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United Steel, Paper and Forestry, Rubber, Manufacturing v. Pension Benefit Guaranty Corporation

March 20, 2012

UNITED STEEL, PAPER AND FORESTRY, RUBBER, MANUFACTURING, ENERGY, ALLIED INDUSTRIAL AND SERVICE WORKERS INTERNATIONAL UNION, AFL-CIO-CLC, ON BEHALF OF THE PARTICIPANTS AND BENEFICIARIES OF THE THUNDERBIRD MINING CO. PENSION PLAN, ET AL.,
PLAINTIFFS,
v.
PENSION BENEFIT GUARANTY CORPORATION,
DEFENDANT.



The opinion of the court was delivered by: Judge Beryl A. Howell

MEMORANDUM OPINION

In May 2003, the Thunderbird Mining Company ("Thunderbird") filed for bankruptcy, stopped production at its iron ore facility, and placed nearly 400 hourly employees on indefinite temporary layoff. In light of Thunderbird's troubled business prospects, the Pension Benefit Guaranty Company ("PBGC"), in accordance with its statutory mandate to insure and protect pension benefits, moved to terminate the pension plan that Thunderbird had established for its hourly workers and have the PBGC appointed as statutory trustee of the plan. Plaintiffs in this case are former Thunderbird employees represented through their union representative who challenge the PBGC's denial, as administrator of the Thunderbird pension plan, of certain benefits to which they claim they are entitled under the plan. Specifically, the plaintiffs challenge the PBGC's determination that the Thunderbird facility had not undergone a "permanent shutdown" prior to termination of the pension plan and contend that the PBGC's denial of "shutdown benefits" to the plaintiffs was erroneous. Pending before the Court are cross-motions for summary judgment based on the administrative record. As explained below, the PBGC's determination that a "permanent shutdown" had not occurred prior to the plan termination date was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Accordingly, the defendant's motion for summary judgment is granted and the plaintiffs' motion for summary judgment on liability is denied.

I.BACKGROUND

A.Regulatory Background

The PBGC is the federal agency created by the Employee Retirement Income Security Act of 1974 ("ERISA") to insure certain private sector pension plans. 29 U.S.C. § 1302. It fulfills this responsibility by "(1) encouraging the continuation and maintenance of voluntary private pension plans for the benefit of their participants, (2) providing timely payments of benefits in the case of terminated pension plans, and (3) making the maximum use of its resources while at the same time maintaining premiums at the lowest levels consistent with its statutory responsibilities." Pension Benefit Guar. Corp. v. Republic Techs. Int'l, LLC, 386 F.3d 659, 661 (6th Cir. 2004); 29 U.S.C. § 1302(a)(1)-(3).

Among its functions, the PBGC guarantees benefits, within limits, to participants of a covered plan when that plan terminates with insufficient assets to cover its benefit liabilities. 29 U.S.C. § 1322. The agency may terminate a plan "involuntarily" when it determines that certain statutory criteria have been met, e.g., that the pension plan will be unable to pay benefits when due, or that the agency's possible long-run loss with respect to the plan "may reasonably be expected to increase unreasonably if the plan is not terminated." 29 U.S.C. § 1342(a). "ERISA provides for involuntary termination proceedings precisely so that PBGC can protect its own financial interests and 'avoid any unreasonable deterioration of the financial condition of the plan or any unreasonable increase in the liability of the fund.'" Republic Techs. Int'l, LLC, 386 F.3d at 668 (quoting 29 U.S.C. § 1342(c)).

The PBGC initiates the termination process by issuing a notice to the plan administrator of the PBGC's determination that the plan should be terminated. 29 U.S.C. § 1342(c). If the plan administrator challenges this determination, the PBGC "may, upon notice to the plan administrator, apply to the appropriate United States district court for a decree adjudicating that the plan must be terminated." Id. When a plan is terminated involuntarily, the PBGC must also apply to the appropriate district court for the appointment of a trustee to administer the plan. 29 U.S.C. § 1342(b). ERISA permits the PBGC to serve as trustee to administer a plan in addition to its role as guarantor. Id. "The PBGC has applied to serve as trustee in every terminated plan, and courts typically grant its application." Davis v. Pension Benefit Guar. Corp.,571 F.3d 1288, 1291 (D.C. Cir. 2009) (citing Pineiro v. Pension Benefit Guar. Corp., 318 F. Supp. 2d 67, 72 (S.D.N.Y. 2003)).

