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Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 21, 2003 Decided July 11, 2003

No. 02-5144

ALLIED PILOTS ASSOCIATION, ET AL.,

APPELLANTS

v.

PENSION BENEFIT GUARANTY CORPORATION, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 00cv03113)

Kathy L. Krieger argued the cause for appellants. With

her on the briefs was Edgar N. James. Clay Warner and

Michael E. Abram entered appearances.

Jeffrey B. Cohen, Deputy General Counsel, Pension Benefit

Guaranty Corporation, argued the cause for appellee. With

him on the brief were James J. Keightley, General Counsel,

and John A. Menke and Paula J. Connelly, Senior Counsel.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

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David P. Gersch argued the cause for appellees Pichin

Corporation and Icahn Associates Corporation. With him on

the brief was John D. Daley.

Before: GINSBURG, Chief Judge, and EDWARDS and TATEL,

Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: This case arises out of a settlement

agreement concerning Trans World Airlines’ employee pension plans. Agreed to over a decade ago by TWA, TWA’s

employees, the financier Carl Icahn, and the Pension Benefit

Guaranty Corporation (PBGC), the agreement required the

PBGC to terminate the plans if certain defined ‘‘Significant

Events’’ were to occur. Eight years later, when one of the

‘‘Significant Events’’ occurred, the PBGC terminated the

plans, and now a group of pilots sue the PBGC, claiming that

termination, even if mandated by the settlement agreement,

violates federal law. Because we conclude that federal law

authorizes the PBGC to enter into settlement agreements like

the one challenged in this case, we agree with the district

court that the PBGC’s termination of TWA’s pension plans

was permissible.

I.

Title IV of the Employee Retirement Income Security Act,

29 U.S.C. § 1301 et seq., created the Pension Benefit Guaranty Corporation—‘‘a wholly owned United States Government

corporation, modeled after the Federal Deposit Insurance

Corporation,’’ PBGC v. LTV Corp., 496 U.S. 633, 636–37

(1990) (internal citation omitted), to enforce and administer ‘‘a

mandatory Government insurance program TTT protect[ing]

the pension benefits of over 30 million private-sector American workers who participate in plans covered by the Title,’’

id. at 637. This case concerns the PBGC’s authority to

terminate pension plans involuntarily, meaning that the

PBGC assumes trusteeship and uses the plan’s remaining

assets, supplemented by the PBGC’s own funds, to pay

employees a percentage of benefits owed, as determined by

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ERISA and regulations promulgated thereunder. Id. at 637–

38.

The PBGC ‘‘may institute proceedings TTT to terminate a

plan whenever it determines that’’ one of four criteria, which

measure the plan’s inability to meet future liabilities, is

satisfied. 29 U.S.C. § 1342(a). Specifically, it may terminate

a plan if

(1) the plan has not met the minimum funding

standard required [by certain provisions of the tax

code],

(2) the plan will be unable to pay benefits when

due,

(3) the reportable event described in section

1343(c)(7) of this title has occurred, or

(4) the possible long-run loss of the corporation

with respect to the plan may reasonably be expected

to increase unreasonably if the plan is not terminated.

Id. The PBGC initiates the termination process by ‘‘issuing a

notice TTT to a plan administrator [of the PBGC’s] determin[ation] that the plan should be terminated.’’ Id.

§ 1342(c). If the plan administrator challenges the PBGC’s

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. If the terminated plan lacks sufficient funds to

satisfy existing obligations to employees, thus requiring the

PBGC to use its own funds to pay benefits, the PBGC has

authority to recover ‘‘the total amount of the unfunded benefit

liabilities,’’ id. § 1362(a), (b), from the plan’s sponsor and

members of the sponsor’s ‘‘controlled group,’’ i.e., entities that

belong to the same corporate family as the sponsor, id.

§ 1301(a)(14)(A), (B) (incorporating by reference Internal

Revenue Service regulations defining ‘‘common control’’).

ERISA authorizes the PBGC ‘‘to make arrangements with

[plan] sponsors and members of their controlled groups who

are or may become liable under [ERISA] for payment of their

liability.’’ Id. § 1367 (emphasis added).

