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Thomas G. Davis, Et v. Pension Benefit Guaranty Corporation

May 30, 2012

THOMAS G. DAVIS, ET AL., PLAINTIFFS,
v.
PENSION BENEFIT GUARANTY CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Scullin, Senior Judge

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

Plaintiffs are more than 1,700 mostly retired US Airways pilots who are the beneficiaries of the now-terminated Retirement Income Plan for Pilots of US Airways, Inc. ("Plan"). In their second amended complaint, Plaintiffs allege that Defendant Pension Benefit Guaranty Corporation ("PBGC"), the statutory trustee of the Plan,*fn1 erred in making final benefit determinations by providing lesser benefits than the Plan and ERISA entitled Plaintiffs to recover. See generally Dkt. No. 36.

In March 2007, Plaintiffs filed a consolidated administrative appeal with the PBGC Appeals Board; and, in February 2008, the Appeals Board issued a final decision on Plaintiffs' claims largely in PBGC's favor. Plaintiffs then filed suit in federal court challenging the Appeals Board's determination as contrary to the Plan's language and ERISA.

There are four motions currently before the Court: (1) Plaintiffs' motion for summary judgment on claims one, two, three, six, seven, nine, ten, eleven, and twelve of their second amended complaint; (2) PBGC's cross-motion for summary judgment on those claims as well as on claim four; (3) Plaintiffs' motion to compel an immediate ruling from the PBGC's Appeals Board in the pending administrative appeal of Captain Peterman's benefit determination and for an order directing the Appeals Board to supplement the administrative record with any documents that Captain Peterman referenced in his appeal; and (4) PBGC's resubmitted cross- motion for partial summary judgment on claim eight of Plaintiffs' second amended complaint. See Dkt. Nos. 71, 74, 83, & 90.

II. BACKGROUND

Plaintiffs filed their initial complaint in this action against PBGC on June 20, 2008. See Dkt. No. 1. Plaintiffs also filed a notice of a related case, Oakey v. US Airways Pilots Disability Income Plan, No. 1:03-CV-2373. See Dkt. No. 2. Plaintiffs filed their first amended complaint on August 15, 2008. See Dkt. No. 9. PBGC filed a motion to dismiss claims five and ten of Plaintiffs' amended complaint and to strike Plaintiffs' request for attorney's fees and for a jury trial. See Dkt. No. 10. On March 17, 2009, the Court (Robertson, J.) denied PBGC's motion to dismiss claims five and ten and granted its motion to strike. See Dkt. No. 33. Plaintiffs then filed a motion for a preliminary injunction on August 29, 2008, which the Court denied on December 2, 2008. See Dkt. Nos. 11 & 27.

On June 23, 2009, Plaintiffs filed a second amended complaint. See Dkt. No. 36. On March 12, 2010, Plaintiffs filed a motion for partial summary judgment on one of the twelve claims in their second amended complaint - claim eight. See Dkt. No. 45. PBGC moved to strike Plaintiffs' motion, and the Court denied that motion. See Dkt. No. 47. PBGC then filed a cross-motion for partial summary judgment on claim eight of Plaintiffs' second amended complaint. See Dkt. No. 54. In a Memorandum Opinion and Order dated September 30, 2011, the Court (Kennedy, J.) denied the parties' cross-motions for partial summary judgment on claim eight without prejudice to renew on procedural grounds because Plaintiffs improperly relied on non-record materials. See Dkt. No. 82.

On November 15, 2010, Plaintiffs filed a motion for summary judgment on claims one, two, three, six, seven, nine, ten, eleven, and twelve; and, on February 8, 2011, PBGC filed a cross-motion for summary judgment thereto. See Dkt. Nos. 71 & 74.

On October 19, 2011, Plaintiffs filed a motion to compel the PBGC's Appeals Board to issue an immediate ruling on the pending administrative appeal of Captain Jerome Peterman, a named plaintiff in this case, whose appeal of his final benefit determination had been before the PBGC for approximately eight months. See Dkt. No. 83. PBGC opposed that motion. See Dkt. No. 84.

