United States District Court, District of Columbia
K. WENDELL LEWIS, et al., Plaintiffs,
PENSION BENEFIT GUARANTY CORPORATION, Defendant.
B. WALTON United States District Judge
plaintiffs, approximately 1700 former airline pilots,
initiated this action against defendant Pension Benefit
Guaranty Corporation (“Corporation”) under the
Employment Retirement Income Security Act, 29 U.S.C.
§§ 1001-1461 (2012) (“ERISA”),
asserting claims of breach of fiduciary duty, denial of
benefits, and violations of the Administrative Procedure Act
(“APA”), and seeking certain declaratory and
injunctive relief. See generally First Amended
Complaint (“Am. Compl.”) ¶¶ 1-13,
63-156. Currently pending before the Court is the Pension
Benefit Guaranty Corporation’s Motion To Dismiss and To
Strike (“Def.’s Mot.”), in which the
Corporation seeks to dismiss the plaintiffs’ breach of
fiduciary duty claim (Claim One), and to strike the
plaintiffs’ demands for attorney’s fees and for a
jury trial. Def.’s Mot. at 1. Upon consideration
of the parties’ submissions, the Court concludes that
the Corporation’s motion to dismiss Claim One of the
Amended Complaint must be denied. However, the Court will
grant the Corporation’s motions to strike the
attorney’s fees and jury trial demands.
The Corporation’s Duties Under the ERISA
ERISA was enacted in part to “ensure that employees and
their beneficiaries would not be deprived of anticipated
retirement benefits by the termination of pension plans
before sufficient funds [had] been accumulated in the
plans.” Pension Benefit Guar. Corp. v. R.A.
Gray & Co., 467 U.S. 717, 720 (1984). As
part of this statutory goal, the ERISA created the
Corporation-a component within the Department of Labor-to,
inter alia, “provide for the timely and
uninterrupted payment of pension benefits to participants and
beneficiaries under plans to which this subchapter
applies.” 29 U.S.C. § 1302(a)(2). The Corporation
“administers and enforces Title IV of [the]
ERISA.” Pension Benefit Guar. Corp. v. LTV
Corp., 496 U.S. 633, 637 (1990). As the Supreme Court
When a plan covered under Title IV terminates with
insufficient assets to satisfy its pension obligations to the
employees, the [Corporation] becomes trustee of the plan,
taking over the plan’s assets and liabilities. The
[Corporation] then uses the plan’s assets to cover what
it can of the benefit obligations. The [Corporation] then
must add its own funds to ensure payment of most of the
remaining “nonforfeitable” benefits, i.e., those
benefits to which participants have earned entitlement under
the plan terms as of the date of termination.
LTV Corp., 496 U.S. at 637 (citing 29 U.S.C.
§§ 1301, 1322, 1344).
dispute originated with a September 2005 voluntary petition
for bankruptcy filed by Delta Airlines, Inc.
(“Delta”), which thereafter resulted in Delta not
making contributions to the Delta Pilots Retirement Plan
(“Plan”), a tax-qualified deferred benefit plan
under the ERISA and the Internal Revenue Code. Am. Compl.
¶¶ 28, 30, 33. The plaintiffs, former Delta pilots
(or their spouses or estate executors) are participants and
beneficiaries under the Plan. Id. ¶¶ 2,
29. Delta’s post-bankruptcy negotiations with the
pilots’ union regarding the Plan’s termination,
id. ¶ 33, yielded an agreement in which the
union “would receive $650 million in notes and a $2.1
billion allowed general non-priority unsecured claim . . .,
which Delta and [the union] intended to be used to
‘replace unfunded benefits under the . . . Plan by
using the proceeds to fund follow-on retirement plans and
other payments or distributions to [active] pilots, ”
id. ¶ 34 (second alteration in original)
(quoting Am. Compl., Exhibit (“Ex.”) A, at 2).
Corporation objected to the proposed agreement between Delta
and the pilots’ union, asserting that it was
“designed in substantial part to skirt [ERISA’s]
safeguards.” Id. ¶ 35 (quoting Am.
