Steelworkers Pension Trust v. The Renco Group Inc ( 2021 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
Nos. 19-3499, 19-3504 & 19-3507
________________
STEELWORKERS PENSION TRUST,
by Daniel A. Bosh, Chairman,
Appellant in No. 19-3507
v.
THE RENCO GROUP, INC.; ILSHAR CAPITAL LLC;
BLUE TURTLES, INC.; UNARCO MATERIAL HANDLING, INC.;
INTEVA PRODUCTS LLC; THE DOE RUN RESOURCES CORPORATION;
US MAGNESIUM LLC,
Appellants in 19-3499 and 19-3504
________________
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action Nos. 2-18-cv-00142, 2-18-cv-01311 and 2-18-cv-01429)
District Judge: Honorable Cathy Bissoon
________________
Submitted under Third Circuit LAR 34.1(a)
On September 25, 2020
Before: AMBRO, PORTER and ROTH, Circuit Judges
(Opinion filed: August 26, 2021)
________________
OPINION*
________________
ROTH, Circuit Judge
I.
Plaintiff, The Renco Group, Inc., and six subsidiaries (collectively, Renco) appeal
two summary judgment orders, and related preceding interlocutory orders, in actions
brought in the United States District Court for the Western District of Pennsylvania under
the Employee Retirement Income Security Act of 1974 (ERISA).1 Defendant
Steelworkers Pension Trust (SPT) partially appeals from one of the summary judgment
orders. For the reasons stated below, we will affirm the District Court’s orders in their
entirety.
II.
Renco formed RG Steel Holdings LLC (RG Steel) as a wholly owned subsidiary in
2011. In March 2011, RG Steel purchased a number of steel mills and related properties.
As a result of this transaction, Renco became part of the controlled group that included RG
Steel. Some of RG Steel’s businesses were contributing employers to SPT, a multi-
employer pension plan. By late 2011, RG Steel was in financial distress and losing
approximately $1 million per day. Renco began to seek outside financing for RG Steel.
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
1
29 U.S.C. §§ 1001–1500.
2
When it became clear that no entity would entertain lending to RG Steel without
receiving some form of equity in exchange, Renco approached Cerberus Capital
Management, L.P., with a mixed debt-equity proposal. Cerberus’s attorneys submitted a
draft transaction, involving two tranches of equity warrants, each conveying a 24.5%
interest in RG Steel upon exercise of the warrants and/or satisfaction of additional
conditions. Renco’s counsel stated that Renco would prefer Cerberus to take ownership of
24.5% of RG Steel’s membership units (i.e., shares) immediately upon closing. Cerberus
initially objected, but agreed to accept direct equity after repeated requests from Renco.
After Renco’s lawyers received confirmation that the transfer of membership units would
not create an ERISA risk, the Cerberus transaction closed, and Renco claimed that it had
exited RG Steel’s controlled group. After the Cerberus transaction, RG Steel’s financial
position continued to decline. It entered bankruptcy and withdrew from SPT.
SPT entered proofs of claim in the RG Steel bankruptcy case asserting, inter alia,
withdrawal liability claims. The parties tolled their dispute during the pendency of a related
case against Renco by the Pension Benefit Guaranty Corporation (PBGC).2 During the
tolling period, on April 14, 2015, SPT emailed Renco a calculation of withdrawal liability
payments. Renco defaulted, and SPT initiated proceedings in the District Court to collect
payments. The District Court directed the parties to arbitration, and we affirmed.3
The Arbitrator ruled that Renco was required to make interim withdrawal liability
payments to SPT beginning 60 days after SPT’s April 14, 2015, email. After Renco again
2
The record of the PBGC litigation was incorporated into the District Court’s record in these
actions.
3
See Steelworkers Pension Tr. v. Renco Grp., Inc., 694 F. App’x 69 (3d Cir. 2017).
3
refused, SPT initiated a new action in the District Court seeking interim payments and
additional statutory damages.4 Meanwhile, the Arbitrator ruled in SPT’s favor on the
merits of the withdrawal liability claim. SPT and Renco filed simultaneous actions
seeking, respectively, to confirm and vacate the Arbitrator’s award.5 After the District
Court denied Renco’s motion to dismiss the interim payments action, Renco entered into a
consent order with SPT to pay $78 million, the principal of the Arbitrator’s final
withdrawal liability award.