Then, on December 2, 2011, PBGC resubmitted its cross-motion for partial summary judgment on claim eight of Plaintiffs' second amended complaint. See Dkt. No. 90. In response, Plaintiffs filed a motion to hold PBGC's resubmitted motion for partial summary judgment on claim eight in abeyance pending this Court's resolution of Plaintiffs' motion to compel the Appeals Board to rule on Captain Peterman's pending administrative appeal.*fn2 See Dkt. No. 92. In an Order dated December 12, 2011, the Court (Scullin, S.J.) granted Plaintiffs' unopposed motion for an expedited briefing schedule on their motion to hold in abeyance PBGC's resubmitted motion for partial summary judgment on claim eight; granted Plaintiffs' unopposed motion to schedule a status conference in this matter; granted Plaintiffs' unopposed motion for an extension of time within which to file their opposition to PBGC's resubmitted motion for partial summary judgment on claim eight; and reserved decision on Plaintiffs' motion for an order holding in abeyance PBGC's resubmitted motion for partial summary judgment on claim eight until after the status conference.*fn3 See Dkt. No. 95.

On January 9, 2012, Plaintiffs filed a "provisional" memorandum in opposition to PBGC's resubmitted motion for partial summary judgment on claim eight, noting that they currently had pending two motions related to "the urgency of resolving" Captain Peterman's administrative appeal and that they were "strongly of the view that the PBGC's motion [was] premature at this time."*fn4 See Dkt. No. 99 at 1. PBGC then filed a reply memorandum in support of its resubmitted motion for partial summary judgment on claim eight. See Dkt. No. 102. On February 7, 2012, Plaintiffs filed an unopposed motion for leave to file a surreply in further opposition thereto. See Dkt. No. 103.*fn5

In their second amended complaint, Plaintiffs asserted twelve claims against PBGC: (1) failure to comply with ERISA for improper priority categorization of plan provisions regarding early retirement benefits; (2) failure to comply with ERISA for improper priority categorization of plan provisions incorporating a federal statutory tax provision; (3) failure to comply with ERISA for improper calculation of plan liabilities by using unlawful formula; (4) failure to comply with ERISA for improper calculation of pension benefits due to the use of offsets prohibited by the plan; (5) failure to comply with ERISA for breach of fiduciary duty; (6) failure to comply with ERISA for failure to honor the plan provision guaranteeing the Piedmont Aviation Inc. Pilot Retirement Plan's pilots a cost of living adjustment; (7) failure to comply with ERISA for refusing to allocate benefits by calculating the present value of any benefit as of the date of the plan's termination;(8) failure to comply with ERISA for miscalculation of the minimum benefits guaranteed to former Allegheny Airlines (the predecessor to US Airways) pilots; (9) failure to comply with ERISA for unlawful recoupment; (10) failure to provide insurance benefits to make up for shortfalls that existed after the distribution of remaining plan assets; (11) failure to comply with ERISA for arbitrary diminishment and/or failure to honor longstanding, vested plan provisions guaranteeing disability retirement benefits; and (12) violations of the Administrative Procedure Act ("APA") for failure to provide Plaintiffs with benefits guaranteed by ERISA and the Plan. See Dkt. No. 36.

III. DISCUSSION

A. Plaintiffs' motion for summary judgment on claims one, two, three, six, seven, nine, ten, eleven, and twelve and PBGC's cross-motion for summary judgment on those claims as well as on claim four

1. Standard of review

In its capacity as statutory trustee, PBGC is responsible for administering benefits under terminated pension plans. See 29 U.S.C. § 1342(d)(1)(B). PBGC makes determinations for plan participants who apply to the PBGC for benefits, and participants may challenge those decisions before the PBGC Appeals Board. See 29 C.F.R. §§ 4003.21, 4003.51. A decision that the PBGC Appeals Board renders constitutes PBGC's final agency action. See 29 C.F.R. § 4003.59(b). As Plaintiffs have done in the instant case, plan participants upset with PBGC's final determination concerning their benefits under the plan may challenge that determination in federal court. See 29 U.S.C. § 1303(f). Pursuant to the APA, courts may only set aside final agency actions that the court finds to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law[.]" 5 U.S.C. § 706(2)(A).

Since PBGC is a federal agency subject to the provisions of the APA, see 5 U.S.C. §§ 551 et seq., courts generally must defer to PBGC's actions unless the plaintiff demonstrates that the decision was arbitrary or capricious. See 5 U.S.C. §§ 555, 706(2)(A). Furthermore, to the extent that Plaintiffs' claims challenge PBGC's interpretations of ambiguous provisions of ERISA, those interpretations are entitled to Chevron deference. See Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 648 (1990). This Court (Robertson, J.) previously*fn6 applied Chevron deference to such claims challenging PBGC's statutory interpretations for two reasons:

First, PBGC -- no matter what its role -- has "practical agency expertise" that makes it "better equipped" to interpret and apply ERISA than the courts. . . . Second, courts have consistently deferred to PBGC when it is acting solely as a guarantor even though PBGC often has a financial interest in a particular interpretation of ERISA in that role.

