“[T]he parties’ briefs assume that New York law controls this issue, and such ‘implied consent . . . is sufficient to establish choice of law.’”
How later courts described this case
- “[T]he parties’ briefs assume that New York law controls this issue, and such ‘implied consent . . . is sufficient to establish choice of law.’”
- stating that uncommunicated subjective intent is irrelevant
Written by the judges who cited it.
The opinion
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
)
In re: ) Chapter 11
INTERNATIONAL SHIPHOLDING )
CORPORATION, et al., ) Case No. 16-12220 (SMB)
)
Reorganized Debtors. ) Jointly Administered
)
BOARD OF TRUSTEES OF THE MEBA ) A dv. Pro. No. 19-01006 (SMB)
PENSION TRUST – DEFINED BENEFIT )
PLAN; BOARD OF TRUSTEES OF THE )
MASTERS, MATES & PILOTS PENSION )
PLAN; and BOARD OF TRUSTEES OF THE )
MASTERS, MATES & PILOTS )
ADJUSTABLE PENSION PLAN, )
)
Plaintiffs, )
)
─ against ─ )
)
CG RAILWAY, LLC, d/b/a CG RAILWAY, )
INC., BULK SHIPHOLDING, INC.; EAST )
GULF SHIPHOLDING, INC.; JOHN DOE )
CORPORATIONS “1” THROUGH “100” and )
OTHER JOHN DOE ENTITIES “1” )
THROUGH “100,” )
)
Defendants.
POST-TRIAL FINDINGS OF FACT
AND CONCLUSIONS OF LAW
A P P E A R A N C E S:
SLEVIN & HART, P.C.
1625 Massachusetts Ave., N.W., Suite 450
Washington, DC 20036
Jeffrey S. Swyers, Esq.
Christopher M. Leins, Esq.
Attorneys for Plaintiffs
AKIN GUMP STRAUSS HAUER & FELD LLP
One Bryant Park
New York, NY 10036
─ and ─
2300 N. Field Street, Suite 1800
Dallas, TX 75201
Roxanne Tizravesh, Esq.
Marty L. Brimmage Jr., Esq.
Attorneys for Defendant, CG Railway, LLC
STUART M. BERNSTEIN
UNITED STATES BANKRUPTCY JUDGE:
The Plaintiffs, the Masters, Mates & Pilots Pension Plan the Masters, Mates &
Pilots Adjustable Pension Plan (collectively, the “MM&P Pension Plans”) and the MEBA
Pension Trust – Defined Benefit Pension Plan (“MEBA Pension Plan,” and together with
the MM&P Pension Plans, the “Plaintiffs” or the “Pension Plans”) commenced this
adversary proceeding against the Defendant CG Railway, LLC (“Defendant” or “CG
Railway”)1 seeking declaratory relief that two, virtually identical settlement agreements
described below did not release the Defendant from withdrawal liability under ERISA.
The Defendant counterclaimed for declaratory and injunctive relief contending that it
was released.
The Court conducted a four-day, virtual trial during which it heard the testimony
of fourteen witnesses and received approximately 200 documents into evidence. Based
upon the evidence adduced and for the reasons that follow, the Court concludes that the
1 The other defendants in this action include Bulk Shipholding, Inc. (“Bulk Shipholding”); East Gulf
Shipholding, Inc. (“East Gulf”); John Doe Corporations “1” Through “100” and Other John Doe Entities “1”
Through “100.” Defendants Bulk Shipholding and East Gulf dissolved in April 2017 and could not be served.
2
settlement agreements released the Defendant from withdrawal liability. Accordingly,
the Complaint is dismissed, the Defendant is awarded judgment on Count I of its
counterclaims for declaratory relief and Count II of its counterclaims for injunctive relief
is dismissed.
FINDINGS OF FACT2
A. Pre-Bankruptcy Relationship Between the Parties
At all relevant times, the Debtors were engaged in the business of waterborne
cargo transportation and operated a fleet of both domestic and foreign vessels that
provided domestic and international marine transportation services to commercial and
governmental customers. (SF 9.) International Shipholding Corporation (“ISH”) was a
publicly traded holding company that directly or indirectly owned or had interests in
twenty-six subsidiaries. (See Declaration of Erik L. Johnsen, President and Chief
Executive Officer, Pursuant to Local Bankruptcy Rule 1007-2 and in Support of First
Day Filings (“First Day Declaration”) (DX 4), at ¶ 15; id, Ex. A (Organizational Chart).)
ISH, Waterman Steamship Corporation, Sulphur Carriers Inc., and Central Gulf Lines,
Inc. (collectively, the “Signatory Debtors”) were parties to prepetition collective
bargaining agreements (“CBAs,” and singularly, “CBA”) with the Marine Engineers’
Beneficial Association (“MEBA”), the union that represented the licensed engineering
officers, and the International Organization of Masters Mates & Pilots (“MM&P,” and
together with MEBA, the “Unions”), the union that represented the deck officers. (SF
2 In this opinion, PX and DX refer, respectively, to the Plaintiffs’ and Defendant’s exhibits. “SF”
followed by a number (e.g., SF 1) refers to a paragraph in the Stipulated Facts in Part III of the Joint
Pretrial Order, dated Oct. 22, 2020 (“JPTO”) (ECF Doc. # 51). “ECF Doc. #” refers to the number of the
docket entry in the electronic docket in this adversary proceeding. Finally, “Tr.” followed by a
parenthetical notion of a date refers to the trial transcript of that date. (ECF Doc. ## 69-72.)
3
10-11; JPTO at p. 2.)
The CBAs required the Signatory Debtors to make monthly contributions to
various employee benefit plans, including the Pension Plans.3 The Pension Plans were
multiemployer defined benefit plans, meaning that non-affiliated employers also
participated in the Pension Plans and made contributions on behalf of their own
employees. The Pension Plans and the Unions were separate legal entities, but the two
were linked. The CBAs imposed the obligation to make the contributions to the Pension
Plans. In addition, each Pension Plan was managed by a Board of Trustees consisting of
representatives of the Union (the “Union Trustees”) and the contributing employers (the
“Employer Trustees”). Don Marcus, the president of MM&P, was a Union Trustee and
the chairman of the Board of the Trustees that managed the MM&P Pension Plans.
Marshall Ainley, the president of MEBA, was a Union Trustee and the chairman of the
Board of the Trustees that managed the MEBA Pension Plan.
B. The Debtors Prepare for and File Bankruptcy
In mid-2016, the Debtors engaged Blackhill Partners, LLC (“Blackhill”) as their
financial advisor and retained Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”)
as bankruptcy legal counsel. (SF 15-16.) In the early summer of 2016, Blackhill and the
Debtors initiated discussions with SEACOR Capital Corp. (together with SEACOR
Holdings Inc., “SEACOR”) to become the stalking horse purchaser of ISH and commit
the funds necessary for the Debtors to reorganize. (SF 17.) On July 29, 2016, ISH’s
3 The Pension Plans and the other employee benefit plans are sometimes referred to collectively as
the “Benefit Plans.”
4
Chairman and President, Erik Johnsen, advised the Board that the company had
obtained debtor-in-possession financing from SEACOR, and the Board unanimously
authorized Akin Gump to file chapter 11 petitions. (SF 18.)4
ISH and seventeen subsidiaries, including the other Signatory Debtors, filed
chapter 11 petitions in this Court on July 31, 2016 and continued to operate their
businesses as debtors in possession in their jointly administered cases. (SF 19, 22, 23;
First Day Declaration ¶ 15.) Nine subsidiaries, including wholly owned subsidiary CG
Railway, (SF 109, 113), did not file chapter 11 petitions. (See First Day Declaration ¶ 15
& Ex. A; SF 20.) The ISH Board determined that CG Railway should not file for
bankruptcy because it was a class three railroad under the Bankruptcy Code, which
would have required a bankruptcy trustee to be appointed in the bankruptcy case. (SF
21.)
Before or shortly after the commencement of the bankruptcy cases, ISH and
SEACOR began to negotiate an agreement pursuant to which SEACOR would acquire
ISH through a chapter 11 plan. As concerns this lawsuit, SEACOR drew two “lines in the
sand” that could never be crossed. First, Reorganized ISH, owned post-confirmation by
SEACOR, would not continue to make contributions to the Pension Plans. Second, the
withdrawal liability triggered by the Signatory Debtors’ withdrawal from further
participation in the Pension Plans could not survive and had to be eliminated. (Tr.
(1/20) at 14:13-18.) According to information provided by the Pension Plans’ attorneys,
4 After the commencement of the cases, the Court approved SEACOR’s debtor-in-possession loan.
(SF 31-32.)
5
a withdrawal in 2016 would generate around $56 million in withdrawal liability. (DX
24.) Eric Fabrikant, SEACOR’s chief operating officer, emphasized in an internal,
November 3, 2016 email, that “[u]nder no circumstance does SEACOR inherit any
pension withdrawal liability incurred under the existing CBAs.” (DX 28.)
