Court Opinion

ID: 2998456
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:44:00.567795+00
Date Added: 2024-06-11T15:03:00.147024
License: Public Domain

In the
 United States Court of Appeals
                For the Seventh Circuit
                            ____________

No. 05-3200
IN RE:
  UAL CORPORATION, et al.,
                                                                    Debtors.

APPEAL OF:
  ASSOCIATION OF FLIGHT ATTENDANTS—
  CWA, AFL-CIO.
                     ____________
              Appeal from the United States District Court
         for the Northern District of Illinois, Eastern Division.
            No. 05 C 3172—Samuel Der-Yeghiayan, Judge.
                           ____________
   ARGUED SEPTEMBER 13, 2005—DECIDED NOVEMBER 1, 2005
                           ____________

  Before BAUER, MANION, and WILLIAMS, Circuit Judges.
   MANION, Circuit Judge. While in Chapter 11 bankruptcy,
United Air Lines entered a settlement agreement with
the Pension Benefit Guaranty Corporation concerning
United’s pension liabilities. Among its many provisions, the
agreement called for PBGC to consider whether it, as the
governmental insurer of failed pension plans, should
terminate and then take over the pension plan of United’s
flight attendants, known as the Flight Attendant Plan. The
affected union, the Association of Flight Attendants,
objected to the agreement, but the bankruptcy court ap-
2                                               No. 05-3200

proved it. The district court affirmed. AFA now appeals the
approval to this court, and we affirm.

                             I.
   United Air Lines (“United”)—along with its parent, UAL
Corporation, and numerous affiliates—entered Chapter 11
bankruptcy in the Northern District of Illinois in 2002. A
major impediment to United exiting bankruptcy is its
pension liability, which totals about $4.5 billion for the
next four years and of which some $624 million pertains
to the Flight Attendant Plan (also “the plan”). United
established the plan pursuant to a collective bargaining
agreement (“CBA”) with the Association of Flight Atten-
dants (“AFA”). For many months, United and AFA negoti-
ated in an attempt to amicably reduce United’s pension
liability while still preserving the plan. These efforts
ultimately proved unsuccessful, and, on April 11, 2005,
United filed a motion to reject the CBA under 11 U.S.C.
§ 1113(c) and to terminate the plan under 29 U.S.C.
§ 1341(c).
  Section 1341 is part of Title IV of the Employee Retirement
Income Security Act. Title IV provides the exclusive means
for terminating single-employer pension plans, such as the
plan here. See 29 U.S.C. § 1341(a)(1). Section 1341 enables a
plan sponsor/employer to terminate its plan in two differ-
ent situations. In a standard termination under § 1341(b), a
plan is terminated with sufficient assets to cover all future
benefit payments. By contrast, in a “distress termination”
under § 1341(c), a plan is terminated without sufficient
assets. Importantly, a § 1341 termination cannot override a
collective bargaining agreement, see 29 U.S.C. § 1341(a)(3).
Because of this restriction, United was obligated first to
No. 05-3200                                                        3

reject the CBA with AFA under § 1113(c) of the Bankruptcy
Code.
  When a plan is without sufficient assets and is terminated
under Title IV, the Pension Benefit Guaranty Corporation
(“PBGC”) typically takes over as trustee and pays plan
participants their existing pension benefits (up to statutory
limits). See 29 U.S.C. §§ 1322 & 1361; PBGC v. LTV Corp., 496
U.S. 633, 637-38 (1990). Once termination occurs, however,
participants cannot earn additional benefits under their
plan. See LTV, 496 U.S. at 638. Paying pension benefits on
behalf of failed plans is part of PBGC’s mandate from
Congress. See 29 U.S.C. § 1302(a). Currently, PBGC self-
finances this mission through four sources of income:
insurance premiums paid by current sponsors of active
plans, assets from terminated plans taken over by PBGC,
recoveries from former sponsors of terminated plans, and
PBGC’s own investments. Nevertheless, as PBGC is the
governmental backstop for failed pension plans, a taxpayer
bailout would be another source of funding if PBGC were
otherwise unable to fulfill its mission. In fact, PBGC
is already confronting a $23 billion deficit1 and is cur-
rently paying pension benefits to one million individuals
while also insuring the pensions of some forty-four million
other individuals; thus, the specter of a future bailout
looms.2

1
  As a comparison, the Supreme Court noted back in 1990 that
PBGC was facing a deficit of less than $2 billion. See LTV, 496 U.S.
at 638.
2
  According to PBGC’s most recent annual report (2004), PBGC
currently “does not have sufficient resources to meet all of its
long-term obligations,” and PBGC is working on reforms so as to
“continue to fulfill its vital mission of protecting pension benefits
                                                     (continued...)
4                                               No. 05-3200

