denied with respect to SPT’s request that interest be computed at a rate of 1.25% per month.[2]

         BACKGROUND

         A. Renco/SPT Dispute

         At one time, Renco was a member of the controlled group that owned RG Steel. RG Steel was a party to collective bargaining agreements that provided for contributions to be made to SPT, a multiemployer pension plan, on behalf of bargaining unit employees at two steel mills owned by RG Steel. On January 17, 2012, Renco entered into a financing transaction with Cerberus Capital Management, Inc. (“Cerberus”) that resulted in a significant capital infusion to RG Steel, which was experiencing substantial financial losses. As part of this transaction, there was an immediate transfer to Cerberus of 24.5% of the membership units of RG Steel. According to Renco, this resulted in Renco no longer being part of the same controlled group for purposes of ERISA.

         Several months later, RG Steel filed for bankruptcy and ceased operations. SPT assessed Renco with withdrawal liability, taking the position that the Cerberus transaction was designed by Renco to evade and avoid liability. Renco disclaimed withdrawal liability because of its contention that, following the Cerberus transaction, it was no longer part of the RG Steel controlled group.

         On April 14, 2015, counsel for SPT sent an email to counsel for Renco, stating:

Per your request, attached please find the calculations and payment plan data for RG Steel’s complete withdrawal from the Steelworkers Pension Trust in 2012.
As you know, our position is that the Renco Group was still part of the controlled group when the complete withdrawal was triggered since the January 2012 Cerberus Transaction was designed to evade and avoid withdrawal liability.
Consequently, in light of the various Notices of Appearances filed by attorneys for the Renco Group in the RG Steel bankruptcy prior to the SPT’s filing of its Proof of Claim, the Renco controlled group had notice of the withdrawal liability assessment such that it missed the opportunities to file a Request for Review and to trigger the MPPAA arbitration to dispute the attached calculations.
Nonetheless, per our discussion, I am willing to discuss the calculations with you.

(Pl.’s Concise Statement of Material Facts (“SOF”) ¶¶ 1-2.)[3]

         The email sent to Renco by SPT’s counsel attached a September 27, 2013 Report from SPT’s actuary, Cheiron (“Initial Cheiron Report”), which calculated withdrawal liability in the amount of $86, 181, 976.00, to be paid in eleven (11) quarterly payments of $8, 252, 337.00 each, plus a final quarterly payment of $1, 002, 611.00. (SOF ¶¶ 3-4.) The Initial Cheiron Report purported to assess withdrawal liability for the RG Steel controlled group, not Renco directly.

         Renco did not make a quarterly payment of $8, 252, 337.00 to SPT within 60 days of receiving the April 14, 2015 email and Initial Cheiron Report, i.e., by June 14, 2015. In addition, Renco did not make any of the ten remaining quarterly payments that were due between September 14, 2015 and September 14, 2017 under the schedule set forth in the Initial Cheiron Report. (SOF ¶¶ 5-6.)

         B. The First SPT Lawsuit and Subsequent Arbitration

         On February 22, 2016, SPT filed 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 asserted that Renco 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, arguing, 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 Renco’s 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 decision was affirmed by the Court of Appeals for the Third Circuit on May 31, 2017. (Civ. A. No. 16-190, ECF No. 73.)

         In June 2017, the Court appointed Ira F. Jaffe (“the Arbitrator”) to serve as the arbitrator in the parties’ arbitration proceeding. (Civ. A. No. 16-190, ECF No. 72.) On July 17, 2017, SPT filed an expedited motion for interim payments with the Arbitrator. By Interim Ruling and Award on Interim Payments dated December 1, 2017 (“Interim Ruling and Award”), the Arbitrator granted in part SPT’s expedited request. The Arbitrator found that Renco’s first quarterly withdrawal liability payment under the Initial Cheiron Report of $8, 252, 337.00 was due sixty days after April 14, 2015, i.e., on June 14, 2015, and that subsequent quarterly payments of $8, 252, 337.00 each were due every three months thereafter until the payment plan was completed. (SOF ¶¶ 7-9.)

