Bd. of Trs. of MEBA Pension Tr. v. CG Ry., LLC (In re Int'l Shipholding Corp.)

In re: INTERNATIONAL SHIPHOLDING CORPORATION, et al., Reorganized Debtors.

BOARD OF TRUSTEES OF THE MEBA 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, v. 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.

Case No. 16-12220 (SMB)

Adv. Pro. No. 19-01006 (SMB)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

February 16, 2021

Chapter 11

Jointly Administered

POST-TRIAL FINDINGS OF FACT AND CONCLUSIONS OF LAW

APPEARANCES:

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 thesettlement 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. (SF10-11; 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'sChairman 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,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 withdrawalliability 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...