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Patrick Lopresti, As Trustee of Ala- Lithographic Industry Pension Plan v. Pace Press

June 18, 2012

PATRICK LOPRESTI, AS TRUSTEE OF ALA- LITHOGRAPHIC INDUSTRY PENSION PLAN,
PLAINTIFF,
v.
PACE PRESS, INC., PBS LITHO, INC., DG3 NORTH AMERICA, INC., JACK MANGIARACINA, JONATHAN VITALE, AND SETH DIAMOND, DEFENDANTS.



The opinion of the court was delivered by: John G. Koeltl, District Judge:

OPINION AND ORDER

INTRODUCTION

The plaintiff, Patrick LoPresti, brought this action as Trustee of the ALA-Lithographic Industry Pension Plan (the "Plan"), against Pace Press, Inc. ("Pace Press"), PBS Litho, Inc., DG3 North America, Inc. ("DG3"), and Jack Mangiaracina, Jonathan Vitale, and Seth Diamond ("the Individual Defendants" or "the Principals"). The plaintiff seeks to recover withdrawal liability it claims is owed to the Plan pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., following the complete withdrawal of Pace Press from the Plan and the sale of Pace Press to DG3 in October 2008. A default judgment was entered against Pace Press in November 2009 in a separate case, awarding the Plan $1,326,312.86. The plaintiff now brings this action asserting that it is entitled to recover from the defendants the withdrawal liability it is owed because a principal purpose of the sale transaction was to evade or avoid withdrawal liability within the meaning of section 4212(c) of ERISA, 29 U.S.C. § 1392(c), such that liability should therefore be determined and collected without regard to the transaction in question.

In May 2011, the Court denied a motion by DG3 to dismiss the complaint against it pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court subsequently conducted a non-jury trial on April 23, 24, and 25, 2012. The Court now makes the following findings of fact and reaches the following conclusions of law pursuant to Federal Rule of Civil Procedure 52.

FINDINGS OF FACT

I. Parties

1. Patrick LoPresti is a Trustee of the ALA-Lithographic Industry Pension Plan (the "Plan"). (Stipulation of Facts ("Stip.") ¶ 1.)

2. The Plan is an "employee benefit plan" within the meaning of sections 3(2) and 3(3) of ERISA, 29 U.S.C. §§ 1002(2) and (3). (Stip. ¶ 2.)

3. The Plan is a "defined benefit plan" within the meaning of section 3(35) of ERISA, 29 U.S.C. § 1002(35), and is maintained for the purpose of providing retirement and related benefits to eligible participants and beneficiaries. (Stip. ¶ 3.)

4. The Plan is a "multiemployer plan" within the meaning of section 3(37)(A) of ERISA, 29 U.S.C. § 1002(37)(A). (Stip. ¶ 4.)

5. The Plan is a jointly administered employee benefit trust fund, established and maintained pursuant to § 302(c) of the Labor Management Relations Act, 29 U.S.C. § 186(c)(5). (Stip. ¶ 5.)

6. The Plan maintains its office at 113 University Place, New York, New York 10003. (Stip. ¶ 6.)

7. DG3 is a corporation organized under the laws of the State of New Jersey and maintains its office and principal place of business at 100 Burma Road, Jersey City, New Jersey 07305. (Stip. ¶ 15.)

8. Pace Press was a corporation organized under the laws of the State of New Jersey and maintained its office and principal place of business at 1 Caesar Place, Moonachie, New Jersey 07074. (Stip. ¶ 8.)

9. Pace Press was a member of the Metropolitan Lithographers Association, Inc. ("MLA"), and, as such, was a party to a collective bargaining agreement covering the period of July 1, 2005 through June 30, 2009 with Local One-L, Amalgamated Lithographers of America, GCC/IBT ("Local 1"). The collective bargaining agreement covered a unit of workers employed by Pace Press and obligated Pace Press to make periodic contributions to the Plan for the purpose of providing retirement benefits to covered workers. (Stip. ¶¶ 10-12.)

10. Jack Mangiaracina was President and a shareholder of Pace Press. (Stip. ¶ 16.)

11. Seth Diamond was an Executive Vice President and a shareholder of Pace Press. (Stip. ¶ 18.)

12. Jonathan Vitale was an Executive Vice President and a shareholder of Pace Press. (Stip. ¶ 19.)

13. PBS Litho, Inc. was a corporation organized under the laws of the State of New Jersey and maintained its office and principal place of business at 1 Caesar Place, Moonachie, New Jersey 07074. (Stip. ¶¶ 13, 14.)

II. Witnesses

14. Joseph Lindfeldt, Jack Mangiaracina, Chad Staller, Jonathan Vitale, Seth Diamond, and Patrick LoPresti testified at the trial.

15. The parties also entered into evidence deposition testimony from Michael Kovarik and Scott Kennedy, both of whom were employed by Merrill Lynch Financial Corporation ("Merrill Lynch") at the time Pace Press was winding down its business. (Tr. 357-58, 369-70.)

III. Pace Press's Loan and Security Agreement with Merrill Lynch

16. In December 1998, the Pace Press Principals entered into a loan and security agreement including an Unconditional Guaranty with Merrill Lynch in order for Merrill Lynch to "advance moneys or extend or continue to extend credit or lease property" to Pace Press. (Stip. ¶ 20.)

17. The Unconditional Guaranty was a joint guaranty that made each of the Principals personally jointly and severally liable for the credit extended to Pace Press. (Stip. ¶ 21.)

