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Air Line Pilots Association, International v. Pension Benefit Guaranty Corp.

March 29, 2002


The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

Document Nos.: 11, 12, 20, 27




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 Corporation, 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 judgment.


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.

A. Statutory Framework

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, n.1.

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 liabilities." 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 terminated. 29 U.S.C. § 1342(a); see also LTV Corp., 496 U.S. at 639.

B. Factual History

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.

1. The TWA Bankruptcy

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. See id.

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 and; (6) that in the event of a Significant ...

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