Hotel 71 Mezz Lender LLC et al v. The National Retirement Fund

Filing 42

MEMORANDUM Opinion and Order. Signed by the Honorable Ruben Castillo on 3/3/2014:Judicial staff mailed notice(gl, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

HOTEL 71 MEZZ LENDER LLC and
OAKTREE CAPITAL MANAGEMENT,
L.P.
Plaintiffs,
No. 13 C 03306
v.
THE NATIONAL RETIREMENT FUND,

Chief Judge Rubén Castillo

Defendant.
THE NATIONAL RETIREMENT FUND
and THE TRUSTEES OF THE
NATIONAL RETIREMENT FUND,
Counter Plaintiffs,
v.
HOTEL 71 MEZZ LENDER LLC,
OAKTREE CAPITAL MANAGEMENT,
L.P, and JOHN DOES 1-10,
Counter Defendants.

MEMORANDUM OPINION AND ORDER
This action arises from a dispute over whether an Order entered by the United States
Bankruptcy Court for the Northern District of Illinois (the “Order”) releases Oaktree Capital
Management, L.P. (“Oaktree”) and Hotel 71 Mezz Lender LLC (“Hotel 71 Lender”)
(collectively, “Plaintiffs”) from withdrawal liability incurred under the Employee Retirement
Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. and owed to The National
Retirement Fund (the “NRF” or “Defendant”) and its Board of Trustees (“Trustees”). Plaintiffs
seek a declaration pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, that the Order,

which enforced the Second Amended Liquidating Plan of Reorganization (the “Plan”) resolving
the dissolution of Chicago H&S Hotel Property, L.L.C. (“Chicago H&S”), releases Plaintiffs
from any withdrawal liability and enjoins the NRF from asserting any claim against Plaintiffs.
The NRF and Trustees bring a counterclaim against Plaintiffs and all other trades and businesses
under common control with Chicago H&S (“John Does 1-10”, and collectively with Plaintiffs,
the “Controlled Group”) seeking to collect withdrawal liability, interest, liquidated damages, and
attorneys’ fees and costs pursuant to ERISA.
RELEVANT FACTS1
Hotel 71 Lender is a Delaware limited liability company with its principal place of
business in Wilmington, Delaware. (R. 31, Def.’s Rule 56.1 Resp. ¶ 1.) Oaktree is a Delaware
limited partnership with its principal place of business in Los Angeles, California. (Id. ¶ 2.) The
NRF, formerly known as UNITE HERE National Retirement Fund, is a multi-employer pension
fund, jointly administered by union and employer trustees. (Id. ¶ 3.) The NRF is established and
maintained pursuant to Section 302(c)(5) of the Labor Management Relations Act, 29 U.S.C. §
186(c)(5), for the purpose of providing retirement and related benefits to eligible participants and
beneficiaries. (R. 40, Pls.’ Rule 56.1 Resp. ¶¶ 2, 4.) The Trustees are the plan sponsor of the
NRF. (Id. ¶ 3.)
A.

Purchase of Hotel 71

The Court takes the undisputed facts from the parties’ Local Rule 56.1 statements of material
facts. (R. 30, Plaintiffs/Counter Defendants’ Statement of Undisputed Material Facts (“Pls.’
Facts”); R. 31, Defendant/Counter Claimant’s Response to Plaintiffs/Counter Defendants’
Statement of Material Facts (“Def.’s Rule 56.1 Resp.”); R. 31, Defendant/Counter Claimant’s
Statement of Additional Facts (“Def.’s Add’l Facts”); R. 35, Defendant/Counter Claimant’s
Statement of Undisputed Material Facts (“Def.’s Facts”); R. 39, Plaintiffs/Counter Defendants’
Response to Defendant/Counter Claimant’s Statement of Additional Facts (“Pls.’ Resp. Add’l
Facts”); and R. 40, Plaintiffs/Counter Defendants’ Response to Defendant/Counter Claimants’
Statement of Undisputed Material Facts (“Pls.’ Rule 56.1 Resp.”).)
1

