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Hotel 71 Mezz Lender LLC v. Nat'l Retirement Fund

United States District Court, N.D. Illinois, Eastern Division

March 3, 2014

HOTEL 71 MEZZ LENDER LLC and OAKTREE CAPITAL MANAGEMENT, L.P., Plaintiffs,
v.
THE NATIONAL RETIREMENT FUND, 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

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[Copyrighted Material Omitted]

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For Hotel 71 Mezz Lender LLC, a Delaware limited liability company, Oaktree Capital Management, L.P., a Delaware limited liability company, Plaintiffs, Counter Defendants: Christopher B. Wilson, LEAD ATTORNEY, Perkins Coie LLC, Chicago, IL; Kathleen A. Stetsko, Daniel Arlen Zazove, Perkins Coie LLP, Chicago, IL.

For The National Retirement Fund, Defendant: Jaimie Caren Davis, PRO HAC VICE, Schulte Roth & Zabel LLP, New York, NY; Jeremy Michael Barr, Michele M. Reynolds, Dowd Bloch & Bennett, Chicago, IL; Ronald E. Richman, PRO HAC VICE, Schulte Roth & Zabel, LLP (NY), New York, NY.

For The National Retirement Fund, Counter Claimant: Jaimie Caren Davis, Schulte Roth & Zabel LLP, New York, NY; Jeremy Michael Barr, Michele M. Reynolds, Dowd Bloch & Bennett, Chicago, IL; Ronald E. Richman, Schulte Roth & Zabel, LLP (NY), New York, NY.

OPINION

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MEMORANDUM OPINION AND ORDER

Rubé n Castillo, Chief United States District Judge.

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 FACTS [1]

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

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 loan [2] (the " Mezz loan" ). (R. 31, Def.'s Rule 56.1 Resp. ¶ 8.) Oaktree, through

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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 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 ...


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