See Dkt. No. 27 at 4-5 (quotation omitted).

The D.C. Circuit similarly "defer[red] to the PBGC's authoritative and reasonable interpretations of ambiguous provisions of ERISA." Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1293 (D.C. Cir. 2009). Accordingly, the Court will apply Chevron deference to those claims in which Plaintiffs challenge PBGC's interpretations of ambiguous ERISA provisions. Under Chevron, where Congress has not "directly spoken to the precise question at issue," a court should proceed to evaluate "whether the agency's [interpretation] is based on a permissible construction of the statute." Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984) (footnote omitted).

"In actions under the APA, summary judgment is the appropriate mechanism for 'deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review.'" United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int'l Union, AFL-CIO-CLC v. Pension Benefit Guar. Corp., No. 09-517, 2012 WL 917554, *12 (D.D.C. Mar. 20, 2012) (quotation omitted). The court shall grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see Anderson v. Liberty Lobby, 477 U.S. 242, 247 (1986). In deciding a motion for summary judgment, the court must draw all reasonable inferences in favor of the nonmoving party. See Anderson, 477 U.S. at 255 (citation omitted).

2. Claim one

In claim one of their second amended complaint, Plaintiffs allege that, in prioritizing benefits, PBGC erroneously interpreted an ERISA provision that would award additional benefits to eligible pilots who retired early under an Early Retirement Incentive Program ("ERIP"). The ERISA provision at issue limits Priority Category 3 ("PC-3") - the prioritization level*fn7 relevant here - to benefits "based on the provisions of the plan (as in effect during the 5-year period ending on [the plan's termination] date) under which such benefit would be the least[.]" 29 U.S.C. § 1344(a)(3)(A) (emphasis added). Claim one involves a dispute over the date on which ERIP came "in[to] effect," a phrase that is undefined in the statute.

Plaintiffs contend that, although the Plan had sufficient assets to cover the benefits in PC-3 for distribution purposes, PBGC improperly excluded the benefit to those Plan participants who retired early. PC-3 covers benefits based on provisions that were "in effect" within five years before the Plan's termination date. The relevant dates are the following: US Airways adopted the ERIP on December 4, 1997; the ERIP included a self-defined effective date of January 1, 1998; the ERIP provided that no pilots could retire or collect payments under the program until May 1, 1998; and the Plan was terminated on March 31, 2003. PBGC determined that the ERIP was not "in effect" five years before the Plan's termination on March 31, 2003, because, even though the ERIP's self-defined effective date was January 1, 1998, the first date on which pilots could actually retire and become eligible for the benefit, i.e., the first date on which the benefit actually went "in[to] effect," was not until May 1, 1998 - one month too late to be included in PC-3.

Plaintiffs challenge PGBC's "ad hoc" interpretation of the ERIP's effective date. They contend that the provision was expressly made effective on January 1, 1998, and that "the PBGC's novel interpretation allowed it to disregard the ERIP in paying a certain category of benefits, thereby saving itself multi-millions of dollars." See Dkt. No. 71 at 17. PBGC, on the other hand, argues that its interpretation of the ERIP's effective date is reasonable because PBGC treats such a program as "in effect" on the date on which it would actually become available to pilots - that is, when pilots could elect to retire and begin receiving payments under the ERIP, not on the date on which the program became nominally effective. Accordingly, PBGC determined that this provision was only "in effect" on the date Plan participants could retire and receive the benefit - May 1, 1998 - and that a pilot who retired prior to that date would not receive the benefit.

PBGC maintains that this interpretation of ERISA is further supported by its own regulations limiting PC-3 benefits to "the lowest annuity benefit payable under the plan provisions at any time during the 5-year period[.]" 29 C.F.R. § 4044.13(b)(3)(i) (emphasis added). The D.C. Circuit held that, because the ERIP "only became operationally effective when it was first possible for pilots to retire under the program - or even collect payments under it - it was reasonable for the PBGC to use May 1, 1998 as the date the program came into effect." Davis, 571 F.3d at 1293.