         In its expedited motion, SPT requested liquidated damages at a flat rate of 10% per each allegedly-owing interim payment on the ground that “the SPT’s Declaration of Trust provides for liquidated damage[s] ¶ 10% on each payment missed.” (Compl. Ex. 5 at 5.)[4] SPT also contended that interest on each unpaid interim payment would continue to accrue, but made no such contention with respect to liquidated damages. (Id.) In the Interim Ruling and Award, while holding that the interest rate set forth in 29 C.F.R. § 4219.32(b)[5] applied to the allegedly overdue withdrawal liability, the Arbitrator stated that his ruling was “subject to potential revision in a subsequent ruling if it is proven that there is a higher rate that should have been applied pursuant to 29 C.F.R. § 4219.33.”[6] (Compl. Ex. 9 at 4.)

         The Arbitrator denied SPT’s request for additional amounts under 29 U.S.C. § 1132(g)(2) (liquidated damages at the rate set forth in SPT’s Declaration of Trust and attorney’s fees), finding that he lacked jurisdiction to award this element of damages. He stated that “[t]he claim for interest, however, is one that is contemplated by [Section 4219(c)(3)], [7]” which provides in part that: “If a payment is not made when due, interest on the payment shall accrue from the due date until the date on which payment is made.” In doing so, he cited regulations governing overdue, defaulted and overpaid withdrawal liability that are set forth 29 C.F.R. §§ 4219.32 and 4219.33. (SOF ¶ 10.)[8]

         As of December 1, 2017, when the Arbitrator issued the Interim Ruling and Award, only two quarterly payments under the Initial Cheiron Report remained: the 11th quarterly payment of $8, 252, 337.00, due on December 14, 2017, and the final quarterly payment of $1, 002, 611.00, due on March 14, 2018. Following the Arbitrator’s issuance of the Interim Ruling and Award, SPT provided the Arbitrator with a revised withdrawal liability calculation from Cheiron (“Revised Cheiron Report”), which reduced the total amount of withdrawal liability from $86, 181, 976.00 to $82, 150, 432.00. The Revised Cheiron Report adjusted the amount of the quarterly payments, such that the first eleven quarterly payments were reduced from $8, 252, 337.00 to $7, 817, 459.00, and the final quarterly payment was increased from $1, 002, 611.00 to $1, 536, 447.00. Although the amount of the quarterly payments changed, the dates they became due remained the same, based on the April 14, 2015 trigger date, as confirmed by the Arbitrator’s subsequent Order dated December 14, 2017. Therefore, in accordance with the Revised Cheiron Report, Renco was required to make the 11th quarterly payment of $7, 817, 459.00, by December 14, 2017, and the final quarterly payment of $1, 536, 447.00, by March 31, 2018. Renco did not make the 11th quarterly payment of $7, 817, 459.00 by December 14, 2017. (SOF ¶¶ 11-16.)

         The Arbitrator issued another Order, on December 14, 2017, directing Renco, based on the Revised Cheiron Report, to pay SPT “$85, 922, 445 in delinquent interim withdrawal liability payments, representing the [eleven] quarterly payments [of $7, 817, 459 each] that should have been made from April 14, 2015 to the present.” The Arbitrator ordered Renco to pay SPT “$4, 037, 410.44 in interest on the delinquent interim payments, representing interest on the above interim payments from April 14, 2015 through December 14, 2017, at the interest rate set forth in 29 C.F.R. § 4219.32(b).” The Arbitrator also directed Renco to make the final quarterly payment of $1, 536, 447.00 to SPT by March 14, 2018.[9] The Arbitrator’s Order provided that interest on the unpaid amounts would continue to accrue at the interest rate set forth in 29 C.F.R. § 4219.32(b), until Renco made full payment to SPT or until there was a ruling that Renco was not liable for RG Steel’s withdrawal liability. (SOF ¶¶ 17-20.)

         The Arbitrator’s December 14, 2017 Order provided that SPT would not be precluded “from seeking liquidated damages, an interest rate (if applicable) greater than the interest rate set forth in 29 C.F.R. § 4219.32(b), and/or attorneys’ fees” in any subsequent lawsuit to enforce the Order.