In response to summary judgment motions in both the confirmation/vacation and
interim payments actions, the District Court entered two orders: one confirming the
Arbitrator’s final award (the Withdrawal Liability Decision), and one granting SPT
interest, attorney’s fees, and costs in the interim payments action (the Interim Payments
Decision). Renco appealed both decisions and all interlocutory orders leading to the
summary judgments, including the court’s order denying its motion to dismiss the interim
payments action. SPT also appealed the Interim Payments Decision.6
III.7
4
No. 18-cv-00142 (Bissoon, D.J.). 29 U.S.C. § 1132(g)(2) allows for interest, double interest,
liquidated damages, attorney’s fees, and costs on delinquent payments.
5
The two confirmation/vacation lawsuits have been consolidated into one action, No. 18-1311
(Bissoon, D.J.).
6
The only issue arising from the Interim Payments Decision is the interest rate used.
7
The District Court had jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 1451(c). We have
jurisdiction under 28 U.S.C. § 1291.
4
Our review of the District Court’s summary judgment grants is plenary, 8 as is our
review of its denial of Renco’s motion to dismiss.9 We review the Arbitrator’s findings of
fact for clear error and his conclusions of law de novo.10
IV.
In the withdrawal liability action, the Arbitrator and the District Court found that
the Cerberus transaction did not remove Renco from RG Steel’s controlled group under
the Multiemployer Pension Plan Amendments Act (MPPAA) because Renco had a
principal purpose to evade or avoid withdrawal liability.11 We owe the Arbitrator’s
withdrawal liability finding “great deference” in light of the MPPAA’s strong policy
toward arbitrating disputes of this kind.12
The thrust of Renco’s position on appeal is that the Cerberus transaction’s change
in the type of equity exchanged from permanent warrants to membership units was merely
a “clarifying contract edit” that had no dispositive effect on the transaction as a whole. For
that reason, Renco contends that the Arbitrator and the District Court erred by focusing on
the “evade or avoid” inquiry on this change. We conclude, however, that Renco’s
8
SUPERVALU, Inc. v. Bd. of Trs. of Sw. Pa. & W. Md. Area Teamsters & Emps. Pension Fund,
500 F.3d 334, 340 (3d Cir. 2007).
9
Keystone Redev. Partners, LLC v. Decker, 631 F.3d 89, 95 (3d Cir. 2011).
10
Crown Cork & Seal Co. v. Cent. States Se. & Sw. Areas Pension Fund, 982 F.2d 857, 860 (3d
Cir. 1992) (citations omitted).
11
See 29 U.S.C. § 1381 (obligating employers who exit multiemployer pension plans to pay
withdrawal liability equaling the employer’s share of the plan’s unvested benefits); id. §
1301(b)(1) (extending withdrawal liability to businesses within the employer’s common control);
id. § 1392(c) (“If a principal purpose of any transaction is to evade or avoid [withdrawal
liability], . . . liability shall be determined and collected . . . without regard to such transaction.”).
12
Sherwin-Williams Co. v. N.Y. State Teamsters Conf. Pension, Ret. Fund., 158 F.3d 387, 392
(6th Cir. 1998); see Chicago Truck Drivers v. Louis Zahn Drug Co., 890 F.2d 1405, 1412 (7th
Cir. 1989) (“The need for deference to the arbitrator’s expertise is even more obvious on the
issue of whether the seller sought to evade or avoid withdrawal liability.”).
5
arguments misrepresent the record and reveal no error in the Arbitrator or District Court’s
reasoning.
