Hotel 71 Mezz Lender LLC v. National Retirement Fund
778 F.3d 593
7th Cir.2015Background
- NRF seeks withdrawal liability from Mezz Lender and Oaktree for H&S's Chicago Hotel 71; Mezz Lender financed acquisition and later owned H&S.
- H&S defaulted in 2007; Mezz Lender foreclosed and placed H&S in bankruptcy; plan approved March 2008.
- Bankruptcy plan sold assets to H&S's senior lender; plan releases scope defined in sections 13.1 and 13.4.
- NRF argued plan releases barred withdrawal liability against Oaktree/Mezz Lender; NRF had a general unsecured claim settled for ~$550k.
- District court granted partial summary judgment for Oaktree on withdrawal liability; NRF moved to reconsider; court denied.
- On appeal, court vacates and remands for proper consideration of trade-or-business issue and procedural safeguards.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mezz Lender is a trade or business for withdrawal liability | NRF contends Groetzinger test applies; Mezz Lender engaged in activity generating income | Mezz Lender is passive investment; no ongoing business operation | Not free from doubt; remand to develop facts on trade-or-business status |
| Whether bankruptcy plan releases bar NRF from withdrawal liability against Oaktree/Mezz Lender | NRF argues plan releases do not apply to withdrawal liability | Plan bars withdrawal liability against Releasees | Not decided; remand for district court to address merits consistent with this opinion |
| Whether district court erred in sua sponte grant of summary judgment | NRF entitled to notice and opportunity to respond to sua sponte judgment | Court could grant on own motion under Rule 56(f) | Error; vacate for proper notice and procedure |
| Whether NRF waived claims against Oaktree/John Does by focusing on Mezz Lender | NRF reserved counterclaims; no waiver of Oaktree/John Does | Waiver found; NRF failed to oppose for those defendants | Waiver not established; not limited to Mezz Lender; remand on merits |
Key Cases Cited
- Groetzinger, 480 U.S. 23 (U.S. 1987) (test for trade or business includes continuity and profit motive)
- Cent. States Se. & Sw. Areas Pension Fund v. Messina Prods., LLC, 706 F.3d 874 (7th Cir. 2013) (test to distinguish trades or businesses from passive investments)
- Neiman, 285 F.3d 587 (7th Cir. 2002) (subsidiary facts determine trade-or-business status)
- Slotky, 956 F.2d 1369 (7th Cir. 1992) (analysis of trade-or-business questions; not dispositive on its own)
- McDougall v. Pioneer Ranch Ltd. Partnership, 494 F.3d 571 (7th Cir. 2007) (reviewing summary-judgment on trade-or-business issues; subsidiary facts matter)
- CLP Venture LLC, 760 F.3d 745 (7th Cir. 2014) (formal business organization often a trade or business for Groetzinger test)
- Central States, Se. & Sw. Areas Pension Fund v. SCOFBP, LLC, 668 F.3d 873 (7th Cir. 2011) (formal business presence; continuity and profit orientation relevant)