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In January 1992, Trans World Airlines filed for Chapter 11

bankruptcy in the United States District Court for the District of Delaware. Responding to a proposed reorganization

plan that would have severed financier Carl Icahn’s ‘‘controlled group’’ affiliation with TWA, the PBGC announced its

intention to terminate TWA’s pension plans before the proposed reorganization plan could be confirmed and to pursue

TWA and Icahn for $1.124 billion in alleged underfunding. In

order to forestall or prevent termination, TWA, TWA’s unions, Icahn, and the PBGC entered into a Comprehensive

Settlement Agreement (CSA). As ably summarized by the

district court, the CSA contained the following relevant provisions:

(1) Carl Icahn would loan TWA $200 million; (2) An

Icahn entity (Pichin [Corporation], a named defendant in this suit) would sponsor the pension plans

instead of TWA. Thus, Icahn became responsible

for making the minimum funding contributions and

TWA was released from all liability for the plans;

(3) TWA was to issue $300 million in notes to make

part of the annual pension plan contributions in

compliance with ERISA and provisions of the Internal Revenue Code; (4) PBGC would not terminate

the plans and would release TWA and Icahn from all

future termination liability, except for what was

agreed to in the CSA; (5) PBGC would, at Icahn’s

request, terminate the plans if a ‘‘Significant

Event,’’ as defined in the CSA, occurred and; (6)

that in the event of a Significant Event requiring

termination, Icahn’s liability to PBGC would be limited to $240 million.

Air Line Pilots Ass’n v. PBGC, 193 F. Supp. 2d 209, 213

(D.D.C. 2002) (emphasis in original). In 1992, the bankruptcy

court approved a reorganization plan incorporating the CSA.

In re Trans World Airlines, Inc., No. 92–115 (Bankr. D. Del.

Dec. 30, 1992) (Order Authorizing and Approving Settlement

and Compromise Among the Debtor, Pension Benefit Guaranty Corporation, the Icahn Entities, the Official Unsecured

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Creditors’ Committee, and the Debtor’s Unions) (‘‘Bankruptcy Order’’).

Eight years later, Pichin gave notice to the CSA signatories

that a defined ‘‘Significant Event’’ had occurred—namely, an

unfavorable Internal Revenue Service ruling concerning

Icahn’s tax liabilities for serving as plan sponsor. In January

2001, TWA, Pichin, and the PBGC signed an agreement that

terminated the plans.

Two TWA pilots and the Air Line Pilots Association (‘‘pilots’’) filed suit in the United States District Court for the

District of Columbia against the PBGC and Pichin. Disputing neither that a ‘‘Significant Event’’ had occurred, nor that

the CSA, which the pilots’ union had signed, mandated termination of TWA’s plans, the pilots contended that the PBGC

had exceeded its statutory authority by terminating a plan

based on the terms of a non-statutory, private law agreement

such as the CSA, rather than based on ERISA’s criteria for

involuntary terminations. On cross motions for summary

judgment, the district court ruled for the PBGC and Pichin.

Although the court accepted the pilots’ premise that the

PBGC may not terminate plans based on factors other than

the ERISA criteria, it found that the PBGC’s action was

neither arbitrary nor capricious because it had made an

ERISA-based determination in 1992 and that the decision to

terminate in 2001 rested on the 1992 determination. Air

Line Pilots Ass’n, 193 F. Supp. 2d at 216–21.

The pilots appeal, with the Allied Pilots Association—which

assumed collective bargaining responsibilities for TWA’s pilots after TWA’s acquisition by American Airlines, Inc.—

substituted for the Air Line Pilots Association. We review

the district court’s grant of summary judgment de novo.

Troy Corp. v. Browner, 120 F.3d 277, 281 (D.C. Cir. 1997).

II.

On appeal, the pilots argue (1) that the PBGC failed to

make an administrative determination in 1992 that the TWA

pension plans satisfied ERISA’s involuntary termination criteria and (2) that even if the PBGC made a proper determinaUSCA Case #02-5144 Document #759633 Filed: 07/11/2003 Page 5 of 9
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tion in 1992, it acted arbitrarily and capriciously by failing to

make a second such determination in 2001 before formally

terminating the plans. The PBGC replies (1) that it in fact

made the requisite determination in 1992 and (2) that ERISA

authorizes it to enter into agreements, like the CSA, which

postpone—possibly indefinitely—execution of the 1992 termination decision.

We begin with the parties’ disagreement over whether the

PBGC actually determined in 1992 that the TWA plans met

ERISA’s involuntary termination criteria. The bankruptcy

court’s order approving TWA’s reorganization plan makes

clear that the PBGC made just such a determination: ‘‘PBGC

has indicated that, absent the [CSA], PBGC would seek

termination of [TWA’s pension plans] in advance of severance

of the controlled group affiliation between TWA and the

Icahn Entities and TWA’s emergence from bankruptcy.’’

Bankruptcy Order at 5. Because the pilots were party to the

1992 litigation and never contested this finding, it is res

judicata here. See, e.g., Nevada v. United States, 463 U.S.

110, 129–30 (1983) (‘‘[T]he doctrine of res judicata provides

that when a final judgment has been entered on the merits of

a case, ‘[i]t is a finality as to the claim or demand in

controversy, concluding parties and those in privity with

them, not only as to every matter which was offered and

received to sustain or defeat the claim or demand, but as to

any other admissible matter which might have been offered

for that purpose.’ ’’ (internal citation omitted)).