To facilitate the strategy to acquire ISH, the Debtors and SEACOR entered into a
Restructuring Support Agreement (“RSA”). (DX 33; SF 33.) ISH filed the RSA on
October 28, 2016, and the Court approved it on November 21, 2016. (SF 38.) The RSA
attached and incorporated a Term Sheet that set out the outlines of the plan that
SEACOR would support. The Term Sheet confirmed SEACOR’s commitment to provide
new financing of $25 million and a cash contribution of $10 million in exchange for
100% of the equity in the Reorganized ISH. (RSA Term Sheet at pp. 2, 4.) It further
provided that the Debtors would “use commercially reasonable efforts to assist in all
union negotiations and to mitigate any withdrawal liability and cause any such
withdrawal liability to be treated as an unsecured liability.” (Id. at 6.) The RSA Term
Sheet cautioned that “to the extent there is any withdrawal liability and such withdrawal
liability is found to be an administrative expense claim, there will be no additional funds
provided by SEACOR under this proposal to satisfy such claim.” (Id.) Finally, SEACOR
agreed to offer employment to the Unions’ members on terms no less favorable than
SEACOR’s current union employees but “not including any obligation to contribute to
any defined benefit pension plans that would be new to SEACOR.” (Id. at 6-7.)
SEACOR expected that all the withdrawal liability issues would be dealt with in
bankruptcy proceedings. It did not distinguish between debtor and non-debtor
subsidiaries, viewing them collectively as ISH, and understood that all withdrawal
6
liability would be extinguished upon its acquisition of Reorganized ISH. (Tr. (1/20) at
13:14-14:18.) A series of internal reports and updates informed the SEACOR Board of
Directors that ISH’s withdrawal from the Pension Plans would trigger approximately
$58 million in withdrawal liability that would be classified as an unsecured claim and
“disposed of in the bankruptcy,” (DX 56, at p. 0007; PX 37, at SEACOR-000000520; PX
40, at p. 1023), there would be “no further obligation from ISH to the Pension Plans
post reorganization,” (DX 56, at p. 0007), and Reorganized ISH would emerge with
“zero” carryover liabilities owed to the Unions. (DX 27, at p. 0002).5
C. Negotiations Leading to Settlement Agreements
In November 2016, SEACOR began a series of negotiations with the Unions
regarding new CBAs in contemplation of SEACOR’s acquisition of ISH. Prior to then,
Michael Cameron, an ISH employee, had met with Marcus to discuss a variety of
Union/Pension Plan issues, including the waiver of the MM&P Pension Plans’
withdrawal liability claims. Marcus stated that the Union could do nothing about
withdrawal liability, an ERISA issue, and expressed a concern that the MM&P Pension
Plan could not waive ISH’s withdrawal liability without granting the same waiver to the
other contributing employers. (DX 21.)
Marcus and Ainley, the presidents of their respective Unions, participated in the
CBA negotiating sessions with SEACOR and ISH. As discussed, Marcus and Ainley were
5 The Plaintiffs contend that SEACOR’s statement that withdrawal liability would be “disposed of in
the bankruptcy” is evidence of SEACOR’s understanding that the waiver of withdrawal liability was
limited to the Debtors in the bankruptcy cases. As noted in the text, SEACOR believed that all withdrawal
liability, including the liability of the non-debtor subsidiaries, would be eliminated through the
bankruptcy. In fact, this is precisely what happened.
7
also the chairmen, respectively, of the MM&P and MEBA Pension Plans, and the
Pension Plans’ counsel also attended the negotiating sessions. (Tr. (1/21) at 143:2-18;
145:20-146:6.) SEACOR’s chief negotiator, Michael Lowry, testified credibly that he
told the participants during the CBA negotiations that the release of withdrawal liability
was a must, a “non-starter,” (Tr. (1/21) at 230:16-231:22), and his statements were
confirmed by the ISH participants that attended the negotiating sessions, including
Cameron, (Tr. (1/19) at 145:24-146:8; 163:8-22), and Lauren Leyden, Esq., an Akin
Gump labor partner. (Tr. (1/21) at 149:8-150:4.)6
The Unions pushed back on SEACOR’s refusal to continue to contribute to the
Pension Plans, another SEACOR “non-starter,” but did not discuss or attempt to
negotiate withdrawal liability, (Tr. (1/21) at 231:23-232:11; Tr. (1/19) at 163:23-164:7),
possibly because it was not a subject to be dealt with under the new CBAs. The
obligation to make contributions was a CBA issue but withdrawal liability was a
statutory liability owing to the Pension Plans and was not negotiable by the Unions in
connection with the new CBAs. (See Tr. (1/21) at 203:9-17.) The collective bargaining
negotiations eventually resulted in new CBAs (“New CBAs”), contingent on SEACOR’s
acquisition of Reorganized ISH under a plan. Under the New CBAs, Reorganized
ISH/SEACOR would not be required to make any contributions to the Pension Plans.
(SF 56.)
6 Although Marcus and Ainley participated in the CBA negotiations as representatives of their
Unions rather than the Pension Plans, the Plaintiffs do not argue that they were free to ignore information
that might affect the rights of the Pension Plans. (See Tr. (1/22) at 20:18-21:12.) Furthermore, the
Pension Plans’ lawyers also attended.
8
On November 28, 2016, Leyden sent Christopher Leins, Esq. of Slevin & Hart, the
Pension Plans’ counsel, proposed identical “waiver agreements for MEBA and MMP”
(referred to singularly as the “November Waiver Letter”) and stated “[p]lease let me
know when you want to discuss further.” (DX 35; SF 58.) The November Waiver Letter
provided a complete release in favor of ISH, Reorganized ISH, SEACOR, and their past,
present and future subsidiaries and affiliates, subject to the Benefit Plans’ rights to file
unsecured claims in the bankruptcy cases:
By signing below, the [Benefit Plans] agree not to assert any claims,
on their behalf or on behalf of any plan participations or any other person
or entity, against ISH, Reorganized ISH, or Seacor Capital Corp., or any of
the foregoing’s respective past, present, or future subsidiaries or affiliates,
relating to unpaid contributions to the [Benefit] Plans, withdrawal or
cessation from participation in the [Benefit] Plans, or any other obligation,
contractual or statutory. For the avoidance of doubt, nothing herein shall
be construed to prohibit the [Benefit] Plans from pursuing a general
unsecured claim against the Debtors in the matter of In re: International
Shipholding Corporation, et al., Case No. 16-12220 (SMB), in the United
States Bankruptcy Court for the Southern District of New York for any
unpaid contributions owed to the [Benefit] Plans or any withdrawal
liability incurred by ISH or any other past or present subsidiary or affiliate
thereof, as of the Effective Date of the Plan of Reorganization dated
November 14, 2016.
(DX 35; SF 59.) Leyden testified that all the points contained in the November Waiver
Letter had been discussed with or relayed to the Pension Plan representatives, including
Leins, Barry Slevin, Esq., and Lynn Bowers, Esq., all of Slevin & Hart. (Tr. (1/21) at
203:18-207:18; 160:4-11.)
The November Waiver Letter did not set forth any payments that the Debtors
would make, and the Debtors would not have the cash to satisfy the Pension Plans’ (or
any other creditors’) administrative and priority claims as required to confirm their
plan. See 11 U.S.C. § 1129(a)(9). On December 16, 2016, the Benefit Plans had filed
9
priority claims aggregating $4,103,092.87, (see SF 45-46), and unsecured, contingent
withdrawal liability claims in the aggregate amount of $56,082,502 (collectively, the
“Contingent Withdrawal Liability Proofs of Claim”). (See SF 47.) Each Contingent
Withdrawal Liability Proof of Claim stated that “[u]nder Section 4001(b)(1) of ERISA,
29 U.S.C. § 1301(b)(1), all trades or business under common control with the employer
contributing to the Plan at the time are liable for withdrawal liability,” (SF 48), and
“[t]he Plan reserves the right to seek administrative priority for all or part of its
withdrawal liability claim against all Debtors pursuant to 11 U.S.C. §§ 503, 507.” (SF
49.)7
As the confirmation date approached, negotiations over the payment of the
Pension Plans’ administrative and priority claims took on greater urgency. On January
6, 2017, Slevin & Hart requested “information on the priority figures in the Disclosure
Statement so that we can evaluate ISH’s counteroffer.” (SF 61.) During the next month,
counsel for the parties exchanged financial information regarding the funds available to
pay the Pension Plans’ claims. The discussions and information exchanged primarily
concerned the payment of the administrative and priority claims as there would be little
if anything for unsecured creditors. On January 31, 2017, Sarah Schultz, Esq., an Akin
Gump bankruptcy partner, sent an email to Leins, (PX 14), attaching a document
entitled, “International Shipholding Corporation Priority and Administrative Claims as
Filed as of January 30, 2017.” (PX 15.) The document listed administrative and priority
7 On December 16, 2016, other Benefit Plans filed administrative claims in the aggregate sum of
$1,552,756.93, but ultimately withdrew the administrative claims as part of the settlements that are the
subject of this litigation. (SF 50, 52.)
10
claims aggregating $10,351,864.20 asserted in the ISH bankruptcy as of January 30,
2017, including the Pension Plans’ claims for unpaid contributions. (PX 15.)8 As of
January 30, 2017, no administrative and priority claims had been filed for any potential
withdrawal liability, but the bar date to file administrative claims had not yet been set by
the Bankruptcy Court. (SF 66.)
