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Hotel 71 Mezz Lender LLC v. The National Retirement Fund

United States Court of Appeals, Seventh Circuit

February 6, 2015

HOTEL 71 MEZZ LENDER LLC, a Delaware limited liability company, et al., Plaintiffs/Counter-Defendants-Appellees,
v.
THE NATIONAL RETIREMENT FUND, Defendant/Counter-Claimant-Appellant and THE TRUSTEES OF THE NATIONAL RETIREMENT FUND, Counter-Claimant-Appellant

Argued November 5, 2014.

Page 594

[Copyrighted Material Omitted]

Page 595

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 3306--Rubé n Castillo, Chief Judge.

For HOTEL 71 MEZZ LENDER LLC, a Delaware limited liability company, OAKTREE CAPITAL MANAGEMENT LP, a Delaware limited liability company, Plaintiffs - Appellees: Christopher Brennan Wilson, Attorney, Daniel A. Zazove, Attorney, Perkins Coie Llp, Chicago, IL.

For Trustees of The National Retirement Fund, Appellant: Holly H. Weiss, Attorney, Schulte, Roth & Zabel, New York, NY; Jeremy M. Barr, Attorney, Dowd, Bloch & Bennett, Chicago, IL; Ronald E. Richman, Schulte, Roth & Zabel, New York, NY.

For National Retirement Fund, Defendant - Appellant: Holly H. Weiss, Attorney, Schulte, Roth & Zabel, New York, NY; Jeremy M. Barr, Attorney, Dowd, Bloch & Bennett, Chicago, IL; Ronald E. Richman, Schulte, Roth & Zabel, New York, NY.

Before BAUER, ROVNER, and TINDER, Circuit Judges.

OPINION

Page 596

Rovner, Circuit Judge.

The price a litigant pays for filing a flawed or unconvincing motion for summary judgment ordinarily is denial of the motion, not loss of the case. But the district court in this case appears to have treated the lack of sufficient evidentiary support for the motion as a reason to enter summary judgment against the movant. See Hotel 71 Mezz Lender LLC v. Nat'l Retirement Fund, 9 F.Supp.3d 863, 873-74 (N.D.Ill. 2014). The court did so in the absence of a cross-motion for summary judgment on the issue that it found to be dispositive, and without first giving the unsuccessful movant notice that it was entertaining the possibility of entering summary judgment against it or the opportunity to respond. Because we are not convinced that the movant had no plausible arguments to make in opposition to an adverse grant of summary judgment, we vacate the judgment and return the case to the district court for further proceedings.

I.

In this action, the National Retirement Fund (" NRF" ) and its trustees seek to hold Hotel 71 Mezz Lender LLC (" Mezz Lender" ) and Oaktree Capital Management, L.P. (" Oaktree" ) responsible for multiemployer pension fund withdrawal liability pursuant to section 4201 of the Multiemployer Pension Plan Amendments Act of 1980 (" MPPAA" ), 29 U.S.C. § 1381. Oaktree, through Mezz Lender, provided financing for the acquisition of a hotel by Chicago H& S Hotel Property LLC (" H& S" ). When H& S later defaulted on the loan, it was taken into bankruptcy and the hotel was liquidated. NRF contends that the sale of the hotel triggered withdrawal liability on the part of H& S and any other " trade or business" under common control with it--including both Oaktree and Mezz Lender. See 29 U.S.C. § 1301(b)(1). Oaktree and Mezz Lender, on the other hand, contend that the claim of withdrawal liability--whatever its merits--is barred by the bankruptcy reorganization plan pursuant to which the hotel was sold.

NRF, formerly known as the UNITE HERE National Retirement Fund and successor-in-interest to the HEREIU Pension Fund, is a multiemployer pension fund that provides retirement and related benefits to unionized workers; it is administered by a board of trustees that includes both union and employer representatives. Collective bargaining agreements covering certain union workers require employers to make regular contributions to NRF on behalf of their employees. During the time period relevant to this case, Hotel 71, a full-service, 437-room hotel on Chicago's Wacker Drive, was a party to one such agreement obligating it to make contributions to NRF's predecessor, the HEREIU Pension Fund, on behalf of the hotel's

Page 597

housekeepers, bartenders, bellhops, laundry workers, and various other employees.

H& S purchased Hotel 71 in 2005. The purchase was financed by a $100 million senior mortgage loan as well as a $27.3 million mezzanine loan. Oaktree funded the mezzanine loan to H& S (actually to an LLC that was H& S's sole manager and member, but we may omit that detail) through Mezz Lender. Upon completion of the purchase, H& S succeeded to the obligations imposed by several collective bargaining agreements with the hotel's workforce, including the obligation to make contributions to the HEREIU Pension Fund. We shall hereafter refer to the pension fund and its trustees simply as NRF or the " pension fund."

H& S defaulted on both the senior and mezzanine loans in 2007. On October 3, 2007, Mezz Lender acquired H& S in a Uniform Commercial Code (" UCC" ) Article 9 foreclosure sale with the intent to place H& S in bankruptcy and attempt to collect the outstanding balance of its loan there. Mezz Lender immediately brought in Patrick O'Malley, a restructuring specialist from a management consulting firm, to run the company. H& S filed for bankruptcy protection pursuant to Chapter 11 of the Bankruptcy Code within the month, and thereafter Mezz Lender participated in the negotiation of a plan of reorganization. The bankruptcy court approved the finalized reorganization plan on March 21, 2008.

Pursuant to the approved plan, substantially all of H& S's assets--principal among them being Hotel 71--were sold in July 2008 to H& S's senior lender. NRF and its trustees view the sale as a " complete withdrawal" by H& S from the pension fund, which triggered withdrawal liability on the part of H& S and any trade or business under common control with it--including, in NRF's view, Mezz Lender and Oaktree. See 29 U.S.C. § § 1301(b)(1), 1381.[1] Counsel for NRF sent a notice and demand letter setting forth that position to Mezz Lender on April 1, 2013. NRF ultimately reached a settlement with H& S itself pursuant to which NRF was permitted a general unsecured claim of $550,000 against the bankruptcy estate; and it appears that NRF was able to collect less than $70,000 on that claim. Nearly all of the more than $2.1 million in withdrawal liability and accrued interest that NRF attributes to H& S and the other members of its controlled group thus remains unpaid.

Section 13.1 of the reorganization plan approved by the bankruptcy court contains a provision stating that any distributions received by creditors or contemplated by the plan are in full satisfaction of any and all claims arising in connection with H& S's Chapter 11 case that creditors might have against " Releasees," whom the plan defines to include the debtor (H& S), its then-owner (Mezz Lender), and any officers, members, or managers of the debtor's owner, and that all such claims are released. Section 13.4 in turn ...


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