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In 2005, Chicago H&S purchased Hotel 71, a 40-story, 437-guestroom, full service hotel
located at 71 East Wacker Drive in Chicago, Illinois. (R. 31, Def.’s Rule 56.1 Resp. ¶ 7; R. 40,
Pls.’ Rule 56.1 Resp. ¶ 9.) Chicago H&S borrowed heavily to finance this acquisition, including
$100 million as a senior mortgage loan (the “Senior loan”), as well as a $27.3 million mezzanine
loan2 (the “Mezz loan”). (R. 31, Def.’s Rule 56.1 Resp. ¶ 8.) Oaktree, through Hotel 71 Lender,
provided financing for the Mezz loan. (Id. ¶ 9.) As the new owner of Hotel 71, Chicago H&S
became a party to several pre-existing collective bargaining agreements with union workers
employed at the hotel, including the Agreement Between Joint Chicago Executive Board Of The
Unite Here, Local 1 And Unite Here Local 450 And Chicago H&S Hotel Property, LLC (D/B/A
Hotel 71) (hereafter, the “CBA”). (Id. ¶ 10.) As part of the CBA, Chicago H&S was required to
make pension contributions on behalf of union employees to what was then the HEREIU
Pension Fund. (Id. ¶ 11.) The NRF is successor in interest to the HEREIU Pension Fund. (Id.)
B.

Chicago H&S Files for Bankruptcy

Chicago H&S eventually ran into financial difficulties, and in 2007, it defaulted on both
the Senior and Mezz loans. (Id. ¶ 12.) In October 2007, following the default, Hotel 71 Lender
acquired a 100% ownership interest in Chicago H&S through a Uniform Commercial Code
foreclosure sale in an effort to collect on its loan. (Id. ¶ 12; R. 40, Pls.’ Rule 56.1 Resp. ¶ 8.)
The parties dispute whether Oaktree owned or controlled Hotel 71 Lender, (R. 31, Def.’s Add’l
Facts ¶ B; R. 31-2, Ex. I, Chicago H&S’s Statement of Financial Affairs ¶ 21(b)), or simply
managed it, (R. 39, Pls.’ Resp. Add’l Facts ¶ B; R. 30-8, Ex. 7, Gibson Dunn Letter). On
October 29, 2007, Chicago H&S filed a Chapter 11 petition in the United States Bankruptcy
Mezzanine financing is debt capital that gives the lender the rights to convert to an ownership
or equity interest in the company if the loan is not paid back in time and in full. It is generally
subordinated to debt provided by senior lenders, such as banks and venture capital companies.
2

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Court for the Northern District of Illinois (the “Bankruptcy Court”). (R. 40, Pls.’ Rule 56.1
Resp. ¶ 12.) The NRF filed a proof of claim on February 15, 2008, for contingent withdrawal
liability in the event that Chicago H&S decided to withdraw from making its contributions to the
NRF. (Id. ¶ 13.)
C.

The Bankruptcy Proceedings and Plan

Chicago H&S filed a reorganization plan with the Bankruptcy Court on December 13,
2007, and amended the plan on March 17, 2008. (Id. ¶ 14.) Bankruptcy Judge Eugene R.
Wedoff held multiple hearings regarding the confirmation of the Plan during March 2008. (R.
39, Pls.’ Resp. Add’l Facts ¶¶ C-D.) On March 21, 2008, after multiple days of contested
hearings, the Bankruptcy Court approved the Plan. (R. 31, Def.’s Rule 56.1 Resp. ¶ 14.)
Section 13.1 of the Plan provides:
The distributions to be received by creditors, or contemplated, under this Plan are
in full and final satisfaction and settlement of any and all Claims arising in
connection with [Chicago H&S’s] Chapter 11 case that such creditors may have
against the Releasees, the Debtor’s estate, the estate assets and the assets
contemplated under this Plan to satisfy Claims, and all such claims are released.
For the avoidance of doubt, nothing in this section is intended, or shall be
construed, to release, modify or otherwise affect any direct claim or direct cause
of action that creditors have, or might have, against any third parties that arose
prior to the Petition Date.