As just mentioned, the Debtors did not have enough cash to pay the
administrative and priority claims asserted by the Pension Plans and the SIU Benefit
Plans, and informed the plans that SEACOR would not contribute any additional funds
to satisfy their claims. (DX 68, at pp. 0002, 0003.) The Debtors left it up to the three
Benefit Plans (MEBA, MM&P, and SIU) to allocate the available cash (approximately $4
million) among themselves, and they ultimately agreed on a pro rata allocation based on
their administrative and priority claims. (Tr. (1/21) at 132:18-25.)
On February 3, 2017, Schultz sent Leins an email, (PX 16), which attached
materials prepared by Blackhill showing, among other things, the distributions under
the Debtors’ proposal and under a liquidation. (PX 17; DX 68).9 The attachment
indicated that under the Debtors’ proposal, each benefit plan would receive 62% of their
total administrative and priority claims, inclusive of prior payments. (DX 68, at p.
0008.) The Blackhill attachment also stated that if the SEACOR plan was abandoned,
an alternative plan would produce little to no distributable value beyond secured
8 The third administrative Pension creditor was the SIU Benefit Plans.
9 Schultz’s email mistakenly omitted the attachment. It was subsequently forwarded by Blackhill.
(See PX 16.)
11
creditors. (DX 68, at p. 0009.) In listing the assets available for distribution under both
the SEACOR plan and under a chapter 7 liquidation, the Blackhill attachment included
CG Railway’s $1 million in cash. (DX 68, at pp. 0013, 0014, 0015.)
According to Ellen Silver, Esq., counsel to the SIU Benefit Plans, the allocation
contained an error. (See PX 22.) On February 8, 2017, Schultz sent an email to counsel
for the three Benefit Plans, (PX 22), attaching a document, (PX 23), that contained a
proposed settlement allocation of $1,224,258.30 to the MM&P Benefit Plans,
$1,319,253.50 to the MEBA Benefit Plans, and $1,106,465.90 to the SIU Benefit Plans.
(SF 74.) The proposal would pay 72% of their administrative and priority claims,
inclusive of prior payments. (PX 23.) On February 10, 2017, Leins advised Schultz that
the Pension Plans had agreed to the proposed settlement allocation, (SF 75), “contingent
on our clients’ approval of the terms of a written settlement agreement.” (PX 24; see SF
75, 76.) At a special meeting of the ISH Board of Directors held the same day, Erik
Johnsen, ISH’s Chairman and CEO, advised the Board that “the Company received
approval from the Company’s union pension plans as to the resolution of alleged
administrative priority claims asserted by the pension plans.” (PX 25, at
ISH-000000054.) 10
D. The Settlement Agreements
10 The board meeting minutes did not mention withdrawal liability. The Plaintiffs argue that
Johnsen’s failure to mention withdrawal liability to the Board proves that it was not part of the
settlement. Johnsen testified credibly that the settlement of the administrative and priority claims was
the last piece of the puzzle, and he was passing this information on to the Board. (Tr. (1/19) at 71:2-15.)
Further, Johnsen’s statement to the Board does not purport to provide a full description of the Settlement
Agreement because even the Plaintiffs concede that it did more than resolve the administrative and
priority claims.
12
On February 10, 2017, Schultz sent an email to the three Benefit Plans’ counsel
stating, “[a]ttached please find the settlement letters with respect to each of the plans
administrative and priority claims. Please let us know if you have any questions or
comments.” (DX 73.) The email attached identical draft settlement agreements except
for the settlement amounts (referred to singularly as the “February Draft”). (DX 74; see
SF 77.) The only difference between the November Waiver Letter and the February
Draft was the insertion of the amount of the Settlement Payment agreed to by the
parties. (Compare DX 35 with DX 74; see DX 75 (demonstrative comparing drafts).)
The February Draft, like the November Waiver Letter, released ISH, Reorganized ISH
SEACOR, and their past, present, and future affiliates in exchange for the Settlement
Payment, with the proviso that the Pension Plans could file unsecured claims in the
bankruptcy case for unpaid contributions or withdrawal liability incurred by a past or
present subsidiary or affiliate as of the Effective Date. The February Draft did not
allocate the Settlement Payments to administrative or priority claims. It simply
involved the payment of a sum of money for a release. Between November 28, 2016,
when Leyden sent the November Waiver Letter, and February 10, 2017, the attorneys for
the parties discussed the amount of the payment but never discussed the withdrawal
liability waiver, (Tr. (1/21) at 160:12-25), although counsel for the Benefit Plans were
invited to discuss the November Waiver Letter in the email that transmitted it.11 (DX
35.)
On February 10, 2017, Leins sent an email to Schultz stating that they had some
11 The SIU pension plan was fully funded so the Signatory Debtors’ withdrawal from participation in
that plan would not trigger withdrawal liability.
13
revisions and comments and asked for a Microsoft Word version of the draft, but the
email did not hint at what they might be. (PX 28.) Leins sent Schultz the revised drafts
three days later, attaching redlined revisions to the proposed documents, (see PX 30,
31), asking if she had any questions and stating that if the terms were agreeable, he
would send them to his clients for execution. (PX 29.) There had been no discussions
prior to sending the revisions.
Leins’ email did not identify or refer to any substantive changes made to the
second paragraph. Quoted below is a red-lined version of the changes, (PX 32), which
were identical for the MM&P and MEBA Pension Plans except for the amount of the
Settlement Payment. Although it is a single paragraph in the draft, I have divided the
paragraph into three to correspond to its three parts ─ (i) the Settlement Payment and
the waiver, (ii) the reclassification of any excess administrative and priority claims for
unpaid contributions as unsecured claims, subject to the proviso that any unpaid
contribution claims accruing after the date of the Settlement Agreement could be
pursued as administrative claims, and (iii) the right to assert withdrawal liability as a
general unsecured claim:
By signing below, in exchange for a payment from ISH and/or its
subsidiaries in the total amount of [the Settlement Amount] (the
“Settlement Payment”), payable within 15 business days of the Effective
Date of the Plan (as defined therein), the [Pension Plans] agree not to
assert any priority or administrative claims, on their behalf or on behalf of
any plan participationts or any other person or entity, against ISH,
Reorganized ISH, or Seacor Capital Corp., or any of the foregoing’s
respective past, present, or future subsidiaries or affiliates, relating to
unpaid contributions to the [Pension Plans] owed through the date of this
letter, or any withdrawal liability incurred by ISH or any other past or
present subsidiary or affiliate thereof.
All priority or administrative claims timely filed by the [Pension
Plans] in excess of the Settlement Payment shall be converted to timely
14
filed general unsecured claims. withdrawal or cessation from participation
in the [Pension Plans], or any other obligation, contractual or statutory.
For the avoidance of doubt, nothing herein shall be construed to prohibit
the [Pension Plans] from pursuing a general unsecured claim against the
Debtors in the matter of In re: International Shipholding Corporation, et
al., Case No. 16-12220 (SMB), in the United States Bankruptcy Court for
the Southern District of New York (the “Bankruptcy Proceeding”) for any
unpaid contributions owed to the [Pension Plans] that accrued prior to the
date of this letter or from pursuing an administrative claim for unpaid
contributions owed to the [Pension Plans] that accrued after from the date
of this letter through the Effective Date of the Plan.
Additionally, nothing herein shall be construed to prohibit the
[Pension Plans] from pursuing a general unsecured claim against the
Debtors in the matter of In re: International Shipholding Corporation, et
al., Case No. 16-12220 (SMB), in the United States Bankruptcy Court for
the Southern District of New York Bankruptcy Proceeding for any
contingent, estimated, or actual or any withdrawal liability incurred by
ISH or any other past or present subsidiary or affiliate thereof, as of the
Effective Date of the Plan of Reorganization dated November 14, 2016 as a
result of any Debtor entity effecting a partial or complete withdrawal from
the [Pension Plans]. Upon any Debtor entity effecting a partial or complete
withdrawal from the [Pension Plans], the [Pension Plans] shall amend its
contingent claim (No. 1336) and assert a general unsecured claim against
each of the Debtors and such claims shall be deemed timely filed.
Leyden reviewed the revisions and considered them stylistic rather than
substantive. Although the drafting was inartful, she was satisfied that the revisions did
not deprive ISH, Reorganized ISH, or SEACOR of their bargain: a cap on the
administrative and priority claims and a waiver of withdrawal liability claims against all
past, present, and future subsidiaries and affiliates except to the extent they could assert
withdrawal liability as unsecured claims in the bankruptcy cases. (Tr. (1/21) at 174:7-
175:20.) She informed Leins and Jeffrey Swyers, Esq. of Slevin & Hart that she had no
objection to the changes. (DX 83, at p. 0002.)
The Settlement Agreements, both dated Februarys 13, 2017, were executed by the
Pension Plan representatives on February 17, 2017. Don Marcus and Edward Morgan,
15
an Employer Trustee, executed the Settlement Agreement on behalf of the MM&P
Pension Plans. (PX 1.) Marshall Ainley and Ed Hanley, an Employer Trustee, executed
the Settlement Agreement on behalf of MEBA Pension Plans. (PX 2.)