The pilots argue that the PBGC’s notification of intent to

terminate the plans should not be considered a formal administrative determination, but rather a mere ‘‘bargaining position.’’ Appellants’ Br. at 40 (internal quotation marks omitted). We disagree. ERISA, which authorizes the PBGC to

terminate a plan ‘‘whenever it determines that’’ one of four

criteria is met, 29 U.S.C. § 1342(a), imposes no procedural

strictures on the PBGC other than requiring it to ‘‘issu[e] a

notice TTT to a plan administrator [that the PBGC] has

determined that the plan should be terminated’’ before seeking either district court enforcement or voluntary settlement,

id. § 1342(c). So when the PBGC notified TWA that, absent

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ratification of the CSA, it intended to terminate the plans, it

made exactly the determination that ERISA requires. True,

the PBGC chose not to seek district court enforcement after

the parties ratified the CSA, but that in no way changes the

fact that the PBGC actually determined in 1992 that ERISA

authorized involuntary termination.

The pilots next argue that the district court erred because

it acted on a record that included only agency affidavits and

the bankruptcy court’s recitation, not the PBGC’s administrative record. Although we did vacate a district court judgment for want of a formal administrative record in American

Bioscience, Inc. v. Thompson, 243 F.3d 579 (D.C. Cir. 2001),

and the Supreme Court did the same in Citizens to Preserve

Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971), those cases

decided an issue distinguishable from the one we face here.

Both cases hold that district courts must review ‘‘the full

administrative record[s] that w[ere] before the [agencies] at

the time [they] made [their] decision[s]’’—rather than ‘‘litigation affidavits’’ offering ‘‘ ‘post hoc’ rationalizations’’—prior to

determining whether agency decisions complied with applicable statutes. Id. at 420. Here, in contrast, we need not

consider whether the PBGC’s 1992 determination complied

with ERISA—in fact, the pilots’ briefs nowhere deny that the

PBGC would have been justified in involuntarily terminating

the plans in 1992—but only whether the PBGC actually made

such a determination. The bankruptcy court’s recitation

answers that question.

Turning to the pilots’ claim that the PBGC acted arbitrarily

and capriciously by failing to make a second involuntary

termination determination in 2001, we begin by observing

that the CSA provides that TWA’s pension plans ‘‘shall TTT

be terminated under [29 U.S.C. § 1342] TTT after the occurrence of a Significant Event as defined herein.’’ Given the

well-recognized principle that ‘‘[t]he word ‘shall’ is ordinarily

[t]he language of command,’’ Anderson v. Yungkau, 329 U.S.

482, 485 (1947) (internal quotation marks and citations omitted), this provision leaves no doubt that, under the terms of

the CSA, the PBGC was obligated to terminate the plans

when the Significant Event occurred—regardless of whether

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the criteria for involuntary termination were satisfied at that

time.

We have no doubt, moreover, that in view of the Supreme

Court’s admonition that ‘‘[i]n enacting Title IV, Congress

sought to ensure that employees and their beneficiaries would

not be completely deprived of anticipated retirement benefits

by the termination of pension plans before sufficient funds

have been accumulated in the plans,’’ LTV Corp., 496 U.S. at

637 (internal quotation marks omitted), the PBGC has statutory authority to postpone termination until occurrence of a

defined event where, as here, the PBGC agrees to do so as

one element of a liability settlement aimed at preventing

termination altogether. The PBGC’s general authority to

enter into liability settlements comes from ERISA section

4067, which empowers the PBGC ‘‘to make arrangements

with [plan] sponsors and members of their controlled groups

who are or may become liable under [the statute] for payment

of their liability.’’ 29 U.S.C. § 1367 (emphasis added). As

the bankruptcy court found, the PBGC entered into the CSA

pursuant to its section 4067 authority. Bankruptcy Order at

5. Under the CSA, Icahn agreed to accept the ongoing role

of plan sponsor and to contribute funds to shore up the plans;

in return, the PBGC agreed to postpone—perhaps indefinitely—its termination of TWA’s plans, to cap Icahn’s direct

liability in the event of termination at $240 million, and to

terminate the plans, upon request, if Icahn received unfavorable tax treatment concerning his status as plan sponsor.

Each of these promises and counter-promises formed an

integral part of the overall negotiated settlement, whose

purpose was to prevent termination altogether. Though the

CSA failed to achieve that goal, it did postpone termination

for eight years, during which time the maximum amount that

the PBGC pays beneficiaries of terminated pension plans

increased 44%, from $28,227 to $40,705 per year. See Benefits Payable in Terminated Single–Employer Plans, 29 C.F.R.

§ 4022.22(b) & pt. 4022, app. D (increase from 1992 to 2001).

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The judgment of the district court is affirmed.

So ordered.

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