(Id. ¶ 20; R. 30-1, Ex. A, Plan ¶ 13.1.) The Plan defines “Releasees” as “the Debtor, its current
owner and any officers, members and managers of its current owner, any professional retained
by the current owner, the Trustee, Canyon/Brickman, (except as to claims of the Trustee) the
Committee and any professional retained by the Committee.” (R. 31, Def.’s Rule 56.1 Resp. ¶
21; R. 30-1, Ex. A, Plan at 9.) Section 13.4 of the Plan provides an injunction barring claims
involving any matter released under Section 13.1:

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[A]ll holders of Claims shall be permanently enjoined from commencing or
continuing in any manner, any suit, action or other proceeding, on account of
any Claim, Interest, obligation, debt, right, cause of action, remedy or liability
released or to be released pursuant to the Plan[.]
(R. 31, Def.’s Rule 56.1 Resp. ¶ 22; R. 30-1, Ex. A, Plan ¶ 13.4.) Throughout Chicago H&S’s
bankruptcy case, the NRF received notice of: the sale of Hotel 71; the hearing to confirm the sale
of Hotel 71; the Plan; and the entry of the Order confirming the Plan. (R. 31, Def.’s Rule 56.1
Resp. ¶ 15.) The NRF did not object to any of the proposed reorganization plans, including the
Plan confirmed by the Bankruptcy Court. (Id. ¶ 16.)
In July 2008, pursuant to the Plan, the Bankruptcy Court approved the sale of Hotel 71 to
the holder of the Senior loan for approximately $105 million. (Id. ¶ 17.) The purchaser
expressly assumed liability for Chicago H&S’s collective bargaining agreements, including the
CBA, and continued to make all required pension contributions to the NRF. (Id. ¶ 25.) The
proceeds from the sale of Hotel 71 were used to pay various creditors, including the NRF. (Id. ¶
17.) Following the sale of Hotel 71, the NRF received distributions from the sale in the amounts
of $44,969.02 on June 21, 2011, and $23,974.38 on May 3, 2013. (R. 39, Pls.’ Resp. Add’l Facts
¶¶ Z-AA.)
Despite the fact that the purchaser of Hotel 71 assumed liability under the CBA, the NRF
filed a proof of claim in the bankruptcy case for withdrawal liability triggered by the sale of
Chicago H&S in the amount of $1,276,271.33. (R. 40, Pls.’ Rule 56.1 Resp. ¶ 22.) The Chicago
H&S bankruptcy estate contested the withdrawal liability claim. (R. 31, Def.’s Rule 56.1 Resp.
¶ 28.) In August 2009, after a series of negotiations, the NRF and Chicago H&S stipulated to
resolve all of the NRF’s claims, including its claim for withdrawal liability, by permitting the
NRF a single, general unsecured claim of $550,000. (Id.; R. 30-2, Ex. D, Stipulation.)
D.

NRF Asserts Withdrawal Liability Against Plaintiffs
5

On April 1, 2013, the NRF’s counsel sent to Hotel 71 Lender’s counsel a letter notifying
Hotel 71 Lender that it and all other trades or businesses under common control with Chicago
H&S (collectively, the “Controlled Group”) were liable for the unpaid portion of Chicago H&S’s
withdrawal liability and demanding payment of $2,169,754. (R. 31, Def.’s Rule 56.1 Resp. ¶ 29;
R. 30-3, Ex. 2, April 1, 2013 Letter.) The letter further notified Plaintiffs that the balance of the
liability was due and payable in 43 quarterly installments of $71,258.77, with the first payment
due on May 1, 2013, plus a final payment of $11,046.65. (R. 40, Pls.’ Rule 56.1 Resp. ¶ 22; R.
30-3, Ex. 2, April 1, 2013 Letter.) Plaintiffs’ counsel responded by letter on April 18, 2013,
asserting their position that Section 13.1 of the Plan released any alleged withdrawal liability
claim and that Section 13.4 of the Plan enjoined the NRF from taking any further action to
collect on its claim. (R. 31, Def.’s Rule 56.1 Resp. ¶ 31; R. 30-4, Ex. 3, April 18, 2013 Letter.)
In response, the NRF reasserted its claim and threatened to sue the Controlled Group pursuant to
Section 4219(a) of ERISA. (R. 30-5, Ex. 4, April 26, 2013 Letter.) In turn, Plaintiffs filed the
instant action seeking declaratory relief. (R. 1, Compl.)
PROCEDURAL HISTORY
Plaintiffs initiated this action on May 1, 2013. (Id.) Plaintiffs seek a declaration that
Section 13.1 of the Plan released any claim against Plaintiffs and all members of its controlled
group for withdrawal liability. (Id. at 9.) In addition, Plaintiffs seek a declaration that Section
13.4 of the Plan enjoins the NRF from asserting a withdrawal liability claim against Plaintiffs
and all members of its controlled group. (Id.) On May 28, 2013, the NRF answered Plaintiffs’
complaint and, adding Trustees as counter plaintiffs, filed a counterclaim alleging that Hotel 71
Lender and the Controlled Group are jointly and severally liable for withdrawal liability incurred
by Chicago H&S’s Chapter 11 reorganization. (R. 20, Def.’s Answer & Countercl. at 15-17.)