The Settlement Agreements paved the way for confirmation. On March 2, 2017,
the Bankruptcy Court confirmed the First Amended Modified Joint Chapter 11 Plan of
Reorganization for International Shipholding Corporation and its Affiliated Debtors
(“Plan”).12 (SF 97.) Paragraph 35 of the Confirmation Order approved the settlements
with the Pension Benefit Plans and authorized payment of the settlement amounts:
MM&P Benefit Plans: The Debtors shall make a payment to the MM&P
Benefit Plans in the amount of $1,224,258.30 within fifteen (15) business
days of the Effective Date. In exchange, the MM&P Plans shall not assert
any priority Claims or Administrative Expense Claims against the Debtors,
the Reorganized Debtors, or SEACOR.
MEBA Benefit Plans: The Debtors shall make a payment to the MEBA
Benefit Plans in the amount of $1,319,253.50 within fifteen (15) business
days of the Effective Date. In exchange, the MEBA Plans agree not to
assert any priority Claims or Administrative Expense Claims against the
Debtors, the Reorganized Debtors, or SEACOR.
(Footnotes omitted).13
The Plaintiffs argue that the description of the settlements solely in terms of
12 A copy of the Plan is attached to the Findings of Fact, Conclusions of Law and Order
Confirming First Amended Modified Joint Chapter 11 Plan of Reorganization for International
Shipholding Corporation and Its Affiliated Debtors (the “Confirmation Order”). (DX 95.)
13 The Confirmation Order also stated that the
Debtors and the [Benefit Plans] reached an agreement with respect to the treatment of
the administrative and priority claims asserted by the [Benefit Plans]. As a result of these
agreements, in full satisfaction of Administrative Expense Claims and priority Claims
asserted by the [Benefit Plans], within fifteen (15) days of the Effective Date, the Debtors
will make an aggregate payment of $4 million to the [Benefit Plans]” and the “[Benefit
Plans] will retain the right to assert General Unsecured Claims against the Debtors.
(Confirmation Order ¶ U.)
16
administrative and priority claims shows that the parties were only settling the
administrative and priority claims in the bankruptcy cases. However, even the Plaintiffs
must concede that the Confirmation Order did not include a complete description of
components of the settlements that both sides acknowledge was reached. In particular,
although hinted at in paragraph U, it did not mention that any excess administrative or
priority contribution claims accrued through the date of the Settlement Agreement as
well as any contingent claims for withdrawal liability would be treated as allowed,
unsecured claims, and unpaid contribution claims accruing after February 13, 2017
could be pursued as administrative claims.
On June 18, 2017, Mike Cameron of ISH notified the MEBA Pension Plan that
ISH, Central Gulf Lines, Inc., and Waterman Steamship Corporation, and any of the
foregoing’s past or present subsidiaries and affiliates, would stop making contributions
to the MEBA Pension Plan on July 2, 2017.14 (DX 101; SF 105.) The Plan of
Reorganization became effective on July 3, 2017 (the “Effective Date”). (SF 99.) On the
Effective Date and in accordance with the Plan of Reorganization, ISH reorganized and
SEACOR acquired 100% of the equity interests in ISH, which owned CG Railway,
currently a non-debtor affiliate of SEACOR and the Reorganized Debtors. (See SF 110-
11.)
E. This Adversary Proceeding
The question presented by this adversary proceeding is whether the Settlement
14 The record does not include a similar notice sent to the MM&P Pension Plans. However, given
MM&P Pension Plans’ assertion of withdrawal liability, I must assume one was sent at around the same
time.
17
Agreements released CG Railway from withdrawal liability that accrued when the
Signatory Debtors withdrew from further participation in the Pension Plans. CG
Railway, a wholly owned non-debtor subsidiary of ISH, was under the common control
of the Debtors at the time they withdrew from the Pension Plans. (SF 114.) Both
Marcus, (see Tr. (1/20) at 78:10-25; 79:24-82:1), and Ainley, (see Tr. (1/20) at 152:4-15),
knew that CG Railway was an ISH subsidiary, was a member of the ISH control group,
and would be liable for ISH’s withdrawal liability.
In letters dated March 2, 2018, (PX 49), and March 8, 2018, (PX 50, 51) (the
“Notice and Demand Letters”), the Pension Plans notified CG Railway, Bulk
Shipholding, and East Gulf of withdrawal liability in the total amount of $58,856,388
due to the Signatory Debtors’ permanent cessation of covered operations on July 2,
2017. (SF 115-16.) In letters dated May 25, 2018, (PX 52, 53), Defendant CG Railway’s
counsel responded that all of the issues regarding the withdrawal liability of the Debtors
and its control group members were resolved by the Settlement Agreements which
released ISH, any and all past, present, and future members of its control group for
either unpaid contributions or withdrawal liability. (Accord SF 118.)15 On September 18,
2018 and September 19, 2018, the MEBA Pension Plans and MM&P Pension Plans,
respectively, responded that the Settlement Agreements only waived claims the Pension
Plans held against the Debtors in the bankruptcy cases and did not waive any
15 On November 9, 2018, the Pension Plans amended their Contingent Withdrawal Liability Proofs
of Claim as claims for actual withdrawal liability “based on a July 2017 withdrawal date” in the following
amounts: MEBA Pension Plan - $23,305,416, MM&P Pension Plan - $25,533,895, and the MM&P APP -
$17,077. See Claims Nos. 1490, 1491, and 1492. (SF 55.)
18
withdrawal liability claims that the Pension Plans could assert against non-debtor
subsidiaries or non-debtor affiliates of the Debtors. (SF 121-22.)
The Plaintiffs commenced this adversary proceeding on January 28, 2019 against
non-debtor Defendants CG Railway, Bulk Shipholding, East Gulf, John Doe
Corporations “1” through “100,” and other John Doe Entities “1” through “100.” (SF 1;
see Complaint for Declaratory Judgment, dated Jan. 28, 2019 (ECF Doc. # 1).) The
Complaint sought a declaration that the Settlement Agreements did not release the
Defendants from withdrawal liability. As noted, Defendants East Gulf and Bulk
Shipholding were never served with the Adversary Complaint because both entities
dissolved in April 2017. (SF 2.) On March 28, 2019, CG Railway, the only remaining
Defendant, filed its Answer and Counterclaims. (See Defendant CG Railway, LLC’s
Answer and Counterclaims to Complaint, dated Mar. 28, 2019 (ECF Doc. # 9).) The
Counterclaims included two counts. Count I sought a mirror image declaration that the
Settlement Agreements released CG Railway from withdrawal liability. Count II sought
a permanent injunction preventing the Plaintiffs from pursuing any claims for unpaid
contributions or withdrawal liability. The Plaintiffs filed a reply to the Counterclaims.
(See Plaintiffs’ Answer to Defendant CG Railway LLC’s Counterclaims, dated Apr. 16,
2019 (ECF Doc. # 10).)
On October 3, 2019, the Court denied cross-motions motions for summary
judgment concluding that the Settlement Agreements were ambiguous. The most
obvious ambiguity was the Settlement Agreement’s limitation on administrative and
priority claims against past, present and future subsidiaries, including non-debtor
subsidiaries. Notions of administrative and priority claims as used in the Settlement
19
Agreement are limited to bankruptcy cases and are meaningless outside of bankruptcy.
In addition, the relationship between the limitation on administrative and priority
claims for unpaid contributions and the arguably unlimited waiver of withdrawal
liability incurred by non-debtor subsidiaries remained ambiguous.
20
DISCUSSION
A. Jurisdiction
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C.
§§ 157 and 1334(b) and the Amended Standing Order of Reference, No. M 10-468, 12
Misc. 00032 (S.D.N.Y. Jan. 31, 2012). Although the parties are non-debtors, the
Settlement Agreements were entered into by the Plaintiffs and the Debtors to facilitate
the confirmation of the Plan and were an integral part of the Plan. (Confirmation Order
¶ BB.) Accordingly, the Settlement Agreements arose in the Debtors’ bankruptcy cases
and the adversary proceeding is a core proceeding, but at a minimum, the adversary
proceeding relates to the bankruptcy cases and is non-core.
In addition, the Plan and the Confirmation Order provide that the Court shall
have jurisdiction over this dispute. Article 12 of the Plan states, among other things,
that the Court retains jurisdiction to “to enter such orders as may be necessary or
appropriate to implement or consummate the provisions of the Plan, the Confirmation
Order, and all other orders, contracts, . . . releases, . . . and other agreements or
documents created in connection with the Plan or Disclosure Statement,” (Plan §
12.1.6), and “resolve any other matters that may arise in connection with or relating to
the Plan, the Disclosure Statement, the Confirmation Order, or any contract, . . .
release, . . . or other agreement or document created in connection with the Plan or the
Disclosure Statement.” (Plan § 12.1.15.) The Confirmation Order states that “this Court
may properly, and from and after the Effective Date shall, to the fullest extent as is
legally permissible, retain exclusive jurisdiction over . . . all matters arising under,
arising out of, or related to, the Chapter 11 Cases and the Plan (i) as provided for in
21
Article 12 of the Plan . . . .” (Confirmation Order ¶ 48.)
Finally, even if the Court otherwise lacked the Constitutional authority to enter a
final judgment for any reason, the parties have expressly consented to the Court’s
authority to enter a final judgment. (JPTO at p. 3.)
