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Board of Trustees of Unite Here Local 25 and Hotel Association of Washington, D.C. Pension Fund v. MR Watergate LLC

January 6, 2010

BOARD OF TRUSTEES OF UNITE HERE LOCAL 25 AND HOTEL ASSOCIATION OF WASHINGTON, D.C. PENSION FUND PLAINTIFF,
v.
MR WATERGATE LLC, ET AL. DEFENDANTS.



The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge

MEMORANDUM OPINION

Plaintiff Board of Trustees of Unite Here Local 25 and Hotel Association of Washington, D.C. Pension Fund (the "Fund") filed this action to collect pension plan withdrawal liability from defendants MR Watergate LLC (the "Employer") and PB Capital Corporation ("PB Capital"). The complaint alleges that the Employer is subject to outstanding withdrawal liability for its failure to make required payments to the Fund and that PB Capital is also liable for these delinquent contributions as the Employer's successor in interest. Presently before the Court is PB Capital's Rule 12(b)(6) motion to dismiss for failure to state a claim, which, as explained herein, the Court will grant.

BACKGROUND

In 2004 the Employer obtained a loan from PB Capital to purchase the famous Watergate Hotel (the "Hotel") in Washington, D.C. (Compl. ¶ 21.) The Employer entered into a collective bargaining agreement with Unite Here Local 25 of Washington, D.C. of the Unite Here International Union (the "Union") (Id. ¶¶ 1, 4), which provided, among other things, that the Employer was to make periodic contributions to the Fund.

(Id. ¶ 16.)*fn1 The Employer initially made the required contributions, but on July 31, 2007, the Employer closed the Hotel and ceased contributing. (Id. ¶ 19.) The Fund chose not to impose withdrawal liability at that time against the Employer because the Employer indicated that it intended to resume operations at the Hotel in February 2010. (Id.) On June 16, 2009, while the Hotel was still closed, PB Capital notified the Employer that it had an outstanding balance of $40 million and that PB Capital was instituting foreclosure proceedings. (Id. ¶ 21.) On July 21, 2009, PB Capital purchased the Hotel at the foreclosure sale. (Id. ¶ 22.) After learning about the foreclosure proceedings, the Fund determined that the Employer had completely withdrawn and thus owed the Fund $637,855.85 in withdrawal liability. (Id. ¶ 24.) The Fund notified the Employer of this decision and indicated that it would accept payments in quarterly installments of $46,176.75. (Id.) The Employer informed the Fund that it would not pay the withdrawal liability, as it was no longer the owner of the Hotel and was being dissolved. (Id. ¶ 25.) Since PB Capital has become the owner, the Hotel has remained closed and it appears that PB Capital has not undertaken any steps to resume operation of the Hotel. (Id. ¶¶ 48-51.)

The Fund brings this action under Sections 502(a)(3) and 515 of ERISA, as amended, 29 U.S.C. §§ 1132(a)(3) and 1145, and the Multiemployer Pension Plan Amendments Act of 1980, 29 U.S.C. §§ 1381-1461, for collection of a delinquent withdrawal liability. The Fund names PB Capital as a co-defendant, alleging that PB Capital is the Employer's "successor in interest" and is, therefore, liable for the Employer's withdrawal liability under the successorship doctrine. (Compl. ¶¶ 48-51.)

ANALYSIS

I. MOTION TO DISMISS STANDARD

As the Supreme Court recently held in Ashcroft v. Iqbal:

[A] complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' [Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)]. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.' Id. at 557.

129 S.Ct. 1937, 1949 (2009). Under this standard, dismissal is required if the complaint consists only of "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements." Id. The allegations in plaintiff's complaint are presumed true at this stage and all reasonable factual inferences must be construed in plaintiff's favor. Maljack Prod., Inc. v. Motion Picture Ass'n of Am., Inc., 52 F. 3d 373, 375 (D.C. Cir. 1995). However, "the court need not accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint." Kowal v. MCI Commc'ns Corp., 16 F. 3d 1271, 1276 (D.C. Cir. 1994)).

II. WITHDRAWAL LIABILITY

When an employer who is part of a multiemployer pension fund fails to make its required contribution, the employer can be subject to "withdrawal liability" in order to "'relieve the funding burden on remaining employers' and to 'avoid creating a severe disincentive to new employers entering the plan.'" Upholsterers' Int'l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F. 2d 1323, 1328 (7th Cir. 1990) (quoting House Committee on Ways & Means, Multiemployer Pension Plan Amendments Act of 1980, H.R. Rep. No. 96-869, Part I, at 67, 96th Cong., 2d Sess. 15, reprinted in 1980 U.S. Code Cong. & Admin. News 2918, 2935). When an employer who is subject to withdrawal liability sells its assets to another corporation, the common law rule is that the purchasing corporation does not assume the seller corporation's liabilities, including withdrawal liability. See id. at 1325 (citing Travis v. Harris Corp., 565 F. 2d 443, 446 (7th Cir. 1977)). However, to relieve the hardship on Unions "where a predecessor employer is unable to fulfill its contractual obligation," courts have carved out a "successorship liability" exception to the common law rule, which provides that the purchaser of corporate assets can assume the liabilities of the purchased corporation under certain conditions. Id. at 1329 (internal citations omitted).

The D.C. Circuit uses the following nine-part test to determine whether a purchaser of corporate assets is a successor and should ...


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