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On June 27, 2013, Plaintiffs moved for summary judgment. (R. 27, Pls.’ Mot. Summ. J.) The
NRF and Trustees filed a cross-motion for summary judgment on July 19, 2013. (R. 34, Def.’s
Mot. Summ. J.)
LEGAL STANDARD
Federal Rule of Civil Procedure 56 provides that “[t]he court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Summary judgment is
proper “‘if the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.’” Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)). In deciding a motion for summary
judgment, the Court does not evaluate the weight of the evidence, judge the credibility of the
witnesses, or determine the ultimate truth of the matter; instead, it is the function of the Court in
ruling on a motion for summary judgment to ascertain whether there exists a genuine issue of
triable fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). “A disputed fact is
‘material’ if it might affect the outcome of the suit under governing law.” Hampton v. Ford
Motor Co., 561 F.3d 709, 713 (7th Cir. 2009) (citing Anderson, 477 U.S. at 248). In determining
whether a genuine issue of material fact exists, the Court must view the evidence and draw all
reasonable inferences in favor of the non-movant. See Anderson, 477 U.S. at 255; Omnicare,
Inc. v. UnitedHealth Grp., Inc., 629 F.3d 697, 704 (7th Cir. 2011) (“Even on summary judgment,
district courts are not required to draw every requested inference; they must only draw
reasonable ones that are supported by the record.”).

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The movant has the initial burden of demonstrating that it is entitled to summary
judgment. Wheeler v. Lawson, 539 F.3d 629, 634 (7th Cir. 2008). The movant “can prevail just
by showing that the other party has no evidence on an issue on which that party has the burden
of proof.” Brazinski v. Amoco Petroleum Additives Co., 6 F.3d 1176, 1183 (7th Cir. 1993)
(citing Celotex, 477 U.S. at 325). Once the movant has met this burden, the non-movant must
set forth “specific facts demonstrating that there is a genuine issue for trial.” Wheeler, 539 F.3d
at 634 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)).
The non-movant may not rely on mere conclusions or allegations to create a genuinely disputed
issue of material fact. See Balderston v. Fairbanks Morse Engine Div. of Coltec Indus., 328 F.3d
309, 320 (7th Cir. 2003) (citing Anderson, 477 U.S. at 247-48). Nor can mere speculation “be
used to manufacture a genuine issue of fact.” Springer v. Durflinger, 518 F.3d 479, 484 (7th Cir.
2008) (quoting Amadio v. Ford Motor Co., 238 F.3d 919, 927 (7th Cir. 2001)). In order to
defeat a motion for summary judgment, the non-movant “must make a showing sufficient to
establish any essential element of [its] cause of action for which [it] will bear the burden of
persuasion at trial.” Smith ex rel. Smith v. Severn, 129 F.3d 419, 425 (7th Cir. 1997). “The
existence of a mere scintilla of evidence, however, is insufficient to fulfill this requirement. The
nonmoving party must show that there is evidence upon which a jury reasonably could find for
[him].” Wheeler, 539 F.3d at 634 (internal citation omitted). On cross-motions for summary
judgment, each movant must satisfy the requirements of Federal Rule of Civil Procedure 56. See
Cont’l Cas. Co. v. Nw. Nat’l Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005).
ANALYSIS
I.

