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ASSOCIATION OF FLIGHT ATTENDANTS-CWA v. PENSION BENEFIT GUAR.

June 8, 2005.

ASSOCIATION OF FLIGHT ATTENDANTS-CWA, AFL-CIO, Plaintiff,
v.
PENSION BENEFIT GUARANTY CORPORATION, Defendant.



The opinion of the court was delivered by: ELLEN S. HUVELLE, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Association of Flight Attendants — CWA, AFL-CIO ("AFA") seeks a preliminary injunction against the Pension Benefit Guaranty Corporation ("PBGC") to prevent the latter from instituting proceedings to involuntarily terminate the United Airlines Flight Attendant Defined Benefit Pension Plan ("FA Plan"), arguing that a settlement agreement reached between PBGC and United Air Lines Corporation ("United") violates the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1001 et seq. Based on the pleadings and the arguments of counsel presented at a hearing held on June 3, 2005, the Court denies the motion because plaintiff has failed to demonstrate that it is entitled to a preliminary injunction.

BACKGROUND

  Plaintiff represents all flight attendants at United. Under the 2003 collective bargaining agreement ("CBA"), following one year of service, flight attendants become eligible to participate in the FA Plan. (Davidowitch Decl., Ex. A at 228.) The FA Plan was established in 1941, and as of April 28, 2005, included 18,232 fully vested active employees, 5,199 retirees, and 4,971 separated vested participants who are entitled to benefits. (Bacon Decl., Ex. C (PBGC Form 600).) Many of these 28,402 current and former United employees stand to lose substantial pension benefits if the FA Plan is terminated and PBGC assumes responsibility for their pensions. (See, e.g., Bacon Decl., Ex. B (United Notice of Intent to Terminate FA Plan).)

  United has been operating as a debtor-in-possession since December 9, 2002, when it filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq., in the United States Bankruptcy Court for the Northern District of Illinois ("bankruptcy court"). Since July 2004, United has not made the minimum funding contributions to its pensions plans as required by Title IV of ERISA, 29 U.S.C. §§ 1301-1461, and by the Internal Revenue Code.*fn1 Further, on November 5, 2004, United moved to reject its CBAs with its unions (Novey Decl. at ¶ 4 and Ex. A at 7-8 (United Nov. 2004 Status Report)) as a first step toward seeking a "distress termination" of the airline's pension plans, including the FA Plan, pursuant to 29 U.S.C. § 1341.*fn2 (Id. at ¶ 4.) The Air Line Pilots Association ("ALPA") agreed with United not to oppose the airline's termination of the Pilot Plan. (Babcock Decl., Ex. D at 4 n. 7.)

  Subsequently, on December 29, 2004, PBGC*fn3 filed a complaint in the Northern District of Illinois to "involuntarily" terminate the Pilot Plan pursuant to 29 U.S.C. § 1342, and on March 10, 2005, PBGC filed a similar complaint concerning the Ground Plan in the Eastern District of Virginia. However, the PBGC repeatedly asserted that United could retain at least one of its pension plans post-bankruptcy, and PBGC specifically pointed to the FA Plan as a plan that could be maintained under a variety of scenarios. (See, e.g., Babcock Decl., Ex. B at 20-27, Ex. C at ¶ 8; Davidowitch Decl., Ex. E.)

  Consistent with this position, on April 14, 2005, PBGC filed an emergency motion in bankruptcy court to postpone consideration of United's then-pending motion for distress termination of its four pension plans, calling the airline's move "premature" in light of its failure to show that the FA Plan was not salvageable. Under 29 U.S.C. § 1341(c)(2)(B)(ii)(IV), a bankruptcy court cannot approve a debtor's motion to terminate a pension plan unless the court "determines that, unless the plan is terminated, such person will be unable to pay all its debts pursuant to a plan of reorganization and will be unable to continue in business outside the chapter 11 reorganization process." PBGC argued that because United's business plan on file with the court was stale and because the airline had not submitted a proposed plan for reorganization, United's emergence from bankruptcy was not imminent and it was therefore premature to determine whether "but for the termination of the pension plan in issue, [United] will be forced to liquidate." (Babcock Decl., Ex. D at 5.)