As stated, Plaintiffs contend that the ERIP was "in effect" more than five years before the Plan's March 31, 2003 termination date. In support of their assertion, Plaintiffs point to PBGC's regulation, which provides that a plan amendment "is 'in effect' on the later of the date on which it is adopted or the date it becomes effective[,]" see 29 C.F.R. § 4044.13(b)(6); and, since the ERIP included a self-defined effective date of January 1, 1998, the ERIP must have been "in effect" more than five years before termination on March 31, 2003. Such an interpretation is not unreasonable. However, since the meaning of the phrase "in effect" is ambiguous, PBGC's statutory interpretation need only be "permissible." The Court defers to the PBGC's interpretation as a permissible construction of the statute. See, e.g., Bean Dredging, LLC v. United States, 773 F. Supp. 2d 63, 87 (D.D.C. 2011) (stating that "the mere fact that two inconsistent conclusions can be drawn from the record does not render the agency's decision arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" (citation omitted)).

Accordingly, the Court denies Plaintiffs' motion for summary judgment on claim one and grants PGGC's cross-motion for summary judgment on claim one.

3. Claim two

Claim two, like claim one, challenges PBGC's decision to exclude a benefit from PC-3. For the five-year lookback period prior to the Plan's termination, the Plan capped maximum benefits at the level established by Internal Revenue Code ("IRC") § 415(b). See 26 U.S.C. § 415(b). Section 7.1 of the Plan provides that, "[a]s required by ERISA, the maximum amount of yearly retirement income which may be paid to a Participant under this Plan may not exceed the limitations contained in Section 415(b) of the IRC . . . ." See Administrative Record ("AR") at 392. In 2001, two years before the Plan's termination, Congress amended § 415 to increase the maximum cap on benefits; and, for the two years preceding termination, the Plan's maximum cap was correspondingly raised. The alleged improperly excluded benefit at issue here concerns certain cost-of-living adjustments ("COLA") to the cap that § 415(b) imposed.

The benefit assigned to PC-3 "is limited to the lesser of the lowest annuity benefit in pay status during the 3-year period ending on the termination date and the lowest annuity benefit payable under the plan provisions at any time during the 5-year period ending on the termination date." 29 C.F.R. § 4044.13(b)(3)(i). Therefore, as this Court previously held, "any automatic increases in the three years before termination - including the 2001 increase at issue here - are rightly excluded from priority category 3." See Dkt. No. 27 at 8-9.

For automatic benefit increases, PBGC's regulation provides that "the lowest annuity benefit payable during the 5-year period ending on the termination date . . . includes the automatic increases scheduled during the fourth and fifth years preceding termination . . . ." 29 C.F.R. § 4044.13(b)(5). Thus, PC-3 would include COLAs that went into effect during the fourth and fifth years before termination as "automatic benefit increases." However, ERISA and PBGC's regulations support an interpretation that PC-3 is rightly limited to the benefit in pay status as of three years before termination or that would have been in pay status if the participant had retired at that time. Indeed, as the D.C. Circuit held in determining that Plaintiffs were unlikely to succeed on this claim, even though the statutory cap was in effect for the entirety of the five-year period before termination, the amended increase to the maximum cap only occurred during the final two years. See Davis, 571 F.3d at 1294.

Accordingly, "[t]hough the pilots prefer the higher cap, the statutory text is plainly against them: Priority Category 3 is 'based on the provisions of the plan (as in effect during the 5-year period ending on [the plan's termination] date) under which such benefit would be the least.'" Id. (quoting 29 U.S.C. § 1344(a)(3)(A)). This Court likewise finds that PBGC reasonably based its final determination on the lower cap because the value of "such benefit would be the least" under the maximum cap that applied during the first three years, rather than the amended increase that applied only during the last two years. For that reason, the Court denies Plaintiffs' motion for summary judgment as to claim two and grants PBGC's cross-motion for summary judgment on claim two.

4. Claim three

In the third claim of their second amended complaint, Plaintiffs challenge PBGC's calculation of their expected retirement age for asset distribution purposes and the PBGC Appeals Board's alleged refusal to even consider potential flaws in that calculation. Plaintiffs essentially challenge PBGC's use of generic tables to calculate their average expected retirement age.*fn8

In valuing and allocating participants' entitlement to early-retirement benefits, PBGC must determine Plaintiffs' average expected retirement age. PBGC has promulgated regulations that establish general assumptions used to make this calculation by way of a formula that includes annually-updated tables. See 29 C.F.R. ยงยง 4044.55-4044.57. PBGC contends that, by using and applying this general formula, it "can value early retirement benefits for a plan without gathering plan-specific data or computing a weighted average of the benefit payable at each possible retirement age," which ...


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