Availability of Declaratory Judgment

8

As a preliminary matter, the Court addresses a threshold issue regarding Plaintiffs’
request for declaratory relief. The Declaratory Judgment Act (the “DJA”) authorizes a federal
court, “[i]n a case of actual controversy within its jurisdiction,” to “declare the rights and other
legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). The DJA
does not confer subject matter jurisdiction, and therefore the Court must “possess an independent
basis for jurisdiction.” GNB Battery Techs., Inc. v. Gould, Inc., 65 F.3d 615, 619 (7th Cir.
1995). Here, Plaintiffs request a declaratory judgment that the injunction entered under the Plan
and Order prevents the NRF from pursuing their withdrawal liability claims against them. (R. 1,
Compl. at 9.) The Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. §
1334(a), which provides that federal district courts have “original and exclusive jurisdiction” of
all cases under title 11 of the United States Code (the “Bankruptcy Code”). The Court is thus
satisfied that it possesses an independent basis for jurisdiction over the case.
The DJA’s “actual controversy” requirement is equivalent to Article III’s case-orcontroversy requirement. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). To
determine whether a declaratory judgment action satisfies the Article III case-or-controversy
requirement, the court must inquire as to “whether the facts alleged, under all the circumstances,
show that there is a substantial controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Id. (quoting
Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)). A court cannot enter a
declaratory judgment unless its ruling will provide specific relief which binds the parties or
alters the legal relationship between them. Deveraux v. City of Chi., 14 F.3d 328, 331 (7th Cir.
1994) (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937)). “[A] party
seeking a declaratory judgment has the burden of establishing the existence of an actual case or

9

controversy.” Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 95 (1993) (citing Aetna
Life Ins., 300 U.S. at 240-41). Additionally, the controversy must have existed at the time the
complaint was filed. Super Prods. Corp. v. D P Way Corp., 546 F.2d 748, 752 (7th Cir. 1976)
(citing Am. Needle & Novelty Co. v. Schuessler Knitting Mills, Inc., 379 F.2d 376 (7th Cir.
1967)).
Here, it is clear that a substantial controversy exists as to whether the Plan releases
Plaintiffs from owing the NRF any withdrawal liability and enjoins the NRF from asserting any
such claim. In addition, the controversy is immediate, as the NRF has already asserted its claim
for $2,169,754 in withdrawal liability it claims was triggered by the July 2008 sale of Chicago
H&S. (R. 30-3, Ex. 2, April 1, 2013 Letter.) Even after Plaintiffs’ counsel replied to the NRF’s
demand letter explaining its legal position and requesting that the NRF revoke its claim, (R. 304, Ex. 3, April 18, 2013 Letter), the NRF reasserted its claim and threatened to sue Plaintiffs and
its Controlled Group, (R. 30-5, Ex. 4, April 26, 2013 Letter). The parties demonstrate adverse
legal interests, as Plaintiffs seek a declaration that the Plan releases them from withdrawal
liability, and the NRF’s and Trustees’ countersuit claims that it is entitled to withdrawal liability.
The parties’ suit does not call “for an advisory opinion upon a hypothetical basis, but for an
adjudication of present right upon established facts.” Aetna Life Ins., 300 U.S. at 242. The
Court’s resolution of the controversy will also bind the parties by clarifying the requirements
imposed by the Plan and the Order. Neither party disputes that a substantial, immediate
controversy sufficient to warrant a declaratory judgment exists in this case. Accordingly, the
Court is satisfied that this case presents an actual case or controversy as required by the DJA.
II.