B. Interpretation of the Settlement Agreement
Both sides rely on New York principles of contract interpretation, and
accordingly, New York law governs the interpretation of the Settlement Agreements.
See Motorola Credit Corp. v. Uzan, 388 F.3d 39, 61 (2d Cir. 2004) (“[T]he parties’
briefs assume that New York law controls this issue, and such ‘implied consent . . . is
sufficient to establish choice of law.’”) (quoting Tehran-Berkeley Civil & Env’t Eng’rs v.
Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir. 1989)); accord
Krumme v. WestPoint Stevens, Inc., 238 F.3d 133, 138 (2d Cir. 2000).
Under New York law, the fundamental objective of contract interpretation is to
give effect to the intentions of the parties. See Hunt Ltd. v. Lifschultz Fast Freight, Inc.,
889 F.2d 1274, 1277 (2d Cir. 1989); Hartford Accident & Indemnity Co. v. Wesolowski,
305 N.E.2d 907, 909 (N.Y. 1973). If “the parties’ intent is not plain from the language
they used, a court may look to the objective manifestations of intent gathered from the
parties’ words and deeds,” In re M. Fabrikant & Sons, Inc., 385 B.R. 87, 95 (Bankr.
S.D.N.Y. 2008) (citing Brown Bros. Elec. Contractors, Inc. v. Beam Constr. Corp., 361
N.E.2d 999, 1001 (N.Y. 1977)); accord Nycal Corp. v. Inoco PLC, 988 F. Supp. 296, 301
(S.D.N.Y. 1997), aff'd, 166 F.3d 1201 (2d Cir. 1998) (relying on testimony regarding what
was objectively expressed between the parties during negotiations); cf. Wells v.
22
Shearson Lehman/Am. Express, Inc., 526 N.E.2d 8, 15 (N.Y. 1988) (stating that
uncommunicated subjective intent is irrelevant), including their subsequent conduct.
See Gordon v. Vincent Youmans, Inc., 358 F.2d 261, 264 (2d Cir. 1965); accord Foresco
Co. v. Oh, 315 F. Supp. 3d 812, 814 (S.D.N.Y. 2018); Peter J. Solomon Co., L.P. v.
Oneida Ltd., No. 09 CIV. 2229 (DC), 2010 WL 234827, at *3 (S.D.N.Y. Jan. 22, 2010).
When interpreting a contract, a court should not put “disproportionate
emphasis” on “any single act, phrase or other expression, but, instead, on the totality of
all of these, given the attendant circumstances, the situation of the parties, and the
objectives they were striving to attain.” Brown Bros., 361 N.E.2d at 1001. “A contract
must be read as a whole to determine its purpose and intent, and single clauses cannot
be construed by taking them out of their context and giving them an interpretation apart
from the contract of which they are a part.” Analisa Salon, Ltd. v. Elide Props., LLC,
818 N.Y.S.2d 130, 131 (N.Y. App. Div. 2006) (internal quotation marks and ellipses
omitted). Furthermore, a court should not adopt a “construction which would render a
contractual provision meaningless or without force or effect.” Valle v. Rosen, 30
N.Y.S.3d 285, 287 (N.Y. App. Div. 2016) (internal quotation marks omitted).
Releases are interpreted in accordance with the rules that govern contract
interpretation. Golden Pac. Bancorp v. F.D.I.C., 273 F.3d 509, 515 (2d Cir. 2001); Bank
of Am. Nat’l Tr. & Sav. Ass’n v. Gillaizeau, 766 F.2d 709, 715 (2d Cir.1985). The
“meaning and coverage [of a release] necessarily depend, as in the case of contracts
generally, upon the controversy being settled and upon the purpose for which the
release was actually given.” Cahill v. Regan, 157 N.E.2d 505, 510 (N.Y. 1959); accord
Clerico v. Pollack, 48 N.Y.S.3d 738, 741 (N.Y. App. Div. 2017). Although the parties are
23
seeking declaratory and injunctive relief, CG Railway is essentially asserting that the
Settlement Agreements released it from withdrawal liability. Regardless of the
procedural context, a party asserting the affirmative defense of release has the initial
burden of showing that the release covers the plaintiff's claims; the burden then shifts to
the other side to show that it does not. See Centro Empresarial Cempresa S.A. v. Am.
Movil, S.A.B. de C.V., 952 N.E.2d 995, 1000 (N.Y. 2011); see also Gerszberg v. Iconix
Brand Grp., Inc., No. 17-CV-8421 (KBF), 2018 WL 2108239, at *4 (S.D.N.Y. May 7,
2018) (under New York law, “a defendant has the initial burden of establishing that it
has been released from any claims.”).
C. ERISA
Understanding the context surrounding the execution of the Settlement
Agreements requires consideration of the law that governs multiemployer pension plans
like the Plaintiffs, i.e., the Multiemployer Pension Plan Amendments Act of 1980, 29
U.S.C. §§ 1381–1461. The parties agree on the law, but a brief review is helpful.
In many cases, a defined benefit plan’s projected liability for vested benefits
exceeds the projected amount of assets it will have to pay those benefits. The shortfall is
the unfunded vested benefits (“UVB”), which I refer to as unfunded liability. The
unfunded liability is footnoted in a corporation’s financial statements but is not treated
as a liability because it is not due and payable. (Tr. (1/19) at 154:4-12.)
Rather, and at the risk of oversimplification, an employer’s proportionate share of
the unfunded liability becomes due and payable when the employer withdraws from
participation in the multiemployer plan. An employer is deemed to have withdrawn
24
completely from a multiemployer plan, inter alia, when it “permanently ceases to have
an obligation to contribute under the plan,” 29 U.S.C. § 1383(a)(1), and the withdrawal
is deemed to have occurred on “the date of the cessation of the obligation to contribute.”
Id., § 1383(e).
The employer’s withdrawal from the plan triggers its “withdrawal liability,” roughly
the withdrawing employer’s proportionate share of the plan’s UVB. Bay Area Laundry
& Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of California, Inc., 522 U.S. 192, 196
(1997); see 29 U.S.C. §§ 1381(b)(1), 1391(b)(1). “As soon as practicable after an
employer’s complete or partial withdrawal, the plan sponsor16 shall” notify the employer
of the amount of its liability and a schedule of payments and demand payment in
accordance with the schedule. 29 U.S.C. §§ 1399(b)(1), 1381. If a withdrawing employer
fails to make a payment in accordance with the schedule and fails to cure the
nonpayment within sixty days of the payment due date, the plan may seek to recover the
employer’s entire amount immediately and in full. 29 U.S.C. § 1399(c)(5)(A).
Withdrawal liability is not limited to the employer that withdraws from
participation in the pension plan. All companies under common control are deemed to
be a single employer, 29 U.S.C. § 1301(b), are jointly and severally liable for the
withdrawal liability, see ILGWU Nat’l Retirement Fund v. Gramercy Mills, Inc., No. 90
Civ. 3552 (DNE), 1994 WL 592226, at *1 (S.D.N.Y. Oct. 26, 1994), and the notice and
16 The “plan sponsor” is “with respect to a multiemployer plan—(A) the plan’s joint board of
trustees, or (B) if the plan has no joint board of trustees, the plan administrator.” 29 U.S.C. § 1301(a)(10).
25
demand for payment sent to the withdrawing employer is also deemed to have been sent
to the other members of the control group. Amalgamated Lithographers of Am. v. Unz
& Co. Inc., 670 F. Supp. 2d 214, 223 (S.D.N.Y. 2009) (quoting Trustees of Amalgamated
Ins. Fund v. Saltz, 760 F. Supp. 55, 58 (S.D.N.Y. 1991)); McDonald v. Centra, 118 B.R.
903, 914 (D. Md. 1990), aff’d, 946 F.2d 1059 (4th Cir. 1991). To the extent the pension
plan does not collect the withdrawal liability from the withdrawing employer or the
control group, the unfunded liability is reallocated to the remaining contributing
employers but is not collectable from a remaining contributing employer unless and
until that employer withdraws from the pension plan. (Tr. (1/20) at 206:6-13; 209:16-
210:18); see 2 Gary I. Boren & Norman P. Stein, QUAL. DEFERRED COMP. PLANS § 18:43
(“If any of an employer’s withdrawal liability remains unpaid under the payment
schedule after 20 years, the unpaid amount may be allocated to other employers in
addition to their basic withdrawal liability.”).
Here, CG Railway was a member of the ISH control group. The Signatory
Debtors withdrew from the Pension Plans on July 2, 2017, one day before the Effective
Date, paving the way for SEACOR to take over Reorganized ISH without any obligation,
as agreed with the Unions, to make contributions to the Pension Plans. The Signatory
Debtors’ withdrawal triggered the withdrawal liability of the control group under ERISA
unless that liability was released by the Settlement Agreements.
