Hotel 71 Mezz Lender LLC v. National Retirement FundHotel 71 Mezz Lender LLC v. National Retirement Fund
Holly H. Weiss, Attorney, Ronald E. Richamn, Schulte, Roth & Zabel, New York, NY, Jeremy M. Barr, Attorney, Dowd, Bloch & Bennett, Chicago, IL, for Defendant-Appellant.
Before BAUER, ROVNER, and TINDER, Circuit Judges.
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“),
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
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
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 enjoins any effort to pursue the claims released by section 13.1. Mezz Lender and Oaktree read these provisions as releasing them
Mezz Lender and Oaktree (which we will refer to collectively as the “Oaktree parties“) filed suit in the district court seeking a declaratory judgment that the reorganization plan released any claim of withdrawal liability arising from H & S‘s actions in the Chapter 11 proceeding, including the sale of its assets, and enjoined NRF from pursuing any claim of withdrawal liability against either Oaktree or Mezz Lender. NRF answered the complaint and in turn filed counterclaims against Mezz Lender, Oaktree, and John Does 1-10—the latter representing anyone else in H & S‘s controlled group—asserting that each was jointly and severally liable for withdrawal liability.
When the parties appeared before the district court to address the Oaktree parties’ request for a preliminary injunction against NRF—which the Oaktree parties ultimately withdrew—counsel indicated to the court that they believed that the case could be promptly resolved by way of cross-motions for summary judgment, and neither side indicated that discovery was necessary in order to present those motions. The district court accordingly set a briefing schedule, and the parties pursued their respective positions in their cross-motions.
The Oaktree parties contended in their motion that the release and injunction provisions of the reorganization plan barred NRF from pursuing any claim of withdrawal liability against them. NRF, in response, contended that those provisions did not apply to its claims of withdrawal liability; and, in its own cross-motion for summary judgment against Mezz Lender,2 NRF affirmatively contended that Mezz Lender was in fact responsible for withdrawal liability because, inter alia, it was a trade or business under common control with H & S. Its summary judgment memorandum, however, focused on the common-control question and the procedural requirements for asserting withdrawal liability and passed over in silence the legal criteria for identifying a trade or business on which such liability may be imposed and made no argument as to why Mezz Lender constituted such a trade or business. See R. 36 at 8-9.3 Mezz Lender itself did not seek summary judgment on this point; rather, it contended that “the record [was] rife with factual issues which preclude[d] the Court from entering summary judgment in favor of NRF” on the withdrawal liability claim. R. 38 at 9. In particular, Mezz Lender emphasized that whether it constituted a trade or business for purposes of withdrawal liability was a fact-bound question, that NRF had yet to make a case for the notion that Mezz Lender qualified as a trade or business, and that, consequently, it was premature for the court to render a judgment on this question. R. 38 at 9; see also 9 F.Supp.3d at 873 (acknowledging Mezz Lender‘s position).
The court turned, then, to the question of whether Mezz Lender was appropriately characterized as a “trade or business” for that purpose. Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23, 35 (1987), instructs a court to consider whether the entity in question engaged in activity (1) with continuity and regularity and (2) principally in order to generate income or profit. See 9 F.Supp.3d at 873 (noting these criteria).4 A key function of the Groetzinger test, as we recognized in Cent. States Se. & Sw. Areas Pension Fund v. Messina Prods., LLC, 706 F.3d 874, 878 (7th Cir.2013), “is to distinguish trades or businesses from passive investments, which cannot form a basis for imputing withdrawal liability under section 1301(b)(1).” Whether a particular enterprise constitutes a trade or business that is subject to withdrawal liability, or a passive investment that is not, amounts to a question of fact. See Cent. States, Se. & Sw. Areas Pension Fund v. Neiman, 285 F.3d 587, 593-94 (7th Cir.2002); Cent. States, Se. & Sw. Areas Pension Fund v. Slotky, 956 F.2d 1369, 1373 (7th Cir.1992); see also McDougall v. Pioneer Ranch Ltd. Partnership, 494 F.3d 571, 575-76, 578 (7th Cir.2007) (reviewing summary-judgment finding that defendant constituted a trade or business for clear error), and id. at 578 (Cudahy, J., concurring in the judgment) (agreeing district court‘s finding was not clearly erroneous, but noting that the subsidiary facts would also support a contrary finding). A variety of factors bear on this question, among them “the purpose, tax status, and legal form of the enterprise.” Cent. States, Se. & Sw. Areas Pension Fund v. CLP Venture LLC, 760 F.3d 745, 749 (7th Cir.2014), cert. denied, --- U.S. ---, 135 S.Ct. 964, 190 L.Ed.2d 834, 2015 WL 133005 (U.S. Jan. 12, 2015). The proper characterization of the enterprise turns on the specific (subsidiary) facts of the case, see Neiman, 285 F.3d at 593-94 (quoting Groetzinger, 480 U.S. at 36), with no one factor alone being dispositive, Sun Capital Partners III, L.P. v. New England Teamsters & Trucking Indus. Pension Fund, 724 F.3d 129, 141-42 (1st Cir.2013), cert. denied, --- U.S. ---, 134 S.Ct. 1492, 188 L.Ed.2d 388 (2014).