Whether the NRF and Trustees are Entitled to Summary Judgment

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The NRF and Trustees move for summary judgment seeking that Hotel 71 Lender be
held jointly and severally liable under ERISA for Chicago H&S’s withdrawal liability.3 (R. 34,
Def.’s Mot. Summ. J.) Plaintiffs contend that Hotel 71 Lender is not a trade or business, and
therefore it cannot be subject to any withdrawal liability claim. (R. 38, Pls.’ Reply at 9.)
Alternatively, Plaintiffs argue that the NRF and Trustees have not demonstrated that Chicago
H&S actually incurred withdrawal liability as a result of its Chapter 11 sale. (R. 38, Pls.’ Reply
at 10.)
Under ERISA, the Pension Benefit Guaranty Corporation (“PBGC”), a government
corporation, protects covered employees by insuring their benefits against insolvency or
termination of their pension funds. Cent. States Se. & Sw. Areas Pension Fund v. Messina
Prods., LLC, 706 F.3d 874, 878 (7th Cir. 2013). Prior to the 1980s, ERISA’s contingent liability
provisions provided employers “a perverse incentive to withdraw from financially weak
The NRF and Trustees bring a counterclaim against Hotel 71 Lender, Oaktree, and John Does
1-10. In their pleadings, however, the NRF and Trustees fail to offer any argument or evidence
as to Oaktree or John Does 1-10’s withdrawal liability, and instead discuss only Hotel 71
Lender’s withdrawal liability. (R. 36, Def.’s Mem. Summ. J. at 7-13.) The Seventh Circuit
“[has] repeatedly warned that perfunctory and undeveloped arguments, and arguments that are
unsupported by pertinent authority, are waived.” United States v. Useni, 516 F.3d 634, 658 (7th
Cir. 2008) (quoting United States v. Holm, 326 F.3d 872, 877 (7th Cir. 2003)). Further, the NRF
and Trustees have neither provided the Court any indication as to the identities of John Does 110 nor mentioned them in any pleadings aside from the complaint. “[I]t is not this court’s
responsibility to research and construct the parties’ arguments, and conclusory analysis will be
construed as waiver.” Gross v. Town of Cicero, Ill., 619 F.3d 697, 704 (7th Cir. 2010) (quoting
APS Sports Collectibles, Inc. v. Sports Time, Inc., 299 F.3d 624, 631 (7th Cir. 2002). The NRF
and Trustees have thus waived their argument that Oaktree and John Does 1- 10 are jointly and
severally liable for Chicago H&S’s withdrawal liability. See Palmer v. Marion Cnty., 327 F.3d
588, 597-98 (7th Cir. 2003) (deeming the plaintiff’s negligence claim abandoned because he
failed to delineate it in his brief in opposition to summary judgment); Donelson v. City of Chi.,
272 F. Supp. 2d 717, 726 (N.D. Ill. 2003) (finding that the plaintiff abandoned her claim because
she provided no legal argument in support of her claim and because she made no serious effort to
respond to the defendant's arguments); Oak Brook Hotel Co. v. Teachers Ins. & Annuity Ass’n of
Am., 846 F. Supp. 634, 641 (N.D. Ill. 1994) (finding the plaintiff’s failure to defend a particular
claim in response to the defendant’s motion for summary judgment constituted abandonment of
the claim). Accordingly, the Court will only address Hotel 71 Lender’s alleged withdrawal
liability.
3

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multiemployer plans to avoid liability in the event the plan terminated in the future.” Id. “As a
result, the PBGC reported to Congress that the premiums paid to it were insufficient to cover its
expected future liabilities.” McDougall v. Pioneer Ranch Ltd. P’ship, 494 F.3d 571, 574 (7th
Cir. 2007). To counteract the incentive for voluntary withdrawals, the Multiemployer Pension
Plan Amendments Act of 1980 (“MPPAA”), 29 U.S.C. §§ 1381-1461, amended ERISA by
imposing mandatory liability on all withdrawing employers for their proportionate shares of
“unfunded vested benefits.” Id. (quoting 29 U.S.C. § 1381). But Congress went further,
including in the MPPAA a provision that all “‘trades or businesses’ under ‘common control’
with the withdrawing employer are treated as a single entity for purposes of assessing and
collecting withdrawal liability. Messina Prods., 706 F.3d at 878 (citing 29 U.S.C. § 1301(b)(1);
Cent. States, Se. & Sw. Areas Pension Fund v. Neiman, 285 F.3d 587, 594 (7th Cir. 2002).
“Each trade or business found to be under common control is jointly and severally liable for any
withdrawal liability of any other.” Id. The purpose of the “common control” provision is “to
prevent businesses from shirking their ERISA obligations by fractionalizing operations into
many separate entities . . . .” Id. (quoting Cent. States, Se.& Sw. Areas Pension Fund v. White,
258 F.3d 636, 644 (7th Cir. 2001)). To impose withdrawal liability on an organization other than
the one originally obligated to the pension fund, “two conditions must be satisfied: (1) the
organization must be under common control with the obligated corporation; and (2) it must be a
trade or business.” Cent. States, Se. & Sw. Areas Pension Fund v. Fulkerson, 238 F.3d 891, 89495 (7th Cir. 2001).
The present dispute hinges on whether Hotel 71 Lender is properly designated as a “trade
or business under common control” with Chicago H&S within the meaning of the MPPAA. If
Hotel 71 Lender is not a trade or business under common control with Chicago H&S, then there

12

can be no withdrawal liability asserted against it, and the Court must deny the NRF’s and
Trustees’ motion for summary judgment. Accordingly, the Court begins its analysis by
determining whether Hotel 71 Lender is a “trade or business under common control” with
Chicago H&S.
A.

