Source: https://caselaw.findlaw.com/us-supreme-court/551/96.html
Timestamp: 2019-05-19 20:16:49
Document Index: 675387055

Matched Legal Cases: ['§1344', '§1341', '§4001', '§1341', '§1341', '§1341', '§1341', '§1341', '§1341', '§1341', '§1341', '§1341', '§1344', '§1103', '§1341']

BECK, LIQUIDATING TRUSTEE OF ESTATES OF CROWN VANTAGE, INC., ET AL. v. PACE INTERNATIONAL UNION ET AL. | FindLaw
BECK, LIQUIDATING TRUSTEE OF ESTATES OF CROWN VANTAGE, INC., ET AL. v. PACE INTERNATIONAL UNION ET AL.
BECK, LIQUIDATING TRUSTEE OF ESTATES OF CROWN VANTAGE, INC., ET AL. v. PACE INTERNATIONAL UNION ET AL.(2007)
Argued: April 24, 2007 Decided: June 11, 2007
Crown took PACE's merger offer under advisement. As it reviewed annuitization bids, however, it discovered that it had overfunded certain of its pension plans, so that purchasing annuities would allow it to retain a projected $5 million reversion for its creditors after satisfying its obligations to plan participants and beneficiaries. See §1344(d)(1) (providing for reversion upon plan termination where certain conditions are met). Under PACE's merger proposal, by contrast, the $5 million would go to PIUMPF. What is more, the Pension Benefit Guaranty Corporation (PBGC), which administers an insurance program to protect plan benefits, agreed to withdraw the proofs of claim it had filed against Crown in the bankruptcy proceedings if Crown went ahead with an annuity purchase. Crown had evidently heard enough. It consolidated 12 of its pension plans1 into a single plan, and terminated that plan through the purchase of an $84 million annuity. That annuity fully satisfied Crown's obligations to plan participants and beneficiaries and allowed Crown to reap the $5 million reversion in surplus funds.
PACE and two plan participants, also respondents here (we will refer to all respondents collectively as PACE), thereafter filed an adversary action against Crown in the Bankruptcy Court, alleging that Crown's directors had breached their fiduciary duties under ERISA by neglecting to give diligent consideration to PACE's merger proposal. The Bankruptcy Court sided with PACE. It found that the decision whether to purchase annuities or merge with PIUMPF was a fiduciary decision, and that Crown had breached its fiduciary obligations by giving insufficient study to the PIUMPF proposal. Rather than ordering Crown to cancel its annuity (which would have resulted in a substantial penalty payable to Crown's annuity provider), the Bankruptcy Court instead issued a preliminary injunction preventing Crown from obtaining the $5 million reversion. It subsequently approved a distribution of that reversion for the benefit of plan participants and beneficiaries, which distribution was stayed pending appeal.2
"In connection with any final distribution of assets pursuant to the standard termination of the plan under this subsection, the plan administrator shall distribute the assets in accordance with section 1344 of this title. In distributing such assets, the plan administrator shall--
The parties to this case all agree that §1341(b)(3)(A)(i) refers to the purchase of annuities, see 29 CFR §4001.2 (defining "irrevocable commitment"), and that §1341(b)(3)(A)(ii) allows for lump-sum distributions at present discounted value (including rollovers into individual retirement accounts). As PACE concedes, purchase of annuity contracts and lump-sum payments are "by far the most common distribution methods." Brief for Respondents 45; see also Veal & Mackiewicz 72-73 ("The basic alternatives are the purchase of annuity contracts or some form of lump-sum cashout"). To affirm the Ninth Circuit, we would have to decide that merger is a permissible method as well.3 And we would have to do that over the objection of the PBGC, which (joined by the Department of Labor) disagrees with the Ninth Circuit, taking the position that §1341(b)(3)(A) does not permit merger as a method of termination because (in its view) merger is an alternative to (rather than an example of) plan termination. See Brief for United States as Amicus Curiae 8, 17-30. We have traditionally deferred to the PBGC when interpreting ERISA, for "to attempt to answer these questions without the views of the agencies responsible for enforcing ERISA, would be to embar[k] upon a voyage without a compass." Mead Corp. v. Tilley, 490 U. S. 714, 722, 725-726 (1989) (internal quotation marks omitted); see also LTV Corp., 496 U. S., at 648, 651. In reviewing the judgment below, we thus must examine "whether the PBGC's policy is based upon a permissible construction of the statute." Id., at 648.4
We believe it is. PACE has "failed to persuade us that the PBGC's views are unreasonable," Mead Corp., supra, at 725. At the outset, it must be acknowledged that the statute, with its general residual clause in §1341(b)(3)(A)(ii), is potentially more embracing of alternative methods of plan termination (whatever they may be) than longstanding ERISA practice, which appears to have employed almost exclusively annuities and lump-sum payments. But we think that the statutory text need not be read to include mergers, and indeed that the PBGC offers the better reading in excluding them. Most obviously, Congress nowhere expressly provided for merger as a permissible means of termination. Merger is not mentioned in §1341(b)(3)(A), much less in any of §1341's many subsections. Indeed, merger is expressly provided for in an entirely separate set of statutory sections (of which more in a moment, see infra, at 11-13). PACE nevertheless maintains that merger is clearly covered under §1341(b)(3)(A)(ii)'s residual clause, which refers to a distribution of assets that "otherwise fully provide[s] all benefit liabilities under the plan." By PACE's reasoning, annuities are covered under §1341(b)(3)(A)(i); annuities are--by virtue of the word "otherwise"--an example of a means by which a plan may "fully provide all benefit liabilities under the plan," §1341(b)(3)(A)(ii); and therefore, "at the least," any method of termination that is the "legal equivalent" of annuitization is permitted, Brief for Respondents 23. Merger, PACE argues, is such a legal equivalent.