As we have noted, NRF‘s motion all but ignored this issue. Apparently thinking that there was no doubt that Mezz Lender constituted a trade or business, its motion and supporting memorandum did not mention the Groetzinger test, let alone apply that test to the evidence.
The court, confronted with a minimal record which established only that Mezz Lender was a limited liability corporation which extended financing for the acquisition of a hotel by H & S and ultimately acquired complete ownership of H & S in a UCC foreclosure sale, concluded that NRF had not carried its burden on this issue. The record was “devoid of any facts indicating that [Mezz Lender] [has] a trade or business under MPPAA.” 9 F.Supp.3d at 874. This was reason to deny NRF‘s motion for summary judgment, which the court indicated it was doing. Id. But the court also made the following declaration: “Based on the facts the parties present, the Court can only conclude that the relationship between [Mezz] Lender and Chicago H & S is one of a ‘passive investment.‘” Id. Rather than a determination that there was an unresolved dispute of fact as to whether Mezz Lender was engaged in trade or business activity when it helped finance H & S‘s acquisition of Hotel 71 and later assumed ownership of H & S when it defaulted on the loan, that sentence reads like a final determination that the financing was merely a passive investment which precluded the imposition of withdrawal liability on Mezz Lender. All doubt on that score was eliminated by the court‘s ensuing discussion of the Oaktree parties’ own motion for summary judgment.
The court found it unnecessary to consider whether, as the Oaktree parties contended, the bankruptcy reorganization plan precluded NRF‘s withdrawal liability claim:
Having already decided that [Oaktree, Mezz Lender,] and John Does 1-10 are not jointly and severally liable for Chicago H & S‘s withdrawal liability, ... the Court need not address the parties’ arguments as to [the Oaktree parties‘] motion. The Court has declared the rights of the parties, and declines to go any further in resolving this declaratory judgment.... 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 [the Oaktree parties‘] motion with respect to the issue of withdrawal liability.
NRF filed a timely motion to alter or amend the judgment pursuant to
After a brief hearing, the court denied the motion to reconsider, precipitating this appeal.
II.
We review the district court‘s grant of summary judgment to the Oaktree parties de novo. E.g., Stable Inv. Partnership v. Vilsack, 775 F.3d 910, 915-16, 2015 WL 55466, at *5 (7th Cir. Jan. 5, 2015). For the reasons that follow, we conclude that the district court erred in granting summary judgment to the Oaktree parties. However deficient NRF‘s motion was with respect to Mezz Lender‘s status as a trade or business, the deficiency did not warrant the entry of summary judgment against NRF on that issue, absent NRF first being given notice and a chance to present evidence showing that there was a material dispute of fact on that question precluding summary judgment. We could sustain the entry of summary judgment if it were clear beyond dispute that Mezz Lender was not a trade a business, which is partly what the Oaktree parties argue in defense of the judgment. But we conclude, to the contrary, that the issue is not free from doubt.
A motion for summary judgment is a contention that the material facts are undisputed and the movant is entitled to judgment as a matter of law. See
This is how we read the district court‘s assessment of NRF‘s motion for summary judgment. Essentially, the court said that the few facts disclosed by NRF‘s motion were insufficient to establish that Mezz Lender was a trade or business as opposed to a passive investment for purposes of withdrawal liability. For that reason, the court indicated that it was denying NRF‘s motion. 9 F.Supp.3d at 874. There can be no quarrel with that aspect of the district court‘s ruling. NRF, as we have said, did not even cite the standard for determining whether Mezz Lender is a trade or business let alone apply that standard to the record facts.
But saying that one party is not entitled to summary judgment is not to say that its opponent necessarily is. The denial of a motion for summary judgment reflects the court‘s judgment that one or more material facts are disputed or that the facts relied on by the motion do not entitle the movant to judgment as a matter of law. An insufficiently supported request for summary judgment, like NRF‘s, may leave room for a contention that the undisputed facts warrant judgment in favor of the non-movant, but the merits of such a contention demand independent analysis.