First, Renco asserts that the District Court erred by failing to reconsider the
Arbitrator’s finding that the Draft Permanent Warrants Transaction was “perfectly
permissible” under the MPPAA and would not have led to withdrawal liability absent the
change to membership units.13 The Arbitrator made no such finding. He merely stated
that he could not conclude that the draft transaction would have removed Renco from the
controlled group. The District Court did not fail to analyze the issue but reviewed the
Arbitrator’s findings and found no error of law. Nothing more was required.14
Nor did the Arbitrator err in finding that the draft transaction would not definitively
have altered Renco’s controlled group status. Breaking the controlled group required an
immediate transfer to Cerberus of greater than 20 percent “of the profits interest or capital
interest” in RG Steel.15 Renco argues that this result was assured because the section of
the draft transaction agreement governing discretionary distributions “would have
immediately transferred to Cerberus a 24.5% capital and profits interest in RG Steel
Holdings LLC.”16 The Arbitrator considered the section Renco cites but found that in light
of other sections of the agreement, limiting Cerberus’s right to share in RG Steel’s
distributions, the draft transaction as a whole would not have transferred to Cerberus more
than 20 percent of “the full community of interest in the profits and losses of RG Steel
13
Appellant’s Opening Brief (“Op. Br.”) 45.
14
Sun Cap. Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, 724
F.3d 129, 149 (1st Cir. 2013) (finding that courts may not take “the affirmative step of writing in
new terms to a transaction or to create a transaction that never existed”).
15
26 C.F.R. § 1.414(c)-2(b).
16
Op. Br. 51 (emphasis omitted).
6
Holdings LLC prior to exercise [of the warrants].”17 We agree with the District Court that
the Arbitrator’s findings are correct and properly supported by the record.
Renco makes much of its own “subjective belief” that the Cerberus transaction
would remove it from RG Steel’s controlled group even before the permanent warrants
were changed to membership units. If it believed the change would have no effect, Renco
argues, it defies logic to find that the change transformed the transaction from one without
a purpose to evade or avoid to one with such a purpose. Far from warranting reversal, this
fact hurts Renco’s case. The Arbitrator’s findings suggest that Renco was motivated by a
purpose to avoid ERISA obligations as soon as it understood that it would need to give up
equity as part of any outside financing transaction for RG Steel. Thus, Renco’s statement
that it sought to avoid withdrawal liability even before the final deal terms were agreed
upon only strengthens the Arbitrator’s conclusion.
We are similarly unpersuaded by Renco’s position that the Arbitrator and District
Court failed to properly consider whether the Cerberus transaction as a whole had a
principal purpose to evade or avoid withdrawal liability. Renco’s first argument to that
effect—that the Cerberus transaction could not have had such a purpose because the
Arbitrator found it was motivated by “a legitimate business reason . . . of introducing much
needed capital” into RG Steel’s depleted coffers18—ignores the fact that a transaction can
have more than one “principal purpose” under the MPPAA.19 Here, the Arbitrator found
17
Joint Appendix (JA) 112.
18
Op. Br. 73.
19
See Sherwin-Williams, 158 F.3d at 395.
7
that the transaction had two principal purposes: one legitimate (to revitalize RG Steel), and
one illegitimate (to evade withdrawal liability).
Renco next points to the Arbitrator’s finding that it was not motivated by a desire to
evade or avoid withdrawal liability when it decided to seek outside financing for RG Steel,
leaning heavily on our statement in SUPERVALU, Inc. v. Board of Trustees of Southwest
Pennsylvania & Western Maryland Teamsters & Employers Pension Fund that “[t]he main
issue . . . is whether SUPERVALU violated [§ 1392(c)] by entering the [transaction at
issue].”20 But SUPERVALU did not limit the “evade or avoid” inquiry to the decision to
seek out a particular type of transaction. Rather, under SUPERVALU, we must determine
whether the decision to enter a particular transaction as executed was motivated by an
improper purpose.21 As the District Court put it, the Arbitrator answered that question in
the affirmative by “examin[ing] the ‘principal purpose that motivated the decision’ to
engage in the Cerberus transaction, and then examin[ing] the ‘principal purpose that
motivated the decision’ about how to do so.”22 He found that the former decision was not
motivated by a desire to evade or avoid withdrawal liability, but the second decision was.
That was not error.
Finally, Renco claims that the switch from permanent warrants to membership units
was merely intended to clarify the parties’ existing agreement, and therefore could not
possibly be the sole support for a finding that the transaction as a whole had an illegitimate
purpose. This falsely assumes that the Arbitrator’s finding was based solely on the change
20
500 F.3d 334, 340 (3d Cir. 2007).
21
Id. at 341–42.
22
JA 32 (citing Sherwin-Williams, 158 F.3d at 395).