  Accordingly, to help PBGC responsibly manage its fu-
ture obligations for the good of the pension plan system as a
whole, Congress gave PBGC an alternative to waiting for a
plan to be terminated under § 1341(c). Through 29 U.S.C.
§ 1342, Congress authorized PBGC to terminate a failing
plan so that PBGC could nip a plan’s increasing losses and
thereby reduce PBGC’s exposure to mounting liabilities. See
29 U.S.C. § 1342(a)(4). Unlike § 1341 terminations initiated
by the employer, PBGC can terminate a plan under § 1342
regardless of any provision in a union’s collective bargain-
ing agreement. See LTV, 496 U.S. at 639. Further, consistent
with the national outlook of its mission, PBGC need not
consult with a union before a § 1342 termination. See Jones
& Laughlin Hourly Pension Plan v. LTV Corp., 824 F.2d 197,
199-202 (2d Cir. 1987).
  Given the concerns and responsibilities facing PBGC
plus United’s deteriorating financial situation, PBGC closely
monitored the health of United’s pension plans during the
bankruptcy. While United’s §§ 1113(c)/1341(c) motion was
pending (the bankruptcy court had set a trial on the motion
for May 11), PBGC and United reached a settlement agree-
ment on April 22, resolving several complex liability and
collection disputes concerning United’s future obligations
to PBGC for United’s failed and failing pension plans. For
instance, the agreement gives PBGC a single unsecured
claim for United’s unfunded pension liabilities against
United’s bankruptcy estate, as opposed to a myriad of joint-
and-several claims against numerous United affiliates.
Additionally, to help fund PBGC’s mission, the agreement
also provides for PBGC to receive $1.5 billion in securities
in United’s reorganization plan. PBGC could have possibly

(...continued)
while avoiding a taxpayer bailout.”
No. 05-3200                                                    5

recovered a greater amount if it elected to fully (and
expensively) litigate each of its claims against United and its
affiliates. PBGC formed this agreement pursuant to 29
U.S.C. § 1367, which enables PBGC to seize opportunities to
avoid inefficient litigation and to increase the certainty of its
recoveries. Specifically, Congress empowered PBGC in
§ 1367 to enter “arrangements” with entities, like United,
“who are or may become liable” to PBGC through a
§ 1341(c) or § 1342 termination. See 29 U.S.C. §§ 1362(a) &
1367; Allied Pilots Ass’n v. PBGC, 334 F.3d 93, 98 (D.C. Cir.
2004).
  Important to this appeal, the settlement agreement also
called for PBGC to begin its administrative process of
evaluating whether it could or should terminate the
Flight Attendant Plan under § 1342. To be clear, the agree-
ment did not require PBGC to terminate the plan. PBGC
was to consider “if” a § 1342 termination was appropriate.
The termination was not preordained.
  On April 26, United submitted the agreement to the
bankruptcy court for review under 11 U.S.C. § 363. On
May 10, the bankruptcy court held a hearing on the agree-
ment, giving AFA and others the opportunity to object. AFA
contended that United violated its collective bargaining
responsibilities by entering the agreement and therefore
asked the bankruptcy court to reject the agreement. The
bankruptcy court disagreed and, at the conclusion of the
hearing, approved the agreement. United then withdrew its
§§ 1113(c)/1341(c) motion to await PBGC’s decision on the
possibility of a § 1342 termination.
  Thereafter, AFA took two separate steps to challenge the
agreement. On May 18, AFA appealed the bankruptcy
court’s approval to the United States District Court for the
Northern District of Illinois. See 28 U.S.C. § 158(a). Also, on
May 20, AFA sued PBGC under 29 U.S.C. § 1303(f) in the
6                                                  No. 05-3200

United States District Court for the District of Columbia,
attempting to enjoin the PBGC evaluation process called for
in the agreement. Section 1303(f) affords entities adversely
affected by PBGC action a cause of action to seek “appro-
priate equitable relief” against PBGC. The United States
District Court for the District of Columbia denied AFA a
preliminary injunction on June 8, and proceedings in that
case are continuing.
  On June 23, after reviewing an extensive administrative
record on the Flight Attendant Plan, PBGC completed its
evaluation process under § 1342(a),3 finding that a termina-
tion of the plan was in the best interest of the pension plan
system as a whole. PBGC took over the plan as the trustee,
and the termination became effective on June 30. The
termination prompted AFA to amend its § 1303(f) complaint
to ask the United States District Court for the District of
Columbia to order PBGC to restore the plan under 29 U.S.C.
§ 1347 or, at a minimum, to enjoin PBGC from proceeding
with the termination.
  In this case, on July 21, the United States District Court for
the Northern District of Illinois affirmed the bankruptcy