Whether Hotel 71 Lender is Under Common Control with Chicago H&S

The MPPAA’s definition of “common control” is derived from the regulations
promulgated under section 414(c) of the Internal Revenue Code. SCOFBP, 668 F.3d at 880
(citing 29 U.S.C. § 1301(b)(1)). The regulations provide for three methods of common
control—a parent-subsidiary group, a brother-sister group, or a “combined” group consisting of
both parent-subsidiary and brother-sister relationships. Id. (citing 26 C.F.R. § 1.414(c)-2(a)). A
parent-subsidiary group exists when a parent owns a “controlling interest” in the relevant
subsidiary organizations, which is defined as at least 80% ownership. Id. (citing 26 C.F.R. §
1.414(c)–2(b)(2). Both parties admit that at the time of the Chicago H&S sale Hotel 71 Lender
held a 100% ownership interest in Chicago H&S. (R. 35, Def.’s Facts ¶¶ 19, 20; R. 40,
Plaintiffs’ Rule 56.1 Resp. ¶¶ 19, 20.) Therefore, the Court finds that Hotel 71 Lender was in
common control with Chicago H&S.
B.

Whether Hotel 71 Lender is a Trade or Business

The Court next considers whether Hotel 71 Lender is a trade or business under the
MPPAA. Plaintiffs dispute the NRF’s and Trustees’ designation of Hotel 71 Lender as a trade or
business and contend that such a designation is a question of fact that cannot be resolved on
summary judgment. (R. 38, Pls.’ Reply at 9.)
In Central States, Southeast and Southwest Areas Pension Fund v. Slotky, 956 F.2d 1369,
1374 (7th Cir. 1992), the Seventh Circuit held that although the question of whether or not an

13

enterprise is a trade or business is not ordinarily resolved on summary judgment, delaying
judgment does not “make much sense in a case in which the only ‘factual’ issue is one of
characterization . . . and the opponent of summary judgment claims no right to a jury trial.” In
this instance, “both the record and the fact finder are the same in the summary judgment
proceeding as they would be in a trial,” and therefore, “the formally ‘factual’ dispute is properly
resolved on summary judgment.” Id. (citing Dimmitt & Owens Fin., Inc. v. United States, 787
F.2d 1186, 1192 (7th Cir. 1986); May v. Evansville–Vanderburgh Sch. Corp., 787 F.2d 1105,
1116 (7th Cir. 1986); see also McDougall, 494 F.3d at 578 (affirming the district court’s
decision on summary judgment that a partnership was a trade or business under the MPPAA).
Here, as in Slotky, the only “factual” dispute is over the NRF’s characterization of Hotel 71
Lender as trades or businesses. In addition, neither party has requested a jury trial. In fact, there
is no jury trial right in ERISA actions. See McDougall, 494 F.3d at 576 (“The general rule in
ERISA cases is that there is no right to a jury trial because ‘ERISA’s antecedents are equitable,’
not legal.” (quoting Mathews v. Sears Pension Plan, 144 F.3d 461, 468 (7th Cir. 1998))).
Therefore, the Court may properly decide this issue on summary judgment.
Although the MPPAA does not define “trade or business,” the Seventh Circuit has
adopted the test established in Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23,
35 (1987), to determine whether an enterprise constitutes a trade or business. Id. at 577. Under
the Groetzinger test, the Court must consider whether the organization engaged in an activity (1)
with continuity and regularity and (2) for the primary purpose of income or profit. Id. (citing
Groetzinger, 480 U.S. at 35). “One purpose of the Groetzinger test is to distinguish trades or
businesses from passive investments, which cannot form a basis for imputing withdrawal
liability under section 1301(b)(1).” Messina Prods., 706 F.3d at 878; see also Fulkerson, 238

