A federal judge on Friday said the U.S. Pension Benefit Guaranty Corp's lawsuit accusing billionaire Ira Rennert's Renco Group Inc of trying to evade pension obligations of its RG Steel unit should go to trial.
U.S. District Judge Richard Sullivan in Manhattan rejected requests by both sides to decide the case in their favor. He scheduled a trial for July 6.
The PBGC had in January 2013 sued Renco for $97 million, claiming it sold a 24.5 percent RG stake to private equity firm Cerberus Capital Management LP mainly to escape the steelmaker's pension plans, which were underfunded by $70 million.
A lawyer for Renco did not immediately respond to requests for comment. PBGC spokesman Marc Hopkins declined to comment. Rennert is worth $6.1 billion, Forbes magazine said.
The PBGC said it had been preparing on Jan. 13, 2012 to terminate RG's pension plans, but agreed not to after Renco assured it would not imminently cut its ownership stake to below 80 percent, the level at which it would retain the pension liabilities.
Instead, the PBGC said Renco did just that four days later when it sold a stake to Cerberus, saying the transaction would bolster RG's finances.
The steelmaker ultimately filed for bankruptcy in May 2012, and the PBGC took responsibility for its pension plans six months later.
In his decision, Sullivan said both sides agreed that RG had been in "dire need" of capital, but it was unclear whether raising that capital was what drove the Cerberus transaction.
"There are facts from which a reasonable factfinder could conclude that Renco structured the transaction specifically to reduce its ownership stake below 80% and to evade pension liability," Sullivan wrote.
"Nonetheless, in alternatively drawing all reasonable inferences in favor of Renco, the court is also unable to conclude as a matter of law, at this stage, that evasion was a principal purpose of the deal," he added.
The PBGC has said RG Steel had two pension plans with 1,354 retirees and future beneficiaries.
Created in 1974, the PBGC uses employer insurance premiums, investment earnings and other funds to pay retiree benefits.
Last Friday, a Manhattan federal jury in a separate case ordered Rennert and Renco to pay $118.2 million for looting the former Magnesium Corp of America to build an expensive mansion in eastern Long Island, New York.
The case is Pension Benefit Guaranty Corp vs Renco Group Inc et al, U.S. District Court, Southern District of New York, No. 13-00621.