The Oaktree parties could have, but did not, seek summary judgment on the merits of NRF‘s claim for withdrawal liability on the ground, inter alia, that Mezz Lender did not constitute a trade or business. Instead, they pursued summary judgment on an entirely different ground, namely that sections 13.1 and 13.4 of the bankruptcy reorganization plan barred NRF from pursuing the withdrawal liability claim against them, whatever the merits of that claim might be. All that the Oaktree parties had to say with respect to whether or not Mezz Lender constituted a trade or business was that factual disputes abounded on that issue, rendering it inappropriate for the court to resolve the question on summary judgment.
Without a complete explanation, however, the district court treated its decision that NRF had failed to show that Mezz Lender was a trade or business not as a decision that this issue would have to be resolved by way of a trial, but rather as a final, dispositive finding that Mezz Lender was, as a matter of law, not a trade or business but rather a passive investment exempt from the imposition of withdrawal liability. 9 F.Supp.3d at 874. Because, as we have said, the Oaktree Parties did not ask the court to make that finding on summary judgment, the district court‘s order can be interpreted in one of two ways. Either the court equated the denial of NRF‘s motion for summary judgment by itself as warranting a grant of summary judgment to Mezz Lender, or the court implicitly concluded on its own motion that the undisputed facts entitled Mezz Lender to summary judgment although Mezz Lender had not asked for summary judgment on that ground. Whichever understanding of the district court‘s order is accurate, the court granted summary judgment to the Oaktree parties in error.
The first possibility misconceives the nature of the summary judgment process. A motion for summary judgment is not an invitation to summarily resolve the case for or against the movant based on the paper record. Put another way, it is not a waiver of the movant‘s right to a trial—or to argue that factual disputes warrant a trial—in the event the court finds the motion wanting. A summary judgment motion represents a contention that the facts recited therein warrant judgment in the movant‘s favor, nothing more. See Goldstein v. Fidelity & Guar. Ins. Underwriters, Inc., 86 F.3d 749, 750-51 (7th Cir.1996); Market Street Assocs. Ltd. Partnership v. Frey, 941 F.2d 588, 590 (7th Cir.1991); Zook v. Brown, 748 F.2d 1161, 1166 (7th Cir.1984); 10A Charles A. Wright, Arthur R. Miller, & Mary K. Kane, Fed. Practice & Proc. § 2720, 332-34 (3d ed.1998). It is not a concession that the same facts might warrant judgment against the movant, or that the movant could marshal no additional evidence or arguments in opposition to the prospect of such an adverse judgment. A court may think the motion insufficiently supported, blind to outstanding disputes of fact, or off-base on the relevant legal principles. These are grounds for denying the motion. But denying the motion normally will leave the movant in essentially the same position, procedurally, that it would have been in had it not requested summary judgment in the first instance. If the court moves on to entertain the prospect of entering summary judgment against the unsuccessful movant, whether in response to a cross-motion for summary judgment or on its own initiative, then the court must be mindful of its obligation to adopt what Judge Shadur aptly characterizes as a dual, “Janus-like” perspective. See, e.g., Shiner v. Turnoy, 29 F.Supp.3d 1156, 1160 (N.D.Ill.2014). That is, the court must now grant the unsuccessful movant all of the favorable factual inferences that it has just given to the movant‘s opponent. See R.J. Corman Derailment Servs., LLC v. Int‘l Union of Operating Engrs., Local Union 150, AFL-CIO, 335 F.3d 643, 647-48 (7th Cir.2003).5 Only if the court can say, on that sympathetic reading of the record, that no finder of fact could reasonably rule in the unsuccessful movant‘s favor may the court properly enter summary judgment against that movant. E.g., O‘Leary v. Accretive Health, Inc., 657 F.3d 625, 630 (7th Cir.2011).
The second possibility is one we alluded to a moment ago: that, having considered and denied NRF‘s motion for summary judgment, the court was convinced that the material, undisputed facts and the law warranted entry of summary judgment against NRF on the merits of its withdrawal liability claim, notwithstanding the lack of a cross-motion from the Oaktree parties on that claim. A court does have the authority to enter summary judgment on its own motion.