8
to membership units. The District Court noted that “the Arbitrator . . . did not rely solely
on the structure of the Cerberus Transaction.”23 Instead, he cited Renco’s repeated requests
for the change in structure; its efforts to conceal the transaction from the PBGC after the
agency expressed withdrawal liability concerns; the amount of withdrawal liability at stake;
and the “less than credible testimony of Renco’s various witnesses.”24 We defer to the
Arbitrator’s well-supported findings of fact and find no error in his, or the District Court’s,
conclusions of law. Therefore, we will affirm the Withdrawal Liability Decision in full.
V.
Renco also disputes its obligations under two provisions of ERISA § 4219 (codified
at 29 U.S.C. § 1399), which governs interim payments during withdrawal liability disputes:
§ 1399(b), which requires plan sponsors to provide notice and demand of withdrawal
liability to employers; and § 1399(c)(2), which requires employers to make interim
payments beginning 60 days post-notice, notwithstanding any pending withdrawal liability
challenges. Because Renco’s arguments lack sufficient merit, we will affirm the District
Court’s order declining to dismiss the interim payments action.
We first address the issue of standing. SPT asserts that Renco waived any right to
appeal its interim payments obligation in the parties’ consent order. Not so. The consent
order explicitly reserves Renco’s right to “contest the withdrawal liability, and/or the
amount of the withdrawal liability[.]”25 SPT’s cases relating to consent judgments that
resolve a case with finality are misplaced here, where the consenting party merely agreed
23
JA 31.
24
Id.
25
JA 2622.
9
(in relevant part) to pay the principal amount assessed by an arbitrator.26 Renco had
standing to appeal the District Court’s order denying its motion to dismiss the interim
payments action.
Nevertheless, Renco has not shown any basis for absolving its obligation to make
payments. Renco cites Board of Trustees of Trucking Employees of North Jersey Welfare
Fund, Inc. – Pension Fund v. Centra,27 which stated in a footnote that “a Fund may not
collect even interim payments” until “a court makes the threshold determination that a
company is a member of a control group.”28 Centra does not control here. There, the
parties disputed whether Centra had entered a company’s control group in a pre-withdrawal
acquisition, so the withdrawal liability inquiry necessitated a threshold legal determination
of the defendant’s controlled group status before arbitration could begin.29 On the other
hand, in an “evade or avoid” context, the controlled group inquiry is inseparable from the
arbitrator’s determination of the transaction’s purpose.30 Thus, the parties’ dispute did not
toll Renco’s payments obligation, which began 60 days after SPT’s demand.
We also find that SPT’s April 14, 2015, email setting out calculations for withdrawal
liability payments satisfies the notice and demand requirements of § 1399(b). Renco points
out that the email indicated a willingness on SPT’s part to negotiate the payment
26
See In re Odyssey Contracting Corp., 944 F.3d 483, 489 (3d Cir. 2019); Keefe v. Prudential
Prop. & Cas. Ins. Co., 203 F.3d 218, 223 (3d Cir. 2000); cf. Brzozowski v. Corr. Physician
Servs., Inc., 360 F.3d 173, 176–77 (3d Cir. 2004); Verzilli v. Flexon, Inc., 295 F.3d 421, 425 (3d
Cir. 2002).
27
983 F.2d 495 (3d Cir. 1992).
28
Id. at 502 n.10.
29
Id. at 501.
30
See Flying Tiger Line v. Teamsters Pension Tr. Fund of Phila., 830 F.2d 1241 at 1248, 1250
(3d Cir. 1987).
10
calculations. But nothing in the MPPAA states that a notice and demand must memorialize
a final agreement between the parties; indeed, the statute contemplates disputes over
payment amounts and schedules.31 Renco also asserts that the term “demand” requires “an
assertion of rights” or “an imperative request” that Renco make payments immediately,
and the term “schedule” requires a breakdown of “when payments were allegedly due.”32
But the email contained both: it asserted SPT’s position regarding its right to seek
withdrawal liability from Renco, and calculated 11 quarterly payments, setting out a
predictable schedule if the MPPAA’s default 60-day deadline were applied to the first
payment.33 For these reasons, the District Court correctly declined to dismiss the interim
payments action.
