The opinion of the court was delivered by: Ricardo M. Urbina, United States District Judge.
MEMORANDUM OPINION GRANTING THE DEFENDANTS'
MOTIONS FOR SUMMARY JUDGMENT;
DENYING THE PLAINTIFFS' CROSS-MOTION
FOR SUMMARY JUDGMENT
This case arises under the Employee Retirement Income Security Act of
1974 ("ERISA"), 29 U.S.C. § 1001 et seq. The plaintiffs, Air Line
Pilots Association, International ("ALPA") and two individual pilots seek
an injunction to stop the termination of Trans World Airlines's ("TWA")
retirement plan for pilots. In addition, the plaintiffs request damages
for losses suffered if the plan is terminated without following the
requirements of ERISA. The defendants, Pension Benefit Guaranty
Corporation ("the PBGC"), Pichin Corporation, and Icahn Associates
have filed motions to dismiss the case or, in the
alternative, motions for summary judgment. The plaintiffs respond with an
opposition as well as a cross-motion for summary judgment. After careful
consideration of the parties' submissions, the relevant law, and the
entire record herein, the court grants the defendants' motions for
summary judgment and denies the plaintiffs' cross-motion for summary
This case has a long and complex background, involving technical
elements of bankruptcy, corporate, tax, and pension-benefits law. The
main focus of the case, however, centers on the PBGC's termination of
TWA's Pilot's Pension Plan under ERISA's termination provisions.
1. The Employee Retirement Income Security Act of 1974
Following a 10-year study of the nation's private pension plans,
Congress enacted ERISA in 1974. See 29 U.S.C. § 1001 et seq. ERISA is
a comprehensive statute designed to protect the "well-being and security
of millions of employees and their dependents [who] are directly affected
by these plans." 29 U.S.C. § 1001(a). Long and technically
complicated, the ERISA statute is divided into four major titles.
Title I of ERISA requires every administrator of a pension plan covered
by ERISA to file periodic reports with the Secretary of Labor. See
29 U.S.C. § 1001 et seq.; Nachman Corp. v. PBGC, 446 U.S. 359, 362,
n. 1 (1980). In addition, Title I provides for both civil and criminal
enforcement of the Act. See id. Title II amended the Internal Revenue
Code, giving special tax treatment to covered plans to conform to the
requirements of Title I. See id. Title III provided coordinated
enforcement efforts among several federal departments as well as further
study of the field of pension benefits. See 29 U.S.C. § 1201 et
seq.; Nachman, 446 U.S. at 362, n. 1. Finally, and most importantly for
purposes of this case, Title IV established the Pension Benefit Guaranty
Board. See 29 U.S.C. § 1301 et seq.; Nachman, 446 U.S. at 362, n. 1.
Title IV also created a termination insurance program specifically
designed to protect employees against the loss of benefits in the event
of termination or insufficient funds to pay in full promised pension
benefits. See 29 U.S.C. § 1301 et seq.; Nachman, 446 U.S. at 362,
2. The Pension Benefit Guaranty Corporation
The PBGC is a corporation wholly owned by the United States
Government, modeled after the Federal Deposit Insurance Company. See
29 U.S.C. § 1302 (1994); PBGC v. LTV Corp., 496 U.S. 633, 636-37
(1990). The PBGC administers and enforces Title IV of ERISA. See
29 U.S.C. § 1302(d). The PBGC operates a mandatory government
insurance program that protects the pension benefits of millions of
American workers who participate in pensions covered by ERISA. See LTV
Corp., 496 U.S. at 637. To comply with its statutory mandate, the PBGC's
board of directors includes the Secretaries of Treasury, Labor, and
Commerce. See id.
The PBGC can carry out its statutory obligations in a variety of ways.
Perhaps the simplest and most common situation occurs when the PBGC
terminates a pension fund because the fund has insufficient assets to
satisfy its obligations to the retired employees. In this situation, the
PBGC "becomes the trustee of the plan, taking over the plan's assets and
Id. The PBGC then combines the remaining assets of the
terminated plan with its own funds to "ensure payment of most of the
remaining `non-forfeitable' benefits."*fn1 See 29 U.S.C. § 1301(a)(8),
1322(a)-(b); LTV Corp., 496 U.S. at 638. The PBGC then pays benefits
according to limits defined by the ERISA statutes. See
29 U.S.C. § 1322(b)(3)(B). These limits apply to all benefits paid by
the PBGC even if the employees were entitled to greater benefits under
their private plans. See id.