3
   Section 1342(a) provides, in pertinent part: “[PBGC] may
institute proceedings under [§ 1342] to terminate a plan whenever
it determines that—(1) the plan has not met the minimum
funding standard required under [26 U.S.C. § 412], or has been
notified by the Secretary of the Treasury that a notice of defi-
ciency under [26 U.S.C. § 6212] has been mailed with respect to
the tax imposed under [26 U.S.C. § 4971(a)], (2) the plan will be
unable to pay benefits when due, (3) the reportable event
described in [29 U.S.C. § 1343(c)(7)] 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.”
No. 05-3200                                                       7

court’s approval of the settlement agreement. On July 25,
AFA appealed to this court, and we granted AFA’s request
for an expedited appeal.

                                II.
  Before discussing the parties’ appellate arguments,
we briefly clarify our jurisdiction. It is well settled that,
under Article III, “federal courts may not give opinions
upon moot questions or abstract propositions.” Worldwide
St. Preachers’ Fellowship v. Peterson, 388 F.3d 555, 558 (7th Cir.
2004) (internal quotations omitted). Here, despite the
pendency of the § 1303(f) action before the United States
District Court for the District of Columbia and the fact that
PBGC has already terminated the plan, we do have a
justiciable controversy. The § 1303(f) action is a dispute
between AFA and PBGC about the § 1342 termination. Our
case involves a dispute between AFA and United about
the settlement agreement. While the disputes are related, the
parties and issues make the cases distinct. In short,
the resolution of the § 1303 action will not resolve or moot
AFA’s objective in this appeal: overturning the entire
settlement agreement.4 Satisfied that we have a live case
to adjudicate, we turn to the merits.
  In seeking to reverse the bankruptcy court’s order approv-
ing the United-PBGC settlement agreement, AFA raises
three main arguments. Our review of the legal

4
   Which is a possible result since, as we learned at oral argument,
the parties’ duties under the settlement agreement have yet to be
fully performed and since the agreement contains a non-
severability clause stating: “Should any provision of this Agree-
ment be held unenforceable or contrary to law, the en-
tire Agreement shall be deemed null and void.”
8                                                 No. 05-3200

issues presented is de novo, and we assess the bankruptcy
court’s decision anew. See In re Midway Airlines, Inc., 383
F.3d 663, 668 (7th Cir. 2004); In re Kmart Corp., 381 F.3d 709,
712 (7th Cir. 2004).
  AFA first argues that the bankruptcy court erred in
approving the settlement agreement because a party to
the settled litigation was not party to the settlement agree-
ment. See Fogel v. Zell, 221 F.3d 955, 964 (7th Cir. 2000).
According to AFA, its exclusion from the United-PBGC
agreement should have caused the bankruptcy court to
reject the agreement. AFA, however, misapprehends the
nature of what the agreement settled. The agreement, as
summarized above, settled matters between United and
PBGC. The agreement did not settle, as AFA would have it,
United’s §§ 1113(c)/1341(c) motion against AFA. United
withdrew that motion. Consequently, whether United can
reject its CBA with AFA under § 1113(c) and thereby
terminate the Flight Attendant Plan under § 1341(c) is an
unresolved question, not a settled one. The agreement,
moreover, did not terminate the plan. It simply provided for
PBGC to initiate a review to determine whether PBGC
should terminate the plan under § 1342—an administrative
process that is wholly separate from § 1341(c) and unre-
strained by the terms of collective bargaining agreements.
See LTV, 496 U.S. at 639. Accordingly, the bankruptcy
court’s approval of the agreement did not impermissibly
settle litigation to which AFA was a party.
  Next, AFA contends that the bankruptcy court should not
have approved the agreement because United, by entering
the agreement, trampled over the collective bargaining
framework established by §§ 1113/1341 and, more gener-
ally, the Railway Labor Act, which governs relations
between United and AFA. However, Title IV provides an
No. 05-3200                                                 9