D. The Settlement Agreement
With this background, I turn to the interpretation of the Settlement Agreement
and begin with the context. During the relevant period between SEACOR’s agreement
in principle to fund a plan and the execution of the Settlement Agreements, two separate
26
concerns existed. First, the Debtors did not have enough money to pay the Pension
Plans’ administrative and priority claims. To confirm their plan, they had to pay these
claims in full unless the Pension Plans agreed to different treatment. See 11 U.S.C. §
1129(a)(9)(A) & (B). SEACOR made clear that it would not contribute or loan any more
money. Consequently, the Debtors had to reach agreements with the Pension Plans to
accept less than 100% on their administrative and priority claims. This was purely a
plan issue between the Debtors and the Pension Plans. Its resolution did not concern
SEACOR except that the confirmation of the Plan was a necessary condition to
SEACOR’s acquisition of ISH. The Pension Plans eventually agreed to accept a 72%
distribution. The Settlement Agreement memorialized their consent, capping the
Pension Plans’ administrative and priority claims and relegating any balance, including
the contingent liability for withdrawal contributions, to general, unsecured status. This
much is undisputed.
Second, SEACOR refused to participate in the Pension Plans post-Effective Date.
This was not a plan issue; it was a labor issue between the Unions and SEACOR and the
subject of the CBA negotiations between the Unions and SEACOR. Reorganized
ISH/SEACOR eventually resolved this issue by entering into the New CBAs which did
not require contributions to the Pension Plans. Again, this is not disputed.
Related to this second issue was the question of post-Effective Date withdrawal
liability. The withdrawal of the Signatory Debtors from the Pension Plans would trigger
the entire control group’s liability, including the liability of non-debtor members such as
CG Railway. SEACOR was proposing to acquire the equity of ISH, and ISH held the
equity in the non-debtor subsidiaries, including CG Railway. If these non-debtor
27
subsidiaries were jointly and severally liable for $58 million in withdrawal liability after
the Effective Date, the deal would not make economic sense to SEACOR. (See Tr. (1/20)
at 36:7-14.) For this reason, SEACOR viewed the continuing participation in the
Pension Plans and the related withdrawal liability issues as “non-starters.”
Everyone involved in or present during the CBA negotiations, including the
representatives of the Unions and the Pension Plans, understood that if they could not
reach an agreement with SEACOR, the Debtors would likely be forced to liquidate, the
Union members would lose their jobs, and the Pension Plans would receive little or no
distribution on any of their claims. (Tr. (1/20) at 60:3-9; 100:10-25; 189:5-14.) Thus,
an agreement with SEACOR was indispensable to the Debtors’ ability to confirm a plan,
the Unions’ hopes of keeping jobs and the Pension Plans’ expectation of receiving any
distribution.
It is undisputed that SEACOR made clear to the Union and Pension Plan
representatives during the CBA negotiations that its continued participation in the
Pension Plans was a “non-starter,” and as a CBA issue, this was discussed. But I also
credit the testimony of Lowry, Leyden, and Cameron that Lowry stated that post-
Effective Date withdrawal liability was a “non-starter.” It was a critical issue to
SEACOR, and SEACOR would not have ignored it. It was not the subject of further
discussion during the CBA negotiations because withdrawal liability was a Pension Plan
issue rather than a Union issue. Nevertheless, Marcus and Ainley, the chief Union
negotiators, were also the chairmen of the Boards of Trustees of the Pension Plans, and
the Pension Plan’s lawyers participated in the meetings as well. They heard what Lowry
said and were aware of SEACOR’s “line in the sand” regarding withdrawal liability.
28
Moreover, it would have been absurd for the Pension Plans to believe that SEACOR
would insist on withdrawing from the Pension Plans, which everyone knew would
trigger withdrawal liability, but agree to absorb the $58 million withdrawal liability.
At trial, Marcus and Ainley disputed that Lowry or anyone else ever mentioned
withdrawal liability during the CBA negotiations.17 I do not credit this testimony.
Marcus was already aware of the withdrawal liability issue because of his October 2016
meeting with Cameron. In addition, Marcus testified that when he signed the MM&P
Settlement Agreement, he knew that withdrawal liability would extend to ISH’s
subsidiaries and affiliates, and SEACOR would not agree to assume any obligations
owed to the Pension Plans that arose prepetition. (Tr. (1/20) at 103:17-104:1.) Ainley
testified that he understood that SEACOR’s intention not to participate in the MEBA
Pension Plan would trigger withdrawal liability, that SEACOR was going forward with a
“clean slate” and would not participate in the defined benefit plan and “on the trustee
level, they were not accepting any liability.” (Tr. (1/20) at 162:10-164:21.) In short, the
Pension Plans knew that SEACOR would not agree to any deal that rendered ISH’s non-
debtor subsidiaries subject to withdrawal liability.18
This conclusion is bolstered by the Pension Plans’ historical silence and failure to
object to the waiver of withdrawal liability. The November Waiver Letter was sent with
17 Representatives from Slevin & Hart did not testify in the Plaintiffs’ direct case. Leins only
testified in rebuttal that Leyden never discussed withdrawal liability with him. Furthermore, although
Leyden testified that she had similar conversations with Bowers and Slevin, they did not testify.
18 The Pension Plans have argued that they did not know which subsidiaries SEACOR would be
acquiring, but this did not seem to make a difference to the Pension Plans. The Settlement Agreement
granted waivers to all ISH past, present, and future subsidiaries and affiliates without regard to whether
they were being acquired indirectly by SEACOR.
29
an email to Leins that began, “as discussed.” There was obviously referred to a
discussion between Leyden and Leins, Slevin, and/or Bowers before she sent the
November Waiver Letter. In addition, Leyden testified that she had informed Leins that
the Unions and SEACOR had reached a tentative agreement pursuant to which
Reorganized ISH/SEACOR would withdraw from the Pension Plans and trigger
withdrawal liability, and she would send a waiver agreement. (Tr. (1/21) at 156:20-
157:23.) After she sent the November Waiver Letter, neither Leins nor any other
attorney representing the Pension Plans ever responded that they had not agreed to the
waivers it contained. For this reason, Leyden was surprised when she saw the March
2018 Notice and Demand Letters because, until then, Slevin & Hart attorneys never
suggested that the November Waiver Letter did not set forth the parties’ agreement
relating to the waiver of withdrawal liability. (See Tr. (1/21) at 197:21-199:17.)
Indeed, when Leins returned the marked-up version of the February Draft, he
never suggested that he had made any substantive changes. Instead of agreeing not to
assert any claims against Reorganized ISH, SEACOR, or their past, present and future
subsidiaries or affiliates, the revised language agreed not to assert any priority or
administrative claims, the subject of the recently concluded negotiations, against ISH,
SEACOR, or their past, present and future subsidiaries for unpaid contributions owed
through the date of the Settlement Agreement. He did not make a material change to
the release of withdrawal liability. Leins modified the language of the waiver by deleting
the phrase “withdrawal or cessation from participation in the [Pension Plans], or any
other obligation, contractual or statutory” and inserting “any withdrawal liability
incurred by ISH or any other past or present subsidiary or affiliate thereof.” (Emphasis
30
added.)
The Plaintiffs argue that under the principle of ejusdem generis,19 “priority or
administrative claims” must be read to limit the scope of the release or waiver of liability
for withdrawal liability. Thus, they read the Settlement Agreements to waive “priority or
administrative claims . . . relating to . . . any withdrawal liability incurred by ISH or any
other past or present subsidiary or affiliate thereof.” At bottom, the Plaintiffs maintain
that the Settlement Agreement was limited to the claims in the bankruptcy cases.
In contrast, CG Railway argues the Settlement Agreement effected two
settlements, one by the estates and one in favor of Reorganized ISH/SEACOR. The
former limited the administrative and priority claims accruing prior to the date of the
Settlement Agreements to the amounts of the Settlement Payments subject to the
provisos that any excess administrative or priority claims as of the date of the
Settlement Agreements and any “contingent, estimated or actual” withdrawal liability
could be pursued as a general, unsecured claim and any post-Settlement Agreement
unpaid contribution claims could be pursued as administrative expenses. The second
settlement concerned SEACOR and the non-debtor subsidiaries and affiliates after the
Effective Date. Withdrawal liability in the amount of $58 million was a post-Effective
Date concern of SEACOR because it was acquiring ownership of Reorganized ISH and
indirectly, ISH’s debtor and non-debtor subsidiaries.
19 Under the principle of ejusdem generis, “the general words of a release are limited by the recital
of a particular claim.” Herman v. Malamed, 487 N.Y.S.2d 791, 793 (N.Y. App. Div. 1985); accord
Consolidated Edison, Inc. v. Northeast Utilities, 332 F. Supp. 2d 639, 647 (S.D.N.Y. 2004); Kemp v.
Perales, 604 N.Y.S.2d 268, 270 (N.Y. App. Div. 1993).
31
The Plaintiffs have not offered a cogent explanation for the revisions inserted by
Leins, no draftsman testified about them, and the revisions cannot support the
Plaintiffs’ proffered interpretation that the Settlement Agreements were limited to the
pending bankruptcy cases. As noted, it is meaningless to speak of capping
administrative and priority claims against non-debtors and future subsidiaries. The
Plaintiffs have argued that the phrase could be rendered meaningful by reading it to
limit the Pension Plans’ administrative and priority claims in future, hypothetical
bankruptcies commenced by non-debtor subsidiaries and thereby give it meaning. (Tr.