  Shortly thereafter, on April 22, PBGC and United reached a settlement ("the Agreement") providing that, if United's pension plans are terminated, the debtor's reorganization plan would provide for payment of up to $1.5 billion to PBGC.*fn4 The Agreement also requires that, with respect to the FA Plan, "[a]s soon as practicable after the date that the Bankruptcy Court enters an order approving the Agreement, PBGC staff will initiate termination under 29 U.S.C. § 1342 of the Flight Attendant . . . Plan?. If and when PBGC issues [a] Notice of Determination? [("NOD")] that the Flight Attendant . . . Plan? should terminate, then PBGC and United shall execute termination and trusteeship agreements with respect to such Plan?." (Babcock Decl., Ex. E at ¶ 4(a) (emphasis added).) Furthermore, the settlement is expressly conditioned on the "condition subsequent" that all the United pension plans would be terminated pursuant to Title IV of ERISA, and the Agreement provides that it may be terminated by either party if this condition is not satisfied. (Id. at ¶¶ 16(a), 18(c).) Should PBGC issue a NOD for the FA Plan, the plan's termination date would be five business days thereafter. (Id. at ¶ 5(a)(i).) PBGC in turn released substantial monetary claims against United and its assets. (See, e.g., id. at ¶ 7.)

  On May 11, the bankruptcy court approved the Agreement, holding that "[t]his settlement does not itself terminate the plan, any plan. This settlement provides that the PBGC will go through its administrative procedures to come to a conclusion as to whether the plans in question here ought to be involuntarily terminated." (Novey Decl., Ex. D (5/11/05 Tr.) at 188.) The court read the settlement as PBGC's "agreement to exercise its statutory obligation to determine whether a pension plan ought to be involuntarily terminated" (id. at 189), noting that aggrieved parties could sue PBGC under 29 U.S.C. § 1303(f) to challenge the propriety of the agency's actions under ERISA. (Id. at 187.) On that same date, the bankruptcy court entered a written order approving the Agreement.*fn5

  ANALYSIS

  AFA now moves for a preliminary injunction, making two legal arguments why PBGC's entry into the Agreement was ultra vires. First, the union contends that, because the pension plan termination envisioned by the settlement is in reality being initiated by United, the Agreement unlawfully evades the strictures of 29 U.S.C. § 1341, which governs "voluntary" pension plan terminations, i.e., those initiated by an employer. (Pl.'s Mot. at 4.) Second, AFA argues that the agency has exceeded its statutory authority under 29 U.S.C. § 1342, which governs PBGCinitiated involuntary terminations, by agreeing in advance to terminate a pension plan before it has made the findings required by statute to justify such a termination.

  I. Statutory Framework

  Section 1341 provides for employer-initiated terminations of pension plans in either standard or distress circumstances.*fn6 In either case, a voluntary termination cannot proceed if to do so would violate an existing CBA. 29 U.S.C. § 1341(a)(3). This "contract bar" provision was added in 1986 as part of a Congressional effort to address the preexisting "termination insurance system [which] in some instances encourages employers to terminate pension plans, evade their obligations to pay benefits, and shift unfunded pension liabilities onto the termination insurance system and the other premium-payers." 29 U.S.C. § 1001b(a)(4). See PBGC v. LTV Corp. (In re Chateaugay Corp.), 87 B.R. 779, 813 (S.D.N.Y. 1988), rev'd on other grounds by 496 U.S. 633 (1990) (discussing legislative history of 1986 ERISA amendments). (See also Pl.'s Reply at 6.) Nonetheless, the 1986 modifications sought to keep in place the delicate balance originally established in 1974, when ERISA was enacted. "Though Congress was concerned chiefly with protecting the employees' expectations of pension benefits, it also realized that employers would not create, maintain, or expand pension plans if ERISA imposed too much cost. Consequently, the entire statute is a finely tuned balance between protecting pension benefits for employees while limiting the cost to employers." A-T-O Inc. v. PBGC, 634 F.2d 1013, 1021 (6th Cir. 1980).*fn7

  A distress termination — one involving a bankrupt plan sponsor — may circumvent the contract bar only where the debtor has satisfied the requirements of § 1113 of the Bankruptcy Code. That provision governs CBA modification and expressly forbids a debtor-in-possession or trustee from "unilaterally terminat[ing] or alter[ing] any provisions of a collective bargaining agreement," 11 U.S.C. § 1113(f). A debtor may not change a CBA unless it engages, inter alia, in good faith negotiations with its unions designed to achieve necessary modifications that treat all affected parties "fairly and equitably." Id. § 1113(b)(1)(A). The bankruptcy court must so find before it can approve any unilateral CBA changes. Id. § 1113(c). See Adventure Res., Inc. v. Holland, 137 F.3d 786, 796 & n. 13 (4th Cir. 1998). In other words, unless United reached a ...


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