The PBGC is funded in two ways. The first is through employers who
operate and maintain pension plans covered by ERISA. These employers are
required to pay annual premiums for the insurance. See
29 U.S.C. § 1306-07. In addition to these mandatory premiums, the
PBGC receives funds from a statutory liability "imposed on employers who
terminate underfunded pension plans." See LTV Corp., 496 U.S. at 638.
When a plan is terminated, the employer becomes liable to the PBGC for
the amount of benefits to be paid out. Historically, however, the PBGC
has received a very small portion of these liability payments, and
Congress has been forced to raise the annual premiums as a means to allow
the PBGC to continue functioning. See id.
The PBGC has the authority to conduct both voluntary and involuntary
terminations. See 29 U.S.C. § 1341-42. Voluntary terminations can
take two forms. First, a "standard termination" occurs when the employer
has sufficient assets to pay all the benefit commitments of a terminated
plan. See id. at 639. The second form of voluntary termination occurs when
the company does not have sufficient funds to pay its obligations to the
employees. Under this latter form of termination, the employer must
demonstrate financial distress to the PBGC. See 29 U.S.C. § 1341(c).
Involuntary terminations occur pursuant to Section 4042 of ERISA. See
ERISA § 4042; 29 U.S.C. § 1342. The PBGC may involuntarily
terminate a private pension if it determines that any of the following
four factors are present:
(1) the plan has not met the minimum funding standard
required . . . [by the statute], (2) the plan will be
unable to pay benefits when due, (3) the reportable
event described in section 1343(b)(7) of [ERISA] has
occurred, or (4) the possible long-run loss of the
corporation with respect to the plan may reasonably be
expected to increase unreasonably if the plan is not
29 U.S.C. § 1342(a); see also LTV Corp., 496 U.S. at 639.
The instant dispute arises from actions taken by all parties in 1992
when TWA filed for bankruptcy in the United States District Court for the
District of Delaware.
On January 31, 1992, TWA filed for Chapter 11 Bankruptcy in the
Bankruptcy Court for the United States District Court for the District of
Delaware. See Defs. Icahn and Pichin's Mot. to Dismiss or for Summ. J.
("Defs.' Mot.") at 3. Shortly after the bankruptcy filing, the PBGC
notified the court and the parties that TWA's pension plans, including
the Pilot's Plan, were $1.124 billion underfunded. See id.
The PBGC also
indicated that because of the severe nature of the underfunding, it
intended to terminate the pension funds pursuant to its statutory
authority. See id. In addition to terminating the pension funds, the PBGC
also expressed its intention to pursue TWA and its chairman, Carl C.
Icahn, for the $1.124 billion in ERISA liability. See id. at 3 n. 2. The
underfunded pensions and the potential liability associated with them
became a large obstacle that "jeopardized any successful reorganization"
of TWA.*fn2 See id. at 4. According to the defendants, only Carl Icahn
was willing to provide TWA with the $200 million in capital it needed to
reorganize. See id. at 6. In return, however, Mr. Icahn demanded that his
liability relating to the underfunded pensions be dramatically reduced.
2. The Comprehensive Settlement Agreement
Faced with a stalemate, the parties — TWA, Carl Icahn, the PBGC,
and the respective unions (including the ALPA, the union that represented
more than 1,500 active TWA pilots, which played an intricate role)
— resolved the dispute by signing a Comprehensive Settlement
Agreement ("the CSA") on January 5, 1993. See Defs.' Mot. at 6; 1st Am.
Compl. at 2-3. Dense and complex, the CSA became the centerpiece of the
TWA reorganization plan. See Defs.' Mot. at 6. With respect to this
case, the agreement contains the following relevant provisions:
(1) Carl Icahn would loan TWA $200 million; (2) An
Icahn entity (Pichin, a named defendant in this suit)
would sponsor the pension plans instead of TWA. Thus,
Icahn became responsible for making the minimum
funding contributions and TWA was released from all
liability for the plans; (3) TWA was to issue $300
million in notes to make part of the annual pension
plan contributions in compliance with ERISA and
provisions of the Internal Revenue Code; (4) PBGC
would not terminate the plans and would release TWA
and Icahn from all future termination liability,
except for what was agreed to in the CSA; (5) PBGC
would, at Icahn's request, terminate the plans if a
"Significant Event," as defined in the CSA, occurred