(1/22) at 6:13-23.) There is no evidence to support this interpretation, and future
bankruptcies were never discussed.
The Plaintiffs contend that the same problem exists with CG Railway’s
interpretation, but I disagree. CG Railway has argued that the release of SEACOR and
its future subsidiaries, including Reorganized ISH and its subsidiaries, is rendered
meaningful by reading it to prevent the Pension Plans from going after Reorganized
ISH/SEACOR or any of ISH’s subsidiaries post-confirmation, presumably under a
theory of successor liability, for any unpaid administrative and priority claims relating
to unpaid contributions that were not paid under the Plan. (See Tr. (1/22) at 36:11-
37:2.)
Furthermore, as Leyden testified, the revised language still gave ISH and
SEACOR everything they were seeking or demanded. The Settlement Agreement
capped the administrative and priority claims in the pending cases and allowed the
Debtors to confirm their cases. The waiver of administrative and priority claims granted
to non-debtor subsidiaries and future subsidiaries gave them something extra.
32
Nor can the waiver relating to the withdrawal liability claims be limited to the
bankruptcy cases. First, as already stated, the waiver was granted to the past, present
and future subsidiaries and affiliates. Second, the Settlement Agreement expressly dealt
with the Debtors’ withdrawal liability, deeming it an unsecured claim. The waiver was,
therefore, unnecessary to deal with the Debtors’ liability. Third, the waiver covers “any
withdrawal liability incurred by ISH or any other past or present subsidiary or affiliate
thereof.” (Emphasis added.) Under ERISA, withdrawal liability was not “incurred”
until ISH withdrew from the Pension Plans on July 2, 2017.20 Thus, the Settlement
Agreement must be read to waive withdrawal liability “incurred” by the non-Debtor
subsidiaries as a result of the Signatory Debtors’ withdrawal from participation in the
Pension Plans.
Finally, ejusdem generis, like other “rules of contract interpretation need not be
applied unless ‘the extrinsic evidence does not yield a conclusive answer as to the
parties’ intent.’” N.Y. Marine & Gen. Ins. Co. v. Lafarge N. Am., Inc., 599 F.3d 102, 118
n.7 (2d Cir. 2010) (quoting Parks Real Estate Purchasing Grp. v. St. Paul Fire & Marine
Ins. Co., 472 F.3d 33, 43 (2d Cir.2006)).21 The extrinsic evidence adduced by CG
Railway showed conclusively that the Pension Plans understood SEACOR’s “non-
20 The Pension Plans could assert contingent claims for withdrawal liability in the bankruptcy cases
before withdrawal liability was actually triggered because the Bankruptcy Code defines “claim” to include
a contingent claim. See 11 U.S.C. § 101(5)(A). Outside of bankruptcy and under ERISA, however,
withdrawal liability is “incurred” when the employer withdraws from participation in the defined benefit
plan.
21 The Pension Plans’ invocation of ejusdem generis calls to mind another rule of construction, the
canon contra proferentem, under which ambiguities are construed against the drafter. 151 W. Assocs. v.
Printsiples Fabric Corp., 460 N.E.2d 1344, 1345 (N.Y. 1984). Here, Slevin & Hart attorneys presumably
drafted the ambiguous language.
33
starters” and had to waive withdrawal liability against the Signatory Debtor’s control
group in order to confirm the Plan, keep jobs, and receive the Settlement Payments.22
Further, Leyden testified that she had discussed the November Waiver Letter, the source
of the February Draft and the Settlement Agreements, including the waiver of
withdrawal liability, with Leins, Bowers, and Slevin. Leins denied such conversations in
rebuttal testimony, but neither Bowers nor Slevin testified. I credit Leyden’s testimony
and find it unbelievable that Leyden did not discuss this “non-starter” with the Pension
Plans’ attorneys, and instead, snuck it into the November Waiver Letter hoping they
wouldn’t notice.
The Pension Plans’ actions and statements after the Settlement Agreement was
signed, including the MEBA Pension Plan’s responses to the charges asserted by Liberty
Maritime Corporation (“Liberty”) and the Pension Plans’ delay in asserting their rights,
provide further evidence that they understood that they had waived their withdrawal
liability claims against the control group members. On February 13, 2017, the same day
that Leins sent the marked-up Settlement Agreement, Philip Shapiro, President and
CEO of Liberty, a participating employer in the MEBA Pension Plan, sent a letter to the
Employer Trustees of the MEBA Pension Plan and copied Ainley and John Ring, Esq.,
counsel to the MEBA Pension Plan, complaining about the effect of settlement on the
MEBA Pension Plan. (DX 78.) Liberty expressed its concern that the MEBA Pension
Plan was accepting less than full payment of its administrative and priority claims and,
22 The Pension Plans have argued that they did not get any additional consideration for the
withdrawal liability waivers, and therefore, the waivers should be limited to the claims in the bankruptcy
cases. This argument ignores the fact that if the Pension Plans didn’t accede to SEACOR’s demands, its
“non-starters,” SEACOR would have walked and the Pension Plans would not have received the
Settlement Payments or much else.
34
under the New CBA, SEACOR would withdraw from participation in the MEBA Pension
Plan and not make any future contributions. Liberty charged that those involved in the
negotiations on behalf of the MEBA Pension Plan “have conflicts of interest” and the
Employer Trustees were not receiving independent legal advice. Shapiro recommended
that the Employer Trustees hire independent counsel “to ensure that the rights of the
Plan are fully protected and not compromised in favor of any unrelated considerations,”
and insisted that the Employer Trustees “select an independent trustee to engage in any
negotiations or discussions with ISH/Seacor based on such independent counsel
advice.”
On March 7, 2017, five days after confirmation, Liberty’s counsel, Constantine G.
Papavizas, Esq. of Winston & Strawn, wrote to Slevin, copying Ainley, Ring, and Edward
Hanley, an Employer Trustee. (DX 98.) The letter primarily expressed concern with the
lack of information or justification for compromising the administrative and priority
claims and agreeing that Reorganized ISH/SEACOR would not participate in the MEBA
Pension Plan. It noted that the substantial, $22 million withdrawal claim would likely
receive only a nominal recovery and expected that the “MEBA Benefit Plan trustees
might have some defense to the argument that plan assets have been squandered.” The
matter was of particular concern “given Liberty's ultimate obligation, along with other
contributing employers, to fund any plan deficit, which the SEACOR/ISH transaction
appears to have materially exacerbated.”
On April 6, 2017, Shapiro again wrote to the MEBA participating employers and
leveled more criticism at the settlement. (DX 99.) The letter stated that the “MEBA
Benefit Plans have wasted Plan assets for no consideration to the detriment of its
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beneficiaries and the other employers that participate in the Plans,” and enlisted the
Employer Trustees’ assistance in the matter. Liberty continued to complain about the
economics of the settlement, “the substantial discount, the loss of future plan
contributions and a waiver of any withdrawal liability,” and reiterated its concerns that
“[a]ll contributing employers will ultimately pay the price for those concessions in terms
of the reduced recovery to the Plans, the loss of future pension plan contributions and
the associated possible withdrawal liabilities.”
The MEBA Benefit Plans finally responded in writing to “the serious nature of
Liberty’s accusations” on April 13, 2017. (DX 100.) In a letter to the MEBA
participating employers signed by Ainley and Hanley, an Employer Trustee of both the
MEBA and MM&P Pension Plans, (Tr. (1/21) at 7:17-21; 8:20-24), they defended the
deal as the best and only deal absent which MEBA would face the loss of jobs and the
MEBA Benefit Plans would recover little or nothing. The penultimate paragraph of the
letter stated:
We understand Liberty’s disappointment over the ISH bankruptcy and its
negative impact on the MEBA Plans. The Trustees share that
disappointment. It is estimated that MEBA Plans will be required to
write-off approximately $945,920 in delinquent ISH contributions
(because of the non-priority portion of the claims) and over $20 million in
uncollectable withdrawal liability.
(Emphasis added.)
At trial, Ainley testified that “write-off” as used in the letter really meant
“reallocate,” and the letter was “just informing the contributing employers that if
nothing was recovered, then worst-case scenario they were looking at an estimated $20
million that would be reallocated. So . . . write-off may not have been the perfect term.”
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(Tr. (1/20) at 147:7-23.) Hanley gave the same testimony. (Tr. (1/21) at 13:4-15:14.)
I find this testimony incredible. First, “write-off” means uncollectable, not
collectable from other sources. It does not mean “reallocate,” and it is not likely that
Ainley and Hanley sought to placate Liberty or the other participating employers by
telling them that the withdrawal liability would be reallocated to them. In addition, one
month earlier, Hanley had informed the MEBA Employer Trustees that the ISH
bankruptcy “will cause a write off of $21.63M assuming the non-priority claims are
settled” for 3% and “[t]he write offs to all 3 union plans combined is $57M.” (DX 97
(emphasis added).)
Second, and more importantly, Liberty had made “serious” allegations, accusing
the Union representative and the Union Trustee—Ainley—of conflict of interest, breach
of fiduciary duty, and squandering and wasting MEBA Pension Plan assets. Liberty had
highlighted the economic injuries the other contributing employers would suffer,
including the obligation to fund any plan deficits through the reallocation of ISH’s
withdrawal liability. If the MEBA Pension Plan retained the right to collect the
“reallocated” withdrawal liability from the remaining, non-debtor members of the ISH
control group, one would expect that the letter would have said that to soften the blow of
Liberty’s charges and its economic concerns regarding funding plan deficits. It did not.