"When serving as a statutory trustee, [the] PBGCwears two hats: one as guarantor of ERISA's insurance program and one as trustee." Davis v. Pension Benefit Guar. Corp., No. 08-cv-1064, 2011 WL 4536888, at *1 (D.D.C. Sept. 30, 2011) (internal citation and quotation omitted). As a trustee, the agency is responsible for administering benefits under the plan. 29 U.S.C § 1342(d)(1)(B). The agency sends determination letters to plan participants who apply to the PBGC for benefits, and these decisions may be challenged before the PBGC Appeals Board. 29 C.F.R. §§ 4003.21, 4003.51. A decision by the Appeals Board constitutes the PBGC's final agency action, 29 C.F.R. § 4003.59(b), of which plan participants may seek judicial review. 29 U.S.C. § 1303(f).

B.Factual Background

1.The Thunderbird Pension Plan

Plaintiff United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial, and Service Workers International Union ("USW") was for several decades the exclusive bargaining representative for the hourly employees of the Thunderbird Mining Company. Pls.' Statement of Material Facts, ECF No. 52, ¶ 1 ("Pls.' SMF"). In 1999, the plaintiff negotiated a pension agreement with Thunderbird under which Thunderbird sponsored an employee pension plan covered by Title IV of ERISA (the "Plan"). Am. Compl., ECF No. 13, ¶ 1; Pls.' SMF ¶ 3. The terms of the Plan provided for "shutdown pension benefits," which are triggered when an employee's continuous service is broken due to the "permanent shutdown" of the Thunderbird facility.*fn1 Pls.' SMF ¶ 20. The Plan did not, however, specifically define "permanent shutdown." Id.

Located in Eleveth, Minnesota, Thunderbird employed approximately 400 hourly employees and provided low-grade iron ore in the form of taconite pellets for steel production. Id. ¶ 2. The company was a wholly owned subsidiary of Eveleth Mines, LLC ("EVTAC"),*fn2

which itself was jointly owned by three steel companies: Rouge Steel, AK Steel, and Stelco. Id. ¶¶ 2, 5; Def.'s Statement of Material Facts, ECF No. 51, ¶¶ 10-11 ("Def.'s SMF"). These companies not only owned EVTAC, but were also EVTAC's sole customers for taconite pellets. Pls.' SMF ¶ 5, Def.'s SMF ¶ 11.

In early 2003, EVTAC suffered a drastic reduction in orders for its taconite pellets.

Def.'s SMF ¶ 13. Rouge Steel began to purchase its taconite from a different company, Cleveland-Cliffs, Inc., while AK Steel began to purchase its ore requirements from Iron Ore Co. of Canada. Pls.' SMF ¶ 5; Def.'s SMF ¶¶ 4, 13. Stelco remained under a requirements contract with EVTAC for the first few months of 2003, but that contract expired on May 14, 2003, and was then renewed at a much lower requirement level. Def.'s SMF ¶ 14; AR 533.

Due to the loss of its biggest purchasers, on February 14, 2003, EVTAC sent a confidential letter to the local USW director advising the Union of its economic prospects. The letter from EVTAC's Manager of Employee Relations stated:

Regretfully, I must advise you that it is the intention of the Company to close permanently the Eveleth Mines LLC, dba EVTAC Mining operation. This action results from a lack of customer orders as of this date. The intended closure would commence on or about May 14, 2003. Pellet inventory shipments would be expected to continue past that date and conclude on or about July 12, 2003.

AR 451 (letter from John P. Baxter to David Foster). The letter invited USW representatives to "discuss the Company's proposed course of action and to provide information to the Company and suggest alternative courses." AR 451.

On March 10, 2003, EVTAC distributed to its employees a Worker Adjustment and Retraining Notification ("WARN") Act Notice advising them of a planned "Plant Closing or Mass Layoff" around May 15, 2003.*fn3 AR 565; Def.'s SMF ¶ 15. The WARN Notice described the planned shutdown as "temporary (but only if pellet orders are received during shutdown period)." AR 464, 565; Pls.' SMF ¶ 7; Def.'s SMF ¶ 15-16.

In an effort to secure benefits for its employees, on March 17, 2003, EVTAC sent a "Petition for Trade Adjustment Assistance" to the United States Department of Labor ("DOL").*fn4

Pls.' SMF ¶ 8. The March 17 petition indicated that the plant would close on May 15, 2003, that 446 employees would be affected, and that job losses were due to the company "losing sales to customers importing products from a foreign country." AR 460, 464 (Petition for Trade Adjustment Assistance). The petition further stated that the plant "closure will be permanent if no additional orders are received." AR 460, 464. The DOL, however, denied the petition. AR 465-66 (Letter from John P. Baxter to DOL requesting reconsideration).