The final issue on appeal is the proper interest rate for the interim payments. We
hold that the District Court was right to apply the “default” rate covering actions for
delinquent plan contributions under 29 U.S.C. § 1132(g)(2) and 26 U.S.C. § 6621.34Renco asserts that the court should have applied the PBGC’s rate in 29 C.F.R. §
4219.32(b), as set out in the MPPAA’s section covering unpaid withdrawal liability (29
U.S.C. § 1399(c)(6)). Courts are split on the issue of whether § 1132(g)(2) or § 1399(c)(6)
should apply to interim payments in a withdrawal liability dispute.35 We find those cases
31
See 29 U.S.C. § 1399(c)(2) (mandating payments “notwithstanding any request for review or
appeal of determinations of the amount of such liability or of the schedule”).
32
Op. Br. 89–90 (internal quotation marks and emphasis omitted).
33
Renco also argues that the Magistrate and Arbitrator erred by using a “substantial compliance”
standard to find that the email met the statute’s requirements. We need not opine on this issue
because the email strictly complies with § 1399(b).
34
See § 1132(g)(2) (instructing courts to apply the underpayment rate set out in 26 U.S.C. §
6621(a)(2)).
35
See GCIU-Emp. Ret. Fund v. Quad/Graphics, Inc., 2017 WL 1903102, at *6 (C.D. Cal. May
8, 2017) (collecting cases).
11
applying § 1132(g)(2) more persuasive: Section 1132(g)(2) specifically covers actions to
compel disputed withdrawal liability payments (as here),36 while § 1399(c)(6) appears to
apply to the collection of overdue withdrawal payments when liability is not disputed.37
And application of § 1132(g)(2)’s higher rate in the context of a withdrawal liability dispute
is in keeping with that section’s purpose to deter unnecessary litigation by employers.38
Thus, the District Court was correct not to use the PBGC’s rate.
Section 1132(g)(2) provides that the IRS’ default underpayment rate under § 6621
applies unless the pension plan specifies a different rate. SPT argues that the District Court
should have used the delinquent contributions rate in the Plan’s Declaration of Trust, which
is silent on unpaid withdrawal liability. Here, too, the District Court had it right. ERISA
requires that we treat delinquent contribution and withdrawal liability actions “in the same
manner.”39 Accordingly, if a plan specifies an interest rate for delinquent contributions, it
should be used in a delinquent contributions action. And if a plan specifies a rate for
withdrawal liability payments, it should be used in a withdrawal liability action. This is a
36
See id.
37
See Carriers Container Council, Inc. v. Mobile S.S. Ass’n., Inc., AFL-CIO Pension Tr., 948
F.2d 1219, 1227 (11th Cir. 1991) (“[T]he most reasonable construction of ERISA is that §
1132(g)(2) applies exclusively when suit has been filed regarding an employer’s withdrawal
liability.”). Renco cites cases applying the PBGC rate in actions to compel overdue withdrawal
liability payments, casting doubt on the District Court’s statement that “it appears . . . § 4219.32
applies only where overdue withdrawal payments are collected before litigation commences.”
But Renco’s cases are distinguishable: none involved an action disputing the fact or principal
amount of the employer’s withdrawal liability.
38
See United Auto Workers Loc. 259 Soc. Dep’t. v. Metro Auto Ctr., 501 F.3d 283, 295 (3d Cir.
2007).
39
29 U.S.C. § 1451(b).
12
withdrawal liability action, and the plan specifies no withdrawal liability rate.40 Therefore,
the default rate in § 6621 applies.41
VI.
For the foregoing reasons, the orders and judgments of the District Court will be
affirmed.
40
We agree with the District Court’s decision not to follow Quad/Graphics’ finding that “the
interest rate . . . in the trust agreement appli[es] to delinquent withdrawal payments even though
on their face they apply only to delinquent contributions.” 2017 WL 1903102 at *5.
41
Trustees. of the Amalgamated Insurance Fund v. Sheldon Hall Clothing, Inc., 862 F.2d 1020(3d Cir. 1988), is inapposite. In that case, we applied a plan’s specified interest rate to interim
payments under § 1132(g)(2), but neither the Court nor the parties stated whether the plan’s interest
rate was for withdrawal liability payments or delinquent contributions. Id. at 1023.
13