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Lewis v. Pension Benefit Guaranty Corp.

United States District Court, District of Columbia

July 6, 2016

K. WENDELL LEWIS, et al., Plaintiffs,
v.
PENSION BENEFIT GUARANTY CORPORATION, Defendant.

          MEMORANDUM OPINION

          REGGIE B. WALTON United States District Judge

         The 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.[1] 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.[2]

         I. BACKGROUND

         A. The Corporation’s Duties Under the ERISA

         The 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 explained:

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).

         B. Factual Background

         This 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[3] 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).

         The 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.

         Over 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 because

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.

Id.

         As 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 motivated by

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.

         The 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 § ...

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