14

F.3d at 896 (“Given the prevalence of investing, permitting the holding of investments . . .
without more to be considered regular and continuous activity would eviscerate the limitations
placed in the text of § 1301(b)(1).”).
The NRF and Trustees argue that Hotel 71 Lender is a trade or business due to its
controlling interest in Chicago H&S. (R. 36, Def.’s Mem. Summ. J. at 8.) As discussed above, a
passive investment is insufficient to establish that an entity is a trade or business. The Seventh
Circuit has held that creating a formal business entity, having employees, and claiming business
exemptions and deductions, indicates the existence of a trade or business. McDougall, 494 F.3d
at 577–78. But personal investments, such as stocks, commodities, leases, or something else,
without more is the hallmark of an investment.” Fulkerson, 238 F.3d at 895. Despite being
formal business entities, the factual record is devoid of any facts indicating that Plaintiffs have a
trade or business under the MPPAA. Based on the facts the parties present, the Court can only
conclude that the relationship between Hotel 71 Lender and Chicago H&S is one of a “passive
investment.” Accordingly, the Court concludes that Hotel 71 Lender is not a trade or business.
To prevail on their motion, the NRF and Trustees must demonstrate that Hotel 71 Lender
is a trade or business under common control with Chicago H&S. See Messina Prods., 706 F.3d
at 878. They have the burden of proving that the undisputed facts entitle them to judgment as a
matter of law. See Fed. R. Civ. P. 56(a). Because the NRF and Trustees have failed to prove
that Hotel 71 Lender is a trade or business, the Court cannot find that it is jointly and severally
liable with Chicago H&S’s Controlled Group. Likewise, the Court has already established that
Oaktree and John Does 1-10 are not jointly or severally liable, as the NRF and Trustees have
waived their argument as to their liability. In addition, the Court must deny the NRF and
Trustees’ request for mandatory add-ons under Section 502(g) of ERISA, including liquidated

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damages, attorneys’ fees and costs, as these are only granted in successful ERISA suits. See
Slotky, 956 F.2d at 1377. Consequently, the Court denies the NRF and Trustees’ motion for
summary judgment.
Having resolved the NRF’s and Trustees’ motion, the Court now turns to Plaintiffs’
motion for summary judgment.
III.

Whether Plaintiffs are Entitled to Summary Judgment
Plaintiffs contend that Section 13.1 of the Plan releases the NRF’s withdrawal liability

claim. (R. 28, Pls.’ Mem. at 8.) Plaintiffs further argue that Section 13.4 of the Plan enjoins the
NRF from asserting any claim against them. (Id.) In an effort to avoid this finding, the NRF
asserts various arguments. Specifically, the NRF contends that the Plan does not release thirdparty claims, and if it did, the Plan would be unenforceable under both ERISA and Seventh
Circuit precedent. (R. 32, Def.’s Mem. Opp’n Summ. J. at 8-13.) Having already decided that
Plaintiffs and John Does 1-10 are not jointly and severally liable for Chicago H&S’s withdrawal
liability, however, the Court need not address the parties’ arguments as to this motion. The
Court has declared the rights of the parties, and declines to go any further in resolving this
declaratory judgment. The Seventh Circuit has provided guidance under these circumstances,
holding that “a district court should not grant declaratory relief unless there is an actual,
‘substantial controversy, between parties having adverse legal interests, of sufficient immediacy
and reality to warrant the issuance of a declaratory judgment.’” NUCOR Corp. v. Aceros Y
Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 577 (quoting Md. Cas. Co., 312 U.S. at 273).
The Court has resolved the substantial controversy by deciding the withdrawal liability issue,
and it finds no other live controversy in this dispute to warrant declaratory relief. Accordingly,
the Court grants Plaintiffs’ motion with respect to the issue of withdrawal liability.

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CONCLUSION
For the foregoing reasons, the NRF’s and Trustees’ motion for summary judgment (R. 34) is
DENIED. Plaintiffs’ motion for summary judgment (R 27) is GRANTED with respect to the
withdrawal liability issue. The Clerk of the Court is directed to enter a declaratory judgment in
favor of Plaintiffs only to the extent stated in this opinion.
ENTERED:

Chief Judge Rubén Castillo
United States District Court

Dated: March 3, 2014

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