As the district court recognized, there are cases in which the parties are in agreement (or it is otherwise clear) as to what the relevant facts are, and the only dispute is over how those facts are to be characterized. When such cases present claims as to which there is no right to a jury trial (or the party opposing summary judgment against whom summary judgment is contemplated has not asked for one), placing the judge in the role of factfinder, it may be appropriate for the court
The court failed to give NRF the opportunity to present evidence beyond that cited in its own unsuccessful motion for summary judgment to show why a factfinder nonetheless could find in its favor on the question of whether Mezz Lender constitutes a trade or business for purposes of withdrawal liability. It goes without saying that the court did not think that the facts on which NRF had based its motion were sufficient to establish that Mezz Lender was something more than a passive investment. But that does not rule out the possibility that NRF, given the chance, could have produced additional facts which might permit a factfinder to conclude that Mezz Lender was a trade or business. Moreover, given that the parties had filed their respective summary judgment motions without first engaging in discovery, NRF might have asked the court for leave to pursue additional evidence before the court decided whether Mezz Lender itself was entitled to summary judgment on this point.
This error could be deemed harmless if we were convinced that NRF had no reasonable case to make for the notion that Mezz Lender was a trade or business. See, e.g., Goldstein, 86 F.3d at 751. This is a central theme that the Oaktree parties pursue in their brief. But we do not think the matter free from doubt.
As NRF points out, we have said that “formally recognized business organizations pose ‘no interpretative difficulties’ for the Groetzinger test.” CLP Venture, 760 F.3d at 749 (quoting Central States, Se. & Sw. Areas Pension Fund v. Fulkerson, 238 F.3d 891, 895 (7th Cir.2001)); see also id. at 749-50 (“[B]ecause formal business organizations ordinarily operate with continuity and regularity and are ordinarily formed for the primary purpose of income or profit, it seems highly unlikely that a formal for-profit business organization would not qualify as a ‘trade or business.‘“) (citing Central States Se. & Sw. Areas Pension Fund v. SCOFBP, LLC, 668 F.3d 873, 878 (7th Cir.2011)). As a limited-liability corporation, Mezz Lender was a formally recognized business organization, and it extended a multimillion dollar loan to H & S so that H & S might acquire and operate a hotel. The loan carried with it the obligation to remit interest payments to Mezz Lender. Extending a substantial loan at a specified rate of interest to a commercial enterprise would on its face seem like business activity. The Oaktree parties nonetheless emphasize that Mezz Lender was not a repeat lender but a special purpose entity that extended a single loan to H & S. In essence, they argue that Mezz Lender was simply the vehicle for the Oaktree parties to make an investment in H & S.
We may assume without deciding that a factfinder could deem Mezz Lender to be a passive investment for the reasons the Oaktree Parties have articulated; but we are not convinced that a factfinder would necessarily take this view, even if presented with additional evidence. NRF points out that Mezz Lender not only extended the loan to H & S, but when H & S defaulted, purchased H & S in a UCC foreclosure sale with the aim of collecting the balance of the loan in bankruptcy, appointed a restructuring specialist (O‘Malley) to manage H & S on its behalf,6 and, once H & S had filed for bankruptcy, actively participated in the negotiation of a reorganization plan. These facts suggest that NRF would have a plausible case to make in opposition to a summary-judgment determination that Mezz Lender was not a passive investment. They also distinguish this case from one like Central States, Se. & Sw. Areas Pension Fund v. Stroh Brewery Co., 220 B.R. 959, 962 (N.D.Ill.1997), which held that a company, although formally incorporated and in good standing as such, did not qualify as a trade or business for purposes of withdrawal liability when it had been nothing but a dormant “shell” corporation since its formation. NRF adds that, with the benefit of discovery, it might be able to identify additional facts supporting an inference that Mezz Lender was functioning as an active business rather than a passive investment. The merits of whatever case NRF (and, for that matter, the Oaktree
A final word about Oaktree and the John Doe defendants is in order. As we have noted, because NRF‘s summary judgment motion was restricted to Mezz Lender and offered no evidence or argument in support of imposing withdrawal liability on either Oaktree or the John Doe defendants, the district court concluded that NRF had waived any basis for imposing such liability on those defendants. 9 F.Supp.3d at 871 n.3. In its oral remarks regarding NRF‘s subsequent motion to reconsider, the court appeared to criticize NRF for pursuing a piecemeal approach to the litigation and “holding] back” its case against the other defendants until it first saw how the court disposed of its request for summary judgment against Mezz Lender. R. 47 at 6. The court‘s finding of waiver was manifestly incorrect. Nothing in
The Oaktree parties urge us to affirm the judgment in their favor based on the alternative ground that they pursued in their own motion for summary judgment and that the district court did not reach: i.e., the contention that sections 13.1 and 13.4 of the reorganization bar NRF from pursuing the withdrawal liability claim against them, whatever the merits of that
III.
For all of the reasons we have discussed, the district court erred in granting summary judgment to the Oaktree parties on the question of whether Mezz Lender constitutes a trade or business for purposes of withdrawal liability. We therefore VACATE the judgment and REMAND for further proceedings consistent with this opinion.