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Brian A. Pepicelli


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Third Circuit Affirms $96 Million Withdrawal Liability Award Against Renco

Brian A. Pepicelli, Esq.,, (412) 594-3953

In a major win for the Steelworkers Pension Trust (SPT), the U.S. Court of Appeals for the Third Circuit upheld an award totaling $96 million in withdrawal liability and additional statutory penalties against the Renco Group, Inc.

The case originated from a complex financial transaction that Renco entered into with a distressed debt lender, Cerberus Capital Management LP.  One of the goals of the Cerberus transaction was to save Renco’s struggling subsidiary, RG Steel.  Another goal was to insulate Renco from controlled group liability to the SPT if RG Steel collapsed—which it did just a few months later.  Renco accomplished the second goal by repeatedly insisting that the equity component of the transaction be changed from penny warrants (i.e., options to acquire equity) to direct equity.  The sole reason for the change was to guarantee that Renco would exit the RG Steel controlled group immediately upon the transaction’s closing.    

When RG Steel failed, it triggered approximately $79 million in withdrawal liability to the SPT.  RG Steel, however, had nowhere near the assets to pay its withdrawal liability, so the SPT sought to hold Renco liable.

Although Renco was no longer in the RG Steel controlled group as a result of the Cerberus transaction, ERISA includes a provision that allows multiemployer pension plans to disregard any transaction that has a principal purpose of evading or avoiding withdrawal liability.  The transaction is treated as if it never occurred.  The SPT invoked that “evade or avoid” provision against Renco and assessed it for RG Steel’s withdrawal liability, which prompted Renco to demand arbitration.

The arbitrator sided with the SPT and awarded it $79 million.  The district court later affirmed the award, and Renco appealed again to the Third Circuit.  On appeal, Renco raised a series of arguments that challenged the arbitrator’s finding that one of the principal purposes of the Cerberus transaction was to evade or avoid withdrawal liability, regardless of whether the transaction had a separate principal purpose unrelated to withdrawal liability (i.e., saving RG Steel).  The gist of Renco’s argument was that its restructuring of the transaction from warrants to equity was not important to the overall transaction but was merely a clarifying contract edit being done as a “belt and suspenders” measure.  Renco asserted that, as a matter of law, the penny warrants would have removed it from the controlled group even without converting them to direct equity and, moreover, that even if it was mistaken on this point, it still could not be liable because it subjectively believed that this was the case.

As the Third Circuit explained, however, Renco’s arguments were based on mischaracterizations of the arbitrator’s factual conclusions and the applicable case law, as well as false assumptions that had no support in the record.  The Third Circuit thus left the $78 million award intact.

Renco also challenged the district court’s imposition of $17 million in other statutory penalty damages (two awards of interest and attorneys’ fees) due to Renco’s failure to make interim payments under ERISA’s “pay now, dispute later” rule.  Renco maintained that it did not owe those damages at all, and that even if it did, it should only have to pay interest at the lowest available rate under PBGC regulations.  But the Third Circuit rejected those arguments as well, concluding that they too were contrary to law and fact.

The key lesson from this case is the importance of multiemployer pension plans thoroughly investigating controlled group liability.  The controlled group rules exist to aid plans in collecting withdrawal liability for the benefit of their participants, beneficiaries, and other contributing employers.  Nonetheless, sophisticated entities like Renco are well aware of their controlled group liability, and they frequently receive counsel with regard to limiting their exposure.  This means that plans must pay close attention to changes in controlled group status leading up to a withdrawal.  Any such changes constitute a red flag requiring additional investigation by counsel.  Failure to do a thorough investigation comes with the risk of missing out on collecting from a company with deep pockets.

For more information, please contact Brian A. Pepicelli by email at or by phone at (412) 594-3953.  He wrote several portions of the briefs on behalf of the SPT in the Third Circuit, as well as in the district court.

September 01, 2021

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