We do not find the statute so clear. Even assuming that PACE is right about "otherwise"--that the word indicates that annuities are one example of satisfying the residual clause in §1341(b)(3)(A)(ii)--we still do not find mergers covered with the clarity necessary to disregard the PBGC's considered views. Surely the phrase "otherwise fully provide all benefit liabilities under the plan" is not without some teeth. And we think it would be reasonable for the PBGC to determine both that merger is not like the purchase of annuities in its ability to "fully provide all benefit liabilities under the plan," and that the statute's distinct treatment of merger and termination provides clear evidence that one is not an example of the other. Three points strike us as especially persuasive in these regards.
Second, in a standard termination ERISA allows the employer to (under certain circumstances) recoup surplus funds, §1344(d)(1), (3), as Crown sought to do here. But ERISA forbids employers to obtain a reversion in the absence of a termination: "A valid plan termination is a prerequisite to a reversion of surplus plan assets to an employer." App. to Brief in Opposition 15a (PBGC Opinion Letter 85-25 (Oct. 11, 1985); see also Veal & Mackiewicz 164-165. Crown could not simply extract the $5 million surplus from its plans, nor could it have done so once those assets had transferred to PIUMPF. This would have run up against ERISA's anti-inurement provision, which prohibits employers from misappropriating plan assets for their own benefit. See §1103(c). Consequently, we think the PBGC was entirely reasonable in declining to recognize as a form of termination a mechanism that would preclude the receipt of surplus funds, which is specifically authorized upon termination.5
Crown's various other pension plans are not at issue in this case.
PACE now suggests that it would have been willing to agree to a merger in which Crown kept its surplus funds. Brief for Respondents 17, n. 7. But this is belied not only by the terms of the proposed merger agreement, but by the fact that PACE actively sought and obtained a preliminary injunction freezing Crown's $5 million reversion. The Bankruptcy Court having rejected PACE's request to undo the annuity contract, PACE has provided no reason for pursuing this litigation other than to obtain the $5 million that remained after Crown satisfied its benefit commitments. Moreover, as PACE concedes, whether the parties would have agreed to a merger arrangement that did not include the $5 million is "speculation." Tr. of Oral Arg. 42.
We would not have to decide that question of statutory interpretation if Crown's pension plans disallowed merger. Any method of termination permitted by §1341(b)(3)(A)(ii) must also be one that is "in accordance with the provisions of the plan." Crown thus could have drafted its plan documents to limit the available methods of termination, so that merger was not permitted. Petitioner argued below that Crown had done just that. Though the District Court concluded that the plan terms allowed for merger, App. to Pet. for Cert. 47, the Ninth Circuit declined to consider the plan language because it held that petitioner had failed to preserve the argument in the Bankruptcy Court. Petitioner did not seek certiorari on the factbound issues of waiver and plan interpretation, and we accordingly do not address them here.
PACE argues that the PBGC took an inconsistent approach in several opinion letters from the 1980's concerning the applicability of certain joint guidelines for asset reversions during complex termination transactions. See App. to Brief in Opposition 6a-9a (Opinion Letter 85-11 (May 14, 1985)); id., at 10a-13a (Opinion Letter 85-21 (Aug. 26, 1985)); id., at 14a-16a (Opinion Letter 85-25 (Oct. 11, 1985)). But insofar as the PBGC's consistency is even relevant to whether we should accord deference to its presently held views, none of those letters so much as hints that the PBGC treated merger as a permissible form of plan termination. In fact, to the extent they even speak to the question, they clearly show the opposite. In Opinion Letter 85-25, for example, the PBGC explained that the joint guidelines for asset reversions did not apply to "a transfer [of assets and liabilities] from a single-employer plan to an ongoing multiemployer plan followed by the termination of the single-employer plan." App. to Brief in Opposition 15a (emphasis added). By characterizing the proposed transaction as one that took place in two separate steps (merger and then termination), this letter fully contemplated that merger was not an example of plan termination.
This inability to recover surplus funds through a merger could not be remedied, as PACE now suggests, by structuring the transaction so that Crown provided to PIUMPF only assets sufficient to cover plan liabilities (effectively creating a spinoff from Crown's plans and merging that spinoff plan with PIUMPF). Under that arrangement, Crown could indeed obtain the $5 million reversion--not, however, by reason of the merger-called-termination, but only by subsequent termination of the residual plan. See, e.g., App. to Brief in Opposition 14a-16a (PBGC Opinion Letter 85-25 (Oct. 11, 1985)) (describing such a sequence of transactions). This falls short of rendering the merger a termination permitting recovery of surplus funds. That a transfer of assets can occur in anticipation of a future termination does not render that transfer itself a termination.