Compl., Ex. A, at 14). These safeguards are achieved through
a six-tiered allocation scheme, in which benefits under a
plan such as the Plan here are paid in order of statutory
priority, which the Court will refer to as Categories 1
through 6. See id. ¶ 19; see also 29
U.S.C. § 1344(a)(1)-(6) (setting forth the order of
priority a plan administrator is required to apply when
allocating to participants the value of assets in a
single-employer plan). Under the circumstances present here,
“[Category 3] is the highest priority category . . .
[under which] benefits are reserved for those participants
who were retirement-eligible at least three years prior to a
plan’s termination, under the plan provisions as they
existed five years prior to plan termination.” Am.
Compl. ¶ 19. The proposed agreement between Delta and
the pilots’ union allegedly would have
“improperly allowed funds which should properly go to
the [Corporation] in connection with [the] ERISA’s
priority allocation scheme to leave the control of the plan
sponsor/control group and thereby to fund pension benefits
outside of [the] ERISA’s asset allocation scheme . .
. .” Id. ¶ 35 (citing Am. Compl., Ex. A,
at 14-15). “In essence, the [proposed agreement] would
allow Delta and [the pilots’ union] to turn the asset
allocation scheme on its head, putting younger active workers
to the front of the line while relegating retirees living on
a fixed income to the back.” Id.
the Corporation’s objections, the bankruptcy court
approved the agreement between Delta and the pilots’
union, and the Corporation “appealed [that] ruling to
the district court.” Id. ¶ 36. However,
the Corporation later “withdrew” the appeal
following the December 4, 2006 execution of a settlement
agreement between Delta and the Corporation. Id.
¶ 39. Under the settlement agreement, the Corporation
“received $225 million in notes, and a $2.2 billion
unsecured bankruptcy claim.” Id. On December
20, 2006, the bankruptcy court approved the settlement
agreement between Delta and the Corporation. Id.
¶ 41. The Plan “was retroactively terminated as of
September 2, 2006 . . ., and the [Corporation] became the
[Retirement] Plan’s Trustee as of December 31,
2006.” Id. (italics omitted). The Corporation
“obtained additional recoveries from Delta, which the
[Corporation] initially valued as being worth $1, 279,
423.” Id. ¶ 45. The plaintiffs allege
that they should have received a portion of these recoveries
before active pilots, but represent that this did not occur
by placing the benefits of active pilots (not yet in pay
status) ahead of [Category 3] retirees (already in pay
status)[, ] the [Corporation] was able to corrupt the
statutory recovery ratio by ensuring that hundreds of
millions of dollars remained, undiluted, within the
agency’s trust fund in order to maximize the
[Corporation’s] investment returns.
trustee of the trust fund that held the Plan’s assets,
the Corporation initially valued those assets at
approximately $1.984 billion and calculated that the
Plan’s Category 3 liabilities were approximately $2.13
billion, “such that [Category 3] liabilities were 93%
funded by the [Retirement] Plan’s assets.”
Id. ¶¶ 42-43. The Corporation also
determined that the Plan’s “PC4” or
Category 4 liabilities were $761, 904, 660. Id.
¶ 44. The Corporation started making benefits payments
under the Plan, but “[t]hose benefits were
significantly less than the vested pension benefits the
[plaintiffs] had been entitled to receive under the Plan and
[the] ERISA.” Id. ¶ 46. In making its
benefits determinations, the Corporation was allegedly
strong incentives to minimize and delay payments to
participants from the trust fund, and to allocate assets away
from retirement eligible participants towards younger
participants, all in an effort to manipulate the asset
allocation scheme in order to maximize investment returns on
the trust fund and further its own financial wellbeing.
Id. ¶ 23.
Corporation “maintained that Plan participants were
unable to challenge [its] benefit determinations until the
[Corporation] issued its final benefit determinations.”
Id. Between 2010 and 2012,
the [Corporation] began mailing final benefit determination
letters to Plan participants, informing them of the
[Corporation’s] final determinations (as insurer and
trustee) of any guarantee funds they were entitled to under
ERISA § 4022, any asset allocation payments they were
entitled to under ERISA § ...