18. The aggregate maximum personal liability to Merrill Lynch by the Principals under the 1998 agreement was $500,000. (Stip. ¶ 22.)

19. In April 1999, Pace Press secured a $1 million line of credit from Merrill Lynch. (Stip. ¶ 24.)

20. In November 2006, in order to purchase a new printing press, Pace Press entered into a Term Loan and Security Agreement with Merrill Lynch for a loan of approximately $2,100,000. (Stip. ¶¶ 25, 31.)

21. To effectuate this loan, each of the Principals signed another personal guaranty, incurring an additional liability of $100,000 each. (Stip. ¶ 27.)

22. The addition of the guaranties imposed by the November 2006 loan to those from the December 1998 loan brought the total personal and joint and several guarantied liability to Merrill Lynch for each Principal to $600,000: the $500,000 aggregate from the 1998 loan, plus $100,000 for each of the three Principals from the 2006 loan. (Stip. ¶¶ 28, 29.)

23. By November 2006, Pace Press's line of credit with Merrill Lynch had increased to over $2 million. (Stip. ¶ 26.)

24. In October 2007, Pace Press finalized a sales agreement with Mitsubishi Lithographic Presses in connection with the purchase of a Mitsubishi Diamond 3000LS-8 Eight-Color Sheetfed Printing Press for a purchase price of approximately $2,165,000. (Stip. ¶ 32.)

IV. Pace Press's Financial Difficulties and Search for a Potential Buyer

25. At some point during 2007-2008, Pace Press experienced a decline in sales. (Stip. ¶ 35.)

26. In late 2007 and early 2008, Pace Press had discussions with other printing companies, including Pictorial Offset and Tanagraphics, about potentially selling Pace Press. (Stip. ¶ 36.)

27. During the discussions with Pictorial Offset, the Principals were advised by representatives of Pictorial that if Pace Press were to incur withdrawal liability to the Plan, the liability would be approximately $1 million. (Stip. ¶ 40.)

28. Transactions with Pictorial Offset and Tanagraphics were not consummated because both entities required Pace Press to file for bankruptcy protection as a prerequisite to any acquisition. (Tr. 287-89, 392-93.)

29. Around the time of these discussions, Pace Press retained bankruptcy counsel, who advised Pace Press that the only way it could exist going forward would be to go bankrupt. (Tr. 393.)

30. At this time, the liabilities of Pace Press exceeded the value of its assets. (Tr. 288, 395.)

31. Kovarik testified that, as of August 14, 2008, he viewed the situation of Pace Press as "relatively bleak"; it had lost its two largest customers and he thought that if Pace Press could not find a buyer its only other option would be bankruptcy. (Tr. 359-61.)

32. The Principals would not agree to file for bankruptcy because of their exposure under the personal guaranties they had provided to Merrill Lynch. (Tr. 288-89, 430.)

33. As of August 14, 2008, the amount of outstanding loans from Merrill Lynch to Pace Press was $4,185,374.33. (Stip. ¶ 34.)

34. On August 25, 2008, Merrill Lynch issued a Notice of Default to Pace Press and the Pace Press Principals, notifying them of Pace Press's default on its financing from Merrill Lynch. (Tr. 366-68, 394, 415, 417; Joint Trial Ex. ("Ex.") 157.)

35. The events of default included the failure to maintain the minimum tangible net worth as required by the loan documents. (Ex. 157.)

36. At the same time that Merrill Lynch sent these default letters, it also sent direct pay letters to the customers of Pace Press demanding that they pay any debts owed to Pace Press directly to Merrill Lynch. The impact of this letter on the customers and suppliers of Pace Press was perceived by the Principals as devastating and as eliminating any chance that Pace Press could stay in business. (Tr. 395-96, 415-17.)

37. Merrill Lynch also put a freeze on the Principals' personal accounts with Merrill Lynch, including their mortgages and checking accounts. (Tr. 262-63, 417.)

V. Negotiations Between Pace Press and DG3

38. At some point in 2008, Mangiaracina was contacted by a salesperson at DG3. DG3 had heard about "financial difficulties with Pace," and the salesperson directed Mangiaracina to contact DG3 CEO Michael Cunningham so they could discuss "maybe getting together." (Tr. 245-46.)

39. In or about June 2008, Mangiaracina met for the first time with Cunningham to discuss a possible deal with Pace Press. (Stip. ¶ 43.)

40. DG3 and Pace Press were competitors in the printing industry and there was no corporate affiliation between them. (Tr. 168.)

41. Joseph Lindfeldt is the Executive Vice President for Corporate Development of DG3. (Tr. 35.)

42. Negotiations between DG3 and Pace Press occurred in 2008, with Lindfeldt representing DG3 and the Pace Press Principals representing Pace Press. (Stip. ¶ 45.)

43. At some point after July 11, 2008, DG3 decided that it wanted to purchase the tangible assets and customer list of Pace Press. (Tr. 45.)

44. Lindfeldt and Mangiaracina discussed how to structure a transaction between DG3 and Pace Press, including options such as a stock purchase, purchase of one or more of the entities, and an asset purchase. The transaction was ultimately structured as an asset purchase. (Stip. ¶ 46; Ex. 35.)

45. Sometime in August 2008, DG3 prepared a draft Letter of Intent which outlined a proposal to purchase certain assets of Pace ...


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