2.EVTAC's Bankruptcy and Sale of Assets

On May 1, 2003, EVTAC filed for bankruptcy pursuant to Chapter 11 of the Bankruptcy Code. AR 588; Pls.' SMF ¶ 9. Thunderbird filed for bankruptcy two weeks later on May 15, 2003. AR 596; Pls.' SMF ¶ 9. The following day, on May 16, 2003, EVTAC suspended its mining and taconite production operations and all but four of EVTAC's approximately 400 hourly employees were placed on indefinite temporary layoff. Pls.' SMF, ¶ 10; AR 455, 458, 540. These four hourly workers, as well as twenty-nine salaried employees whom EVTAC continued to employ, were charged with securing the plant site, including welding the plant's doors and gates shut, turning off the electricity, and disconnecting the batteries on all the equipment and vehicles. Pls.' Opp'n, ECF No. 54, at 6 n.3; AR 455, 458-59. EVTAC also required the plant's vendors to remove their leased equipment from the plant site and terminated their leases. Pls.' SMF ¶¶ 10, 11.

On June 5, 2003, EVTAC requested the DOL to reconsider its earlier denial of EVTAC's "Petition for Trade Adjustment Assistance," stating that its circumstances had changed since its March 2003 petition. AR 465-66; Pls.' SMF ¶ 12. Specifically, EVTAC stated that "a[t] the time of the initial application, EVTAC Mining was still producing at normal production rates, and Thunderbird employees were still employed. EVTAC Mining is now totally shut down and only a skeleton crew is employed." AR 465-66. EVTAC further stated that AK Steel, one of EVTAC's two primary owners and customers, had not placed new orders, and that "it has also become very clear recently that AK Steel's decision to discontinue purchases from EVTAC Mining is a long term decision." AR 466. EVTAC noted that AK Steel had begun importing iron ore pellets from Canada, and that those imports had "displaced EVTAC Mining's production." AR 466.

On the basis of the request for reconsideration and an investigation conducted by the DOL starting on June 10, 2003, the DOL found that "increases of imports" of iron ore/taconite pellets had "contributed importantly to the decline in sales or production and to the total or partial separation of workers" at EVTAC, and the DOL granted EVTAC's petition. Pls.' SMF ¶ 13; TAA Decision 5199.

On June 15, 2003, EVTAC laid off its four remaining hourly production employees, but continued to employ "a skeleton staff" of salaried employees to handle administrative duties and protect against fire and flooding.*fn5 Def.'s SMF ¶¶ 27-28; AR 540, 456, 458 (Declarations of former EVTAC employees). Throughout the bankruptcy proceedings, EVTAC represented to the bankruptcy court that it "continue[d] to maintain the equipment and other assets associated with its mining operations to protect the enterprise value of its estate" while it sought new contracts or a purchaser of its assets or its entire business as a going concern. Def.'s SMF ¶ 42.

Indeed, EVTAC actively sought new orders for taconite pellets, without success, through July 2003. AR 9, 449, 647. On July 5, 2003, for example, EVTAC and USW's representative met with then-Congressman Jim Oberstar to discuss EVTAC's inability to obtain new sales contracts. Id. Congressman Oberstar recommended that EVTAC negotiate with Laiwu Steel Group Ltd. ("Laiwu"), a Chinese corporation, either to secure sales contracts with Laiwu or, alternatively, sell EVTAC's assets. Id.

In early October 2003, five months following the filing of its bankruptcy petition, mining company Cleveland-Cliffs and Laiwu offered to purchase EVTAC as an operational mining company. AR 646-47; Def.'s SMF ¶ 40. According to news reports, Congressman Oberstar "helped broker the deal because of his relationship with Yang Jiechi, the Chinese ambassador to the United States." AR 647.

On October 20, 2003, EVTAC confirmed the proposed purchase of the mining operations and filed a motion in bankruptcy court for approval to sell substantially all its assets. In re Eveleth Mines LLC, No. 03-50569 (Bankr. D. Minn. filed October 20, 2003), ECF No. 101. EVTAC stated in its motion that "[t]he Debtor suspended its mining and taconite production operations on or about May 16, 2003. The Debtor continues to maintain the equipment and other assets associated with its mining operations to protect the enterprise value of its estate while the Debtor seeks a purchaser and/or funding for a plan of reorganization." Def.'s SMF ¶ 42; see also Pls.' Opp'n Def.'s Mot. Summ. J., ECF No. 54, at 6. EVTAC further stated that "[s]ince the commencement of this Chapter 11 case, the Debtor has proceeded diligently toward the successful sale of substantially all of its assets (the Mining Assets) on a going-concern basis. To date, and although other parties have shown interest, the Buyer . . . is the only interested party that has come forward to purchase the Mining Assets and execute a letter of intent." Def.'s SMF, ¶ 43. The proposed sale terms required:

[T]he Debtor to restore its mining operations to operating condition consistent with industry practice. Such work must be commenced immediately in order to accommodate the December 1, 2003 closing date . . . . The work required by this condition will return a number of former employees to work and the closing of ...


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