         C. The Present Lawsuit

         SPT commenced this action in January of 2018 to enforce the Arbitrator’s Interim Payments Order and to compel Renco to make the mandatory withdrawal liability payments. In the Complaint, SPT alleges that Renco owed interim withdrawal liability payments in the amount of $114, 057, 804.14, as a result of Renco’s failure to make withdrawal liability payments pending the resolution of their disputes of such liability as required by ERISA. Count I of SPT’s Complaint seeks a confirmation of the Interim Ruling and Award and Interim Order made by the Arbitrator on December 1, 2017 and December 14, 2017, respectively. Count II seeks interim payments totaling $114, 057, 804.14, pursuant to 29 U.S.C. § 1399(c)(2), [10] plus interest, liquidated damages, legal costs and attorney’s fees.

         In this proceeding, the parties have stipulated to the amount of principal interim withdrawal liability and are only contesting the interest rate to be applied to SPT’s additional statutory damages under 29 U.S.C. § 1132(g)(2).

         Consistent with the expedited motion that it filed in the arbitration proceeding, SPT seeks a ruling compelling Renco to pay liquidated damages pursuant to 29 U.S.C. § 1132(g)(2)(C)(ii) at a flat rate of 10% per each allegedly-owing interim payment. (Compl. ¶¶ 72-74.) SPT also alleged that interest would continue to accrue on each unpaid interim payment, but did not take this position with respect to liquidated damages. (Id. ¶¶ 78-79.)

         D. The Arbitrator’s Awards Regarding SPT’s Withdrawal Liability Claim

         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 favor of SPT, finding that, under 29 U.S.C. § 1392(c), a principal purpose of the Cerberus Transaction was to evade or avoid withdrawal liability; and, therefore, that Renco effectively was a member of the RG Steel controlled group on the date of RG Steel’s withdrawal from SPT. According to the Arbitrator’s Interim Ruling and Award on Liability, Renco is liable to SPT for the full amount of the withdrawal liability attributable to RG Steel. (SOF ¶¶ 26-28.)

         In September 2018, following Renco’s challenge to SPT’s calculation of withdrawal liability, the parties stipulated that the amount of withdrawal liability should be reduced to the amount set forth in a September 13, 2018 Report from Cheiron (“Final Cheiron Report”). According to the Final Cheiron Report, the total amount of withdrawal liability was $74, 444, 086.00, if paid in a lump sum; or $78, 664, 224.00, if amortized over ten quarterly payments of $7, 817, 459.00, plus a final quarterly payment of $489, 634.00. The Final Cheiron Report eliminated one of the $7, 817, 459.00 quarterly payments from the schedule in the Revised Cheiron Report and reduced the final quarterly payment. (SOF ¶¶ 29-31.)

         The Arbitrator issued his Final Award on September 25, 2018, in favor of SPT and against Renco. The Arbitrator found that a principal purpose of the Cerberus Transaction was to evade or avoid withdrawal liability; and, therefore, Renco was liable for the withdrawal liability of RG Steel. The Final Award incorporated the Arbitrator’s December 1, 2017 Interim Ruling and Award, the December 14, 2017 Interim Order and the July 18, 2018 Interim Opinion and Award.

         The Final Award in favor of SPT was for the amount set forth in the “interim payment schedule” referenced in the Final Cheiron Report. All of the payment deadlines under the Final Cheiron Report already had lapsed by the time of the Arbitrator’s Final Award. The Arbitrator adopted interest calculations Cheiron made “using the interest rates contained in [the] December 1, 2017 Interim Ruling and December 14, 2017 Order regarding Interim Payments and the date for the commencement of payments set forth in that same Interim Ruling and Order.” According to the Final Award, however, Cheiron’s interest calculations, marked as Attachment C to the Final Award, are correct only if this Court finds that: (1) the varying interest rate under 29 C.F.R. § 4219.32(b) applies, and (2) Renco was required to begin making the quarterly payments no later than 60 days after April 14, 2015. (SOF ¶¶ 32-35.)

         Like the Interim Ruling and Award, the Final Award expressly carved out “SPT’s reservation of rights to seek to recover additional interest (including seeking that the court use a greater rate of interest pursuant to 29 C.F.R. §4219.33), liquidated damages, attorneys’ fees and costs in a separate ...


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