Creditor challenges bankruptcy plan of ILWU dockworkers union

Terminal operator ICTSI has not given up its quest for tens of millions in damages from the West Coast longshore union.

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One of the world’s largest and highest-profile dockworker unions, the International Longshore and Warehouse Union (ILWU), filed for Chapter 11 bankruptcy protection on Sept. 30, seeking to shield itself from a crippling damage award owed to Philippines-based International Container Terminal Services Inc. (ICTSI).

But the bankruptcy filing is not the end of the saga. The legal battle continues.

Under the proposed reorganization plan, the ILWU would give $6.1 million to terminal operator ICTSI, which is substantially all of its remaining cash, then “rebuild” over the coming years, finally closing the book on a courtroom fight with ICTSI that began in 2013.

The hearing to confirm the reorganization plan will not take place until February at the earliest. In the meantime, ICTSI is crying foul — and telegraphing arguments it will make to oppose the plan’s confirmation.

ICTSI has argued that ILWU’s bankruptcy filing is “what appears to be forum shopping” and expressed concerns that “the full nature and extent of the debtor’s assets have not been fully disclosed.”

ILWU — a small business?

The ILWU filed its case under bankruptcy law’s Subchapter 5, a streamlined process that applies to small businesses with debts of $7.5 million or less. (That ceiling was previously $2.7 million, but was raised in March 2020 as part of COVID relief legislation.)

A jury in Oregon decided in November 2019 that the ILWU owed ICTSI $93.6 million in damages for unlawful labor practices starting in 2013 at ICTSI’s terminal in Portland, Oregon.

A judge ruled in March 2020 that the award was too generous and set maximum damages at $19.06 million — if both sides agreed. 

ICTSI didn’t agree, so a new trial on damages was set to begin in February 2024, with ICTSI seeking $48 million-$142 million this time around. 

Because the damage amount had yet to be confirmed when the ILWU filed for bankruptcy, it didn’t count against the $7.5 million debt limit, and the ILWU, which has no bank debt, qualified under Subchapter 5.

Debt is deemed “liquidated” when the amount is legally certain. “This debt has not been liquidated,” said Judge Hannah Blumenstiel of the ICTSI damages during the initial Chapter 11 hearing in October.

“Eligibility [for Subchapter 5] is determined as of the petition date. And I don’t think there’s any argument to be made that this debt was liquidated as of the petition date.”

This month, a hearing before Blumenstiel on the ILWU case was preceded by a bankruptcy hearing for a pancake restaurant called Stacks. How can a union with 40,000 members serving ports from Los Angeles to the Pacific Northwest — whose president, Willie Adams, speaks with President Joe Biden — fall in the same category as Stacks?

The answer is that the ILWU bankruptcy case only applies to the union management division that lobbies and educates, which has four officers and 21 support staff. “The locals and affiliate unions are separate legal autonomous entities and are not debtors or otherwise involved in this Chapter 11 case,” said Adams in his affidavit.

ICTSI’s main focus now is to shed light on how separate these entities are for the purposes of the bankruptcy case, with the goal of derailing confirmation of the proposed plan.

Its implied argument is that the ILWU could have a lot more assets than it lists and shouldn’t be allowed to hide from the decade-long Oregon litigation using a bankruptcy shield for one portion of its structure.

Alleged ‘entanglement’ with Longshore Division

ICTSI specifically highlighted the ILWU’s Coast Longshore Division (CLD). According to the ILWU’s website, “The core of the union, historically, has been the Longshore Division.”

The terminal operator said in a filing on Nov. 9, “Discerning the true nature and extent of the relationship between the debtor and the CLD has predictably been a primary focus of ICTSI in the discovery process.

“The various overlaps in management, operations and potentially assets between the debtor and the CLD, and the absence of any mention of the CLD in the debtor’s schedules of assets and liabilities or statement of financial affairs, other than three transfers made within 90 days prepetition, are anticipated to arise in connection with plan confirmation.”

ICTSI said that the ILWU’s general counsel, Lindsay Nicholas, provided testimony at creditor meetings on Oct. 24 and Nov. 6 on the debtor’s connections to and interactions with the CLD.

According to ICTSI, Nicholas testified that the CLD is currenting paying ILWU legal fees on 11 of its 12 litigation cases — the ICTSI litigation being the sole exception.

“Nicholas testified that, for more than a decade, the CLD also paid the ILWU’s legal and defense fees incurred in connection with the ICTSI litigation. However, on the eve of the debtor’s bankruptcy filing, the CLD stopped such payments and that obligation moved to the debtor.”

ICTSI also pointed to annual financial reports called LM-2 forms that unions file with the Department of Labor. 

“Nicholas testified that the CLD historically listed the contingent liability associated with the ICTSI litigation on its own LM-2 forms,” but this was “transferred to the ILWU mere months before the debtor’s bankruptcy filing.”

“ICTSI is coming to appreciate the extent of the entanglement between the debtor and the CLD. ICTSI is further concerned that this type of entanglement and overlap could extend to other divisions and entities under the broader ILWU organizational umbrella.”

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