alternative to that framework. Again, under § 1342, PBGC
can terminate a plan irrespective of a particular collective
bargaining agreement, see id., and further, through § 1367,
Congress has authorized settlement arrangements between
PBGC and those who may become liable to PBGC as the
result of a termination, see Allied Pilots, 334 F.3d at 98.
Despite AFA’s protestations, the path taken by United and
PBGC was entirely appropriate. Congress has not prohib-
ited sponsors from pursuing a § 1341(c) termination while
simultaneously petitioning PBGC for a § 1342 termination,
cf. LTV, 496 U.S. at 640 (employer sought to have PBGC
terminate plans under § 1342), or, as here, pursuing § 1367
negotiations with PBGC that lead to PBGC considering if it
should terminate a plan under § 1342. As such, AFA’s true
complaint here is not with United, PBGC, or the courts but
with Congress and §§ 1342 and 1367.
  Moreover, the permissibility of the agreement under Title
IV puts to rest the collective bargaining arguments raised by
AFA. Contrary to AFA’s contentions, United, through its
actions detailed above, did not unilaterally modify the CBA,
nullify judicial review, nor violate its duties to bargain in
good faith with the exclusive representative of its flight
attendants over terms and conditions of their employment.
United did not, as AFA suggests, bargain with PBGC as if
PBGC was a labor representative of United’s flight atten-
dants, and United did not establish an agreement to rival
the CBA. Furthermore, while it is certainly true that a § 1341
process must adhere to the terms of a governing collective
bargaining agreement, United did not impose a § 1341 result
upon AFA here. Once again, United did not terminate the
plan. The settlement agreement only called for PBGC to
evaluate whether a § 1342 termination was appropriate and,
at the time of the agreement, PBGC’s termination of the plan
was not a sure thing. Simply stated, there was no pretext.
10                                                  No. 05-3200

All indications are that, had PBGC ultimately decided not
to terminate the plan, United would have then refiled its
motion and restarted the §§ 1113(c)/1341(c) process. By
declining to pursue its §§ 1113(c)/1341(c) options once its §
1367 negotiations with PBGC raised the possibility of a
§ 1342 termination, United did not violate any duty owed to
AFA.
  Finally, AFA contests a provision of the settlement
agreement that sets a five-year moratorium on United
establishing new plans from the date that it exits bank-
ruptcy (a date still to be determined). This last point re-
quires some additional background. When PBGC takes a
failed plan off an employer’s hands, PBGC generally does
not want the employer and a union to turn around and
immediately create a new, “follow-on” plan.5 PBGC there-
fore works to prevent the premature creation of new plans
in order to protect itself and its mission. See LTV, 496 U.S. at
651 (PBGC’s anti-follow-on policy helps avoid increased
PBGC liabilities). That is why PBGC included
the moratorium in its § 1367 agreement with United.
While the end date for the moratorium is still to be deter-
mined, it will, under the current terms of the agreement,
be no sooner than the fall of 2010. The CBA, on the other
hand, currently becomes amendable on January 7, 2010. As

5
  “[The PBGC] defines a follow-on plan as a new benefit arrange-
ment designed to wrap around the insurance benefits provided
by the PBGC in such a way as to provide both retirees and active
participants substantially the same benefits as they would have
received had no termination occurred. The PBGC’s policy against
follow-on plans stems from the agency’s belief that such plans are
‘abusive’ of the insurance program and result in the PBGC’s
subsidizing an employer’s ongoing pension program in a way not
contemplated by Title IV.” LTV, 496 U.S. at 642.
No. 05-3200                                                 11

of that amendable date, United and AFA could, theoreti-
cally, start a new pension plan under a renegotiated CBA.
AFA complains that United, by assenting to the morato-
rium, has impermissibly modified the CBA. Not so. The
CBA does not call for a new plan to be established within
what is now the moratorium period. It is all a matter for
future negotiations. At this juncture, AFA’s complaint is
entirely speculative.

                             III.
   Having reviewed AFA’s arguments, we see no reason
to disturb the bankruptcy court’s approval of the United-
PBGC settlement agreement. Pursuing § 1367 negotia-
tions and thereby having PBGC consider terminating a plan
under § 1342 is a permissible alternative to the
§§ 1113(c)/1341(c) termination process. United simply
followed this available alternative, and AFA’s complaints
about United’s actions do not merit reversal. It should
also be noted that AFA will have its day in court. By
enacting § 1303(f), Congress has provided an avenue
for challenging PBGC action, and AFA has taken full
advantage of that § 1303(f) opportunity through its law-
suit against PBGC. As indicated above, proceedings in
that case, before the United States District Court for the Dis-
trict of Columbia, are continuing. The judgment is
AFFIRMED.
12                                           No. 05-3200

A true Copy:
       Teste:

                      _____________________________
                       Clerk of the United States Court of
                         Appeals for the Seventh Circuit

                USCA-02-C-0072—11-1-05