Subsequent correspondence provided further proof of the MEBA Pension Plans’
understanding that it could not collect the withdrawal liability from the non-debtor
members of the ISH control group. Three weeks after the Effective Date, on July 24,
2017, lawyers at Morgan & Lewis and Slevin & Hart, co-counsel to the MEBA Pension
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Plans, wrote to Papavizas, Liberty’s counsel at Winston & Strawn. (DX 110.) Most of the
letter defended against the claim that Ainley had breached his fiduciary duties. The last
two pages, however, were devoted to correcting “factual misstatements that Liberty has
made in its communications to the employer trustees.” One of those factual errors
concerned the charge that the MEBA Pension Plan had waived withdrawal liability. The
MEBA Pension Plan’s counsel responded that
the Pension Plan did not waive withdrawal liability since the Pension Plan
has filed a proof of claim seeking payment of withdrawal liability as a
general unsecured creditor. The Pension Plan expects to collect on its
claim to the same extent as other general unsecured creditors. . . . [The]
proof of claim for withdrawal liability . . . has not been compromised or
withdrawn.
Again, had the MEBA Pension Plan retained the right to pursue the non-debtor
members of the ISH control group, one would expect that its counsel would have
included that fact in the letter.
The Pension Plans’ belated assertion of their right to collect withdrawal liability
from the non-debtor members of the ISH control group provides further evidence that
their position in this litigation is newly minted. Under ERISA, “[a]s soon as practicable
after an employer’s complete or partial withdrawal, the plan sponsor shall” notify the
employer of the amount of its liability and a schedule of payments and demand payment
in accordance with the schedule. 29 U.S.C. §§ 1399(b)(1), 1381. ISH withdrew from
participation in the Pension Plans and “incurred” withdrawal liability on or about the
Effective Date, but the Pension Plans did not notify the non-debtor subsidiaries,
including CG Railway, of the amount of the liability, the schedule of payments, or
demand payment until March 2018, eight months later.
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During closing argument, the Court questioned the Plaintiffs’ counsel about the
reason for the delay. Counsel essentially argued that it was not practicable for the
Pension Plans to act before they did. He stated that once an employer withdraws and
triggers withdrawal liability, actuaries must calculate the withdrawing employer’s
proportionate liability and this calculation requires the prior plan year’s full data.
Several factors go into that calculation, including investment performance, and those
factors are not finalized until the plan year closes and the actuaries have the data. It is
only then that the actuaries can finalize the assessment, and the assessment in this case
was made in March 2018. (Tr. (1/22) at 26:8-28:17.)
No evidence was offered during the trial to support these assertions, and I do not
credit counsel’s statements in the absence of supporting evidence. The delay implies
that the Pension Plans did believe they had viable claims for withdrawal liability at the
time of the Settlement Agreements, and the Court finds that the belated assertion of
withdrawal liability was an afterthought and not what was understood or intended at the
time of the Settlement Agreements. Accordingly, CG Railway has sustained its burden
of proving that through the Settlement Agreement, the Pension Plans intended to
release the non-debtor members of the ISH control group from the withdrawal liability
that was incurred when the Signatory Debtors withdrew from the Pension Plans, and the
Plaintiffs have failed to come forward with any credible extrinsic evidence to controvert
the Defendant’s proof. Accordingly, the Complaint is dismissed, and CG Railway is
entitled to a declaratory judgment on Count I of its Counterclaim that the Settlement
Agreement released CG Railway from withdrawal liability.
E. Injunctive Relief
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Count II of the Counterclaim seeks an
injunction prohibiting the Plaintiffs from pursuing any further action
whatsoever in court or out of court to recover against the Debtors,
Reorganized Debtors, or SEACOR or the foregoing’s respective past,
present, or future subsidiaries or affiliates, including the Defendant CG
Railway, on account of claims arising from or related in any way to: (1)
unpaid contributions to the Pension Plans; or (2) any contingent,
estimated, or actual withdrawal liability incurred as a result of withdrawal
from the Pension Plans.
A party “seeking a permanent injunction must satisfy a four-factor test before a
court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an
irreparable injury; (2) that remedies available at law, such as monetary damages, are
inadequate to compensate for that injury; (3) that, considering the balance of hardships
between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the
public interest would not be disserved by a permanent injunction.” Monsanto Co. v.
Geertson Seed Farms, 561 U.S. 139, 156-57 (2010) (quoting eBay Inc. v. MercExchange,
L.L.C., 547 U.S. 388, 391 (2006)).
CG Railway has failed to establish that it will suffer irreparable injury if a
permanent injunction does not issue. The sole evidence of harm was provided by Scott
Weber, SEACOR Holdings’ senior vice president in charge of corporate development
and finance. (Tr. (1/20) at 5:19-23.) He is also a vice president of CG Railway and a
director on the joint venture board that oversees the group of entities that includes CG
Railway, but he does not have any day-to-day responsibilities with CG Railway. (Tr.
(1/20) at 20:22-21:12.) Weber testified as follows:
Q. All right. How, if at all, has this litigation been harmful to CG
Railway?
A. Well, it's -- it’s taken a lot of time. It’s been a big distraction. It --
it’s a company that is, you know, impacted by current events and the
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pandemic. And more fundamentally, it’s a company that relies on old --
very old equipment that it -- it inherited from this restructuring. It needs
new equipment. It needs financing, and that financing is in jeopardy
based on this proceeding.
(Tr. (1/20) at 40:1-9.)
This testimony is speculative and conclusory. The nature of the distraction, and
specifically, how the litigation harmed CG Railway (as opposed to non-party
Reorganized ISH or SEACOR) was never explained. Furthermore, the litigation has now
ended, and CG Railway did not offer evidence that the Plaintiffs will ignore the Court’s
decision and continue their efforts to collect withdrawal liability. It is true that the final
judgment is subject to appeal, which the proposed injunction is broad enough to
prevent, but the Court would not enjoin the Pension Plans from pursuing an appeal.
And as to the jeopardized funding that Weber mentioned, there is no evidence that CG
Railway could not obtain financing because of the pendency of this lawsuit or the
Pension Plans’ efforts to collect withdrawal liability through the prosecution of this
adversary proceeding.
In addition, CG Railway contended in the JPTO that it has suffered irreparable
reputational injury and needless expense, (JPTO at p. 53), and the unpaid contribution
and withdrawal liability claims “imposed a substantial hardship on a company freshly
emerging out of bankruptcy that requires all resources to be focused on operating as a
going concern.” (Id. at p. 60.) There was no evidence of reputational injury and the
notion of “needless” expense implies that the litigation was frivolous. But there are
adequate monetary remedies to compensate CG Railway if that is the case. In addition,
the litigation could not interfere with CG Railway’s emergence from bankruptcy because
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CG Railway was never in bankruptcy.
Finally, the two cases cited by CG Railway in the JPTO are distinguishable. In In
re Bernhard Steiner Pianos USA, Inc., 292 B.R. 109 (Bankr. N.D. Tex. 2002), the debtor
proposed a 100% plan. The debtor’s lenders held the personal guaranty of Kahn, the
sole director and “the driving force behind the success (or failure) of the Debtor
company.” Id. at 117. The Court confirmed the 100% plan and issued a temporary stay
in Kahn’s favor preventing the lenders from pursuing Kahn for so long as the debtor did
not default on its plan payments to the lenders. The Court reasoned that the debtor
would suffer irreparable injury, because it will not successfully reorganize if the lenders
pursue their individual guaranty claims and/or judgments against Kahn, Debtor’s
largest asset at the outset of Debtor’s reorganization. Id. at 118. Here, there was no
credible evidence that the Pension Plans’ pursuit of withdrawal liability claims against
CG Railway has adversely affected the Debtors’ ability to reorganize.
In Xiotech Corp. v. Express Data Prods. Corp., No. 6:13-CV-861 MAD TWD,
2013 WL 4425130 (N.D.N.Y. Aug. 14, 2013), the defendant was a reseller of the
plaintiff’s goods. It failed to pay the plaintiff for the goods it purchased but sold those
goods and collected substantial amounts from their resale. The District Court granted
the plaintiff’s motion for a temporary restraining order and preliminary injunction
preventing the defendant from transferring the goods or the proceeds of the sales. The
Court concluded that although the plaintiff was suing for money damages, it had
demonstrated irreparable harm under the insolvency exception which allows the
issuance of a preliminary injunction where the defendant is a “perilous financial state.”
Id. at *3. Here, CG Railway is not suing an insolvent defendant, and the insolvency
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exception does not apply.
Given the Court’s conclusion that CG Railway has not demonstrated irreparable
harm, the Court does not reach the remaining elements of the claim for permanent
injunctive relief. Accordingly, Count II of CG Railway’s counterclaims is dismissed. The
Court has considered the parties’ remaining arguments and concludes that they are
without merit. CG Railway is directed to promptly settle a judgment on notice.
Dated: New York, New York
February 16, 2021
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
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